Big Apple Blues

hen James Gaither, then assistant division chief of the Internal Revenue Service's Memphis office, graduated from the IRS' executive program in 1998, he resisted transferring to the New York area. "The high cost of living was my major concern," he says. But a position as assistant director at the IRS' Brookhaven Service Center on Long Island proved so appealing that Gaither accepted the assignment and moved his family from Memphis to Suffolk County, N.Y., at the beginning of this year.

Since starting the job, Gaither has watched his take-home pay decline, despite Long Island's 10.3 percent locality pay differential, which is three times higher than the differential in Memphis. His take-home pay decreased by $200 a month after the high state and local income taxes were deducted. He bought a 2,400-square-foot home in Suffolk for $260,000 that was comparable to a $99,000 house in Memphis. He shells out $5.50 for a fast-food lunch that cost $4 in Memphis, pays $25 a month for his cellular phone instead of $18, and spends an additional 10 cents a gallon for premium gas.

Of the 31 federal agencies that participated in an October 1998 survey by the New York Federal Executive Board, 24 reported significant recruitment and retention problems. Federal agencies "can't compete in this boom economy, particularly in New York with Wall Street," says Susan Kossin, executive director of the board, which coordinates interdepartmental activities among 140 federal agencies in the New York metropolitan area. "Anyone with a good degree does not want to work for us, because salaries aren't competitive. Our salaries are 30 to 40 percent behind market rates."

Skilled employees in medicine, law enforcement and computers are difficult to attract, and, if hired, they are hard to retain, Kossin says. Currently there are shortages of medical technicians, computer specialists and attorneys. "We have virtually zero ability to get people to relocate from other parts of the country from within the federal government," she says. "Even with locality pay, our salaries aren't competitive."

Ten years ago, the New York Federal Executive Board issued a report loaded with statistics about how federal workers in the region earned less than private workers and less than their federal colleagues in other areas due to New York's higher cost of living. The 1998 report has fewer statistics but more anecdotes on labor shortages. "In 1998, the issue is not about vacancies, because the government has downsized [from about 70,000 employees to 40,000 in New York]. It's becoming a quality issue," says Kossin.

Not in the Ballpark

At Veterans Affairs Department hospitals, positions as medical record coders and physical therapists remain vacant because federal pay scales cannot keep up with escalating private sector salaries. A VA hospital director earns half of what directors of private hospitals in the region earn, Kossin says. Likewise, employees in such specialties as legal support and computers can earn more at private firms.

"If the private sector is paying $50,000 for a computer programmer and we're paying $32,000, we're dead," Kossin says. "We're not even in the ballpark."

Unable to fill vacancies, agencies are forced to hire temporary or contract employees, paying more in fees than they would have to pay in salaries for full-time staff. Most temps are hired to repair computers, install and support new hardware and software, provide help desk services, and perform data input, bookkeeping and accounting tasks.

When jobs go unfilled, the remaining employees are stretched beyond their normal responsibilities and suffer from burnout or low morale. "Professionals sometimes have to cover other functions and perform quasi-clerical duties, or the work just doesn't get done," Kossin says.

Officials at the Securities and Exchange Commission say they are able to hire first-year lawyers who crave experience despite lower pay scales, but the SEC has difficulty holding onto them for more than a couple of years. For lawyers with three or more years' experience, the SEC pays a third to a half of what Wall Street firms pay. The Securities Professional Pay Differential, a special pay rate granted to the SEC by the Office of Personnel Management, has been slashed and can't compensate for the difference, explains Carmen Lawrence, director of the SEC's Northeast Regional Office in New York. So many lawyers leave for higher pay after three years that the SEC is continually playing catch-up to fill vacancies and recruit experienced lawyers. As a result, supervisors are continually training new people and cases are frequently delayed while new attorneys become familiar with them.

In 1998, the FBI was 100 agents below its full staffing level in the New York office, says Carson Dunbar, special agent in charge of administration there. Since many agents begin their careers at around age 30 and are former attorneys, accountants or police officers, the $50,000 starting salary in New York isn't very attractive.

