OMB defends decision to break military-civilian pay link

The Office of Management and Budget is using benefits federal employees received in previous years to justify giving employees a 3.6 percent pay raise next year. President Bush's 2002 budget proposes a 4.6 percent raise for military personnel and a 3.6 percent average raise for federal civilians, thus breaking with the traditional practice of giving both groups the same average raise each year. Mitch Daniels, director of the Office of Management and Budget, explained the discrepancy earlier this week: "We think [3.6 percent is] the appropriate level. It's really derived from a 4.1 percent increase, recognizing that there's a half a percent additional relief coming from a lower charge for health benefits. So we think that the 3.6 percent net is the right and appropriate number." But budget documents released this week do not mention a lower charge for health benefits. An Office of Personnel Management spokesperson confirmed there is no provision in the budget that would lower employee premiums under the Federal Employees Health Benefits Program. According to OMB spokesman Chris Ullman, Daniels was referring to several actions that have been taken in recent years that have increased employees' take-home pay, not to any new proposal in the Bush administration's budget plan. Daniels' calculation apparently starts with the fact that last year President Clinton took advantage of a provision in the tax code that allows employers to deduct health insurance premiums from employees' paychecks before taxes are withheld. The provision increases employees' take-home pay by making their taxable income level lower.

The average federal worker takes home $434 because the Clinton administration adopted this practice, known as "premium conversion," in the federal sector. That equals 0.5 percent or more of pay for anyone making $86,800 or less. But premium conversion took effect in October 2000, while the raise Daniels was talking about won't take effect until January 2002. Daniels also apparently was taking retirement contribution rollbacks into account. In 1997, in an effort to balance the budget, the Clinton administration and Congress decided to temporarily deduct more money from federal employees' paychecks for pension funds. The 1997 Balanced Budget Act included a gradual increase in employees' retirement deductions, from 7 percent of pay for Civil Service Retirement System enrollees in 1998 to 7.5 percent in 2002. Over the same period, deductions for enrollees in the Federal Employees Retirement System were to increase from 0.8 percent to 1.3 percent. The deductions would return to their 1998 levels in 2003. Last year, the third consecutive year in which the government recorded a surplus, Clinton and Congress returned the retirement deductions to their 1998 levels, saving employees 0.5 percent of pay each year. But the retirement contribution rollbacks took effect in January 2001, and again, Daniels was talking about the pay raise for January 2002. So, in OMB's view, the pay raise situation looks like this: Civilian employees got the premium conversion benefit in October 2000. Military personnel did not. Civilian employees got their retirement contributions lowered to pre-1999 levels. Military personnel did not. Civilian workers got mental health care benefits added to their health insurance plans last year. Military personnel did not. Civilians employees will also soon have long-term care insurance available to them at group, discounted rates, Ullman noted, though military personnel will get that benefit too. In addition, "for the past couple years, civilian employees have received an annual pay increase that is greater than private-sector wage growth," Ullman said. So considering all the pay and benefits improvements that civilian workers have seen recently, the White House decided that an average 3.6 percent raise in 2002 is appropriate for civilians, while military personnel should get a 4.6 percent raise. There was confusion over the federal pay raise on Capitol Hill, too. According to a Senate Budget Committee summary of the budget resolution passed by the Senate last week, "The President's proposal assumes that, within the funds made available to federal agencies, the historic pay parity between federal civilian and military employees will be maintained. The [budget resolution] assumes the President's proposed 4.6 percent pay raise for military personnel will be similarly provided to all federal workers next year." Now it's clear that interpretation was mistaken. And because there's no specific language in the Senate's resolution backing a 4.6 percent raise, it would allow for a lower increase. But some members of Congress are promising to push hard for a 4.6 percent average raise for federal workers. The House's version of the 2002 budget resolution includes a specific call for the higher raise. When the Senate and House form a conference committee to work out differences between the two versions, members of Congress who support pay parity can push for the House language to be included in the final version of the bill. Then they can try to get legislation passed later this year that mandates a 4.6 percent average raise for civilian employees.