The battle begins

Federal unions and Washington-area lawmakers want the government to spend $1.4 billion more in raises for federal employees in 2003 than the Office of Management and Budget wants to spend. The unions and lawmakers, including Reps. Steny Hoyer, D-Md., and Tom Davis, R-Va., are calling for a 4.1 percent average pay raise for federal employees-the same raise that President Bush has proposed for military personnel. The Bush administration has proposed a 2.6 percent average pay increase for civilian workers. OMB Director Mitch Daniels said on Monday that the civilian raise should be lower than the military raise because "we do believe that a distinction can and should be made between [civilians and] people in harm's way at a time of war and, therefore, feel it's entirely appropriate that there should be some additional compensation for uniformed personnel." Daniels also said that the economy is in recession and that many people in the private sector have lost their jobs. Daniels explained that, typically, the federal pay raise is based on the change in the Employment Cost Index, which was 3.6 percent from September 2000 to September 2001. "But that's only a starting point," Daniels said. "We decided that [a lower raise] would be fair and appropriate, at a time when many other Americans have seen their pay go to zero. And in the private sector, estimates for increases range from about 1.8 to maybe 3 percent. For those who are employed, we thought giving back 1 percent or, let's say, taking 1 percent less than this sort of rule-of-thumb index was something that federal employees would feel is fair and I hope many will feel it's an appropriate thing to do." Daniels' math was off in two respects. First, the across-the-board increase is supposed to equal the change in the Employment Cost Index minus 0.5 percentage points. That means that under the formula, the across-the-board increase would be 3.1 percent, not 3.6 percent. Second, only one part of the federal pay raise is based on the change in the Employment Cost Index: The across-the-board increase. The other part, the amount of locality-based increases, is based on wage surveys that were conducted across the country by the Bureau of Labor Statistics. That means that under the raise formula in federal law, the pay raise would be higher than just the change in the Employment Cost Index. But the Bush administration's budget explains that the proposed 2.6 percent increase includes both the across-the-board increase and the locality-based increases. So, even using 3.6 percent as the starting point, taking away 1 percentage point would leave no room for locality-based increases.

Now, it may be that the Bush administration will decide in August (when required to do so by law) that all federal employees will receive a 2.6 percent across-the-board increase, and there will be no locality-based increases. But in recent years, the common practice has been to put 1 percentage point of pay raises toward locality pay. In 2002, for example, the total raise averaged 4.6 percent, with the across-the-board increase at 3.6 percent and the remaining 1 percent divided up as locality-based increases based on labor costs in 31 metropolitan areas and a catch-all category called "Rest of the United States" for workers outside of those 31 cities. If that common practice is followed in 2003, then the across-the-board increase will be 1.6 percent, 1.5 percentage points lower than the increase (3.1 percent) that the change in the Employment Cost Index calls for. The remaining 1 percentage point would then be used for locality-based increases. That 1 percentage point is well below the locality-based raises called for in the 1990 Federal Employees Pay Comparability Act. That law sought to reduce a perceived 30 percent pay gap between federal and private sector salaries over 10 years. The law has been mostly ignored over the past decade. Hoyer said Monday that locality-based raises would have to be more than 25 percent in 2003 to close the gap.

"The president's proposal would not even put a small dent in this problem; in fact, it ignores it entirely," Hoyer said. An OMB spokeswoman countered that for the past three years, federal pay raises have outpaced private sector wage growth. Using the Bush administration's proposed 2003 increase of 2.6 percent, the total civilian employee increase from 2001 to 2003 would be 7.3 percent, or 3.2 percent above the increase in inflation over those two years, the spokeswoman said. "Let me just remind you, this is an increase at a time when the economy is in recession and many Americans are seeing zero increase or even a drop in pay," Daniels said on Monday. Nevertheless, Hoyer, Davis, other Washington area lawmakers, National Treasury Employees Union President Colleen Kelley and American Federation of Government Employees President Bobby Harnage are making the case for a higher federal pay raise. Their arguments include:

• Because of the high number of federal workers who will be eligible to retire in coming years, the government needs to pay civilians more to recruit and keep workers.
• Military and civilian pay parity has been a traditional hallmark of annual raises, with equal raises in 17 of the last 20 years.
• Civilians often work alongside military personnel in war zones, and many civilians put their lives on the line in the course of their duties at home.

Several readers asked whether there was some law, regulation or rule that prevents special rate employees from getting the higher locality-based raises. The basic answer is no. The president and OPM have the discretion to set special rate increases each year. Why have they decided to give special raters lower raises each year? Here is an answer provided by Donald Winstead, OPM's assistant director for compensation administration: "The rationale for increasing special salary rates at a slightly slower rate than for other employees is similar to the rationale for not paying locality payments on top of special salary rates: Both locality payments and special rates are designed to move federal salaries closer to nonfederal market rates. As locality pay percentages increase gradually over time, the overall pay disparity between federal and non-federal pay rates is reduced. (It has already been reduced from about 30 percent in the early 1990s to about 22 percent, as of March 2001.) In effect, special rates 'jump-start' the process of bringing federal pay closer into alignment with the nonfederal labor market for specific occupations or in specific locations. But special salary rates were never designed or intended to create a fixed, permanent pay differential above the rates of pay for other occupations at the same grade level. … "It is worth noting that federal agencies may request an increase in already existing special salary rates at any time-not just during the annual review conducted by OPM. For example, if federal agencies determine that the special rates now in place for certain categories of information technology workers are not adequate to recruit or retain these employees, OPM will give quick consideration to a request for higher IT special rates. We will not, however, increase the IT special rates solely for the purpose of maintaining a fixed differential between these rates and the rates of pay for other employees covered by the General Schedule. As the law and regulations require, we must have evidence that recruitment or retention efforts are (or are likely to become) significantly handicapped."