FBI and law enforcement personnel in select cities also receive a special pay differential, which in New York is General Schedule pay plus 16 percent.

The New York office handles some of the most complex cases in the country, including Wall Street fraud, terrorism and organized crime, yet 60 percent of its investigators have fewer than four years' experience. Many FBI agents are assigned to New York against their wishes, creating morale problems. Often, New York agents transfer to other FBI offices after two to three years. "If people don't feel that they are adequately compensated, it's hard to keep them motivated," Dunbar says.

The Federal Aviation Administration has had a difficult time attracting air traffic controllers to New York. A first-year air controller earning $22,700 in New York would have a hard time meeting living expenses compared to one living in Kansas City on a $21,900 salary, notes Manny Weiss, regional executive manager of the FAA's Eastern Region. "The little bit of difference in salary does not make up for the difference of costs. When you add on commuting time and schooling, we have a difficult time attracting air controllers," Weiss says.

Carol Landy, director of the IRS, Brookhaven Service Center, has a similar problem. "It's very difficult to attract people to apply for jobs from outside the New York area," she says. "In my five years here, I've only picked up two division heads who shifted from outside the area." Despite crime reductions, New York still has the reputation of being a "rough-and-tumble town, with high crime and an ineffective school system," Kossin says. The result of having so few employees relocate, Landy says, is "limiting your recruitment pool, as well as less creativity and lack of exposure to better ideas that might have been done in other offices."

Pushing for Pay

New York and other high-cost cities were supposed to get help with recruitment and retention problems through the 1990 Federal Employees Pay Comparability Act (FEPCA), which was designed to close pay gaps with the non-federal sector in localities around the country by 2003.

FEPCA has not worked. The Clinton administration has used a loophole in the law to issue smaller raises than FEPCA recommends each year because it believes the FEPCA methodology is flawed and because it wants to hold down federal spending. For example, the FEPCA formula called for a 13 percent average raise in 1999. Instead, President Clinton issued a 3.6 percent average raise.

Moreover, New York's high cost of living is not even considered in allocating pay differentials, which are instead based on the costs of labor in various localities. As of March 1998, the Bureau of Labor Statistics had calculated that New York ranks fourth behind San Francisco, Los Angeles and Houston. "We don't take into account living costs in New York, Boston, San Francisco, Key West or anywhere," says an OPM official.

OPM argues that agencies in New York are not employing all of the weapons in their arsenal to offer employees pay incentives. Agencies can offer recruitment bonuses of up to 25 percent of annual pay for a difficult-to-fill position, relocation bonuses of 25 percent of salary to attract an employee from another region, and retention increases if someone is offered additional pay in the private sector.

But Robert M. Tobias, president of the National Treasury Employees Union, which represents more than 8,000 federal employees in the New York area, calls these measures "Band-Aids, not a solution."

The real answer, he says, is obeying the intent of FEPCA and "writing the checks." Tobias adds that since 1993, downsizing has shielded the federal government from the recruiting problem, "but now it will go back into the market to hire people and won't be able to compete for the quality of employees necessary to carry out public tasks."

Special inducements may have an effect when an agency is trying to hire a single specialist in a hard-to-fill slot, but the FAA's Weiss notes that his agency can't offer such incentives to 20 or more air controllers at a time. FAA often must hire at that pace, because it has more than 700 controllers at its various airports and control centers in the New York area. Moreover, last year's Federal Executive Board report noted that 21 of 32 agencies are not authorized to offer recruitment bonuses without approval from headquarters. "If we're recruiting 100 staff, we are not going to pay them a $25,000 bonus each," Kossin says.

Because pay is low, applicants for federal jobs often are unqualified. In fact, more than 30 percent of the people who took the clerk test at the Brookhaven IRS Service Center failed. When it comes to computer specialists, the FBI's only options are to take "C students who are not as attractive to business or hire people with little experience," says Dunbar.

