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Key developments in the world of federal employee benefits: health, pay, and much more.

Locality pay decision coming

Wouldn't an 18.8 percent pay raise next year be nice? That's how much the average federal employee would receive in 2002 under the 1990 Federal Employees Pay Comparability Act. But as it has been for the past eight years, that law will be ignored again in 2002. So instead, federal workers will have to wait a few weeks to know exactly how much of a pay raise they will get in January. In the 2002 Treasury-Postal spending bill, Congress ordered President Bush to give employees an average 4.6 percent pay raise. The raise will be divided in two parts. First, employees will receive an across-the-board raise. Based on the President's actions earlier this year, the across-the-board raise will likely be 3.6 percent. Second, employees will receive an added raise based on where they work. Under locality-based payments, the less you're paid compared to private sector workers in your city, the bigger your raise will be. Because Congress ordered an average raise of 4.6 percent, the 1 percent left over after the across-the-board increase will likely be divided up depending on salary rates in the government's 32 locality-pay areas. By the end of December, and probably sooner, President Bush will announce by executive order how the locality-based portion of the raise will be divvied up. Last year, federal workers found out on Nov. 30 what their pay raises would be. President Clinton was forced by federal law (U.S. Code Title 5, Section 5304a, for all you chapter-and-verse types) to issue an alternative locality pay plan that set out raises by city. Had he not acted, the total pay increase for most employees would have been about 15 percent, instead of the average 3.7 percent that Clinton decided on. But this year, President Bush doesn't have to issue an alternative locality pay plan by the end of November. Because Congress has already passed a specific raise and because the President has already signed it into law, there's no chance that federal workers will get a double-digit pay raise. Instead, Bush has until the end of December to decide how to allocate locality-based pay raises. Locality-based raises became a fixture of federal pay in 1994, following implementation of the 1990 Federal Employees Pay Comparability Act. The act's proponents identified a gap between public and private sector salaries of about 30 percent a decade ago. The act was designed to close the gap to about 5 percent. But the Clinton administration, and now the Bush administration, has ignored the act every year, implementing smaller raises than called for under the law. This table shows what raises should have been if the law had been followed every year, versus what the raises actually were.
1994 6.2% 4.0%
1995 4.3% 2.6%
1996 4.2% 2.4%
1997 4.3% 3.0%
1998 5.0% 2.8%
1999 5.2% 3.6%
2000 6.3% 4.8%
2001 4.5% 3.7%
Clinton and Bush both used the same basic argument against the larger raises: They would be too expensive. They also contend that the methodology under the law is flawed, so that some federal workers are probably overpaid and some federal workers are probably underpaid, depending on their occupation and work location. People who argue for the higher raises contend that the government cannot attract and keep top-notch people if it won't pay them in the ballpark of private-sector employers. The pay gap is down to 21.7 percent based on calculations by the Office of Personnel Management. As mentioned at the beginning of the column, it would take an 18.8 percent average pay raise-a 3.6 percent across-the-board increase plus an average 14.7 percent locality-based increase-to catch up to the remaining pay gap in 2002. That would never happen. OPM is conducting a strategic compensation review that could lead, in just a few years, to changes in the way pay raises are calculated. More Locality Pay Three new locality pay areas may be created in 2002: Austin, Texas; Raleigh-Durham-Chapel Hill, N.C.; and Louisville, Ky. The President's Pay Agent, a body made up of the Office of Personnel Management director, the Office of Management and Budget director and the Labor Secretary, will decide whether to give the three areas locality-pay designation. That would mean more money for federal employees who work in those areas. The Pay Agent has until the end of the year to decide whether to add the three locations to the list of locality pay areas.

Brian Friel is founder of One Nation Analytics, an independent research, analytics and consulting firm for the federal market.

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