[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
          IN SEARCH OF EQUITY: AN EXAMINATION OF LOCALITY PAY 

=======================================================================

                                HEARING

                               before the

                   SUBCOMMITTEE ON FEDERAL WORKFORCE,
                    POSTAL SERVICE, AND THE DISTRICT
                              OF COLUMBIA

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 26, 2008

                               __________

                           Serial No. 110-144

                               __________

Printed for the use of the Committee on Oversight and Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 HENRY A. WAXMAN, California, Chairman
EDOLPHUS TOWNS, New York             TOM DAVIS, Virginia
PAUL E. KANJORSKI, Pennsylvania      DAN BURTON, Indiana
CAROLYN B. MALONEY, New York         CHRISTOPHER SHAYS, Connecticut
ELIJAH E. CUMMINGS, Maryland         JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio             JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois             MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts       TODD RUSSELL PLATTS, Pennsylvania
WM. LACY CLAY, Missouri              CHRIS CANNON, Utah
DIANE E. WATSON, California          JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts      MICHAEL R. TURNER, Ohio
BRIAN HIGGINS, New York              DARRELL E. ISSA, California
JOHN A. YARMUTH, Kentucky            KENNY MARCHANT, Texas
BRUCE L. BRALEY, Iowa                LYNN A. WESTMORELAND, Georgia
ELEANOR HOLMES NORTON, District of   PATRICK T. McHENRY, North Carolina
    Columbia                         VIRGINIA FOXX, North Carolina
BETTY McCOLLUM, Minnesota            BRIAN P. BILBRAY, California
JIM COOPER, Tennessee                BILL SALI, Idaho
CHRIS VAN HOLLEN, Maryland           JIM JORDAN, Ohio
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont
------ ------

                     Phil Schiliro, Chief of Staff
                      Phil Barnett, Staff Director
                       Earley Green, Chief Clerk
               Lawrence Halloran, Minority Staff Director

Subcommittee on Federal Workforce, Postal Service, and the District of 
                                Columbia

                        DANNY K. DAVIS, Illinois
ELEANOR HOLMES NORTON, District of   KENNY MARCHANT, Texas
    Columbia                         JOHN M. McHUGH, New York
JOHN P. SARBANES, Maryland           JOHN L. MICA, Florida
ELIJAH E. CUMMINGS, Maryland         DARRELL E. ISSA, California
DENNIS J. KUCINICH, Ohio, Chairman   JIM JORDAN, Ohio
WM. LACY CLAY, Missouri
STEPHEN F. LYNCH, Massachusetts
                      Tania Shand, Staff Director






















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 26, 2008....................................     1
Statement of:
    Grimes, Charles, Deputy Associate Director, Office of 
      Personnel Management; and Hank Kashden, Deputy Chief for 
      Business Operations, U.S. Forest Service...................    51
        Grimes, Charles..........................................    51
        Kashden, Hank............................................    63
    Hansen, Kathrene, executive director, Federal Executive Board    24
    Kelley, Colleen, president, National Treasury Employee's 
      Union; Jacqueline Simon, public policy director, American 
      Federation of Government Employees; and Art Gordon, 
      national executive vice president, Federal Law Enforcement 
      Officers Association.......................................    72
        Gordon, Art..............................................    90
        Kelley, Colleen..........................................    72
        Simon, Jacqueline........................................    81
Letters, statements, etc., submitted for the record by:
    Cummings, Hon. Elijah E., a Representative in Congress from 
      the State of Maryland, prepared statement of...............   103
    Davis, Hon. Danny K., a Representative in Congress from the 
      State of Illinois:
        Prepared statement of....................................     3
        Prepared statement of Hon. Barney Frank..................     8
        Prepared statement of Hon. Neil Abercrombie..............    10
        Prepared statement of the Federal Managers Association...    14
        Prepared statement of the Foreign Service Association....    12
    Fortuno, Hon. Luis G., a Resident Commissioner in Congress 
      from Puerto Rico, prepared statement of....................   105
    Gordon, Art, national executive vice president, Federal Law 
      Enforcement Officers Association, prepared statement of....    92
    Grimes, Charles, Deputy Associate Director, Office of 
      Personnel Management, prepared statement of................    54
    Hansen, Kathrene, executive director, Federal Executive 
      Board, prepared statement of...............................    27
    Kashden, Hank, Deputy Chief for Business Operations, U.S. 
      Forest Service, prepared statement of......................    65
    Kelley, Colleen, president, National Treasury Employee's 
      Union, prepared statement of...............................    75
    Marchant, Hon. Kenny, a Representative in Congress from the 
      State of Texas, prepared statement of......................    22
    Simon, Jacqueline, public policy director, American 
      Federation of Government Employees, prepared statement of..    83


