Category Archives: General News

Blended Retirement System for Military Members

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previous blog introduced you to a new retirement system for military members. Now, there is more information on that system and how it will affect service members.

The Federal Retirement Thrift Investment Board, the agency that administers the Thrift Savings Plan, has been working with military services to train eligible service members on their options. The FRTIB proposed rule on September 11, 2017, gave more specific details about implementing the new blended retirement system (BRS) along with who is eligible and when they’ll receive their first contributions.

The new plan moves military members from a retirement relying on a vested defined benefit plan to one that includes a reduced benefit plan with greater TSP benefits, the continuation of pay, and come lump sum options.

The new BRS incorporates four major changes to the current military retirement system

First, employing military services will contribute 1 percent of service members monthly pay to their TSP account. These contributions are in addition to basic pay. The military services will continue to contribute whether members contribute on their own.

Second, service members will be automatically enrolled to contribute 3 percent of their basic pay. The program will re-enroll them annually if service members stop making contributions.

Third, military employers will match TSP contributions from their service members dollar for dollar for the first 3 percent of their basic pay and 50 cents on the dollar for the next 2 percent.

Fourth, the program will invest employee contributions in an age-appropriate lifecycle (L) fund rather than the government securities (G) fund—unless otherwise chosen by the member.

Two groups will be eligible to participate in this new system:

  • Service members who enter the military on or after January 1, 2018
  • Military members with 12 years of service or fewer who decide to opt into BRS

Individual services determine which military members are eligible. Reservists who have less than 4,320 retirement points before December 31, 2017, may also be eligible. (Click here to learn more about retirement points)

To learn more about this new system, click below.

 

More on the Blended Retirement System for Military Members

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Minority Hiring Initiative

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Secretary of State, Rex Tillerson, plans to launch a new initiative to improve diversity in foreign service. This includes a requirement that at least one minority candidate be considered for all ambassadorial positions.

He noted there was a significant gap between the racial makeup of the State Department and the American population. “We have a great diversity gap in the State Department. We need a State Department that reflects the American people, reflects who we are. The State Department must redouble our efforts to increase diversity at the highest ranks of the department, including at the ambassador level,” Tillerson said.

About 12 percent of senior Foreign Service officers are people of color, and that is “about the same” for the agency’s senior executive service contingent.

Tillerson has instructed staff that at least one minority must be considered and interviewed for every open ambassador position.

State Department Press Secretary, Heather Nauert said even if this plan doesn’t produce immediate results, it will advance the agency’s diversity goals in the future. “When we look at ambassadorial candidates, when we look at that pool, we want a minority represented in those interviews, to be interviewed for the job. And if they’re not ready for that position yet, that gives us the opportunity to know who they are and put them on our radar. And it helps us get them ready for the future,” she said.

Tillerson also announced he will retain “all of our fellowship and internship programs”. He plans to boost the agency’s recruitment efforts at college campuses, particularly historically black colleges, and universities.

He said, “While our diplomats in residence at Howard, Spellman, Morehouse, and Florida A&M do an outstanding job ensuring that people understand the opportunities at the State Department, there are more than 100 historically black colleges and universities, and there’s so much more we can do to raise awareness about the range of careers at State. We also want to expand our footprint at minority-focused job fairs, and we can do more to recruit from one of the most diverse and proven talent pools, as I mentioned: our U.S. Military.”

Nauert said she didn’t have a timeframe for when the agency will begin ramping up its recruitment efforts, but she did say the initiative is “important to the secretary”.

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Federal Civilian Pay Raise

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President Trump has issued a pay plan for federal civilian employees, officially giving workers, a 1.9 percent raise in 2018. This includes a base increase of 1.4 percent and a 0.5 percent locality pay raise.

The president had until midnight August 31st to announce a pay raise. If he had not informed Congress of an alternative pay plan, a formula based increase automatically kicks in, in accordance with the 1990 Federal Employee Pay Comparability Act. Under this act, the base raise is determined by the change in Employment Cost Index minus 0.5 percent, which for 2018 would’ve been about 1.9 percent. This is also the amount President Trump proposed in his budget for next year.

