Federal White-Collar Pay: FY2005 Salary Adjustments

CRS Report for Congress
Federal White-Collar Pay:
FY2005 Salary Adjustments
Updated February 7, 2005
Barbara L. Schwemle
Analyst in American National Government
Government and Finance Division


Congressional Research Service ˜ The Library of Congress

Federal White-Collar Pay: FY2005 Salary Adjustments
Summary
Federal white-collar employees are to receive an annual pay adjustment and a
locality-based comparability payment, effective in January of each year, under
Section 529 of P.L. 101-509, the Federal Employees Pay Comparability Act
(FEPCA) of 1990. The law has never been implemented as originally enacted;
annual and locality payments have been reduced. In January 2005, they received a
2.5% annual pay adjustment and a 1.0% locality-based comparability payment under
Executive Order 13368, issued by President George W. Bush on December 30, 2004.
Although the federal pay adjustments are sometimes referred to as cost-of-living
adjustments, neither the annual adjustment nor the locality payment is based on
measures of the cost of living.
The annual pay adjustment is based on the Employment Cost Index (ECI),
which measures change in private-sector wages and salaries. The index showed that
the annual across-the-board increase would be 2.5% in January 2005. The size of the
locality payment is determined by the President, and is based on a comparison of
non-federal and General Schedule (GS) salaries in 32 pay areas nationwide. By law,
the disparity between non-federal and federal salaries was to be gradually reduced to
5% over the years 1994 through 2002; FEPCA requires that amounts payable may not
be less than the full amount necessary to reduce the pay disparity to 5% in January
2005. The Federal Salary Council and the Pay Agent recommended that, to carry out
FEPCA, the 2005 locality payments range from 18.14% in the “Rest of the United
States” (RUS) pay area to 47.96% in the San Jose-San Francisco pay area. The
payment recommended for the Washington, DC, pay area was 29.66%. Because the
new locality rate replaces the existing locality rate, the change in locality rates is
derived by comparing 2004 locality payments with those recommended for 2005.
This comparison results in recommended net increases for 2005, if the ECI and
locality-based comparability payments were granted as required by law, of 9.19% in
the RUS pay area to 22.10% in the San Jose-San Francisco pay area, and 15.94% in
the Washington, DC, pay area. The nationwide average net pay increase, if the ECI
and locality-based comparability payments were granted as required by law, would
have been 13.06% in 2005. President Bush’s FY2005 budget proposed a 1.5%
federal civilian pay adjustment. He proposed a 3.5% pay adjustment for the
uniformed military, and a number of Members of Congress advocated the same pay
adjustment for federal civilians. The Departments of Transportation and Treasury
and Independent Agencies appropriations bill, 2005 — H.R. 5025, as passed by the
House of Representatives, and S. 2806, as reported in the Senate — provides a 3.5%
pay adjustment for federal civilian employees, including those in the Departments of
Defense and Homeland Security. This appropriations bill was incorporated as
Division H of the Consolidated Appropriations Act for FY2005 (H.R. 4818) which
was signed by the President on December 8, 2004, and became P.L. 108-447.
The President’s budget for FY2006 proposes pay adjustments of 2.3% for
federal civilian employees and 3.1% for the uniformed military. The same pay
adjustment for both civilians and the military is advocated by several Members of
Congress.



Contents
In troduction ......................................................1
2005 Pay Adjustments..............................................2
Annual Pay Adjustment.........................................2
Locality-Based Comparability Payments............................3
Bureau of Labor Statistics (BLS) Surveys.......................4
Report of the Federal Salary Council...........................6
Pay Agent Report.........................................10
The President’s Recommendation for FY2005..........................13
Congressional Recommendations for FY2005..........................14
Concurrent Budget Resolutions..................................15
Departments of Transportation and Treasury and Independent Agencies
Appropriations Bill, 2005..................................16
Annual and Locality Pay Adjustments.........................16
Human Capital Performance Fund............................19
The President’s Recommendation for FY2006..........................19
Congressional Recommendations for FY2006..........................20
List of Tables
Table 1. January 2005 Recommended Locality Payments, Authorized
Locality Payments, and Net Annual and Locality Pay Increase..........21
Table 2. Annual and Locality Pay Adjustments Under FEPCA, 1991 to 2005..23



Federal White-Collar Pay:
FY2005 Salary Adjustments
Introduction
In January 2005, federal white-collar employees received a 2.5% annual pay
adjustment and a 1.0% locality-based comparability payment under Executive Order
13368, issued by President George W. Bush on December 30, 2004.1 The pay
increase is authorized by Section 640 of Title VI of Division H of the Consolidated
Appropriations Act for FY2005 (H.R. 4818), which was signed by the President on
December 8, 2004, and became P.L. 108-447. The Office of Personnel Management
(OPM) published the salary tables for 2005 on its website on December 31, 2004,
and these are available at [http://www.opm.gov]. Table 1 shows the recommended
locality payments, the authorized locality payments, and the net annual and locality
pay increases.
Federal white-collar employees are to receive an annual pay adjustment and a
locality-based comparability payment, effective in January of each year, under
Section 529 of P.L. 101-509, the Federal Employees Pay Comparability Act
(FEPCA) of 1990.2 Although the federal pay adjustments are sometimes referred to
as cost-of-living adjustments, neither the annual adjustment nor the locality payment
is based on measures of the cost of living. FEPCA has never been implemented as
originally enacted. The annual pay adjustment was not made in 1994, and in 1995,
1996, and 1998, reduced amounts of the annual adjustment were provided. For 1995
through 2005, reduced amounts of the locality payments were provided. Table 2
shows annual and locality pay adjustments under FEPCA for the years 1991 through

2005. Federal white-collar employees received an average 4.1% pay adjustment in3


January 2004. The nationwide average net pay increase in January 2004, if the
Employment Cost Index (ECI) and locality-based comparability payments had been
granted as specified by FEPCA, would have been 15.15%. In 2005, federal white-
collar employees received a 3.5% combined annual and locality pay adjustment. The
nationwide average net pay increase in January 2005, if the ECI and locality-based
comparability payments had been granted as specified by FEPCA, would have been

13.06%.


1 U.S. President (Bush), “Adjustments of Certain Rates of Pay,” Executive Order 13368,
Federal Register, vol. 70, Jan. 5, 2005, pp. 1145-1156.
2 104 Stat. 1427.
3 For the 2004 salary adjustments, see CRS Report RL31823, Federal Pay: FY2004 Salary
Adjustments, by Barbara L. Schwemle.

This report discusses the January 2005 annual adjustment and locality payments.
It does not cover salary adjustments for federal officials, federal judges, or Members
of Congress.4
2005 Pay Adjustments
Annual Pay Adjustment
Federal employees under the General Schedule (GS), Foreign Service Schedule,
and Veterans Health Administration Schedule receive an annual pay adjustment. The
President may annually adjust salaries of administrative law judges. Individuals in
senior-level (SL) and scientific and professional (ST) positions may receive the
annual adjustment at the discretion of agency heads.5 Annual adjustments for
contract appeals board members depend on whether Executive Schedule pay is
adjusted.
The annual pay adjustment is based on the Employment Cost Index (ECI),
which measures change in private sector wages and salaries. Basic pay rates are to
be increased by an amount that is 0.5 percentage points less than the percentage by
which the ECI, for the quarter ending September 30 of the year before the preceding
calendar year, exceeds the ECI for that same quarter of the second year (if at all).
The ECI shows that the annual across-the-board pay adjustment would be 2.5% in
January 2005, reflecting the September 2002 to September 2003 change in private
sector wages and salaries of 3.0%, minus 0.5%.6 The pay adjustment is effective as
of the first day of the first applicable pay period beginning on or after January 1 of
each calendar year.
FEPCA authorizes the President to issue an alternative plan, calling for a
different percentage than the ECI requires, in the event of a national emergency or
serious economic conditions affecting the general welfare. The alternative plan must


