White House Calls for ‘Fundamental Reform’ to Feds’ Pay, Delays New 2018 Localities

The Office of Personnel Management on Friday released the President's Pay Agent report implementing locality pay adjustments for 2018, which authorizes a 2016 proposal to add two cities to the list of areas where civilian employees will receive a greater pay increase but calls for "fundamental reforms" to federal compensation.

The report, issued Wednesday and signed by Labor Secretary Alex Acosta, Office of Management and Budget Director Mick Mulvaney and acting OPM Director Kathleen McGettigan, confirms that OPM will begin the regulatory process to add Birmingham, Al., and San Antonio, Texas, to the list of regions in the locality pay table. Last year, the Federal Salary Council recommended those two cities be added to the table, but the council was not reconstituted until Wednesday and did not release a report in 2017.

In its report, the President's Pay Agent said it has "major methodological concerns" with the model used to estimate pay gaps cited by the Federal Salary Council.

"The value of employee benefits is completely excluded from the pay comparisons, which take into account only wages and salaries," the officials wrote. "Also, the comparisons of federal vs. non-federal wages and salaries fail to reflect the reality of labor market shortages and excesses."

Acosta, Mulvaney and McGettigan cite a controversial report from the Congressional Budget Office that concludes that federal workers make on average 17 percent more than their counterparts in the private sector. Critics of that report claim that CBO's methodology is too simplistic, and does not take into account different occupation types, locations and other demographic factors.

The report calls for "fundamental reforms" of the federal compensation system for white-collar federal employees, including a shift to performance-based pay.

"We believe it is imperative to develop performance-sensitive compensation systems that will contribute to a government that is more citizen-centered, results-oriented and market-based," the agent wrote. "We need to empower federal agencies to better manage, develop and reward employees in order to better serve the American people."

The Pay Agent also delays the inclusion of Burlington, Vt., and Virginia Beach, Va., which were approved for inclusion in the locality pay table by the Obama administration and scheduled to be added for next year.

"Although we agree with the [Federal Salary] Council that we should issue regulations proposing establishment of new Burlington, Vt., and Virginia Beach, Va., locality pay areas, we have not yet made a final decision on the timing," the report said.

The release of the locality pay report is an important step toward confirming how much federal civilian employees will earn in 2018. But the Trump administration's work is not yet complete.

Before the end of the year, President Trump must issue an executive order formalizing his plan for increasing civilian federal employees’ pay for next year. A 2.4 percent across-the-board pay raise already has been confirmed for members of the military as a result of the 2017 National Defense Authorization Act, which was signed into law earlier this month.

In May, Trump proposed a 1.9 percent across-the-board pay increase for civilian federal workers as part of his fiscal 2018 budget proposal. In August, he announced plans to implement that raise. But the White House has been quiet ever since.

Trump must issue an executive order by Dec. 31 in order for a pay raise to go in effect for civilian feds in 2018. Last year, President Obama announced in early December that he would unilaterally increase federal employees’ pay from the originally proposed 1.6 percent increase to 2.1 percent. But he did not finalize that plan until he issued an executive order on the topic on Dec. 27, 2016.

Provided that Trump finalizes the pay raise for civilian federal workers, OPM likely will publish an updated pay table for General Schedule and Senior Executive Service positions, as it has in previous years, in early January.