Locality adjustments fail to erase salary gap, critics say

Locality and nonforeign area payments are not closing the pay gap between the public and private sectors, and could threaten recruiting and retention of the next generation of federal employees, workforce advocates told lawmakers at a Thursday hearing.

"We can keep the people at the end of their career because they may have some retirement restrictions, and we can get people at the beginning of their careers," said Kathrene Hansen, executive director of the Los Angeles Federal Executive Board. "When you're in your 20s, it's OK to share an apartment. But when they're a journeyman, they can make an effective contribution, and they start thinking about getting married and having a family, they look around and say, 'I can't do this' and flee to a lower-cost city."

Representatives from employee groups and the Office of Personnel Management suggested a variety of improvements to salary adjustments, which included basing payments on cost of living by county rather than prevailing local wages; fully enforcing locality pay provisions; offering housing subsidies to employees in areas with unusually high real estate costs; and expanding locality pay to areas covered by nonforeign area cost-of-living adjustments.

Basing locality pay on local private sector compensation is ineffective in Southern California, Hansen said, where wages are depressed by illegal immigration and locality areas are so large that they include both wealthy and impoverished communities, creating a distorted income portrait.

Hansen said she'd attempted a wage survey of her own and found that private companies often were less than transparent about the pay they offered for certain positions, and those salaries were highly variable. Calculating wages based on county-by-county cost of living would correct for those distortions, she said.

"Parental leave, telework, those are nice-to-haves, but you're not too concerned about those issues when you really are struggling to put a roof over your head and food on your table," Hansen said.

But she was alone in advocating a switch to a cost-of-living based system.

National Treasury Employees Union Colleen Kelley and Jacqueline Simon, public policy director for the American Federation of Government Employees, told legislators that full enforcement and funding of the 1990 Federal Employees Pay Comparability Act, which established the locality system, would be a better solution.

Kelley said the original intent of the law had been undermined by alternative pay plans put in place by various presidents during national emergencies or economic circumstances, which trumped comparability increases. Enforcing locality pay provisions based on area wages would eventually include cost of living as a consideration, she said, because one is predicated on the other.

"The federal government cannot pay below-market salaries and expect to be anything other than an employer of last resort, and we believe that market comparability is not only the best way to ensure recruitment and retention of a high-quality federal workforce, it is also the fairest way to set federal pay," Simon said.

The employee advocates agreed that under carefully defined circumstances, a housing subsidy similar to the payments service members receive, could be an appropriate supplement to federal salaries.

A first step in locality pay reform would be to replace the cost-of-living adjustments that cover employees in Alaska, Hawaii and the U.S. territories with locality pay, according to Charles Grimes, deputy associate director of OPM, and others testifying.

On Wednesday, the Senate Homeland Security and Governmental Affairs Committee approved a bill by Sen. Daniel Akaka, D-Hawaii, to expand locality pay to areas covered by COLAs. His proposal would complete the shift by 2012, decrease COLAs by 65 percent to compensate for the increase in taxable income, and give employees a one-time opportunity to opt out of the switch to locality pay. OPM has offered competing legislation that calls for a seven-year transition and an 85 percent reduction in COLAs.

Rep. John Sarbanes, D-Md., told Hansen that her analysis of basing locality pay on area wages versus cost of living was worrisome.

"A lot of our argument for [pay reform] is this is going to make the government more competitive for recruiting and retaining people," he said. "And what you're suggesting that we may be kidding ourselves in areas where cost of living isn't properly accounted for."