4 See CRS Report 98-53, Salaries of Federal Officials: A Fact Sheet; CRS Report RS20114,
Salary of the President Compared with That of Other Federal Officials; CRS Report
RS20115, Salary of the President: Process for Change; and CRS Report RS20278, Judicial
Salary-Setting Policy, all by Sharon S. Gressle. Also see CRS Report 97-615, Salaries of
Members of Congress: Congressional Votes, 1990-2004; CRS Report 97-1011, Salaries of
Members of Congress: A List of Payable Rates and Effective Dates, 1789-2004; CRS
Report RL30014, Salaries of Members of Congress: Current Procedures and Recent
Adjustments; and CRS Report RL30064, Congressional Salaries and Allowances, all by
Paul E. Dwyer.
5 5 U.S.C. 5376: The minimum rate of basic pay for SLs and STs is equal to 120% of the
minimum rate of basic pay for GS-15, and the maximum rate of basic pay for SLs and STs
is equal to level IV of the Executive Schedule. For 2004, basic pay ranges from $104,927
to $136,900.
6 U.S. Department of Labor, Bureau of Labor Statistics, Employment Cost Index —
September 2003 (Washington: Oct. 30, 2003), pp. 2, 13.

be submitted to Congress before the September 1 preceding the scheduled effective
date.7 The President did not issue an alternative plan.
Locality-Based Comparability Payments
GS employees receive the locality-based comparability payments; the Pay
Agent8 may also extend these payments to employees in the Foreign Service and in
senior-level, scientific and professional, administrative law judge, administrative
appeals judge, and contract appeals board member positions.9 The Pay Agent
determines the applicable pay cap level for certain non-General Schedule employees
to whom locality pay is extended.10 OPM published final regulations in December
2001 to clarify and redefine the limitations.11 Blue-collar workers under the Federal
Wage System (FWS) receive a prevailing rate adjustment that is generally capped at
the average percentage pay adjustment received by federal white-collar employees.12
For 2004, notwithstanding the cap, the blue-collar pay adjustment in a particular
location will be no less than the increase received by GS employees in that location.
Blue-collar workers in Alaska, Hawaii, and other non-foreign areas will receive a pay
adjustment in 2004 that is no less than the increase received by GS employees in the


7 104 Stat. 1429-1431; 5 U.S.C. 5301-5303.
8 The Pay Agent comprises the Secretary of Labor (Elaine L. Chao), the Director of the
Office of Management and Budget (Joshua B. Bolten), and the Director of the Office of
Personnel Management (Kay Coles James).
9 The President, by Executive Order, delegated to the Pay Agent the authority to extend
locality-based comparability payments to certain categories of positions not otherwise
covered. U.S. President (Clinton), “Delegating a Federal Pay Administration Authority,”
Executive Order 12883, Federal Register, vol. 58, no. 229, Dec. 1, 1993, p. 63281.
10 The President, by Executive Order, delegated to the Pay Agent the authority to determine
the applicable pay cap level for certain non-General Schedule employees to whom locality
pay is extended. U.S. President (Clinton), “Adjustments of Certain Rates of Pay and
Delegation of a Federal Pay Administration Authority,” Executive Order 13106, Federal
Register, vol. 63, no. 236, Dec. 9, 1998, p. 68152.
11 The proposed regulations stated: “To provide consistent treatment between General
Schedule (GS) and non-GS employees receiving locality payments, OPM proposes to
provide that (1) non-GS positions whose maximum scheduled annual rate of pay is less than
or equal to the maximum payable scheduled annual rate of pay for GS-15 will be subject to
a locality pay cap equal to the rate for level IV of the Executive Schedule, and (2) non-GS
positions whose maximum scheduled annual rate of pay exceeds the maximum payable
scheduled annual rate of pay for GS-15, but is not more than the rate for level IV of the
Executive Schedule, will be subject to a locality pay cap equal to the rate for level III of the
Executive Schedule.” U.S. Office of Personnel Management, “Locality-Based
Comparability Payments,” Federal Register, vol. 65, Mar. 24, 2000, pp. 15875-15877. U.S.
Office of Personnel Management, “Locality-Based Comparability Payments,” Federal
Register, vol. 66, Dec. 28, 2001, pp. 67069-67070.
12 For FY2005, this provision is at Section 613 of the Consolidated Omnibus Appropriations
Act for FY2005, P.L. 108-447. (It was included at Section 613 of H.R. 5025, as passed by
the House, and S. 2806, as reported — the Departments of Transportation and Treasury and
Independent Agencies appropriations bill, 2005.)

RUS pay area.13 Special rate employees receive either the special rate or the locality
payment, whichever is higher. Law enforcement officers receiving special rates
under Section 403 of FEPCA receive both special rates and locality pay. Federal
employees in Alaska and Hawaii, and outside of the continental United States,
receive a cost-of-living (COLA) allowance rather than locality pay.
Under an interim rule published by OPM in the Federal Register on August 5,
2004, a locality rate of pay would be considered as basic pay in computing danger
pay allowances and post differentials for certain employees who are temporarily
assigned to foreign areas and for whom the Department of State has established
allowances for danger.14
The locality-based comparability payments procedure was established by
FEPCA. It provides that payments are to be made within each locality determined
to have a non-federal/federal pay disparity greater than 5%. When uniformly applied
to GS employees within a locality, the adjustment is intended to make their pay rates
substantially equal, in the aggregate, to those of non-federal workers for the same
levels of work in the same locality.
FEPCA authorizes the President to fix an alternative level of locality-based
comparability payments if, because of a national emergency or serious economic
conditions affecting the general welfare, he considers the level that would otherwise
be payable to be inappropriate. At least one month before these comparability
payments would be payable (by November 30, 2004), he would have to prepare, and
transmit to Congress, a report describing the alternative level of payments he
intended to provide, including the reasons why this alternative level would be
necessary.15 President Bush issued an alternative plan on November 29, 2004, stating
that the locality pay percentages authorized in 2004 would remain in effect in 2005.16
(See the discussion under “The President’s Recommendation,” below.)
Bureau of Labor Statistics (BLS) Surveys. Under the law, the BLS
conducts surveys that document non-federal rates of pay in each pay area. In January
2005, there will be 32 pay areas nationwide. Until October 1996, the surveys were
conducted under the Occupational Compensation Survey Program (OCSP), which
had been approved by the Federal Salary Council and the Pay Agent. Since then, the
surveys had been conducted under the National Compensation Survey (NCS)


13 This provision would be continued in Section 640(b) of the Consolidated Appropriations
Act for FY2005, P.L. 108-447. (It was included at 638(b) of H.R. 5025, as passed by the
House, and Section 640(b) of S. 2806, as reported — the Departments of Transportation and
Treasury and Independent Agencies appropriations bill, 2005.)
14 U.S. Office of Personnel Management, “Locality-Based Comparability Payments,”
Federal Register, vol. 69, Aug. 5, 2004, pp. 47353-47354.
15 104 Stat. 1429-1436, as amended by 106 Stat. 1355-1356 and 1360; 5 U.S.C. 5301-5302
and 5304-5304a.
16 U.S. President (Bush), “Text of a Letter from the President to the Speaker of the House
of Representatives and the President of the Senate,” Nov. 29, 2004, in Weekly Compilation
of Presidential Documents, vol. 40, Dec. 6, 2004, p. 2877.

program, which was not approved for use with the January 2000, January 2001,
January 2002, and January 2003 locality payments. For the January 2004 locality
payments, a phase-in of NCS survey data was approved, and this phase-in will
continue for January 2005 by applying a weight of 75% to NCS results and a weight
of 25% to OCSP results. The survey results are submitted to the Office of Personnel
Management (OPM), which serves as the staff to the Federal Salary Council and the
Pay Agent. OPM documents federal rates of pay in each of the pay areas and
compares non-federal and GS salaries, by grade, for each pay area. The average
salaries at each grade, both federal and non-federal, are then aggregated and
compared to determine an overall average percentage pay gap for each area. By law,
the disparity between non-federal and federal salaries is to be reduced to 5%.
Therefore, the overall average percentage pay gap for each pay area is adjusted to this
level each year by OPM. This adjusted gap is called the target gap.
FEPCA also stipulates that a certain percentage of the target gap between GS
average salaries and non-federal average salaries in each pay area is to be closed each
year. Twenty percent of the gap was closed in 1994, the first year of locality pay, as
authorized by FEPCA. An additional 10% of the gap was to be closed each year
thereafter, meaning that 30% of the gap was to be closed in 1995, 40% in 1996, 50%
in 1997, 60% in 1998, 70% in 1999, 80% in 2000, and 90% in 2001. In each of these
years, the locality pay increase has been implemented at a much lower percentage,
reducing the gap slowly; 23.5% of the gap was closed in 1995, 25.9% in 1996, 28.3%
in 1997, 29.2% in 1998, 31% in 1999, 33.5% in 2000, 38.1% in 2001, 42.3% in
2002, 44% in 2003, and 53.7% in 2004. These percentages represent the gap as
recalculated after each adjustment. By January 2002, and continuing each year
thereafter, FEPCA specified that amounts payable could not be less than the full
amount necessary to reduce the pay disparity of the target gap to 5%. This
percentage is applied to the target gap in each pay area to determine the locality rates
recommended by the Pay Agent to the President, after receiving advice from the
Federal Salary Council.17
The pay gaps on which the locality payments are based are 22 months old by the
effective date of the adjustment; thus, March 2003 gaps determine the January 2005
locality payments. Due to the fact that the NCS surveys were not approved for use
in determining the January 2000, January 2001, January 2002, and January 2003
locality payments, that the NCS surveys were being phased in for the January 2004
locality payments, and that the phase-in continues for the January 2005 locality
payments, the gaps were determined by the following means. The March 2003 gaps
were determined by using the most recent OCSP survey data and NCS survey data
which ranged from December 2001 through October 2002 for each pay area. Since