According to the White House, the locality pay increase, as mandated by FEPCA, would’ve averaged 26.16 percent, and would’ve cost the government $26 billion. In Trump’s letter to Congress, he wrote, “A pay increase of this magnitude isn’t warranted, and federal agency budgets could not accommodate such an increase while still maintaining support for key federal priorities such as those that advance safety and security of the American people.”

Union Reactions

The president of the National Treasury Employees Union, Tony Reardon, said this pay raise isn’t enough and supports legislation in Congress to give employees a 3.2 percent pay raise in 2018. “NTEU believes this figure is too low especially because federal law calls for a 1.9 percent across-the-board raise and private sector wages are growing at an even faster rate,” he said. “Add to that, current proposals attacking the federal retirement system would result in a pay cut for federal workers.”

The president of the National Active and Retired Federal Employees Association, Richard Thissen, applauded the pay raise but said NARFE would continue to push for Congress to approve a larger increase next year. “While federal employees appreciate the raise, an average increase of 1.9 percent is the minimum required to prevent federal pay from declining further, and more rapidly, below market than the current 35 percent wage disparity between public- and private-sector wages,” he said. “Both Congress and the president should work together to pursue a more robust pay increase to maintain the highly qualified workforce needed to run an efficient federal government.”

Ultimately, Congress has the final say on how much federal employees will earn in 2018.

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New Ways to Measure Future COLA’s?

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The 2018 Cost of Living Adjustment is set using the Bureau of Labor Statistics CPI-W index, however, there are other possibilities for making the adjustment in 2019 and beyond. The BLS has several measures of inflation. The CPI-W is one of the oldest for making COLA’s for federal retirees, Social Security recipients, and others.

The CPI-W measures goods and services purchased by hourly wage earning or clerical workers, which applies to a smaller and smaller percentage of the population. Congress has pushed for an alternative method of computing COLA’s. Below are a few options.

CPI-U

The BLS produces another major index called the Consumer Price Index for All Urban Consumers (CPI-U). This includes expenditures by urban wage earners and clerical workers, professional, managerial, and technical workers, self-employed, short-term workers, unemployed, retirees and others not in the labor force.

This index is most often cited when talks of inflation occur because it reflects a much larger share of the U.S. population than the CPI-W. The CPI-W and CPI-U closely followed each other for the 12 months ending in July. The CPI-U rose 1.7 percent, while the CPI-W rose 1.6 percent.

Moving to this index may be less controversial than others.

CPI-E

The BLS also produces a monthly index focused on the purchasing habits of the elderly (CPI-E). It tends to rise faster than the two mentioned above. It measures the average change in prices over time for a fixed market basket of goods and services for Americans age 62 or older.

The National Active and Retired Federal Employees Association (NARFE) has advocated for the use of the CPI-E. Richard Thissen, president of NARFE, said,

“The fact that we do not use the CPI-E already is shocking. Instead, COLA’s for seniors collecting Social Security and federal civilian or military retirement benefits are based on costs experienced by ‘urban wage earners and clerical workers’, not upon the costs retired individuals experience. And that does not make a lot of sense. Worse yet, it is costing seniors, including federal civilian and military retirees, precious dollars every year. The 2019 COLA was 0.3 percent, and the year before, there was no COLA at all. Yet, over these 2 years, the actual cost of living incurred by seniors increased by 2.7 percent—2.1 percent in 2016 and 0.6 percent in 2015. That is what seniors should have received and that is what this bill would provide them. For the average federal annuitant, that would have meant an increase of approximately $950 per year.”

Currently, the BLS says that the CPI-E has methodological limits which make it unreliable as a substitute for CPI-U or CPI-W. With more funding, the CPI-E could develop into a statistically reliable index.

C-CPI-U

A more controversial measure of inflation, known as the Chained CPI (C-CPI-U), is designed to mathematically “use expenditure data in adjacent time periods to reflect the effect of any substitution that consumers make across item categories in response to changes in relative prices. The new measure is designed to be a closer approximation of ‘cost of living’ index than existing BLS measures”, according to the BLS.

