President moves to limit 2004 federal pay raise

President Bush issued a plan Wednesday designed to limit the pay increase for white-collar federal employees to an average of 2 percent in 2004.

Under a formula included in the 1990 Federal Employees Pay Comparability Act, federal workers covered under the General Schedule would be due a 2.7 percent base pay raise next year. In addition, workers would receive locality pay increases, bringing the overall average pay increase to 15.1 percent. The formula used to compute the raise is designed to close the gap between federal and private-sector salaries, but it has never been fully implemented.

According to the White House, raises under formula set out in the law would cost $13 billion in fiscal 2004. The 2 percent raise would cost $2 billion.

The president has until Sept. 1 to issue an alternative to the pay plan derived from the 1990 law if he views the raise to be inappropriate due to "national emergency or serious economic conditions affecting the general welfare." In a letter to congressional leaders Wednesday, President Bush outlined his alternative. It called for a 2 percent raise, divided between a 1.5 percent across-the-board increase and 0.5 percent in locality pay raises, which are determined by pay surveys conducted across the country by the Bureau of Labor Statistics.

President Bush initially proposed the 2 percent raise in his fiscal 2004 budget, presented to Congress earlier this year.

Bush said he acted to limit raises because "full statutory civilian pay increases…would interfere with our nation's ability to pursue the war on terrorism."

The House and the Senate could still vote for a raise higher than 2 percent, which would take effect unless President Bush vetoed the legislation including the raise provision. The raise is typically included in the annual Treasury-Postal appropriations bill.

In late July, the House Appropriations Committee voted to approve a 4.1 percent civilian federal pay raise next year, to match the amount uniformed military service members are slated to receive.

"If we don't do this, then we lose some of our best employees," said Rep. James Moran, D-Va., at the time. "We may not see it overnight, but more than half the federal workforce is eligible to retire in the next three to five years."

In his statement, however, Bush said he did not believe his decision to limit the civilian raise to 2 percent would affect agencies' ability to recruit and retain civilian workers. "To the contrary," he said, "since any pay raise above the 2 percent I have proposed would likely be unfunded, agencies would have to absorb the additional cost and could have to freeze hiring in order to pay the higher rates."

Bush also noted that the rate at which federal employees are leaving their jobs is "at an all-time low of 1.7 percent this year, well below the average quit rate in private enterprise."

In his letter, Bush again made a pitch for his "human capital performance fund," a $500 million pool of money agencies could use to reward high-performing employees. The fund is included in the 2004 Defense authorization bill (H.R. 1588), which is currently in House-Senate conference.