17 The council comprises nine members. Members generally recognized for their
impartiality, knowledge, and experience in labor relations and pay policy are Terri Lacy,
chair; Mary McNally Rose, vice-chair; and Rudy Joseph Maestas. The other members
represent the American Federation of Government Employees (vacant pending appointment;
expected to be national president John Gage); the National Treasury Employees Union
(Colleen M. Kelley); the National Federation of Federal Employees (Richard N. Brown);
the American Federation of Government Employees, AFL-CIO (vacant pending
appointment); the Association of Civilian Technicians (Thomas G. Bastas); and the
Fraternal Order of Police (James Pasco).

the BLS had discontinued the OCSP program in October 1996, the OCSP pay survey
data for some of the largest pay areas were about eight years old. Specifically, the
New York data were as of July 1995; the Washington, DC, data were as of October
1995; and the Los Angeles data were as of November 1995. Survey data for each of
the other pay areas varied from January 1996 to November 1996. The data for the
“Rest of the United States” pay area were as of November 1996. In its report on the

2005 locality payments, the Pay Agent explained how the pay gaps were determined,


stating that, “To ensure that local pay disparities are measured as of one common
date, it is necessary to ‘age’ the BLS survey data [using the ECI based on wages and
salaries for white-collar civilian workers, excluding those in sales] to a common
reference date [March 2003] before comparing [them] to GS pay data of the same
date.”18
Report of the Federal Salary Council. The council reported the following
results from the application of this methodology. As of March 2003, the overall gap
between GS average salaries (excluding existing locality payments, special rates, and
certain other payments) and non-federal average salaries was 31.82%. The amount
needed to reduce this disparity to 5%, as mandated by FEPCA, averages 25.54% for
2005. The calculation of the pay gaps excludes existing locality payments. After
considering the 12.12% average locality rate paid in 2003, the overall average pay19
gap in 2003 was 17.57%.
Locality Payments. In order to meet the target for closing the pay gap, the
council recommended locality pay raises ranging from 18.14% in the “Rest of the
United States” (RUS) pay area to 47.96% in the San Jose-San Francisco pay area.
The payment recommended for the Washington, DC, pay area is 29.66%. Because
the new locality rate replaces the existing locality rate, the change in locality rates is
derived by comparing 2004 locality payments with those recommended for 2005.
This comparison results in recommended net increases for 2005, if the ECI and
locality-based comparability payments were granted as required by law, of 9.19% in
the RUS pay area to 22.10% in the San Jose-San Francisco pay area, and 15.94% in
the Washington, DC, pay area. The nationwide average net pay increase, if the ECI
and locality-based comparability payments were granted as required by law, would
have been 13.06% in 2005.
Locality Pay Areas and Boundaries for 2005. The council recommended
continuation of 29 of the 32 locality pay areas that existed in 2004. The Kansas City,
Orlando, and St. Louis locality pay areas were recommended to become part of the
“Rest of the United States” pay area, as discussed below under the section on
locations with pay gaps below RUS. The council also recommended that the new
Office of Management and Budget (OMB) definitions for metropolitan statistical
areas be used to define locality pay area boundaries. Under this recommendation, the


18 Report on Locality-Based Comparability Payments for the General Schedule, Annual
Report of the President’s Pay Agent (Washington: Dec. 2003), p. 10.
19 Memorandum for the President’s Pay Agent from the Federal Salary Council, Level of
Comparability Payments for January 2005 and Other Matters Pertaining to the Locality
Pay Program (Washington: Oct. 28, 2003), p. 2. (Hereafter referred to as 2005 Federal
Salary Council Report.)

largest defined areas, called Combined Statistical Areas (CSAs) would be used; the
new Micropolitan Statistical Areas would be used only when part of larger CSAs;
and the OMB definitions for counties in New England would be used.20
Locations with Pay Gaps Below the “Rest of the United States” Pay
Area. In previous years, the council recommended that areas with pay gaps below
the pay gap in RUS receive the same adjustment as RUS. Under the methodology
which has been used since locality pay was first implemented in 1994, areas with
little data available in BLS surveys and pay gaps that were two-tenths of a percentage
point (0.2%) or more below RUS or below the RUS pay area for three surveys were
to be dropped as surveyed discrete pay areas, and the resources used to conduct these
surveys were to be redirected to survey new locations. Under the OCSP surveys, pay
gaps in four areas — Huntsville, Indianapolis, Kansas City, and Orlando — are
below RUS in 2003 and have been below or close to RUS for several years. Under
the NCS surveys, pay gaps in five areas — Columbus, Dayton, Kansas City, Orlando,
and St. Louis — are below RUS in 2003.
Kansas City, Orlando, and St. Louis are below RUS under the weighted
averages of both the OCSP and NCS surveys. For 2005, the council recommended
that salary surveys in these areas be discontinued and that the three areas become part
of RUS. The resources previously used to conduct surveys in Kansas City, Orlando,
and St. Louis would be used to carry out surveys “in as many of the following
locations as possible”: Phoenix-Mesa-Scottsdale, AZ MSA; Memphis, TN-MS-AR
MSA; Austin-Round Rock, TX MSA; Louisville-Elizabethtown-Scottsberg, KY-IN
CSA; Buffalo-Cheektowaga-Tonawanda, NY MSA; and Raleigh-Durham-Cary, NC
CSA. These six areas have more than 2,500 General Schedule (GS) employees, a
nonfarm workforce of more than 375,000, and a BLS pay differential of greater than
five percent when compared to the RUS pay differential. The additional areas listed
above are ranked by GS employment totals. The council recommended that the
additional areas be surveyed in the order in which they are listed.21
Evaluating Areas in the Vicinity of Locality Pay Areas. To evaluate
areas currently in the “Rest of the United States” pay area for possible inclusion in
adjacent locality pay areas, the council recommended the following criteria.
For adjacent MSAs and CSAs: To be included in an adjacent locality pay area,
an adjacent MSA or CSA currently in the RUS locality pay area must have at


20 Since the implementation of locality pay in 1994, the definitions of Metropolitan
Statistical Areas (MSAs) established by the Office of Management and Budget have been
used by the Pay Agent to establish the boundaries for locality pay areas. In June 2003,
OMB published new definitions for MSAs based on the 2000 Census and newly revised
criteria. For a discussion of the council’s and the Pay Agent’s consideration of the new
OMB definitions, see CRS Report RL31823, Federal White-Collar Pay: FY2004 Salary
Adjustments, by Barbara L. Schwemle.
21 2005 Federal Salary Council Report, pp. 3-4.

least 1,500 GS employees and an employment interchange measure22 of at least

7.5 percent.


