House Speaker John Boehner, a Republican from Ohio, speaks during a news conference in Washington, D.C. on April 7, 2011. Photographer: Andrew Harrer/Bloomberg
As tomorrow night’s deadline for
avoiding a government shutdown nears, about 800,000 “non-
essential” federal workers face the prospect of getting no pay
at all for time lost to the political impasse.
Elected officials, including Republican House Speaker John Boehner, Democratic Senate Majority Leader Harry Reid and
President Barack Obama, all would be paid as usual during a
shutdown, unless Congress changes the law. Soldiers, law
enforcement officers and other government employees whose jobs
are deemed essential would continue to work yet wouldn’t get
paychecks until the budget standoff is resolved.
Workers furloughed as non-essential, however, aren’t
guaranteed that they’ll be paid at all for time off when the
government closes for business. While they’ve ultimately
received back pay after previous shutdowns, it’s up to Congress
to “determine whether ‘non-excepted’ employees receive pay for
the furlough period,” according to a U.S. Office of Personnel
Management website providing guidance and information on
furloughs.
“It is unknown whether legislation will ultimately be
passed” to make up lost pay, says a sample letter to non-
essential employees prepared by the Committee on House
Administration. “We wish that we could provide you with more
guidance on this issue but, due to the fluid nature of the
situation, we cannot.”
A ‘Non-Starter’
The Republican-controlled U.S. House approved a stopgap
spending bill today to keep the government open through next
week. Obama said he’d veto the measure, which would cut an
additional $12 billion in spending this year and fund the
Pentagon at current levels through Sept. 30. Reid called the
bill a “nonstarter.”
Boehner and Reid returned to the White House this afternoon
for negotiations that didn’t produce an agreement. The
government’s current spending authority is set to expire at
midnight tomorrow.
“A shutdown could have real effects on everyday
Americans,” Obama said late last night at the White House after
a meeting where Boehner and Reid failed to reach an agreement.
“It means that hundreds of thousands of workers across the
country suddenly are without a paycheck. Their families are
counting on them being able to go to work and do a good job.”
Docking Pay
The Senate has passed a measure to dock the pay of
lawmakers for the duration of a shutdown. A House measure, part
of the largely symbolic Prevention of Government Shutdown Act
approved last week, would dock the pay of the president in
addition to members of Congress. Neither proposal has taken
effect.
Members of Congress “shouldn’t be getting paid, just like
federal employees shouldn’t be getting paid” during a shutdown,
Boehner said today on ABC’s “Good Morning America.”
Freshman Democratic Senator Joe Manchin, of West Virginia,
said in a statement on his website that he would forgo his
salary during a government shutdown and challenged colleagues to
do the same thing.
“The bottom line is this: I can’t imagine that the
president, vice president or any member of Congress --Republican
or Democrat -- thinks they should get paid when the government
has shut down,” Manchin said.
Democrats’ View
Democrats haven’t called for a government shutdown.
“The same people who are insisting on the riders are the
people saying, ‘We don’t care if the government shuts down,’”
said Senator Charles Schumer, a Democrat from New York,
referring to so-called policy riders that Republicans insist on
including in a spending bill. “You haven’t had, I don’t think,
a Democratic elected official saying a government shutdown is a
good thing.”
Some House Republicans, particularly those aligned with the
Tea Party, have said closing the government was preferable to an
agreement that didn’t meet their demands for cuts.
Among them, there are signs that view is softening, said
Alabama Republican Representative Mike Rogers.
“You can really see this week a lot of the freshman
evolving and growing” and “maturing,” he said yesterday.
“There’s three levers that make laws -- we just have one of the
three. That’s just the way it is. The Senate’s got one, the
president’s got one -- they’re starting to get it.”
He said the release of House Budget Committee Chairman Paul Ryan’s fiscal plan, calling for $6 trillion in cuts, “helps a
lot of the freshmen see the bigger picture.”
Still, the political drama hasn’t disrupted a prevailing
calm in financial markets.
Market Reaction
Bond yields in the U.S. are lower now than when the
government was running a budget surplus a decade ago even though
Treasury Department data show that the amount of marketable debt
outstanding has risen to $9.13 trillion from $4.34 trillion in
mid-2007.
The yield on the benchmark 10-year Treasury note was at
3.55 percent today, below the average of 7 percent since 1980
and compared with the average of 5.48 percent in the 1998
through 2001 period, according to Bloomberg Bond Trader prices.
Bond prices reflect expectations that lawmakers will
resolve differences over the budget and avoid a crisis of
confidence in U.S. assets, said John Lonski, chief economist at
Moody’s Capital Markets Group.
“I just don’t see where that is exerting much influence
over the pricing of financial assets,” Lonski said in a
telephone interview from his New York office. Investors foresee
that “when you come to the edge of the precipice, a more
rational approach should prevail,” he said.
U.S. Creditworthiness
Derivatives tied to U.S. government debt show investor
perceptions of America’s creditworthiness are improving.
Credit-default swaps on Treasuries stood 40.9 basis points
as of 10:53 a.m. in New York, according to data provider CMA.
The swaps are down from this year’s high of 51.5 basis points on
Jan. 27 and last year’s high of 59.7 in February. The price
levels are the seventh-lowest of 51 sovereign debt markets
tracked by Bloomberg and CMA.
Low borrowing costs mean the U.S. is spending less to
service its debt as a percentage of gross domestic product.
Interest expense was 2.7 percent of GDP in fiscal 2010 ended
Sept. 30, down from 3.8 percent in 2001, the last time the U.S.
had a budget surplus, according to data compiled by Bloomberg.
The budget shortfall is also failing to drive foreign
investors away from U.S. financial assets or the dollar.
The class of investors that includes foreign central banks
purchased 60 percent of the $66 billion in benchmark 10-year
U.S. notes sold this year, up from 42 percent in 2010, according
to the Treasury Department. Foreign investors owned $4.45
trillion of Treasuries as of January, up from $3.7 trillion a
year earlier, according to the latest government data.
Global Reserves
The dollar’s share of global currency reserves stood at
61.4 percent at the end of 2010, little changed from 61.5
percent in 2009, the International Monetary Fund in Washington
said March 31. The euro’s share dipped to 26.3 percent from 27.9
percent.
Consumer confidence in the U.S. rose for a second
consecutive week as an improving job market helped ease the
burden of higher fuel costs. The Bloomberg Consumer Comfort
Index climbed to minus 44.5 in the period ended April 3 from
minus 46.9 the previous week.
In Washington, the shutdown has specific costs. The cost of
back pay for furloughed government workers would be $174 million
for each day the government is closed, according to data
compiled by Bloomberg Government analyst Scott Anchin.
Wait for Paychecks
Unlike the president and legislators, military personnel
and essential federal employees who stay on the job would have
to wait until government spending authority is restored to get
salaries and wages.
“Agencies will incur obligations to pay for services
performed by excepted employees during a lapse in
appropriations,” according to the website.
There is no guarantee that Congress would make furloughed
workers whole. It is possible they will be eligible for
unemployment compensation, though it depends on state
requirements, the website says. “Some states require a 1-week
waiting period before an individual qualifies for payments,” it
says.
The Obama administration supports compensating furloughed
employees with back pay and is encouraging Congress to allow for
that, said Jeffrey Zients, deputy director of the Office of
Management and Budget.
To contact the reporter on this story:
Julianna Goldman in Washington at
jgoldman6@bloomberg.net
To contact the editor responsible for this story:
Mark Silva at
msilva34@bloomberg.net