Aware of the difficulties that agencies in New York and other high-cost areas face, the House Government Reform Subcommittee on the Civil Service pushed a bill in 1996 that "grants agencies flexibility in hiring and compensating their workforce," says George Nesterczuk, the subcommittee's staff director. The House passed the bill, but the Senate failed to act on it. Earlier this year, Vice President Al Gore said the Clinton administration would propose a civil service reform package that would tie pay raises to performance instead of allowing automatic seniority increases, permit agencies to replace the General Schedule with broad-banding pay systems, and streamline hiring procedures.

It's unlikely, however, in an era of continued downsizing that Congress or the administration will push to increase pay dramatically in any area. Since OPM can authorize special rates for geographic hardship or problem occupations, the "problem can be dealt with administratively and is not a legislative crisis," Nesterczuk says.

Other Options

Several agencies do make use of special pay provisions. VA hospitals, for example, offer additional pay to physicians, dentists and nurses in scarce specialties. For example, the hospitals can add $15,000 to the $105,000 base salary for a primary care physician coming out of medical school. After 15 years on staff, physicians' salaries can rise by $25,000 to $30,000, making their pay more competitive with private hospitals. "Federal guidelines reward physicians who stay here longer," says John Donnellan, director of the VA Harbor New York Healthcare System, which consists of two VA hospitals in Brooklyn and Manhattan and one VA clinic in Queens.

Nevertheless, Donnellan fears that if the job shortages continue, VA hospitals will fall behind private hospitals in technology. "Health care is driven by technology," he says. Since the VA is committed to computerizing its medical records and using technology to help improve patient care, it will fall behind other hospitals if it is unable to hire computer specialists and medical coders.

The VA is able to offer employees an opportunity for public service that private hospitals can't match. And the relationship that two New York-area VA hospitals have with medical schools at New York University and Mt. Sinai Medical Center helps attract doctors who want to teach. But it's still tough to compete with private hospitals offering $20,000 more in pay, Donnellan says.

Unable to compete on the basis of salary, agencies are becoming more flexible to attract skilled employees. Rather than expecting employees to work for 40 years, some agencies are reengineering operations and hiring employees with the expectation that they'll leave after one or two years. For the VA, "another option is moving toward hiring more independent contractors in computer fields or with physical therapists," Donnellan says.

Job shortages have also led agencies to redistribute their workloads. VA hospitals have been employing four-day workweeks with 12-hour shifts to make jobs more appealing. The FAA recently signed an agreement with the private College of Aeronautics located near LaGuardia Airport to supply it with air controllers. Students who pass the school's certified program can bypass the FAA air control exam and be hired directly. "This will enable us to hire local people" and not have to recruit nationally, Weiss says.

Despite the impediments to working on a federal salary in New York, some federal professionals have decided to make the leap. For example, in 1994, Dr. Joyce Rico, who had been on the faculty of Duke University Medical Center in Durham, N.C., moved with her husband-who is also a physician-and their two children to become chief of dermatology at the VA Harbor New York Healthcare System. She transferred because of the opportunity to teach at New York University's well-regarded dermatology department.

Though Rico's 70-minute commute from suburban Westchester County to Manhattan is more than an hour longer than her Durham commute, she is glad she moved to New York. "My children, who are adopted and interracial, live in a more heterogeneous environment," she says. "In Durham, people stopped and looked at us. In New York, no one does." Her children attend Wynton Marsalis' jazz concerts at Lincoln Center and already have seen 10 Broadway plays. "The social and cultural opportunities in New York may compensate for some of the hassles of
living in the city," she says.

The key to making sure that people like Rico continue to take federal jobs in New York is making the federal compensation system more flexible, Kossin says. That could include fully implementing FEPCA, setting up pay differentials based on cost of living, increasing the number of special salary rates, abolishing clerical tests for new hires and granting agencies more authority to hire without approval from headquarters.

"Making salaries more competitive with the private sector is critical," Kossin says.

As the average age of the federal workforce nears 45, retirements in senior positions are expected to increase. "If we're not bringing in quality, well-educated people to do the work, where are we going to find them?" Kossin wonders. "We can't get them from other parts of the country, and we can't recruit them locally."

Gary M. Stern is a New York City freelance writer who contributes to Reuters, American Way, Continental, Consumer Reports Travel Letter, BizTravel and other publications.