For adjacent counties that are not part of a multi-county MSA or CSA: To
be included in an adjacent locality pay area, an adjacent county that is currently
in the RUS locality pay area must have at least 400 GS employees and an
employment interchange measure of at least 7.5 percent.
For federal facilities that cross locality pay area boundaries: To be included
in an adjacent locality pay area, that portion of a federal facility outside of a
higher-paying locality pay area must have at least 750 GS employees; the duty
stations of the majority of these employees must be within 10 miles of the
separate locality pay area; and a significant number of these employees must23
commute to work from the higher-paying locality pay area.
For counties currently included in an MSA-based locality pay area that
would be excluded under the new MSA and CSA definitions: To continue to
be included in the locality pay area, any county (or portion of a county in the
case of York County, ME, where the full county was never in the adjacent24
locality pay area), must have an employment interchange rate of at least 15% .
The council also recommended that “areas already included in a locality pay25
area as a result of the new criteria should not be subject to further review.”
Requests for Changes in Locality Pay Area Boundaries. Under
another council recommendation, requests for changes in the boundaries of locality
pay areas, to be considered by the council, would have to include the following
information.
!The credentials of the requesting group establishing how the group
represents GS employees in the area.
!Identification of the geographic area covered by the proposal.
!The number of GS employees in the area by agency.
!A detailed explanation of why the area should be added to the
adjacent locality pay area.
!Current job vacancy rates in the area for GS positions.
!Documentation of recruitment or retention problems for GS
employees in the area.


22 The council recommended that commuting rates be calculated using the employment
interchange measure, which is defined by the Census as “A measure of the ties between two
adjacent entities.” It is “the sum of the percentage of employed residents of the smaller
entity who work in the larger entity and the percentage of the employment in the smaller
entity that is accounted for by workers who reside in the larger entity.” 2005 Federal Salary
Council Report, p. 7.
23 2005 Federal Salary Council Report, p. 7.
24 Report on Locality-Based Comparability Payments for the General Schedule, Annual
Report of the President’s Pay Agent (Washington, Dec. 2003), p. 19.
25 2005 Federal Salary Council Report, p. 7.

!Documentation that agencies have tried other pay flexibilities,
including requests for special salary rates and use of recruitment,
retention, and relocation payments, and that these flexibilities did
not solve recruitment and retention problems.
!An indication that the headquarters of affected agencies know about
and support the request.
!Distance measures by road between the requesting area and the
locality pay area.
!A summary of transportation facilities linking the requesting area
and the locality pay area, including commuter rail or other mass
transit facilities.
!Agency organizational relationships between activities covered by
the proposal and activities in another locality pay area.26
Methodology of the BLS Surveys. The council, in its memorandum to the
Pay Agent on the 2001 locality payments (submitted on October 22, 1999),
recommended that five improvements be made in the BLS National Compensation
Survey program. The council provided a progress report on the improvements in its
memorandum to the Pay Agent on the 2005 locality payments. The improvements
and progress to date are the following.
!Use three factors, rather than nine, to assign the correct federal grade
levels to the non-federal jobs surveyed, and provide grade level
guides for occupational families. “OPM has completed development
of a four-factor evaluation system for use in the surveys, and BLS
has successfully used the new approach in field tests and has already
begun to use the Knowledge Factor Guide. BLS will begin to phase
the new approach into BLS surveys in the next survey cycle.”
!Develop a model to estimate missing data. “BLS has designed and
implemented an econometric model to estimate salaries for jobs not
randomly selected in the surveys. The model is derived from survey
data and estimates pay for missing jobs as a function of location,
occupation, and grade level.”
!Improve the matching of federal survey jobs with non-federal survey
jobs, and provide subcategories for occupations which are “not
elsewhere classified.” “OPM formed an interagency working group
that developed a crosswalk between Federal job classifications and
the new Standard Occupational Classification System. BLS used the
new crosswalk ... for data delivered this year.”
!For supervisory occupations, grade the highest level of work
supervised. Adjust the grade level based on the level of supervision,
instead of grading the supervisory job itself. “BLS and Pay Agent
staffs have designed a new approach based on grading the highest
level of work supervised and adding one, two, or three grades based


26 2005 Federal Salary Council Report, p. 10.

on the level of supervision ... BLS will begin to phase in the new
approach in surveys conducted in the next survey cycle.”
!Develop criteria to identify and exclude jobs that would be classified
above GS-15 in government. “BLS has developed methods for
identifying and excluding non-Federal jobs that would be classified
above GS-15. These data were excluded from the data delivered to
the Pay Agent” in 2003.27
Pay Agent Report. After considering the council’s recommendations, the
Pay Agent endorsed them in its December 4, 2003, annual report to the President on
the 2005 locality payments. The Pay Agent stated that “it would be unwise to allow
the locality pay increases shown in [its] report to take effect in January 2005”
because of “the current national emergency.”28 The endorsement of the council’s
recommendations on defining locality pay areas was tentatively approved. According
to the Pay Agent, OPM, on the Agent’s behalf, will publish a notice in the Federal
Register in 2004 to explain the proposed changes to the locality pay area boundaries
and solicit public comments. The final rule will be published in time for29
implementation in January 2005.
On September 22, 2004, OPM published proposed regulations in the Federal
Register to
link the definitions of General Schedule locality pay area boundaries to the
geographic scope of metropolitan area definitions established by [OMB]. This
proposal makes use of new criteria for evaluating areas adjacent to locality pay
areas. The proposed regulations would retain all of the existing locality pay30
areas, which would be expanded to include a number of additional locations.
According to OPM, under the proposed changes, about 15,00031 General
Schedule (GS) employees would move from the Rest of the United States pay area
to metropolitan locality pay areas and “about 16,000 GS employees [would be
retained] in metropolitan locality pay areas that would have been excluded if only the
new MSA definitions were used.”32 OPM accepted comments on the proposed
regulations through November 8, 2004.


27 The recommendations are from 2001 Federal Salary Council Report, p. 8. The progress
reports are from 2005 Federal Salary Council Report, p. 12.
28 Report on Locality-Based Comparability Payments for the General Schedule, Annual
Report of the President’s Pay Agent (Washington, Dec. 2003), cover letter.
29 Ibid., p. 18.
30 U.S. Office of Personnel Management, “General Schedule Locality Pay Areas,” Federal
Register, vol. 69, Sept. 22, 2004, pp. 56721-56725.
31 The final regulations published in the Federal Register (69 FR 75452) on December 17,

2004, changed this number to 16,000.


32 69 FR 56724.

The final regulations were published in the Federal Register on December 17,
2004, and became effective immediately upon publication so as to be applicable for
the January 2005 pay adjustment. In its discussion accompanying the regulations,
OPM noted that on October 21, 2004, the Federal Salary Council recommended to
the Pay Agent that the York-Hanover-Gettysburg, PA CSA, having met the criteria
for inclusion, be added to the Washington-Baltimore locality pay area. The Pay
Agent endorsed this recommendation and it was incorporated into the final rule.33
The Pay Agent estimated that the cost of the January 2005 locality-based
comparability payments would be about $8 billion if the full amount necessary to
reduce the pay disparity of the target gap to 5% were provided in January 2005 as
required by FEPCA.34 Table 1 shows the council’s and the Pay Agent’s
recommended locality payments for January 2005.
As for the recommended improvements in the BLS National Compensation
Survey Program, the Pay Agent reiterated that those focused on matching federal and
non-federal jobs, excluding randomly selected non-federal jobs that would be
classified above GS-15 in the government, and problems associated with random
selection of survey jobs, have been implemented. Improvements focused on
assigning GS grades to randomly selected survey jobs and to randomly selected35
survey jobs with supervisory duties will be phased-in beginning in 2004.
In endorsing the council’s recommendation that Kansas City, Orlando, and St.
Louis become part of the “Rest of the United States” pay area, the Pay Agent asked
the BLS to discontinue salary surveys in these three areas as soon as feasible and
begin augmenting existing surveys in as many of the six areas identified by the
council as possible. (The six areas, as stated above, are Phoenix-Mesa-Scottsdale,
AZ MSA; Memphis, TN-MS-AR MSA; Austin-Round Rock, TX MSA; Louisville-
Elizabethtown-Scottsberg, KY-IN CSA; Buffalo-Cheektowaga-Tonawanda, NY
MSA; and Raleigh-Durham-Cary, NC CSA.) BLS is to formulate a survey plan and
report to the Pay Agent in August 2004 “on how many of the new areas could be
surveyed for locality pay purposes and under what timeline.”36
OPM’s proposed regulations on locality pay area boundaries published in the
Federal Register on September 22, 2004, state that further review revealed that “it
would be advisable to continue to monitor the disparity between Federal and non-
Federal pay levels in the Kansas City, Orlando, and St. Louis areas before
determining whether those areas should be discontinued.”37 The final regulations
note that the Federal Salary Council recommended to the Pay Agent on October 21,

2004, that the Kansas City, Orlando, and St. Louis pay areas be discontinued in 2006.


