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U.S. Senators Barbara Boxer (D-CA) and Chuck Grassley (R-IA) and Congressman Paul Tonko (D-NY) today sent a letter to the Joint Select Committee on Deficit Reduction urging the Supercommittee to lower the limit on taxpayer reimbursement for private contractor salaries as a way to reduce the nation’s debt and deficits.

In 1998, an executive compensation benchmark was first instituted to limit the amount the top five executives of a government contractor can charge taxpayers for their salary. Currently government contractors can charge taxpayers $693,951 for their salaries of their top five employees, an amount that has nearly doubled in the last twelve years. From 1998 to 2010 the benchmark has grown 53 percent faster than the rate of inflation. 

In their bipartisan letter, Boxer, Grassley and Tonko urged the Supercommittee to lower the salary reimbursement cap and extend the cap to all contractor employees. The proposal would in no way limit employee compensation from non-government revenue streams. President Obama recently called for lowering the salary cap as part of his deficit reduction plan.

The legislators wrote, “We do not believe that taxpayers should fund government reimbursements for private contractor salaries that are more than three times higher than the pay earned by Cabinet Secretaries… we encourage you to expand the cap so that it applies to all contractor employees, and consider a salary reimbursement cap significantly lower than the current $700,000 limit.”

The full text of the letter is below:

Dear Co-Chairs and Members

As you generate your proposal to reduce our debt and deficit, we encourage you to examine a large and growing area of federal spending - the unrestrained growth in the cost of taxpayer-funded federal salaries for private government contractors. 

In 1998, an executive compensation benchmark was created to limit the amount government contractors can charge taxpayers for the salaries of their top executives.  In 1998, when it was first calculated, the executive compensation benchmark for the top five employees of a government contractor was $340,650.  In the last 12 years this amount has more than doubled, and today government contractors can charge taxpayers $693,951 for their top employees’ salaries.  From 1998 to 2010 the benchmark has grown 53 percent faster than the rate of inflation. 

The executive compensation benchmark only applies for the five most highly compensated executives for each contractor, each of whom often earn total yearly salaries in the millions from other company revenue streams.  In addition, the benchmark does nothing to stop other contractor employees (those not in a company’s top five highest paid employees) from earning more than the $693,651 limitation directly from taxpayer funds. 

We do not believe that taxpayers should fund government reimbursements for private contractor salaries that are more than three times higher than the pay earned by Cabinet Secretaries.  When salaries are paid on the taxpayer’s dime, a $700,000 price tag for an executive is simply unaffordable.  That is why no federal employee is paid anywhere near that amount, including the President of the United States.

At a time when our economy is struggling, millions of Americans are unemployed, and our national debt and deficit continue to grow, leaving the majority of contractor salary reimbursements without any cap is a failure of oversight that must not continue. 

As you develop your final proposal, we urge you to include language to limit taxpayer reimbursement for private contractor salaries.  The President included in his plan for economic growth and deficit reduction a version of this idea that would apply a $200,000 limit (the pay level for a Cabinet Secretary) on the top five executives at a contracting firm. The President’s proposal is estimated to save at least $3 billion over ten years.

The President’s proposal is a good start, but we encourage you to expand the cap so that it applies to all contractor employees, and consider a salary reimbursement cap significantly lower than the current $700,000 limit.  By taking these steps, we can achieve billions more in savings and also provide greater parity between compensation for federal personnel and government contractors.  

We are ready to work with you to achieve this important, bipartisan goal. 

Sincerely,

Barbara Boxer

United States Senator

Chuck Grassley

United States Senator

Paul Tonko

United States Representative

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