This index gets closer than other indexes by better reflecting how consumers react to changing prices. An example is if the price of pork increases while the price of chicken doesn’t, consumers may shift away from pork to chicken. The C-CPI-U accounts for this type of substitution between CPI item categories.

The BLS has determined that the C-CPI-U tends to show a lower inflation rate than other indexes. For this reason, NARFE has opposed using the C-CPI-U in calculating federal retiree COLA’s because lower COLA’s would reduce the long-term cost of providing federal retiree and Social Security benefits.

Elimination of the Automatic COLA

“Congress enacted the COLA provision as part of the 1972 Social Security Amendments, and automatic annual COLA’s began in 1975. Before that, benefits increased only when Congress enacted specific legislation,” according to the Social Security website.

Prior to automatic COLA’s, Social Security benefits were sporadic. Congress moved to an automatic formula because some saw Social Security increases as too generous and others argued they failed to keep up with inflation.

Losing an automatic COLA would mean retirees would have to go to Congress each year and compete for funding against other government programs.

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Postal Workers Get a Raise, Less Benefits

postalA new labor contract has formally been agreed to this week that will give more than 200,000 Postal employees a raise. However, those same employees will see a decrease in benefits as well.

The National Association of Letter Carriers, representing 213,000 city mailmen across the country, ratified an agreement it struck with USPS management, to avoid binding arbitration.  NALC members voted 94 percent to 6 percent to accept the contract.

This agreement takes effect retroactively on May 21, 2016, continuing through to September 20, 2019. All city carriers will receive a 1.2 percent pay raise retroactive to November 26, 2016, and 1.3 percent increase effective November 25, 2017. Those on the second level of the 2-grade pay scale will receive a 2.1 percent raise in 2018.

Employees will also receive a series of seven cost of living adjustments throughout the life of the contract.

The non-career employees represented by NALC will see a boost as well. The substitute carriers will receive payments adding up to a dollar per hour over the course of their first year at the Postal Service. They will also earn more generous wage increase than their career counterparts.

The USPS will also start converting non-career employees for at least 30 months to career positions. Those working as letter carriers for at least six years are now exempt from any potential layoffs during the duration of the contract, which also means their work can’t be outsourced.

There is, however, a setback in this agreement; health care plans. The USPS is lowering its contribution toward employee health care plans by three percent through 2019. Even with this, the USPS will pay a maximum of 76 percent of any given plan, while the top contribution of other agencies caps at 75 percent.

A Postal Service spokeswoman called this agreement a win for all parties. It “addresses important financial and operational considerations of the Postal Service, serves interests of the American public, and is fair to our employees,” she said.

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More Losses for the Postal Service

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The third quarter of FY2017 saw a $2.1 billion loss for the Postal Service, including $587 million in “controllable losses”. Higher transportation costs accelerated controllable costs. They don’t include their mandatory payments to pre-fund healthcare expenses for future retirees as a controllable expense, which made up the bulk of its remaining losses.

This is a significant increase over last year. Revenue in this quarter stayed about the same as it did this time last year, at $16.7 billion.

Increased losses came from declining mail volume, which is being replaced with costlier shipping businesses. First class mail revenue fell by nearly 7 percent. The agency must gain $2 in shipping revenue to offset every $1 in lost mail revenue.

Postmaster General Megan Brennan noted that the USPS’ pricing system is “fundamentally unsuited” for the current market because it fails to account for changes in volume/cost. She said, “Our financial situation is serious but solvable. The continuation of aggressive management actions and legislative and regulatory reform will return us to financial stability and enable the Postal Service to maintain the long-term affordability of mail, invest in America’s mailing and shipping industry and best serve the American public.”

The National Association of Letter Carriers noted that USPS would have turned a profit of $1.5 billion if the Postal Regulatory Commission hadn’t forced them to roll back an emergency price hike instituted in 2014. That was only the second time ever, and the first time in 97 years, that the agency decreases the price of stamps.

“Addressing these external financial burdens would allow USPS, which is based in the Constitution and which enjoys broad public and political support, to continue providing Americans and their businesses with the industrial world’s most affordable delivery network,” said NALC President Fredric Ronaldo.