33 U.S. Office of Personnel Management, “General Schedule Locality Pay Areas,” Federal
Register, vol. 69, Dec. 17, 2004, pp. 75451-75453.
34 Report on Locality-Based Comparability Payments for the General Schedule, Annual
Report of the President’s Pay Agent (Washington: Dec. 2003), pp. 27-28.
35 Ibid, p. 3.
36 Ibid., p. 17.
37 69 FR 56724.

OPM, on behalf of the Pay Agent, will publish proposed regulations to implement
this recommendation in 2005.38
The Pay Agent stated that, while it supported updating the boundaries of locality
pay areas, such changes were “an interim measure, pending fundamental reforms in
the Federal white-collar pay system.” The Agent has “serious concerns about the
utility of a process that requires a single percentage adjustment in the pay of all
white-collar civilian Federal employees in each locality pay area without regard to
the differing labor markets for major occupational groups or the performance of
individual employees.”39
The methodology for setting federal pay adjustments has been questioned since
FEPCA’s enactment. In 1993, a draft memorandum from the Pay Agent to the
Federal Salary Council concluded that “the current methodology is flawed because
the completeness of the data varies greatly among survey areas, because the gaps are
not credible in light of other labor market indicators, and because the single
percentage adjustment for all jobs in a locality is a poor reflection of market
realities.”40 Despite these concerns, OPM has never submitted a legislative proposal
to Congress to amend FEPCA. A white paper on compensation issued by OPM in
April 2002 reviewed current policies and the need for more flexibility in setting
General Schedule pay, but did not include any recommendations.41
In August 2004, the Coalition for Effective Change42 released a paper which
strongly endorsed implementation of a pay-for-performance system in the federal
government. Among the factors the group identified as essential to establishing such
a system are that it be flexible, reviewable, periodically evaluated and adjusted, and
adequately funded.43 Reform of the federal government’s pay and performance
management systems is identified as a top priority in a report entitled “OPM’s
Guiding Principles for Civil Service Transformation,” posted on the agency’s website
on October 25, 2004. The report advocates government-wide legislation that
provides personnel flexibilities similar to those provided to the Departments of


38 69 FR 75451-75452.
39 Report on Locality-Based Comparability Payments for the General Schedule, Annual
Report of the President’s Pay Agent (Washington: Dec. 2003), cover letter.
40 Draft memorandum from the President’s Pay Agent to Anthony F. Ingrassia, Acting
Chairman, Federal Salary Council [Mar. 1993].
41 U.S. Office of Personnel Management, A White Paper; A Fresh Start for Federal Pay:
The Case for Modernization (Washington: OPM, April 2002).
42 The coalition includes the American Foreign Service Association, Blacks in Government,
Executive Women in Government, the Federal Bar Association, the Federal Librarians
Round Table, the National Association of Retired Federal Employees, the National
Academy of Public Administration, and the Senior Executives Association.
43 Coalition for Change, Linking the Pay of Federal Employees to Their Performance, Aug.

2004.



Homeland Security and Defense to other executive branch agencies. Broad pay
bands are one such flexibility.44
Once both the annual and locality pay percentage amounts are determined, the
actual pay rates are calculated as follows. First, the basic General Schedule (GS) is
increased by the annual adjustment percentage, resulting in a new GS schedule.
These new basic GS rates are then increased by the locality payment. The resulting
pay rates (annual + locality) are compared with the 2004 pay rates (annual + locality)
to derive the net increase in pay for 2005.
The President’s Recommendation for FY2005
President George W. Bush issued his Administration’s FY2005 budget on
February 2, 2004. The budget proposed a 1.5% federal civilian pay adjustment, but
did not state how the increase would be allocated between the annual and locality
adjustments required by FEPCA in January 2005.45 The statutory annual pay
adjustment required in January 2005 is 2.5%. If the President wanted to change the
required rate of the annual adjustment, he would have had to submit an alternative
plan for the annual adjustment to Congress by September 1, 2004. He did not issue
an alternative plan. To change the amount of locality-based comparability payments,
he had to submit an alternative plan for the locality payments to Congress by
November 30, 2004; otherwise the double-digit percentages stated in the Pay Agent
report for the locality payments would have become effective.
The President issued such an alternative plan on November 29, 2004, which
stated that the locality pay percentages in effect for 2004 would continue for 2005.
According to the President, he issued the plan because the nation is in the midst of
a national emergency, which includes operations in Afghanistan and Iraq, and the
locality pay adjustments required by law would “divert resources from and interfere
with our Nation’s ability to fight the war on terror.” He stated that the locality
payments would average 10.6 percent, would cost about $9.8 billion in FY2005, and
when coupled with the 2.5% annual adjustment would result in an overall average
pay increase of some 13.1%. This increase, said the President, would far exceed the
1.5% pay adjustment that he proposed in the FY2005 budget and, since the additional
amount would have to be absorbed, could result in agencies having to freeze hiring.
The alternative plan notes that the quit rate for the federal government is “at an all-
time low of 1.6 percent per year, well below the overall average quit rate in private
enterprise” and that recruitment and retention bonuses and special salary rates are46


available to address any staffing difficulties.
44 U.S. Office of Personnel Management, OPM’s Guiding Principles for Civil Service
Transformation, (Washington, 2004), p. 6.
45 U.S. Executive Office of the President, Office of Management and Budget, Budget of the
United States Government Fiscal Year 2005; Analytical Perspectives (Washington: GPO,

2004), p. 173. (Hereafter referred to as FY2005 Budget Analytical Perspectives.)


46 U.S. President (Bush), “Text of a Letter from the President to the Speaker of the House
(continued...)

The President’s budget also proposed an appropriation of $300 million for the
Human Capital Performance Fund. The FY2004 appropriation (P.L. 108-199) was
$1 million, but after the 0.59% rescission was $994,000. The fund
is designed to create performance-driven pay systems for employees and
reinforce the value of employee performance management systems. It will
provide additional pay over and above any annual, across-the-board pay raise to
certain civilian employees based on individual or organizational performance
and/or other critical agency human capital needs. Ninety percent of funds
appropriated are to be distributed to agencies on a pro rata basis, upon OPM
approval of an agency’s plan. The remainder, and any amount withheld from47
agencies due to inadequate plans, will be allocated at the discretion of OPM.
The Consolidated Appropriations Act for F2005, P.L. 108-447, does not provide
an appropriation for the fund. (See discussion under “Human Capital Performance
Fund,” below.)
The Senate Subcommittee on Oversight of Government Management, the
Federal Workforce, and the District of Columbia of the Committee on Governmental
Affairs conducted a hearing to examine the progress made in implementing human
capital flexibilities on July 20, 2004. Testifying before the subcommittee, OMB’s
Deputy Director for Management, Clay Johnson, identified pay increases targeted to
meet specific recruitment or retention needs as an eventuality for the federal
workforce. According to him:
Today, we have targeted, not widespread, recruitment and retention problems in
our civilian workforce, and pay surveys reveal that we are currently overpaying
employees in some occupational groups in some locations.... [W]e certainly
should not grant all civilian employees the same increase no matter what the need
because that wouldn’t be focusing on the desired result: that would be providing
too small an increase where we do have recruitment and retention problems, and48
too large an increase where we do not have a problem.
Congressional Recommendations for FY2005
The size of the federal white-collar pay adjustment is considered annually by
Congress, which may legislate a pay adjustment that is different from the adjustment
recommended by the President in the budget or that might be authorized by the
President in an alternative plan. The January 1999 (3.6%), January 2000 (4.8%),


46 (...continued)
of Representatives and the President of the Senate,” Nov. 29, 2004, in Weekly Compilation
of Presidential Documents, vol. 40, Dec. 6, 2004, p. 2877.
47 U.S. Executive Office of the President, Office of Management and Budget, Budget of the
United States Government Fiscal Year 2005; Appendix (Washington: GPO, 2004), p. 1060.
48 Statement of Clay Johnson, III, Deputy Director for Management, Office of Management
and Budget, July 20, 2004. Unpublished.

