[House Document 106-316]
[From the U.S. Government Publishing Office]
106th Congress, 2d Session - - - - - - - - - - - House Document 106-316
IMPLEMENTATION OF LOCALITY-BASED COMPARABILITY PAYMENTS UNDER AN
ALTERNATIVE PLAN FOR 2001
__________
COMMUNICATION
from
THE PRESIDENT OF THE UNITED STATES
Transmitting
HIS REPORT ON THE IMPLEMENTATION OF AN ALTERNATIVE PLAN FOR FEDERAL
EMPLOYEE LOCALITY-BASED COMPARABILITY PAYMENTS (LOCALITY PAY) FOR 2001,
PURSUANT TO 5 U.S.C. 5305(a)(3)
December 4, 2000.--Referred to the Committee on Government Reform and
ordered to be printed
__________
U.S. GOVERNMENT PRINTING OFFICE
89-011 WASHINGTON : 2000
The White House,
Washington, November 30, 2000.
Hon. J. Dennis Hastert,
Speaker of the House of Representatives,
Washington, DC.
Dear Mr. Speaker: I am transmitting an alternative plan for
Federal employee locality-based comparability payments
(locality pay) for 2001.
Federal employees are the key to effective Government
performance. During the last 8 years, the number of Federal
employees has declined while their responsibilities have stayed
the same or increased. Nonetheless, recent surveys show the
American public believes it is now getting better quality and
more responsible service from our Federal employees. We need to
provide them fair and equitable compensation to recognize their
important role, and to enable the Federal Government to
continue to attract and retain a high-quality workforce.
Under title 5, United States Code, most Federal civilian
employees would receive a two-part pay raise in January 2001:
(1) a 2.7 percent base salary raise linked to the part of the
Employment Cost Index (ECI) that deals with changes in the
wages and salaries of private industry workers; and (2) a
locality pay raise, based on the Bureau of Labor Statistics'
salary surveys of non-Federal employers in local pay areas,
that would cost about 12.3 percent of payroll. Thus, on a cost-
of-payroll basis, the total Federal employee pay increase for
most employees would be about 15 percent in 2001.
For each part of the two-part pay increase, title 5 gives
me the authority to implement an alternative pay adjustment
plan if I view the pay adjustment that would otherwise take
effect as inappropriate because of ``national emergency or
serious economic conditions affecting the general welfare.''
Over the past three decades, Presidents have used this or
similar authority for most annual Federal pay raises.
In evaluating ``an economic condition affecting the general
welfare,'' the law directs me to consider such economic
measures as the Index of Leading Economics Indicators, the
Gross National Product, the unemployment rate, the budget
deficit, the Consumer Price Index, the Producer Price Index,
the Employment Cost Index, and the Implicit Price Deflator for
Personal Consumption Expenditures.
Earlier this year, I decided that I would implement--
effective in January 2001--the full 2.7 percent base salary
adjustment. As a result, it was not necessary to transmit an
alternative pay plan by the legal deadline (August 31) for that
portion of the pay raise.
In assessing the appropriate locality pay adjustment for
2001, I reviewed the indicators cited above along with other
major economic indicators. As noted above, the full locality
pay increases, when combined with the 2.7 percent base salary
increase, would produce a total Federal civilian payroll
increase of about 15 percent for most employees. In fiscal year
(FY) 2001 alone, this increase would add $9.8 billion above the
cost of the 3.7 percent increase I proposed in the fiscal 2001
Budget.
A 15 percent increase in Federal pay would mark a
fundamental change of our successful policy of fiscal
discipline, and would invite serious economic risks--in terms
of the workings of the Nation's labor markets; inflation; the
costs of maintaining Federal programs; and the impact of the
Federal budget on the economy as a whole.
First, an across-the-board 15 percent increase in Federal
pay scales would be disruptive to labor markets across the
country. This increase would be three to four times the recent
average annual changes in private-sector compensation, built
into the base of the pay structure not just for 2001, but for
subsequent years as well. With job markets already tight and
private firms reporting great difficulties in attracting and
retaining skilled employees, this increase in Federal salaries
could pull prospective job seekers away from private employment
opportunities.
Second, in the face of such a large Federal pay increase,
private firms would almost certainly react by increasing their
own wage offers. Thus, beyond the labor-market disruption of
such a Federal pay increase, there would follow a serious risk
of inflation; and that risk would far exceed the direct effects
of the Federal pay raise taken in isolation. Pay rates economy-
wide have already enticed a record percentage of the adult
population into the labor force and paid employment. There are
few unemployed or underemployed workers available for hire; if
private firms need additional labor, they must raise their wage
offers to attract workers from other firms. Such bidding wars
for labor--which constitutes roughly two-thirds of business
costs in this economy--have been at or near the core of all
inflationary outbursts in our recent history. To date, intense
competitive pressures have prevented private firms from
allowing their wage offers to step out of line with
productivity gains, and inflationary pressures have remained
contained. However, a shock arising outside of the competitive
labor market itself--such as an administratively determined
Federal pay increase--could convince private business managers
that they must increase their offers beyond the current norms.