The PRC, an independent panel that oversees USPS, will conclude its 10-year review of the Postal Services rate setting system soon. They will likely give postal management freedom to raise the cost of postage stamps beyond the rate of inflation. A final decision is expected next month. Postmaster General Brennan said, “we’re clearly looking for the PRC to establish a new pricing system for us. From a financial perspective, the Postal Service continues to face strong financial headwinds.”

She also said, “This year, we’re seeing an acceleration in first class volume decline, so this dynamic puts even more financial pressure on the organization, given that our first-class mail pays our bills and defines our network requirements.”

The agency also warned it will likely default on $6.9 billion in future retiree health benefits for the fifth year in a row. According to a Government Accountability Office report, the USPS has more than $120 billion in unfunded liabilities, mainly for retiree health and pension benefits. That same report also said that if Congress expects the Postal Service to pay for the same level of benefits for its retired employees, it ultimately puts American taxpayers at risk of needing to bail out the organization.

“Large unfunded liabilities for postal retiree health and pension benefits—which were $78.9 billion at the end of FY2015—may ultimately place taxpayers, USPS employees, retirees and their beneficiaries, and the USPS itself at risk. If GAO wants these benefits to be maintained at current levels, funding from the U.S. Treasury, and hence the taxpayer, would be needed to continue the benefit levels. Alternatively, unfunded benefits could lead to pressure for reductions in benefits or in pay. Thus, the timely funding of benefits protects USPS employees, retirees, beneficiaries, taxpayers, and the USPS enterprise,” GAO said.

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Bill Passes Aimed at Misuse of Spending

misuseThe Senate unanimously approved a bill that aims at increasing oversight of federal employees’ use of government travel and purchase cards. The Saving Federal Dollars Through Better Use of Government Purchase and Travel Cards Act would task the General Services Administration with looking through the government-wide data it already has so it can identify “patterns of potential misuse”.

Currently, the oversight occurs only at the agency level.

The bill would require agencies to share details they found and other information that might help their counterparts locate similar issues.

Senator Tom Carper (D-Del.) introduced the bill and said, “By helping agencies better track and analyze card charges, we can curb wasteful spending and ensure taxpayer dollars are spent more wisely and effectively across the federal government.”

This new bill would “make sure we’re looking for similar patterns of misuse across all federal agencies and that agencies are sharing best practices to prevent misuse and identify potential cost savings,” said Senator Chuck Grassley, a co-sponsor of the bill.

Senator Claire McCaskill also supports the bill and thinks it would bring accountability among feds. “I’m glad to have come together with my colleagues on both sides of the aisle to crack down on federal employees who are losing government dollars for their own personal gain,” she said.

Recently, auditors have found several instances where feds have misused government cards; Defense Department employees in 2015 were found to use their cards to make more than $1 million in purchases at casinos, USPS workers went gambling and bowling, and Forest Service workers used their cards for personal expenses at gas stations, restaurants, and grocery stores.

The Senate unanimously approved a similar bill in a previous Congress but it never advanced in the House.

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More Congress Members Coming Forward

congressMore members of Congress are coming forward and voicing their concerns about the recent FY2018 budget proposals. In these proposals are significant changes to the federal retirement system for current and future employees and retirees.

Ten House Republicans have appealed to the House Oversight and Government Reform Committee Chairman.

“No one needs to remind us of the deficit and debt problem our nation faces, but federal employees are an easy political target. Therefore, we respectfully request they reject any further legislative changes to the federal employee retirement system at this time,” the 10 members wrote in a July 26 letter.

At the same time, 18 Senators, most of them Democrats, also wrote to their leadership. “These proposed changes, if enacted, would significantly harm the retirement plans that our federal employees have made over the course of decades in public service. In addition, they would further hamper the federal government’s ability to recruit and retain the best and brightest talent, particularly when we are concerned about brain drain in critical areas of our civilian workforce,” the senators wrote in a July 26 letter to Senate Majority Leader Mitch McConnell (R-KY) and Minority Leader Chuck Schumer (D-NY).

A similar letter was written in June, but this time, the lawmakers reference several FY2018 budget proposals that suggest a variety of changes to the federal retirement system for current and future employees.