          IN SEARCH OF EQUITY: AN EXAMINATION OF LOCALITY PAY

                              ----------                              


                        THURSDAY, JUNE 26, 2008

                  House of Representatives,
Subcommittee on Federal Workforce, Postal Service, 
                      and the District of Columbia,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:30 p.m. in 
room 2154, Rayburn House Office Building, Hon. Danny K. Davis 
(chairman of the subcommittee) presiding.
    Present: Representatives Davis of Illinois, Norton, 
Sarbanes, and Marchant.
    Staff present: Lori Hayman, counsel; William Miles, 
professional staff member; and Marcus A. Williams, clerk/press 
secretary.
    Mr. Davis of Illinois. The subcommittee will come to order.
    Welcome Ranking Member Marchant, members of the 
subcommittee, hearing witnesses, and all those in attendance to 
the Subcommittee on the Federal Workforce, Postal Service, and 
the District of Columbia's hearing on locality pay and other 
Federal pay concerns.
    Hearing no objection, the chair will ask unanimous consent 
to allow the testimonies of Representatives Barney Frank, Neil 
Abercrombie, the American Foreign Service Association, the 
Federal Managers Association, and the COLA Defense Committee of 
AHU, Inc., to be added to the record.
    The chair, ranking member, and subcommittee members will 
each have 5 minutes to make opening statements, and all Members 
will have 3 days to submit statements for the record.
    Hearing no objection, so is the order. I will begin.
    Again, thanks to all of you who have come. This hearing 
entitled, ``In Search of Equity: An Examination of Locality 
Pay,'' serves as a followup to a hearing the subcommittee 
previously held in the first session of the 110th Congress that 
broadly examined issues related to Federal pay and 
administration policies.
    Today's hearing, however, will focus on concerns associated 
with locality pay, including calculation, geographical 
application, and the determination of an employee's primary 
duty station for locality pay purposes.
    Keeping in line with the subcommittee's efforts and 
interests in enhancing the Federal Government's ability to 
recruit and retain a highly qualified work force that can 
operate and function in a manner that meets the challenges of 
the 21st century, it is my hope that the testimony presented 
today will help us better understand the formula for which 
locality pay payments are based and to determine if this basis 
serves as the most practical methodology to reflect the 
realities that Federal employees, particularly those in high-
cost area, face in providing for their general welfare and that 
of their families.
    Adding locality pay to the base salaries of nearly 2.7 
million civilian workers in over 800 different occupations 
throughout the country, the Federal Government has committed 
itself to making sure that its employee compensation systems 
accommodate workers fairly. However, the question we are 
examining today is whether the calculation of locality payments 
as currently prescribed actually meets this objective. This is 
in addition to the pay levels and benefits Federal agencies 
currently have in place.
    In addition to locality pay issues, this hearing is also 
intended to explore other recently introduced Federal pay-
related proposals put forth by my colleagues in both the House 
and the Senate, as well as by the Office of Personnel 
Management. These include Senate 3013, the Non-Foreign Area 
Retirement Equity Assurance Act of 2008, which converts white 
collar Federal employees in the non-foreign areas to a locality 
pay system. Second, OPM's Locality Pay Extension Act of 2007, 
which aims to extend locality pay to white collar employees in 
non-foreign areas.
    H.R. 1786, introduced by Representative Faleomavaega, would 
amend Title 5 U.S.C. to all Federal employees stationed in 
