Congress tells an agency that it has "...directed a reduction in payroll costs" - this is a lesson for the analyst – Know you PC&B numbers, and know them well. In addition to knowing them, make sure that your legislative body is given your accurate numbers. Not knowing them and not communicating them will result in severe repercussions. The Appropriations Committee has one basic way to send a message: It cuts your budget. When this happens, the agency better pay attention and get its PC&B computations and analyses in order, or it will cease to exist.
An illustration of the issue can be found in a FY 2000 HUD-DOT-Independent agencies appropriations bill. The report language for EPA's EPM account, as passed by the House stated, among other things, that "... the Committee has reduced the funding available for contracts and grants by $40,183,000, and has directed a reduction in payroll costs of $35,000,000." (Emphasis added.) This is a large cut. Analysts need to look at the consequences right away, and do a fast analysis. The fast analysis follows. The budget request estimated that payroll would be $1,001 million in FY 1999. Cutting this amount by $35 million is a 3.5% cut which, given the Federal personnel system's ingrained upward biases in the payroll costs, would mean more than a 3.5% cut in staffing. (The increased costs come about from the annualization of the 1998 pay raise, and within grade increases and promotions.)
The problem is compounded by a pay raise of about 4.8% starting in January, or about 3.6% for the fiscal year. It would take a budget increase of $36 million to provide for this pay raise if nothing is to be cut. But there is no increase in the budget for the pay raise, and Appropriations is not providing anything for the pay raise. The cut in funds and the increase in costs dictated by the upcoming pay raise are the same as a cut of 7.1% in the payroll, a serious problem for the agency. In dollar terms, it is the same as a $71 million cut for the EPM account's payroll.
The problem is further compounded by the fact that the appropriations report states that there will be a cut, which implies that there is a limit set for the total payroll amount for this account, so the agency would be prevented from transferring funds from contracts and grants and other expense categories to make up for the reduction in payroll funding.
Why did this happen? Probably because the agency is not very good at making payroll computations, which leaves the appropriations committees with questions as to what may be going on: The FY 1999 budget request indicated that the payroll would be $878 million for FY 1999. The FY 2000 request indicated that the payroll would be $1,001 million for FY 1999. This is an increased change in the estimates, for the same staffing levels, of over $100 million, or over 11%, in a year. Congress did not grant the increases requested in the FY 1999 budget. Furthermore, even if the increases had been granted the request should have reflected the actual payroll cost of the requested budget, so it should have been stated as over $1 billion. Nor where there unforeseeable payroll cost increases. All relevant facts were within management's grasp. A logical question to ask is where did the over $100 million increase (or over 11%) come from? Didn't this agency know its payroll costs? Did management have a grasp of the facts? Evidently, the House Appropriations Committee did not think so.