Waiting on a raise

Federal employees will receive a pay raise of at least 3.1 percent in January. Whether the raise will be higher depends on the outcome of several events over the next few months.

Before we look ahead, though, let's look back.

In October 2001, the Labor Department released Employment Cost Index figures that, when plugged into the federal pay formula, preliminarily set the January 2003 across-the-board pay raise at 3.1 percent. The across-the-board increase is half of the federal pay formula. The other half is locality pay, which is based on labor costs from city to city. In November 2001, the Federal Salary Council, a group of federal officials and union representatives, recommended locality-based increases for 2003 to the Bush administration. Under the formula in federal law, the locality-based increases should be in the double digits.

The Bush administration issued its proposed fiscal 2003 budget in February. The budget called for a total raise of 2.6 percent, below even the expected across-the-board increase. Lawmakers from the Washington area, including Rep. Steny Hoyer, D-Md., immediately announced plans to set the 2003 pay raise at an average of 4.1 percent. The raise would be divided between a 3.1 percent across-the-board increase and an additional 1 percent average locality-based add-on. Congress can override the president on pay raises through legislation.

Lawmakers included the 4.1 percent average raise in the 2003 Treasury-Postal appropriations bill, which the House passed and the Senate Appropriations Committee approved in July.

Under federal pay law, the president can strike down the expected across-the-board increase and offer an alternative number-before the end of August. With the 4.1 percent raise advancing through Congress, Bush opted not to do so this year. His inaction secured an across-the-board increase of 3.1 percent for federal workers in January 2003.

In October, the Federal Salary Council issued recommended locality-based raises based on the 4.1 percent raise then working its way through Congress. The council assumed a 3.1 percent across-the-board increase and tacked on an average 1 percent locality-based raise on top of that. Under the council's recommendations, raises would vary from 4.03 percent in places like Huntsville, Ala., and Indianapolis, to 4.87 percent in San Francisco. (For a full list, click here). The council's recommendations have been adopted in past years.

This week, Congress prepared to adjourn after passing a short-term spending measure that will keep the government running until Jan. 11. Lawmakers did not approve the 2003 Treasury-Postal bill, meaning the 4.1 percent increase did not become law.

Now, let's look ahead.

President Bush has until the end of November to propose an alternate plan for locality pay increases. Absent any action by Bush or Congress, the formula in federal pay law would call for double-digit locality-based raises. Bush is unlikely to allow massive raises, so he will probably issue an alternate plan. He could say there will be no locality pay increases, or he could follow the Federal Salary Council's average 1 percent recommendations. (Technically, he could set the raises at whatever amount he wants, but these seem the most likely scenarios.)

If Bush decides to cancel locality pay increases entirely, then employees will receive only the across-the-board increase of 3.1 percent in January. If he decides to follow the salary council's recommendations from October, then employees will get an average 4.1 percent raise. Either way, most agencies will have to come up with the money for the raises by cutting other spending, since most agencies are operating at fiscal 2002 spending levels. The only exception is the Defense Department, for which Congress has approved fiscal 2003 funding.

If Bush sticks to 3.1 percent, then Washington-area lawmakers have promised to pass a bill that would retroactively set the raise at 4.1 percent. That would mean a lump-sum payment in employees' paychecks sometime in the spring to make up for the lost time. If Bush goes with 4.1 percent, then lawmakers won't need to do anything.

If Bush does stick to 3.1 percent, the timing may help soften the impact of the news. Nov. 30 is the Saturday of the Thanksgiving weekend.

The Outlook for Executives Pay rates for the executive schedule-the salary scale on which Cabinet secretaries are paid-are set to go up 3.1 percent in January, based on federal pay law. That increase would boost the annual limit on pay for federal career executives from $138,200 this year to about $142,500 next year.

The president has the authority to set Senior Executive Service raises however he pleases, and will do so in December. If history is a guide, Bush will likely give executives a 3.1 percent base pay increase plus any locality increase awarded to rank-and-file employees.

Executives won't get full pay raises if doing so would put them over the annual limit.

Last year, senior executives got basic pay raises between 3.4 percent and 3.6 percent, plus 1 percent average locality-based increases. Rank-and-file employees got a 4.6 percent average pay increase.