American Samoa to receive non-foreign area cost of living 
allowances as if stationed in Guam or the Commonwealth of the 
North Mariana Islands.
    H.R. 2375, the Southeastern Massachusetts and Rhode Island 
Federal Worker Fairness Act of 2007 seeks to improve pay parity 
in the Federal wage system at the prevailing rate for blue 
collar Federal employees in certain high-cost areas.
    And H.R. 3202, the Foreign Service Overseas Pay Equity Act 
of 2007, would amend the Forest Service Act of 1980 to extend 
comparability pay adjustments to members of the Foreign Service 
assigned to posts abroad and for other purposes.
    I would like to thank Representatives Barney Frank and Neil 
Abercrombie, as well as the Foreign Service Association and the 
Federal Managers Association for submitting their valuable 
testimony for the record, and I look forward to hearing the 
testimony of the other witnesses joining us today as we discuss 
a wide range of Federal pay-related issues.
    [The prepared statements of Hon. Danny K. Davis, Hon. 
Barney Frank, Hon. Neil Abercrombie, the Foreign Service 
Association, and the Federal Managers Association follow:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. Davis of Illinois. At this time I would like to yield 
to the ranking member, Mr. Marchant, for any opening remarks 
that he may have.
    Mr. Marchant. Thank you, Mr. Chairman. Thank you for 
holding this hearing on locality pay.
    As this committee continues to look at ways to recruit and 
retain the best employees for Federal service, I believe it is 
important that we address each of these longstanding concerns.
    One issue before the committee today is whether Congress 
should pay the way pay is calculated in Alaska, Hawaii, and the 
territories. The Office of Personnel Management has suggested 
that switching from the older cost of living allowance system 
to a more modern locality pay system could provide more equal 
treatment between all Federal employees.
    One interesting thing about the increasing favor of the use 
of locality pay is that it confirms that market-based 
measurements that respond to private sector changes appear to 
work once again better for citizens than Government-based 
statistics or congressionally mandated across-the-board pay 
adjustments regardless of the market or performance factors. 
This is a lesson that I believe needs to be applied to other 
parts of Government, as well.
    I understand that there are some differences between the 
Senate legislation, Senate 3013, and the original Bush 
administration proposal, and I will be interested in hearing 
our witness explain the difference and recommend improvements.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Hon. Kenny Marchant follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Davis of Illinois. Thank you very much, Mr. Marchant.
    Mr. Sarbanes, do you have any opening comments.
    Mr. Sarbanes. No, sir.
    Mr. Davis of Illinois. Well, thank you very much. Then we 
will proceed with our witnesses.
    I would like to call our first witness, Ms. Kathrene 
Hansen. Ms. Kathrene Hansen is the executive director of the 
Greater Los Angeles Federal Executive Board. The Federal 
Executive Boards are responsible for strengthening the 
management and administration of Federal activities. Ms. Hansen 
is also a co-author of a report entitled, ``Imperfect Storm,'' 
a Federal Executive Board white paper issued in July 2006 
addressing daunting challenges in determining Federal pay.
    We welcome you, Ms. Hansen. It is the custom of this 
committee to swear in all witnesses.
    [Witness sworn.]
    Mr. Davis of Illinois. The record will show that the 
witness answered in the affirmative.
    Thank you very much again. You have 5 minutes in which to 
summarize your statement. Of course, the lights just simply 
indicate that is time to go, it is time to wind down, and then 
it is time to stop.
    Thank you very much. We are pleased to have you.

