As military installations brace for the furloughs necessitated by federal sequestration, at least one midstate financial institution is stepping in quietly with some assistance to affected employees.
Members 1st Federal Credit Union will offer low-interest loans to qualified borrowers who need help coping with furlough-related disruptions to their income, credit union President and CEO Bob Marquette said.
The credit union offered similar assistance when state employees were idled due to budget impasses, he said.
"We do this regularly," he said.
The sequester, initially conceived as a way to pressure Congress and the White House to reach agreement on a long-term deficit-reduction deal, mandates about $85 billion in automatic spending cuts in fiscal 2013, according to press reports.
To comply with it, civilian Defense Department employees will have to take one day off a week without pay for up to 11 weeks, beginning in July. Notices are to be issued next week.
The 11 sequester days are down from the 22 originally envisioned. Still, they represent a 20 percent cut in pay for those 11 weeks.
"Well over 90 percent" of Defense Department civilian employees will be affected, according to Stars and Stripes, the military newspaper.
The Defense Department has roughly 750,000 civilian employees, according to Stars and Stripes. Naval Support Activity Mechanicsburg, a base in Hampden Township, has more than 3,400 such workers, according to Business Journal records.
Roughly 700 employees at the U.S. Army War College and Carlisle Barracks could be affected, spokesman Edward "Tom" Conning said.
Nationwide, dozens of credit unions have begun to offer programs to help their members cope with furloughs. The National Association of Federal Credit Unions, a trade group, has posted a list on its website.
In Pennsylvania, the Tobyhanna Federal Credit Union is offering a no-interest loan of up to $7,000 for six months.
FedChoice Federal Credit Union, which has branches in Philadelphia, Maryland and Washington, D.C, is "prepared" to offer furlough loans, skip-a-payment options and refinancing on existing loans and other assistance, according to its website.
The list is evolving and is not necessarily exhaustive, said Quincy Enoch, NAFCU associate director of legislative affairs and military liaison.
Most credit unions offering specific furlough products have military or government connections, but not all of them, Enoch said.
Some may simply have a large concentration of federal workers within a geographic membership area, he said. Each credit union is making its own decisions about whether to offer furlough assistance.
Those that don't offer specific products are still encouraging any members with financial problems to come in and talk, he said.
Members 1st has a strong connection with midstate military installations. It debuted in 1950 at NSA Mechanicsburg, opened its next branch at the Army War College in Carlisle in 1972 and was known as the Defense Activities Federal Credit Union from then to 1994, according to the organization's history.
Besides loans, Members 1st will offer other workarounds as appropriate to members affected by the sequester, including loan extensions, the opportunity to skip a payment and debt consolidation, Marquette said.
Members 1st is not planning ads promoting its furlough programs, Marquette said. Its name was not on the NAFCU list as of early this week. Assistance will be offered on a one-on-one basis, he said.
"We'll work with them," he said.
A federal sequester is an unusual occurrence, but businesses and individuals should always be prepared for temporary hits to their income, experts said.
Some hits are predictable, because they are related to seasonal ebbs and flows, said Jeff Reyshelly, senior business consultant with Lancaster-based consulting firm OneSource Business Solutions.
For that reason, businesses should always have a spending plan for the year, he said.
When an unexpected fall-off does occur, people sometimes react too slowly. It’s better to adjust “sooner rather than later,” he said.
For both individuals and businesses, adjustment starts with trimming expenses. That’s often accompanied by efforts to make up the lost income — perhaps a part-time job for an individual, and for a business, a new revenue source or a new emphasis on maximizing the potential of existing sources.
“If you have to borrow money, try to do it as prudently as you can,” Reyshelly said. He recommended avoiding credit cards in favor of less-expensive alternatives, such as a home equity loan or line of credit.
Businesses, especially larger and more complex ones, may want to review their capital structure, said Ron Fink, a principal at midstate accounting firm Reinsel Kuntz Lesher who often deals with company turnarounds.
Sometimes companies are generating good revenue streams but are heavily leveraged, he said. Even a small downturn can leave them struggling to pay their debt service.
Another thing to look at is whether a company has amortized its capital expenditures too aggressively, he said. If so, extending amortization periods can lower payments and free up funds. As a rule, take the longest amortization you can, while making sure you can make prepayments if you choose to.
“That gives you a little more flexibility,” he said.
Companies should examine all costs, he said: labor, real estate, utilities, insurance and so on. More often than not, there are opportunities for consolidation or cost-cutting.
Procurement is yet another area to look into, he said. Vendors may be willing to take longer terms. If a company is taking on more inventory than it needs just to get volume discounts, it may be worth cutting back, paying a little more per unit, but less overall, once storage and other costs are considered.
Reyshelly and Fink both said having good information is important. Sometimes businesses lack the data needed to see where they can cut costs or where most of their profit is coming from, Fink said.
Businesses can improve efficiency dramatically, “but it usually takes an effort,” he said.