Janet Yellen, poised to become U.S. Treasury secretary, will be focused on preventing the collapse of the fragile economic recovery. Her first order of business will be making sure there are enough people at the department to help.
Key divisions at Treasury have been hollowed out by attrition during the Trump administration under Secretary Steven Mnuchin, who has sought to cut “wasteful spending,” including on personnel he sees as superfluous. Between fiscal years 2016 and 2019, the department’s main offices — Domestic Finance, Economic Policy and International Affairs, among them — saw their staffing levels plunge by nearly a quarter as budgets were slashed.
Yellen, if confirmed, would have a special urgency to replenish the Domestic Finance division, which functions as the nerve center for the department’s response to economic crises, overseeing grant programs, housing policy and financial markets. Its budget has been drained the most severely.
“The entire team that is going to be focused on a national recovery is the one that is hurt the most right out of the gate,” said Kody Kinsley, who served as assistant Treasury secretary for management from 2016 to 2018. And hiring new career staff can take several months at least.
“They’re not going to be able to hire up fast enough to consider the task ahead of them,” Kinsley added. “They’re going to have to leverage the talent they have.”
The economic recovery is faltering as President-elect Joe Biden prepares to take the oath of office, with job growth slowing and coronavirus cases rising. Congress is unlikely to pass much major legislation next year, unless control of the Senate flips, and interest rates set by the Federal Reserve are already near zero, making the Treasury Department’s role in returning the economy to its prepandemic health that much more central.
In fiscal 2019, the number of full-time employees at Treasury’s main departmental offices — excluding the Office of Terrorism and Financial Intelligence, where staffing has steadily increased — fell to 645 from 1,003 in 2016, a 35 percent decrease. Even with the terrorism division, whose budget and staff are listed separately, the drop was 24 percent.
The department expected staffing to jump to 746 in fiscal 2020, though final numbers are not yet publicly available. Along with the terrorism and financial intelligence division, the Committee on Foreign Investment in the United States — a Treasury-led panel that vets foreign purchases of U.S. companies for national security risks — saw a budget increase in fiscal 2020 compared with 2016.
“Since Secretary Mnuchin assumed office in early 2017, the [departmental office] headcount has remained essentially flat,” a Treasury spokesperson said in an email. “Under his leadership, the Department has redirected resources to high priority offices such as TFI and CFIUS, expanding them considerably.”
But staffing could still dwindle further. A recent federal survey of department employees suggests that as many as 1 in 5 career officials at Treasury plan to retire within the next three years.
Mnuchin has also never had a full complement of political appointees, partly because he likes it that way and partly because the confirmation process is arduous. In addition to providing policy direction to career staff, those appointees perform managerial duties.
Mnuchin operated without a deputy for the first two years of his tenure. The division of Domestic Finance has not had an official exclusively tasked with running its operations since Craig Phillips, who had the title of “counselor,” left in June 2019. Much of the department’s duties now are performed by a few unconfirmed advisers.
The department already has shown signs of strain as it worked to keep the economy afloat amid the crippling pandemic this year.
The Treasury had joint responsibility with the Small Business Administration for implementing the massive Paycheck Protection Program, which doled out $525 billion in loans to employers to keep them afloat. While the program aided millions of businesses, it was hampered by a rocky rollout and controversy about whether the smallest businesses had adequate access to the money.
Although the program was always destined to face some bumps due its unprecedented scope, Treasury drew scorn from banks — which were on the front lines of giving out the loans — because of a hurried launch that left lenders in the dark about key rules of the program. Mnuchin was then drawn into a backlash against the effort after initial loans went to large, well-heeled businesses such as Shake Shack and the Los Angeles Lakers, which both later returned the money.
“The executive branch derives much of its power from having many more people,” said Aaron Klein, who was a deputy assistant Treasury secretary for economic policy under President Barack Obama. “Treasury’s position as one of the premier agencies is largely driven by its excellent career staff.”
“Treasury’s domestic finance operation was even too small when I was there,” added Klein, now a fellow at the Brookings Institution. “There are some structural issues that are at play, like the graying of the federal workforce, but there’s also management concerns. The Trump administration purposely understaffed the political ranks of Treasury, which has to have consequences for effectively managing the career staff.”
A former Treasury official argued that it made some sense that Mnuchin allowed staffing to decrease; once implementation of sweeping new financial rules after the 2008 credit crisis began to wind down, the domestic finance division probably didn’t need as big of a staff at the beginning of the Trump administration.
“But you always have to think about the tail risk — a financial crisis or a pandemic that causes a financial disturbance,” the former official said. “That’s when a smaller staff can expose some problems.”
Klein said it was positive that Yellen, a former Federal Reserve chair, already knows what it’s like to run a large agency, and her designated deputy, Wally Adeyemo, has extensive experience at Treasury, including as deputy chief of staff.
But Yellen and Adeyemo could face barriers to bringing in their own people, given the possibility of a Republican-controlled Senate. That will create pressure for the new leadership to find ways to bring people on board quickly, such as by appointing counselors.
While Treasury has long had such advisers, the conception of the counselor title changed slightly when Obama appointed Antonio Weiss as counselor for Domestic Finance in early 2015 to run the division. Weiss, the onetime head of investment banking at Lazard, had faced opposition, notably from Sen. Elizabeth Warren (D-Mass.), and was installed without confirmation.
Mnuchin has expanded that idea to fill more roles that traditionally have been held by Senate-confirmed officials with counselors.
“It’s almost impossible for [Yellen] not to [resort to appointing counselors], depending on what happens on Jan. 5,” a former Trump administration official said, referring to the two Georgia runoff elections, which will determine control of the Senate. “I can’t imagine that the Senate’s going to work exceptionally fast to confirm an entire suite of politicals.”
At the career staff level, Yellen could bring in temporary aides on detail from other agencies, such as from the independent financial regulators, which often poach Treasury employees by offering higher pay. Kinsley also said there’s a lot of knowledge spread out across different bureaus housed within Treasury.
“Knowing where to find those people is going to be really, really critical,” he said.
Zachary Warmbrodt contributed to this report.