The House Budget Committee’s 2018 request includes instructions for budget reconciliation, which tasks the House Oversight and Government Reform Committee to make changes to the federal retirement system. The proposals call for higher contributions to federal pensions and the removal of Supplemental Social Security payments to employees who retire before age 62.

“This would achieve significant savings while recognizing the need for new federal employees to transition to a defined contribution retirement system. The clear majority of private sector employees participate in defined contribution retirement plans. These plans put the ownership, flexibility, and portfolio risk on the employee as opposed to the employer. Similarly, federal employees would have more control over their own retirement security under this option,” the House budget proposal said.

The House Budget Committee budget calls for similar yet different recommendations than President Trump’s. Trump proposed $4.1 billion in federal retirement cuts next year, with a total of $150 billion over 10 years. This is higher than the House Budget Committee’s recommendations.

Both the Trump administration and many House Republicans, however, see these changes to bring the federal retirement package in line with private sector. Close to 100 Democrats have voiced their opposition to these proposals in a letter to House Speaker Paul Ryan (R-WI) and Minority Leader Nancy Pelosi (D-CA).

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Another Budget Proposal Released

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Along with major reforms the House proposed in its budget, the Republican Study Committee (RSC) has also released their budget.

The group is a caucus of conservatives in the House of Representatives. They have proposed the most conservative budget of the three (White House and House Budget Committee). Their budget offers the deepest levels of cuts to control federal spending.

They had this to say of their budget proposal:

“The RSC budget aims to go well beyond the least common denominator of politics to reflect the American people’s desire to see a more responsible and accountable government. As with any proposal that dares to suggest what ought to be done, rather than just what is easy to do, this budget will inevitably be attacked as too conservative, too bold, too sudden, or too difficult to achieve. However, the measure of success for ideas is not their ease, but their persistence and effectiveness.”

Below are some of the proposals from this budget that may be of most interest to federal employees.

Pension Plan Changes

  • A High-5 calculation would be used instead of High-3 for retirement benefits.
  • The Special Retirement Supplement would be eliminated.
  • All federal employees, not just future ones, would contribute more towards their retirement programs. This is to match what was mandated under the Middle-Class Tax Relief and Job Creation Act of 2012. This law requires new federal employees to contribute to their retirement.

One reason for these changes is to bring federal employee benefits more in line with those in the private sector. “Under FERS, federal employees hired before 2013, contribute only 0.8 percent of their pay, while the taxpayers contribute 11.7 percent of employees’ salaries. A recent CBO report found that, on average, federal civilian employees receive 47 percent more in benefits than the comparable average private-sector employee,” the RCS budget said.

Decrease Annual Across-the-Board Adjustment for Federal Employee Pay

The budget states, “Unlike most Americans, federal employees receive an automatic pay increase every year under the Federal Employee Pay Comparability Act of 1990.” Because of this, it recommends that beginning in FY2018, the annual across-the-board increase for federal employees should be reduced by ½ a percentage point below the expected automatic increases.

Make Federal Employees “At-Will” Employees

They recommend adopting Congressman Todd Rokita’s legislation and make federal workers “at-will” employees.

Adopt Premium Support for Federal Employee Health Care

The budget states federal employees pay about 30 percent of their FEHB premiums and the government pays the rest. “Because this ratio does not change with the higher priced coverage options, federal workers have the incentive to choose the more expensive plans on the taxpayers’ dime.”

Consequently, it recommends moving to a premium support system where the government would offer a standard contribution towards the purchase of health insurance and employees would be responsible for paying the rest. They hope this encourages employees to purchase more modest health care plans with an appropriate amount of coverage.

Using the Holman Rule to Eliminate Unnecessary Positions

The Holman Rule was initially used in the 1800’s to cut government spending. It gave the House Committee on Appropriations authorization to cut back on spending. They did this by reducing the number of federal employees cutting the salary of federal officials. It was also a quick way to reduce the compensation of any person paid out of Treasury funds.

The budget proposal says the following with regards to the Holman Rule:

“If used correctly, the Holman Rule could be a powerful tool for conservatives in the House of Representatives to work with the Trump administration to reshape the federal bureaucracy so that it’s more accountable and responsive to the American people. The President and federal agencies should work cooperatively with the House to identify executive branch positions that are unneeded and the appropriations bills considered by the House should include Holman positions to restrict, limit, and eliminate these positions.”

