GovernmentExecutive.com

President Bush has moved to limit the pay increase for white-collar civilian federal employees under the General Schedule to 2.5 percent next year, with no additional pay for workers based on labor costs in the areas where they work.

Under federal law, the president had until the end of November to propose an alternative to pay levels set under procedures laid out in the 1990 Federal Employees Pay Comparability Act. Under the law, employees would have been due the 2.5 percent raise next year, plus locality pay increases averaging 10.6 percent. The act was designed to close the gap between federal and private-sector salaries, but raises under the law have never been fully funded.

Locality pay rates would remain at the 2004 level next year under the alternative plan Bush forwarded to congressional leaders on Monday. According to the president, funding the locality pay raise would cost about $9.8 billion in fiscal year 2005 and pull much-needed resources from other areas.

"A national emergency has existed since September 11, 2001, which now includes Operation Enduring Freedom (in Afghanistan) and Operation Iraqi Freedom," Bush wrote. "Full statutory civilian locality pay increases averaging 10.6 percent in 2005 would divert resources from and interfere with our nation's ability to fight the war on terror, with respect to which a national emergency is in effect under the law."

When the budget was released in February, the Bush administration proposed a 1.5 percent average pay increase for federal workers and a 3.5 percent raise for military service members. In the months since, members of Congress have worked to provide a 3.5 percent pay raise to civilians and uniformed members of the armed services. Last week Congress approved the fiscal 2005 omnibus spending bill, which included a 3.5 percent average pay raise for civilian employees.

In his letter, Bush said he did not believe his decision would "materially affect" the government's ability to attract and retain a quality workforce.

"To the contrary, since the Congress has not funded the cost of a pay raise in excess of the 1.5 percent increase I proposed, agencies would have to absorb the additional cost and could have to freeze hiring in order to pay the higher rates," Bush wrote, adding that "quit rates are at an all-time low of 1.6 percent per year, well below the overall average quit rate in private enterprise." Accordng to the president, agencies can use compensation tools, such as recruitment bonuses, retention allowances and special salary rates, if needed.