   STATEMENT OF KATHRENE HANSEN, EXECUTIVE DIRECTOR, FEDERAL 
                        EXECUTIVE BOARD

    Ms. Hansen. Good morning, Chairman Davis and members of the 
subcommittee. Thank you for the opportunity to appear before 
you today to discuss the white paper entitled, ``Imperfect 
Storm: The Looming Human Capital Crisis in California's High-
Cost Cities,'' which was prepared in July 2006 by the Greater 
Los Angeles and San Francisco Bay Area Federal Executive 
Boards.
    The views in this testimony are my own and do not represent 
the views of the administration, the Department of Homeland 
Security, or the Federal Executive Boards.
    Although she is not testifying today, I would like to 
acknowledge Dianna Louey, my counterpart from San Francisco.
    In 1988 the FEBs in New York City and Los Angeles published 
reports on the recruitment and retention crisis experienced in 
those high-cost cities. These reports captured the attention of 
policymakers in Washington, DC, and the result was the passage 
of the Federal Employee Pay Comparability Act. The creation of 
locality pay was a major breakthrough, but it did not solve the 
problems identified 20 years ago.
    Stories we hear in California's high-cost cities are not 
the reality for the Federal worker in most parts of the 
country. It is surprising that Federal employees at the GS-13 
and -11 and -12 levels qualify for HUD Section 8 rental 
assistance program. We hear about employees who sleep in their 
cars to save up to get into an apartment, employees who get 
their dental work done in Mexico, and employees who share an 
apartment based on their shift assignment.
    With the gas price hike, we are seeing an increase in the 
number of employees who sleep on a co-worker's sofa or in a 
camper in a nearby park because they can't afford both rent and 
the gas to drive to work each day. They do all this so they can 
stay in California because of family obligations or to keep 
their jobs while they desperately await a transfer to a lower-
cost city.
    The key here is that they do their jobs well while they 
quietly struggle to survive. That is dedication.
    The failure of the current locality pay formula to consider 
cost of living and extremely high housing costs has resulted in 
tremendous variation in the quality of life for the Federal 
worker. In many parts of the country the Federal worker is 
adequately compensated; however, in high-cost cities that is 
not the case. I am not an economist or a statistician, so I 
cannot tell you why or exactly how the current locality pay 
formula creates these inequities, I can only testify that it 
does.
    We learned that there are five aspects of the current 
locality pay system that prevents equity: the calculation of 
the rest of the United States, not including cost of living in 
the formula, the composition of the locality pay areas, not 
closing the pay gap, and not including the State tax rate.
    Based on OPM's response, we know that they believe that 
Federal agencies would fully implement the human resource 
flexibilities available to them so the recruitment and 
retention problems could be eliminated; however, that does not 
appear to be the reality in the field.
    In anticipation of today's hearing, Dianna and I conducted 
a quick e-mail survey of our members to assess what had changed 
in the 2-years since we conducted our study. We had about a 17 
percent response rate. We found that most agencies continue to 
experience the same recruitment and retention challenges, and 
in many cases the situation has worsened.
    Many of the Nation's most critical infrastructure exists in 
California's high-cost cities. To protect them and the millions 
of residents in these mega cities, the full complement of the 
Federal agencies is needed to keep them safe and secure; 
however, there is no incentive within the existing Federal pay 
system for employees to serve in these high-cost cities.
    If the locality pay formula were changed to consider the 
cost of living, it would negate the need to explore other 
options and to ease the financial strain on the Federal work 
force in high-cost cities.
    In the event of this wholesale formula change, our report 
highlighted an alternative. Even with the current housing 
market, housing is still not affordable for many Federal 
employees at all grade levels. In Los Angeles and San Francisco 
it takes 67 to 85 percent of the average Federal employee's 
salary to afford a median-priced home.
    DOD has a proven model to reduce the impact of personnel 
transfers to high-cost cities. In addition to their base pay, 
active duty personnel are given a basic allowance for housing 
commensurate with their rank based on the housing costs of 
their assigned city.
    Another factor that creates recruitment and retention 
problems at the other end of the pay chart is pay compression. 
The amounts at issue are not trivial. For each of the past 
several years, several GS-15 employees in San Francisco and 
L.A. have been prevented from receiving thousands of locality 
pay dollars. In most parts of the United States the Federal 
employee is well compensated and able to live the lifestyle of 
a typical middle class family. It is heart-wrenching to see the 
financial and quality of life sacrifices that Federal employees 
in California's high-cost cities must make in order to survive 
because they have chosen to work for an employer who by statute 
is unable to compensate them fairly and equitably in comparison 
