Q&A – How Much Can We Save With Federal Government RIFS?
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Today’s Entry: Brian, what you’ve uncovered with cost savings associated with the federal layoffs is eye opening, and I believe is much larger than most would have imagined. My question is this... Do we know how many more layoffs the administration has planned, and can you provide estimated cost savings information for those layoffs as well? Thanks!
Bottom Line: Today’s note is in response to My Top 3 Takeaways from yesterday when I offered this: On a going forward basis, the average annual cost savings associated with an 11.9% reduction in the federal workforce now stands at $33 billion per year! You know how the CBO scores things on a ten-year cost basis? What’s already happened this year represents an additional $330 billion in cost savings over the next ten years...and it’s far from being done. So, today’s question is a good one. How far could the cuts go? Let’s dive into it.
Now that the Supreme Court has cleared the path for the DOGEing of federal government agencies to commence, we’re likely to see many more take place. In attempting to estimate the extent of the federal government’s RIFs under the Trump administration – the first place to start is with his executive order directing them. On February 11th President Trump signed the executive order: REFORMING THE FEDERAL WORKFORCE TO BETTER SERVE AMERICANS. Among other things the order said this:
- The Order will significantly reduce the size of government. Upon expiration of the Day 1 hiring freeze and implementation of the hiring plan, agencies will be able to hire no more than one employee for every four employees that depart from federal service (with appropriate immigration, law enforcement, and public safety exceptions).
- Agencies will undertake plans for large-scale reductions in force and determine which agency components (or agencies themselves) may be eliminated or combined because their functions aren’t required by law.
- There are too many federal employees.
- No one knows exactly how many federal agencies exist, but the Federal Register lists over 400.
- The federal workforce contributes significantly to federal spending and debt. In fiscal year 2022, the federal government spent nearly $300 billion on compensation for civilian employees, excluding pensions.
That order, which remains in effect, is the best clue as to what the potential outlook here might be as we’re attempting to infer how significant the reduction in the size of the federal workforce might end up being. While the ultimate answer is – we don’t know... What we do know is that there’s an inherent effort to cut the effective size of the federal workforce by a quarter. That’s implied through the president’s directive that only one person may be hired to replace every four-departing people.
If we use a quarter as a baseline... here’s what that looks like... The annual total cost savings from cutting a quarter of the federal workforce would likely be around $75 billion, with the minimum coming in at $60 billion and the high end at around $90 billion depending on implementation details... Meaning on a CBO-styled scoring basis in today’s dollars – not inflation adjusted – would be approximately $750 billion. It may be the case that the federal government reaches DOGE’s original goals after all. As I recently mentioned. I think it’s 50-50 that one-day Elon Musk may break out the “Trump was right about everything” hat again.