January 2002 (4.6%), January 2003 (4.1%), and January 2004 (4.1%) overall pay
adjustment amounts were set by Congress.49
Concurrent resolutions introduced in the House of Representatives by
Representative Steny Hoyer (H.Con.Res. 356) on February 3, 2004, and in the Senate
by Senator Paul Sarbanes (S.Con.Res. 88) on February 9, 2004, expressed the sense
of the Congress that there should continue to be parity between the pay adjustments
for the uniformed military and federal civilian employees. The resolutions noted the
longstanding policy of parity between both the military and civilian pay increases.
Such resolutions are effective only in the chamber in which they are proposed,
express nonbinding opinions on policies, and do not require the President’s signature.
Ten Members of Congress from the Washington, DC, metropolitan area wrote
a letter to President Bush on January 21, 2004, urging him to “embrace the principle
of pay parity” for federal civilian employees and the uniformed military.50 The
FY2005 budget proposes a 3.5% pay increase for the military and a 1.5% pay
increase for civilian employees.51
Concurrent Budget Resolutions
The Concurrent Resolution on the Budget for FY2005 (S.Con.Res. 95) was
agreed to by the Senate by a 51 to 45 vote (Record No. 58) on March 12, 2004.
Section 505 includes a Sense of the Senate provision regarding pay parity that states
that “the rate of increase in the compensation of civilian employees should be equal
to that proposed for the military in the President’s Fiscal Year 2005 Budget.” On
March 29, 2004, the House of Representatives struck all after the resolving clause of
S.Con.Res. 95 and inserted in lieu thereof the text of H.Con.Res. 393 (the House
version of the concurrent resolution discussed below) and then agreed to S.Con.Res.
95. As agreed to by the House, the concurrent resolution does not include a pay
parity provision. The conference report on S.Con.Res. 95 (H.Rept. 108-498), agreed
to by the House by a 216 to 213 vote (Roll No. 198) on May 19, 2004, also does not
include a pay parity provision.52 The S.Con.Res. 95 conference papers are being held
at the desk in the Senate.


49 P.L. 105-277, P.L. 106-58, P.L. 107- 67, P.L. 108-7, and P.L. 108-199, respectively,
provided the 3.6%, 4.8%, 4.6%, 4.1%, and 4.1% pay adjustments, respectively, but reserved
for the President the decision as to how the increases would be allocated between the annual
and locality pay adjustments.
50 The letter is posted on Representative Steny Hoyer’s website at “Bi-Partisan Washington,
D.C. Regional Delegation Sends Message to President: Adhere to Historic Bi-Partisan
Congressional Policy of Pay Parity,” Jan. 21, 2004. [http://www.hoyer.house.gov], visited
April 19, 2004.
51 FY2005 Budget Analytical Perspectives, p. 173. For the uniformed military pay
adjustments, see CRS Issue Brief IB10089, Military Pay and Benefits: Key Questions and
Answers, by Robert L. Goldich.
52 U.S. Congress, Conference Committees, 2004, Concurrent Resolution on the Budget for
Fiscal Year 2005, conference report to accompany S.Con.Res. 95, 108th Cong., 2nd sess.,
H.Rept. 108-498 (Washington: GPO, 2004).

The House version of the Concurrent Resolution on the Budget (H.Con.Res.

393), as agreed to by the House of Representatives by a 215 to 212 vote (Roll No. 92)


on March 25, 2004, does not include a Sense of the House provision on pay parity.
An amendment to provide such, offered by Representative James Moran during
House Budget Committee markup of the concurrent resolution on March 17, 2004,
was not agreed to by a 21 to 15 vote. Representatives Jim Nussle, the Budget
Committee chairman; Ernest Istook Jr., the Transportation, Treasury, and
Independent Agencies Appropriations Subcommittee chair; and William Thornberry
were among those who opposed the amendment offered by Representative Moran.
One argument against supporting the pay parity amendment was that the job of a
member of the uniformed military is more demanding than that of a civilian
employee and the pay adjustment should reflect this difference.
During discussions surrounding the vote on H.Con.Res. 393, the Speaker of the
House, Representative Dennis Hastert, agreed to allow a separate vote in the House
of Representatives on a pay parity resolution (H.Res. 581) offered by Representative
Tom Davis and 22 cosponsors. The resolution states the Sense of the House that “in
fiscal year 2005, compensation for civilian employees ... should be adjusted at the
same time, and in the same proportion, as are rates of compensation for members of
the uniformed services.” On March 31, 2004, the House agreed to H.Res. 581 by a
299 to 126 vote (Roll No. 104). Supporters of H.Res. 581 expressed the hope that
the result of the vote would be considered by the conference committee on the
Concurrent Budget Resolution.
The resolution does not become law, but it provides the framework within
which Congress subsequently considers spending legislation. Any congressional
recommendation on the civilian federal pay adjustment has usually been included in
the Treasury, Postal Service, and General Government Appropriations bill, which,
as of the 108th Congress, has been combined with the Department of Transportation
Appropriations bill to be the Departments of Transportation and Treasury and
Independent Agencies Appropriations bill.
Departments of Transportation and Treasury and
Independent Agencies Appropriations Bill, 2005
Annual and Locality Pay Adjustments. Section 638 of the Departments
of Transportation and Treasury and Independent Agencies Appropriations Bill, 2005,
H.R. 5025, as passed by the House of Representatives on September 22, 2004, on a
397-12 (Roll No. 465) vote, would provide a 3.5% pay adjustment for federal civilian
employees, including those in the Departments of Defense and Homeland Security.
The bill does not recommend how the increase should be divided between the annual
and locality pay adjustments. The House Subcommittee on Transportation, Treasury,
and Independent Agencies marked up the bill on July 15, 2004, and by voice vote
approved the bill, as amended, for consideration by the full committee. On July 22,
2004, the House Committee on Appropriations marked up the bill and by voice vote
ordered it to be reported favorably to the House of Representatives. H.R. 5025 was
reported to the House by the Appropriations Committee on September 8, 2004



(H.Rept. 108-671).53 During the full committee markup, the committee agreed to an
amendment offered by Representative Steny Hoyer, joined by Representatives James
Moran and Frank Wolf, to provide the 3.5% pay adjustment. Section 501 would
provide that the pay increase would be absorbed within the levels appropriated in the
act or in previous appropriations acts. Under Section 636, funds could not be used
to implement or enforce regulations for locality pay inconsistent with
recommendations of the Federal Salary Council.
The House Appropriations Committee report that accompanies the House bill
directs OPM “to include with the ‘Annual Report on Locality-Based Comparability
Payments for the General Schedule’ in fiscal year 2005 and all future fiscal years a
report comparing the total pay and non-pay compensation packages of the Federal
workforce and the private sector.”54
OMB’s Statement of Administration Policy on H.R. 5025 urged the House to
adopt the President’s proposal for a 1.5% pay adjustment and expressed concern that
the Human Capital Performance Fund, “a more targeted approach to move the
Federal pay system into one that would promote high performance,” is not fully
funded. It also stated the Administration’s opposition to restricting its “flexibility to
adjust locality pay areas to meet changing needs and conditions” and to
specifying a 3.5 percent across-the-board increase for Department of Homeland
Security (DHS) and Department of Defense (DOD) civilian employees. This
provision would limit flexibility as DHS and DOD use the new authorities ... to
design and implement a modern personnel and pay system.... [T]he
Administration opposes the provision relating to pay adjustments for blue-collar
employees, which would disregard the results of local blue-collar wage surveys
and provide a pay increase identical to local General Schedule employees. These
provisions could result in paying blue-collar employees at rates higher than local55
labor markets and would create a host of technical and equity problems.
Section 640 of S. 2806, the Senate version of the Transportation/Treasury
appropriations bill, as reported to the Senate by the Committee on Appropriations,
also would provide a 3.5% pay adjustment for federal civilian employees, including
those in the Departments of Defense and Homeland Security. Like the House bill,
the Senate bill does not recommend how the increase should be divided between the
annual and locality pay adjustments. The Senate Subcommittee on Transportation,
Treasury, and General Government marked up the bill on September 9, 2004, and by
voice vote approved the bill, as amended, for consideration by the full committee.
On September 14, 2004, the Senate Committee on Appropriations marked up the bill


