Salary council defers decision on changing locality pay formula

The Federal Salary Council debated Thursday whether to alter the formula that determines which cities get more money in the annual federal pay raise process, but decided to leave the decision to higher authorities.

The council, an independent body of salary experts, employee representatives and federal officials that makes pivotal determinations each year on the allocations of locality pay, voted to let the President's Pay Agent decide how to divide pay among the regions. The Pay Agent -- a board made up of the heads of the Office of Personnel Management, Office of Management and Budget and Labor Department -- could continue to use the formula that has been used until now, or it could switch to a new formula.

The proposed new formula would take into consideration the increasing pay gaps between the private and public sectors in some cities, such as New York, compared to other areas. But switching formulas would mean that many cities and the "Rest of U.S." category would get a smaller locality boost.

The question of next year's locality pay is further complicated by the uncertainty about the total pay raise Congress will provide. Across-the-board raises for federal employees in 2007 will be 1.7 percent, coupled with either a 1 percent or 0.5 percent locality adjustment, the council said.

The final locality number will depend on whether lawmakers allocate a 2.7 percent or a 2.2 percent total pay increase for civilians next year. Congress, which may not make its decision until as late as December, has approved a 2.7 percent raise in draft legislation for civilians, but has passed a 2.2 percent raise for the military. Historically, lawmakers have brought the civilian raise in line with that for the military, and especially during a time of war, it is unlikely lawmakers will grant civilians more than soldiers.

Assuming the locality pay is 0.5 percent, employees in the New York region would get a 3.03 percent total pay raise under the new formula and a 2.63 percent raise under the old one. San Francisco area employees would get either a 3 percent or a 2.71 percent hike. Washington workers would get a 2.64 percent or 2.4 percent raise.

The "Rest of U.S." area would get a 1.81 percent raise under the new formula, which is smaller than the 2.03 percent it would get if the Pay Agent sticks with the old formula.

Regardless of the way it is sliced, "the overall raise is minuscule," said Richard Brown, president of the National Federation of Federal Employees and a member of the council. "I don't care how you do the math, [closing the pay gap] is not going to happen."

In years past, the council has voted to shift some cities in or out of the "Rest of U.S." category, but this year it kept the same 32 locality areas as last year. The private-federal pay gap for Indianapolis actually fell below that of the "Rest of U.S." category last year, but the council decided to keep the city as a separate locality and monitor it closely next year.

The council also rejected two proposals for increased locality pay at its meeting Thursday. The Los Angeles Federal Executive Board argued that its locality pay area should be split in two, with one for coastal regions and another for inland areas. L.A. FEB Executive Director Kathrene Hansen said inland labor is less expensive, which causes recruitment and retention problems for higher-cost areas such as Ventura and Orange counties.

Representatives from Western Massachusetts unsuccessfully made a case for adding Berkshire County to the adjoining Hartford, Conn., locality area.

The Pay Agent traditionally follows the council's advice, and has to submit its recommendation to the president each year by Nov. 30.