Budget Proposal Would Reduce Contractor CEO Pay Subsidies

The budget proposal unveiled last night by Senate Budget Committee Chair Patty Murray (D-WA) and House Budget Committee Chair Paul Ryan (R-WI) would reduce the amount the federal government pays to contractors for their highest-paid employees by nearly half from $487,000, down from about $952,000.

For years, advocates have argued that the government was spending far too much compensating the executives in the privatized shadow government that has increasingly performed more and more government functions over the last decade with a highly checkered track record. Especially when contrasted with the stagnant wages of average Americans and the flat lining of federal employee compensation as well as federal cutbacks, it’s hard to justify the ever-increasing taxpayer subsidies of contractor CEOs. This subsidy could reach $1.6 million per contractor executive by 2020 if it isn’t brought under control, according to the Congressional Budget Office.

Income Inequality Irony

Currently the amount contractors can charge to the government for each employee’s compensation is $952,308. Contractors can ultimately pay their employees whatever they want, but currently cannot directly charge the government beyond the amount of the cap. This number, which is adjusted annually by the White House’s Office of Federal Procurement Policy and set by Congress in a law from the late 1990s, has been skyrocketing in recent years.

The current figure was officially increased last week from $763,029. The increase occurred on the same day President Obama spoke about income inequality.

The irony did not go unnoticed. Scott Amey at the Project On Government Oversight wrote that this increase is essentially is “a massive holiday bonus for contractors, all while agencies are being asked to do more with less.”

Several Proposals

The Ryan-Murray budget proposal mirrors the amount set by an earlier Senate version of the National Defense Authorization Act. “At a time when most Americans are seeing little or no increase in their paychecks and budget constraints require the Department of Defense to find efficiencies in all areas, the committee concludes that increases of this magnitude are unsupportable,” states the Senate Armed Services Committee report. The $487,000 figure is what the original cap of $250,000, set in 1998, would be if it only kept pace with inflation.

The House Armed Services Committee on the other hand sought to weaken the cap by riddling it with loopholes that would lift the cap and open the door for many contractors to charge even more. The House bill would have also set the cap at $763,000. It remains to be seen what the two defense committees will come up with in an NDAA meant to be fast tracked in the coming days. Update: According to the Bureau of National Affairs, "Section 811 of the agreement resets the cap on executive compensation to $625,000 and scraps the current system for adjustments. Instead, future changes would be linked to the Employment Cost Index published by the Bureau of Labor Statistics."

More ambitious proposals seek to reduce the cap to $230,700—which is the vice president of the United State’s salary. A bipartisan group of senators – Joe Manchin (D-WV), Charles Grassley (R-IA), and Barbara Boxer (D-CA) – have an amendment that would do that. They had success earlier this year capping border security contractor CEO pay subsidies at that level in the Border Security, Economic Opportunity and Immigration Modernization Act. Even President Obama as recently as 2012 called for an even lower cap at $200,000.

The American Federation of Government Employees (AFGE), one of the main unions representing federal workers, strongly supports reducing the cap.

“AFGE will work to lower the overall amount, which is still too high, and also will work to ensure that there are no unnecessary loopholes or exceptions,” said AFGE National President J. David Cox Sr. in a statement. “Agencies will be better off by being able to rid themselves of ridiculously high compensation for contractor employees.”

AFGE notes that savings from the cap are not scored by the Congressional Budget Office. However, it would save significant amounts of money. Demos, a research group, estimated that a cap of $230,700 could lead to annual savings of $6.97 billion to $7.65 billion.

It seems that cap could go even lower than $487,000 and produce savings that could be used for national priorities such as education, infrastructure investment or scientific research – efforts that help rebuild a vibrant middle-class and an economy that lifts people out of poverty.

As Obama stated in his income inequality speech, “government can’t stand on the sidelines in our efforts.  Because government is us.  It can and should reflect our deepest values and commitments.”

back to Blog