to their out-of-State peers. In essence, they are penalized for 
serving in California.
    As our survey has clearly confirmed, when a current or 
prospective employee is trying to decide whether to move or to 
stay in California, I guarantee they don't look at cost of 
labor, they look at cost of living. The title of this hearing 
is, ``In Search of Equity: An Examination of Locality Pay.'' I 
applaud the committee for looking into this matter, because I 
can assure you that the current locality pay system is far from 
equitable.
    Thank you.
    [The prepared statement of Ms. Hansen follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Davis of Illinois. Thank you very much. Again, we 
appreciate your testimony.
    Let me just ask you, in your written testimony you suggest 
that locality pay be based on the cost of living versus the 
cost of labor. Could you tell me the difference between the 
two?
    Ms. Hansen. I am not a statistician. I will do my best to 
explain it to my understanding.
    The employer cost index [ECI], is the basis of the cost of 
labor, and they use a national compensation survey to find like 
positions to compare to the Federal sector. The intention of 
FEPCA was to get within 5 percent of the non-Federal sector. We 
have no illusions that we will ever be comparable with the 
private sector, nor is that what we seek.
    The cost of living is based on the consumer price index, 
which is the actual expenditures that a household must spend in 
order to survive. It includes housing, it includes fuel cost. I 
know in the Los Angeles area a number of private sector 
companies actually give their employees every 6 months a cost 
of living adjustment. And depending on what is going on with 
the cost of living, it either goes up or it goes down. It is 
something those employees feel like they understand when their 
salary goes down because their expenses have gone down, and so 
it doesn't hurt as badly when the salary is based on cost of 
living, because that is something that we live with every day. 
Cost of labor, there are so many variables. Illegal immigration 
is something that we believe has suppressed the salaries in the 
California area.
    The size of the locality pay area makes it so that you are 
comparing salaries and occupations in radically different 
economies. For instance, we appeared before the Federal Salary 
Council twice and asked that they make our locality pay area 
smaller. Even though the Federal Salary Council admitted that 
if we just looked at the coastal counties, the salaries are 
almost 20 percent higher in their national salary compensation 
survey, they have included the two inland counties, and one of 
them is actually one of the lowest-cost labor counties in the 
Nation. So, it dilutes our locality pay calculation based on 
cost of labor.
    We think cost of living based on a county-by-county basis 
would be a lot more realistic.
    Mr. Davis of Illinois. You have suggested a variable 
housing allowance for employees in high-cost areas. Are there 
other recommendations that you would make to try and rectify 
the inequities that you cite relative to these areas?
    Ms. Hansen. Well, the variable housing allowance was one of 
the best practices that we learned from the Department of 
Defense when we did our survey, and the reason we proposed it 
was because there is existing data. It is something that we 
thought could be done quickly as a stop-gap measure.
    In the absence of something like that, if you are talking 
about a wholesale revamping of the pay system, of course, we 
would take the position that we would prefer the cost of living 
to be considered, and if that is not a reality then just 
implementing FEPCA and closing the gap within the 5 percent, as 
the law requires, would be a welcome change to Federal 
employees in high-cost cities.
    Mr. Davis of Illinois. You cite high-cost areas in 
California. Do you see this kind of problem existing in other 
areas, other parts of the country?
    Ms. Hansen. I think what we see in California, is that we 
are on the front end of where the issue of locality pay may be 
going nationwide. Talking to my co-workers and my colleagues 
nationwide, a couple of them have had me send copies of our 
survey because they have similar challenges. I know Boston is 
extremely expensive. They are having struggles in Key West, FL. 
Chicago is an expensive town. We are just a little ahead of the 
curve because our expenses have gone up so quickly, but I do 
think that what we are seeing in California is inevitably going 
to roll out to other high-cost cities.
    Mr. Davis of Illinois. Well, thank you very much.
    I will yield to Mr. Marchant.
    Mr. Marchant. Thank you.
    Ms. Hansen, do you have any sense of how the Federal pay 
compares? Do you have a survey or do you have a study that 
shows what a lawyer with the Justice Department would make as 
opposed to a lawyer with the same standing in a private firm?
    Ms. Hansen. I don't have those exact numbers. One thing 
that was interesting in trying to capture, when we did our 
survey in 2001, was private sector salaries, our salaries are 
so transparent everybody knows what you make, and so I was 
calling one of the want ads, and one of them actually was for a 
paralegal. I said, hi, I work for such-and-such, and I was just 
wondering what you are paying for this position. It was amazing 
how subjective it is in the private sector, and there are so 
many variables, depending on where you went to school, who you 
