Base pay raise for 2004 pegged at 2.7 percent

Federal employees are likely to get a 2.7 percent across-the-board pay raise in 2004, based on figures released by the Labor Department Thursday.

The release of the Labor Department figures marks the beginning of the 14-month cycle under which federal pay raises are set each year. The 2.7 percent across-the-board increase could be accompanied by additional city-by-city locality-based raises for federal employees in the 48 contiguous United States.

Under federal law (5 U.S.C. 5303(a)), the across-the-board pay raise for civilian workers in 2004 is based on the change in the Labor Department's Employment Cost Index for private sector wages and salaries from September 2001 to September 2002, minus half of a percentage point. The change in the ECI, announced by Labor Thursday, was 3.2 percent. So the raise would be 2.7 percent.

That formula has been followed in recent years, with federal employees generally receiving the across-the-board raise called for by the formula, plus an average 1 percent additional increase for the locality-based portion of the pay raise.

But President Bush can reject the formula and seek a different raise amount. For the January 2003 pay raise, for example, the change in the ECI last year called for a 3.1 percent across-the-board increase. But in his fiscal 2003 budget issued in February, Bush called for a 2.6 percent total average raise, including both the across-the-board and locality-based portions.

Since then, Congress has moved to force Bush's hand to give employees the 3.1 percent across-the-board increase plus a 1 percent average additional locality-based increase. But with only two months to go in the year, Congress has yet to pass the law that would make the 4.1 percent average pay raise official. So the amount of the 2003 pay raise for federal workers is still up in the air.

Despite that uncertainty, the cycle for the 2004 pay raise has now begun. Next, in December, the Office of Personnel Management director, the Labor Secretary and the Office of Management and Budget director will issue a report to the president laying out the locality-based portion of the raise, based on a statutory formula.

In February, Bush will issue his fiscal 2004 budget, which will recommend a raise that either follows the formulas or deviates from them. Congress will then spend the spring, summer and fall working on appropriations bills. If lawmakers don't like Bush's proposed raise, they can set a different pay raise amount through the Treasury-Postal appropriations bill. In December 2003, Bush will issue an executive order officially setting the raise for 2004.