53 U.S. Congress, House Committee on Appropriations, Departments of Transportation and
Treasury and Independent Agencies Appropriations Bill, 2005, report to accompany H.R.thnd
5025, 108 Cong., 2 sess., H.Rept. 108-671 (Washington: GPO, 2004). (Hereafter
referred to as H.Rept. 108-671.)
54 Ibid., p. 153.
55 U.S. Executive Office of the President, Office of Management and Budget, Statement of
Administration Policy, H.R. 5025 Departments of Transportation and Treasury and
Independent Agencies Appropriations Bill, 2005, Sept. 14, 2004, p. 2.

and on a 29-0 vote ordered it to be reported to the Senate. S. 2806 was reported on
September 15, 2004 (S.Rept. 108-342).56
As the second session of the 108th Congress was drawing to a close, the
Departments of Transportation and Treasury and Independent Agencies
appropriations bill for 2005 was incorporated in H.R. 4818, the Consolidated
Appropriations Act for FY2005, as Division H. The House of Representatives
agreed to the conference report accompanying H.R. 4818 on a 344-51 (1 Present)
vote (Roll No. 542) on November 20, 2004, and the Senate agreed to the conference
report on a 65-30 (No. 215) vote the same day.57 The conference agreement, at
Section 640(a), provides a 3.5% pay adjustment for federal civilian employees,
including those in the Departments of Defense and Homeland Security. The
adjustment is effective as of the first day of the first applicable pay period beginning
on or after January 1, 2005. Section 501 of the conference agreement requires the pay
raises to be funded within appropriated levels. The conferees also direct the OPM
Director to submit a report by March 4, 2005, comparing the pay and non-pay
compensation packages of the federal workforce and the private sector. President
Bush signed H.R. 4818 on December 8, 2004, and it became P.L. 108-447. The pay
provisions are at Section 640(a) and Section 501 of the law.
On December 30, 2004, President Bush issued Executive Order 13368, which
allocated the 3.5% pay increase as 2.5% annual and 1.0% locality.58 OPM published
the 2005 salary tables on its website the next day, and these are available at
[http://www.opm.gov]. Table 1 shows the recommended locality payments, the
authorized locality payments, and the net annual and locality pay increases.
In a November 17, 2004, letter to the Chairmen and Ranking Members of the
House and Senate Committees on Appropriations, the OMB Director, Joshua Bolten,
stated the Administration’s strong opposition to a federal civilian pay raise in excess
of 2.5%. The letter stated that a 3.5% pay adjustment was $2.2 billion more than the
President’s request and
provides a percentage increase that exceeds inflation, the statutory base pay
increase, and the average increase in private sector pay as measured by the
Employment Cost Index. Any recruitment or retention problems facing the
Government are limited to a few areas and occupations and do not warrant such
an arbitrary across-the-board increase. An increase to 3.5% across-the-board
would be very difficult for agencies to absorb, particularly when combined with
any other across-the-board reductions used to meet overall spending targets, and


56 U.S. Congress, Senate Committee on Appropriations, Transportation, Treasury and
General Government Appropriations Bill, 2005, report to accompany S. 2806, 108th Cong.,
2nd sess., S.Rept. 108-342 (Washington: GPO, 2004), p. 205. (Hereafter referred to as
S.Rept. 108-342.)
57 U.S. Congress, Conference Committees, 2004, Consolidated Appropriations Act FY2005,
conference report to accompany H.R. 4818, 108th Cong., 2nd sess., H.Rept. 108-792
(Washington: GPO, 2004). (Hereafter referred to as H.Rept. 108-792.)
58 U.S. President (Bush), “Adjustments of Certain Rates of Pay,” Executive Order 13368,
Federal Register, vol. 70, Jan. 5, 2005, pp. 1145-1156.

will likely require reductions-in-force or shifts of resources away from critical59
programmatic priorities.
Human Capital Performance Fund. The House Committee on
Appropriations recommended and the House passed in H.R. 5025 an appropriation
of $12.5 million for the Human Capital Performance Fund. This amount is $287.5
million less than the President’s request. The House bill would authorize the OPM
Director to determine and transfer to federal agencies such amounts as necessary to
carry out the purposes of the fund. No funds would be obligated or transferred until
the Director has notified the relevant subcommittees of the Committees on
Appropriations of the approval of an agency’s performance plan and the prior
approval of such subcommittees has been obtained. OPM is directed to report
annually to the House and Senate Appropriations Committees “on the performance
pay plans that have been approved, and the amounts that have been obligated or
t ransferred.”60
The Senate Committee on Appropriations did not recommend funding for the
performance fund in S. 2806. The committee report accompanying the Senate bill
states that such an initiative “should be budgeted and administered within the salaries61
and expenses of each individual agency.” The Consolidated Appropriations Act for
FY2005, P.L. 108-447, does not provide an appropriation for the fund.
The President’s Recommendation for FY2006
President Bush issued his Administration’s FY2006 budget on February 7, 2005.
The budget proposes a 2.3% federal civilian pay adjustment, but does not state how
the increase would be allocated between the annual and locality adjustments required
by FEPCA in January 2006.62 The statutory annual pay adjustment required in
January 2006 is 2.1%. If the President wants to change the required rate of the
annual adjustment, he must submit an alternative plan for the annual adjustment to
Congress by September 1, 2005. To change the amount of locality-based
comparability payments, he must submit an alternative plan for the locality payments
to Congress by November 30, 2005. The nationwide average net pay increase, if the


59 U.S. Executive Office of the President, Office of Management and Budget, Letter from
Joshua B. Bolten, Director, to Representatives C.W. “Bill” Young and David R. Obey and
Senators Ted Stevens and Robert C. Byrd, Nov. 17, 2004. It should be noted that neither
the annual adjustment nor the locality-based comparability payments authorized by the
Federal Employees Pay Comparability Act (FEPCA) of 1990, P.L. 101-509, are based on
the inflation rate, and that the intent of FEPCA is to supplement the statutory base pay
adjustment with locality-based comparability payments.
60 H.Rept. 108-671, p. 155.
61 S.Rept. 108-342, p. 196.
62 U.S. Executive Office of the President, Office of Management and Budget, Budget of the
United States Government Fiscal Year 2006; Analytical Perspectives (Washington: GPO,

2005), p. 191.



annual and locality-based comparability payments were granted as required by law,
would be 6.93% in 2006.
Congressional Recommendations for FY2006
Concurrent resolutions introduced in the House of Representatives by
Representative Steny Hoyer (H.Con.Res. 40) on February 1, 2005, and in the Senate
on the same day by Senator Paul Sarbanes (S.Con.Res. 8) express the sense of the
Congress that there should continue to be parity between the pay adjustments for the
uniformed military and federal civilian employees. The President’s budget proposes
a 3.1% pay adjustment for the uniformed military. Such resolutions are effective
only in the chamber in which they are proposed, express nonbinding opinions on
policies, and do not require the President’s signature.
Ten Members of Congress from the Washington, DC, metropolitan area wrote
a letter to President Bush on January 25, 2005, urging him to “embrace the principle63
of pay parity” for federal civilian employees and the uniformed military. The letter
states that the signatories “cannot express strongly enough the importance of
continuing the tradition of pay parity” as the war on terrorism continues and as the
retirement of the government’s most experienced employees looms on the horizon.
The Members also state their willingness to explore initiatives on effectively
allocating human capital expenditures and ensuring that the federal government is
able to recruit, retain, and reward employees. Earlier, on January 5, 2005,
Representative Hoyer sent a letter to OMB Director Clay Johnson III renewing his
earlier offers “to discuss the administration’s objectives regarding pay-for-
performance and the implementation of FEPCA.”64


63 “Hoyer Leads Bipartisan Regional Delegation in Sending Pay Parity Letter to President,
Jan. 25, 2005. Available at [http://www.hoyer.house.gov], visited Feb. 7, 2005. The letter
was signed by Representatives Benjamin L. Cardin, Elijah E. Cummings, Thomas M. Davis,
III, Steny Hoyer, James P. Moran, Jr., C.A. Dutch Ruppersberger, Chris Van Hollen, Frank
R. Wolf, Albert R. Wynn, and Delegate Eleanor Holmes Norton.
64 “Hoyer Calls on President Bush to Present Alternative on Federal Employee Pay,” Jan.