know, where you live, that is a hard number to get to.
    The Bureau of Labor Statistics collects information in that 
National Compensation Survey, and I know that lawyers are one 
of the positions they looked for, and they have acknowledged 
when you look at the pay gap that in the Los Angeles area it is 
about 44 percent. So on average I guess you could make an 
assumption, based on those principles, that they would make 44 
percent more, but that is not a universal.
    Mr. Marchant. How does the State of California deal with 
these same issues with its employees?
    Ms. Hansen. The State of California actually has some 
challenges, as well. The State of California is a little bit 
unique in that we are one area where local government and State 
government frequently pay more than the Federal salary. That is 
not typical in most parts of the country, based on our 
analysis. And they use the cost of living variable, and it is a 
formula that includes both the ECI and the CPI. But they also 
look at cost of living.
    Within the State I know, for instance, the California State 
University system, they have a really hard time recruiting at, 
like, Cal State Dominguez Hills, which is right in Los Angeles, 
but Cal State, somewhere in the San Joaquin Valley where it is 
cheaper to live, they don't have as hard a time recruiting in 
that facility. So even within the State there are some 
variations. There are specific high-cost pockets.
    This is not a problem that is unique to the Federal 
Government. One of the advantages, though, is that in the 
private sector they have all kinds of latitude, but within the 
State of California they do typically pay better than their 
Federal counterpart, but they have some of their own internal 
challenges throughout the State.
    Mr. Marchant. So it would be your testimony that a Federal 
employee in California is worse off than a similarly situated, 
similar job, similar benefits, just across the board?
    Ms. Hansen. I can't say that with 100 percent surety. I 
know that when you can find a comparison, for instance, law 
enforcement, with fire fighters, with a number of 
administration positions that we have looked at, particularly 
with local government--and, again, I think part of that is 
because California is Statewide. They have sort of the same 
issue that we have. With the Federal perspective you are 
worried about the national work force, and so, a problem we are 
having in a big city in one State is not as pressing. And in 
the State of California they are dealing with the whole State 
work force, and they don't want to create inequities within the 
State.
    So in some parts of the State, absolutely they make more; 
in other parts of the State I don't know is the comparison is 
that dramatic. I do know that with law enforcement and fire 
fighters they can make as much as three times more. Irvine 
Police Department, a friend of mine, her son just got out of 
college and he is a starting police officer, absolutely no 
experience, started at $75,000. That is the labor market we are 
competing with. I was talking with the sheriff of Los Angeles 
County about our recruitment and retention challenges, and he 
said, I don't know how you do it. He said, we pay so much more 
and we are having a hard time getting talent.
    This is not a unique Federal problem in the State of 
California, but I do think it is a trend that we are going to 
start seeing in all high-cost areas.
    Mr. Marchant. And when you try to recruit a Federal 
employee into your system from another city, are you having a 
huge problem with that?
    Ms. Hansen. Yes. For a number of positions, the 
advertisement will be a national recruitment, so somebody 
applies for a job and they don't know where they are going to 
end up. Oftentimes at the end of the training that is one of 
the things they have looked at doing, is maybe we need to tell 
them before we spend the money training them where they are 
going to go, because what has been happening, at the end of 
their training they are told they can either go to L.A. or San 
Francisco. We benefit in L.A. because we are cheaper than San 
Francisco. But that is when you end up with people saying, I 
wanted to get into the Federal system. I took this job. I can't 
afford to live here, so three buddies and I are going to share 
this apartment. They start immediately trying to transfer out 
to a lower-cost city.
    We really are the training ground. Our public is really 
more in the retention area. We can keep the people at the end 
of their career, in part because they may have some retirement 
restrictions. FERS is making that harder, because that 
retirement system is more portable. We can get people at the 
beginning of their careers, because when you are in your 20's 
it is OK to share an apartment. It is kind of cool living in 
California.
    But when they get to the point where they are an effective 
journeyman employee, when they have developed all the training 
and they are actually going to make a significant contribution 
to the effectiveness of their organization, they start thinking 
about getting married, having children, buying a house, and 
then they look around and say, I can't do that here. And they 
flee to lower-cost cities. It is that portion in the middle 
that I would argue is the most essential and we are having the 
hardest time keeping. And also at the GS-15 level.
    A number of agencies have, because of pay compression, had 