In the past to reverse accelerating inflation, the Nation paid
an enormous toll through policies designed to slow the economy
and reduce the pressure on prices. In numerous instances, the
result was recession and sharp increases in unemployment. With
labor markets as tight as they are we should not undertake a
policy likely to shock the labor market.
Third, Federal program managers are already under
considerable pressure to meet their budgets, while still
providing quality service to the taxpayers. Increasing the
Federal employment costs at such an extraordinary rate would
render those budgets inadequate to provide the planned level of
services. Appropriations for the coming fiscal year have
already been legislated for much of the Federal Government, and
all sides hope that spending bills for the remaining agencies
will pass in the very near future. In particular, agencies that
have the greatest responsibility for person-to-person service--
the Social Security Administration, the Internal Revenue
Service, and the Veterans Affairs healthcare programs, to name
just three--could not be expected to bear double-digit pay
increases without the most thorough review and adjustment of
their budgets.
Finally, despite the current budget surpluses, the Federal
Government continues to face substantial budgetary challenges.
When my Administration took office in January 1993, we
faced the largest budget deficit in the Nation's history--over
$290 billion in fiscal year (FY) 1992. By the projections of
the Office of Management and Budget (OMB), the Congressional
Budget Office (CBO), and every other authority, the deficit
would only get bigger. Furthermore, under both of these
projections, the public debt, and the interest burden from that
debt, were expected to be in a vicious upward cycle.
While we have pulled the budget back from this crisis, and
in fact we have enjoyed the first budget surpluses since 1969,
adverse budgetary forces are just a few years away. The Social
Security system will come under increasing pressure with the
impending retirement of the large baby-boom generation. In
addition, the aging of the population will increase costs for
Medicare and Medicaid. If we become complacent because of the
current budget surplus and increase spending now, the surplus
could well be gone even before the baby-boom generation
retires. My Administration has put these budgetary challenges
front and center. A 15 percent Federal pay increase, built into
the Government's cost base for all succeeding years, would be a
dangerous step away from budget discipline. The budgetary
restraint that produced the current budget surpluses must be
maintained if we are to keep the budget sound into the
retirement years of the baby boom generation.
Therefore, I have determined that the total civilian raise
of 3.7 percent that I proposed in my 2001 Budget remains
appropriate. This raise matches the 3.7 percent basic pay
increase that I proposed for military members in my 2001
Budget, and that was enacted in the FY 2001 Defense
Authorization Act. Given the 2.7 percent base salary increase,
the total increase of 3.7 percent allows an amount equal to 1.0
percent of payroll for increases in locality payments.
Accordingly, I have determined that:
Under the authority of section 5304a of title 5,
United States Code, locality-based comparability
payments in the amounts set forth on the attached table
shall become effective on the first day of the first
applicable pay period beginning on or after January 1,
2001. When compared with the payments currently in
effect, these comparability payments will increase the
General Schedule payroll by about 1.0 percent.
Finally, the law requires that I include in this report an
assessment of how my decisions will affect the Government's
ability to recruit and retain well-qualified employees. I do
not believe this will have any material impact on the quality
of our workforce. If the needs arise, the Government can use
many pay tools--such as recruitment bonuses, retention
allowances, and special salary rates--to maintain the high-
quality workforce that serves our Nation so very well.
Sincerely,
William J. Clinton.
Locality-Based Comparability Payments Under Alternative Plan
[In percent]
Comparability
Payment Effective
Pay Locality: \1\ January 2001
Atlanta MSA............................................... 8.66
Boston CMSA............................................... 12.13
Chicago CMSA.............................................. 13.00
Cincinnati CMSA........................................... 10.76
Cleveland CMSA............................................ 9.17
Columbus MSA.............................................. 9.61
Dallas CMSA............................................... 9.71
Dayton MSA................................................ 8.60
Denver CMSA............................................... 11.90
Detroit CMSA.............................................. 13.14
Hartford MSA.............................................. 12.65
Houston CMSA.............................................. 16.66
Huntsville MSA............................................ 8.12
Indianapolis MSA.......................................... 7.89
Kansas City MSA........................................... 8.32
Los Angeles CMSA.......................................... 14.37
Miami CMSA................................................ 11.09
Milwaukee CMSA............................................ 8.91
Minneapolis MSA........................................... 10.30
New York CMSA............................................. 13.62
Orlando MSA............................................... 7.71
Philadelphia CMSA......................................... 10.80
Pittsburgh MSA............................................ 8.54
Portland CMSA............................................. 10.32
Richmond MSA.............................................. 8.60
Sacramento CMSA........................................... 10.73
St. Louis MSA............................................. 8.00
San Diego MSA............................................. 11.31
San Francisco CMSA........................................ 16.98
Seattle CMSA.............................................. 10.45
Washington CMSA........................................... 10.23
Rest of United States..................................... 7.68
\1\ Pay localities as defined in 5 CFR 531.603.
Note.--MSA means Metropolitan Statistical Area and CMSA means
Consolidated Metropolitan Statistical Area, both as defined by the
Office of Management and Budget (OMB) in OMB Bulletin 99-04, June 30,
1999.
---------------------------------------------------------------------------