Eliminate the Use of Official Time

The RSC budget proposal recommends adopting Congressman Jody Hice’s (R-GA) bill, The Official Time Reform Act, to stop “the federal governments sanction of union activity at federal expense” thereby making “federal workforce more effective and efficient”.

Prohibit Automatic Collection of Union Dues for Federal Employee Unions

The budget states the following regarding dues for federal employee unions:

“Currently, the federal government acts as the dues collector for unionized federal workers by deducting union dues from an employees’ paycheck and then remitting dues to the union. If a worker wants to join a union, then the union should collect its dues from the worker, not force the taxpayers to do it. This budget recommends prohibiting the automatic deduction of union dues for federal employees.”

Reduce Workforce Size Through Attrition

Under this proposal, new hires would be limited to one employee for every three who leave the federal workforce. However, the President would have the flexibility to adjust federal employment in case of a national emergency.

*It’s important to note that this is just a proposal, like others mentioned above. Any changes in legislation must be enacted by Congress. Often, bills are altered as they are debated, and may never become a law.

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Major Reforms Summarized

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House Republicans have issued their budget proposal for FY2018, and it includes a $5 billion cut at nondefense agencies and a total of $1.3 trillion in reductions in domestic spending over the next 10 years. Further, by FY2027, nondefense agencies would face a collective cut of 18 percent from the current spending. However, defense spending would increase by $929 billion over the current caps during the next 10 years.

Below we look at some of the major reforms proposed.

Program Elimination

Republicans found 92 duplicate anti-poverty programs throughout the VA, Energy, and Labor departments. Eliminating these would save $843 billion.

Improper Payments

They projected close to $700 billion in savings from improper payments. A “special commission” will have the task of “finding ways to tangibly reduce” the payments made.

Veterans Affairs Workforce

Republicans think this budget would solve “mismanagement and lack of accountability” and said it has “suffered from a growing bureaucracy”. The proposal would direct the VA to trim middle management, cut management overall, streamline disciplinary and hiring processes, and modify performance metrics. It would also fully fund Trump’s request for a 6 percent spending increase in FY2018.

Department of Homeland Security Hiring

The lawmakers said their budget will enable Customs and Border Protection and Immigration and Customs Enforcement to “recruit, train, and deploy agents necessary to increase our nation’s operational security”. Still, Trump has suggested hiring 15,500 new agents/officers and appropriators have proposed a down payment on that request in FY2018. They also issued the following statement, “Border wall funding is also included in this budget through various DHS construction accounts to not only construct new fencing and replace ineffective fencing and barriers but also to establish forward operating bases and surveillance technology along our southern border.”

Putting USPS on a Budget

The United States Postal Service is an independent, self-funded federal agency, so it’s considered “off budget”. This House budget proposal would bring the agency back on a budget for the first time since 1989. The inspector general said that, when on a budget, the USPS was “commonly caught up in deficit reduction squabbles, and took on obligations belonging to the Treasury.”

Cutting the Environmental Protection Agency

The budget continues to propose cuts to the EPA. This one would restrict “its unprecedented activity on regulatory policy” and eliminate the Office of Regulatory Policy and Management. It also seeks to cut overlapping climate change research conducted by both the EPA and the National Oceanic and Atmospheric Administration.

Privatization

The proposal assumes the privatization of government-controlled mortgage backers Fannie Mae and Freddie Mac.

Refocusing the Energy Department

The lawmakers said the Energy Department should focus on three things; maintaining nuclear supply, environmental cleanup, and basic research into discovery science and energy security. The budget would also reduce funding for commercial research and development, slash spending on green energy programs, and eliminate the loan guarantee program.

Restructuring Commerce

Finally, this proposal would cut programs designed to assist business lawmakers identified as “corporate welfare”, move NOAA to the Interior Department, establish the Patent and trademark office as an independent agency, transfer the Census Bureau to the Labor Department’s Bureau of Labor Statistics, and eliminate or consolidate 10 others.

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