5, 2005. Available at [http://www.hoyer.house.gov], visited Feb. 7, 2005.



Table 1. January 2005 Recommended Locality Payments, Authorized
Locality Payments, and Net Annual and Locality Pay Increase
Pay Areas2005 Recommended2005Net Increase,
Locality PaymentsAuthorizedAnnual and
LocalityLocality Pay
Payments
Atlanta-Sandy Springs-Gainesville, GA-27.76%13.87%3.65%
AL CSA
Boston-Worcester-Manchester, MA-NH33.07%18.49%3.81%
CSA, plus the Providence-New
Bedford-Fall River, RI-MA MSA,
Barnstable County, MA, and Berwick,
Eliot, Kittery, South Berwick, and York
towns in York County, ME
Chicago-Naperville-Michigan City, IL-31.77%19.70%3.75%
IN-WI CSA
Cincinnati-Middletown-Wilmingt on, 21.24% 16.04% 3.36%
OH-KY-IN CSA
Cleveland-Akron-Elyria, OH CSA24.12%14.24%3.50%
Columbus-Marion-Chillicothe, OH CSA18.50%13.98%3.26%
Dallas-Fort Worth, TX CSA26.91%15.07%3.60%
Dayton-Springfield-Greenville, OH18.36%12.86%3.26%
CSA
Denver-Aurora-Boulder, CO CSA, plus30.70%18.06%3.73%
the Ft. Collins-Loveland, CO MSA and
Weld County, CO
Detroit-Warren-Flint, MI, CSA, plus29.67%19.67%3.67%
Lenawee County, MI
Hartford-West Hartford-Willimantic,36.22%19.52%3.93%
CT CSA, plus the Springfield, MA
MSA and New London County, CT
Houston-Baytown-Huntsville, TX CSA35.86%24.77%3.86%
Huntsville-Decatur, AL CSA20.47%12.42%3.36%
Indianapolis-Anderson-Columbus, IN19.69%12.01%3.33%
CSA, plus Grant County, IN
Kansas City-Overland Park-Kansas18.14%12.36%3.25%
City, MO-KS CSA
Los Angeles-Long Beach-Riverside, CA35.26%21.65%3.87%
CSA, plus the Santa Barbara-Santa
Maria-Goleta, CA MSA and all of
Edwards Air Force Base, CA
Miami-Fort Lauderdale-Miami Beach,27.06%16.77%3.59%
FL MSA, plus Monroe County, FL
Milwaukee-Racine-Waukesha, WI CSA21.64%13.62%3.39%
Minneapolis-St. Paul-St. Cloud, MN-WI27.30%15.99%3.61%
CSA
New York-Newark-Bridgeport, NY-NJ-37.33%20.99%3.96%
CT-PA CSA, plus Monroe County, PA
and Warren County, NJ
Orlando-The Villages, FL CSA18.14%11.75%3.26%



Pay Areas2005 Recommended2005Net Increase,
Locality PaymentsAuthorizedAnnual and
LocalityLocality Pay
Payments
Philadelphia-Camden-Vineland, PA-NJ-29.62%16.67%3.70%
DE-MD CSA, plus Kent County, DE,
Atlantic County, NJ, and Cape May
County, NJ
Pittsburgh-New Castle, PA CSA20.59%12.86%3.36%
Portland-Vancouver-Beaverton, OR-27.22%15.93%3.61%
WA MSA, plus Marion County, OR,
and Polk County, OR
Richmond, VA MSA22.53%13.15%3.43%
Sacramento — Arden-Arcade —29.16%16.51%3.68%
Truckee, CA-NV CSA, plus Carson
City, NV
St. Louis-St. Charles-Farmington, MO-18.14%12.09%3.26%
IL CSA
San Diego-Carlsbad-San Marcos, CA33.50%17.68%3.84%
MSA
San Jose-San Francisco-Oakland, CA47.96%26.39%4.30%
CSA, plus the Salinas, CA MSA and
San Joaquin County, CA
Seattle-Tacoma-Olympia, WA CSA 30.96%16.53%3.76%
Washington-Baltimore-Northern 29.66% 15.98% 3.71%
Virginia, DC-MD-VA-WV CSA, plus
the Hagerstown-Martinsburg, MD-WV
MSA, the York-Hanover-Gettysburg,
PA CSA, Culpeper County, VA, and
King George County, VA
Rest of the U.S.18.14%11.72%3.26%
Average 25.51% 15.01% 3.54%
Source: Memorandum for the President’s Pay Agent from the Federal Salary Council, Level of Comparability Payments
for January 2005 and Other Matters Pertaining to the Locality Pay Program (Washington: Oct. 28, 2003), Attachment
1; and Report on Locality-Based Comparability Payments for the General Schedule, Annual Report of the President’s
Pay Agent (Washington: Dec. 2003), p. 24. U.S. President (Bush), Adjustments of Certain Rates of Pay,” Executive
Order 13368, Federal Register, vol. 70, Jan. 5, 2005, pp. 1145-1156. MSA refers to a Metropolitan Statistical Area.
CSA refers to a Combined Statistical Area. The component parts of each pay area are described in U.S. Office of
Management and Budget, Revised Definitions of Metropolitan Statistical Areas, New Definitions of Micropolitan
Statistical Areas and Combined Statistical Areas, and Guidance on Uses of the Statistical Definitions of These Areas,
OMB Bulletin No. 03-04, June 6, 2003.



Table 2. Annual and Locality Pay Adjustments Under FEPCA, 1991 to 2005
Y e ar ECI- Requi red Annual Locality Locality Ne t
Annual Adjustment P ayments P ayments Increase,
AdjustmentAuthorizedRequired byAuthorized,Annual and
FEPCA, National Locality
National Average P ay,
AverageNational
Average

1991 — 4.1% — — 4.1%


19924.2%4.2% — — 4.2%


19933.7%3.7% — — 3.7%


1994 2.2% 0 3.95% 3.95% 3.95%


1995 2.6% 2.0% 6.44% 5.05% 3.08%


1996 2.4% 2.0% 8.58% 5.56% 2.49%


1997 2.3% 2.3% 11.29% 6.37% 3.09%


1998 2.8% 2.3% 14.30% 6.93% 2.84%


1999 3.1% 3.1% 16.95% 7.50% 3.65%


2000 3.8% 3.8% 20.62% 8.62% 4.89%


2001 2.7% 2.7% 23.12% 9.77% 3.76%


2002 3.6% 3.6% 25.92% 10.95% 4.72%


2003 3.1% 3.1% 27.59% 12.12% 4.21%


2004 2.7% 2.7% 25.71% 13.81% 4.10%


2005 2.5% 2.5% 25.51% 15.01% 3.54%


Sources and Notes: Locality-based comparability payments began in 1994. For the ECI-required annual adjustment,
see U.S. Department of Labor, Bureau of Labor Statistics, Employment Cost Index, September of each year. For the
locality payments required by FEPCA, see Report on Locality-Based Comparability Payments for the General Schedule,
Annual Report of the Presidents Pay Agent, December of each year. For the annual and locality pay adjustments
authorized, see E.O. 12736, Dec. 12, 1990; E.O. 12786, Dec. 26, 1991; E.O. 12826, Dec. 30, 1992; Presidential
memorandum of Dec. 1, 1993; E.O. 12944, Dec. 28, 1994; E.O. 12984, Dec. 28, 1995; E.O. 13033, Dec. 27, 1996; E.O.
13071, Dec. 29, 1997; E.O. 13106, Dec. 7, 1998; E.O. 13144, Dec. 21, 1999; E.O. 13182, Dec. 23,2000; E.O. 13249,
Dec. 28, 2001; E.O.s 13282, Dec. 31, 2002 and 13291, Mar. 21, 2003; E.O.s 13322, Dec. 30, 2003 and 13332, Mar.
3, 2004; and E.O. 13368, Dec. 30, 2004.
The net increase for each year was calculated by CRS. The actual pay rates are calculated by the following means.
First, the basic General Schedule (GS) is increased by the annual adjustment percentage, resulting in a new GS schedule.
These new basic GS rates are then increased by the locality payment. The resulting pay rates (annual + locality) are
compared with the pay rates (annual + locality) for the previous year to derive the net increase in pay for the current year.
Salary tables for 2005 are available on the Internet at [http://www.opm.gov].