a hard time getting people to take positions. There are many, 
many GS-15 vacancies that have been vacant for over a year 
because they can't get people to reduce their standard of 
living dramatically enough to afford living in Los Angeles or 
San Francisco.
    Mr. Marchant. Thank you, Mr. Chairman.
    Thank you.
    Ms. Hansen. Thank you.
    Mr. Davis of Illinois. Thank you very much, Mr. Marchant.
    Mr. Sarbanes.
    Mr. Sarbanes. Thank you.
    Could you hazard a guess at what percentage of the 
locations across the country would you say are paying at a 
level that properly accounts for the cost of living there? I 
mean, is it 25 percent, is it 50, is it 70, is it 10?
    Ms. Hansen. I don't know the numbers. I know from our 
perspective the rest of U.S. category is probably pretty 
equitable, or maybe even somewhat overpaid in some parts of the 
country commensurate with the cost of living. You know, I 
personally have family that live in some pretty rural areas, 
and when I see their cost of living and their standard of 
living and they make considerably less than even I do, and yet 
they can afford to do things that I can't. I know in some parts 
of the country the Federal employee is one of the highest-paid 
employees in town.
    Mr. Sarbanes. So, in other words, somebody might argue that 
this discussion is like a trojan horse for just across-the-
board pay increases for Federal employees, and there may be 
another discussion we can have about pay equity vis-a-vis what 
the private sector offers.
    Ms. Hansen. Yes.
    Mr. Sarbanes. Many of us feel strongly about that. But you 
are really getting to the question of there are certain places 
where the cost of living is such that the Federal Government is 
at a severe disadvantage in terms of being able to hold on to 
people.
    Ms. Hansen. Yes.
    Mr. Sarbanes. What I wanted to ask about, I was intrigued 
by your discussion in the written testimony about the OPM's 
response to the concerns expressed that the Federal agencies 
have flexibility to address some of these concerns, but that 
you view that as not solving the problem. The reason I am 
interested in that is because we have been doing a lot of 
talking recently around different pieces of legislation, last 
week with the 4-weeks of paid parental leave, the telework bill 
that the chairman and others on this committee worked on 
getting through. And a lot of our argument for that is this is 
going to make the Federal Government more competitive in 
recruiting and retaining people.
    What you are suggesting is that we may be fooling ourselves 
in areas where the cost of living isn't being taken proper 
account of, so maybe you could just talk about that a little 
bit more.
    Ms. Hansen. OK. Just this week the Partnership for Public 
Service did a news release on their survey. This is the first 
time that it has shown that salary is the No. 1 variable for 
young people to decide whether or not they want to come work 
for the Government. Over the years we have heard we want to be 
the employer of choice.
    Now I am a 24-year career Federal employee, and you all 
have taken very good care of us, and the Office of Personnel 
Management has worked tirelessly to come up with innovations 
and flexibilities, and we do have, particularly in the area of 
leave, one area that I think our benefits exceed many. But even 
that is a struggle in the high-cost areas because we can't use 
our leave because we have an average of an 18 percent vacancy 
rate at most of our agencies. That is even excluding two 
agencies that reported an 85 percent vacancy. The average would 
have been a lot higher if I had put in those numbers, but I did 
not.
    What happens with the HR flexibilities that do not 
adequately compensate? In our report we talked about Maslow's 
hierarchy of need. A lot of that--the parental leave, the 
telework--are nice to have. It is like you are moving up the 
scale on Maslow's hierarchy of need, but you are not too 
concerned about those issues when you really are struggling to 
put a roof over your head and food on your table. You are 
concerned about basic survival. You can't think about optimal 
performance. You can't think about the nice to have's, because 
all you really care about is getting a roof on your head, a 
tank of gas in your car, and food on your table.
    Most of our employees are in that survival mode.
    Mr. Sarbanes. Did you just say there were some things you 
left out of this study where it was an 85 percent?
    Ms. Hansen. As far as the vacancy rate?
    Mr. Sarbanes. What was that you said?
    Ms. Hansen. We have two agencies that reported an 85 
percent vacancy rate.
    Mr. Sarbanes. What does that mean?
    Ms. Hansen. That they had 85 percent of their positions 
were not filled.
    Mr. Sarbanes. How do you function?
    Ms. Hansen. That is why I didn't roll them into the 
average, because I thought it would skew it. Our work force is 
really stretched.
    Mr. Sarbanes. How many positions were there in one of those 
agencies?
    Ms. Hansen. I didn't ask that question. We just did a 
quick, five-question survey when we got this invitation.
    Mr. Sarbanes. OK.
    Ms. Hansen. Most people indicated, I am a small office, but 
those particular ones did not.
    Mr. Sarbanes. OK. Thank you.
    Mr. Davis of Illinois. Thank you very much, Mr. Sarbanes.
    Ms. Norton.
    Ms. Norton. Thank you, Ms. Hansen, for this testimony. I 
couldn't be more sympathetic to you, to tell you the truth. Mr. 
Sarbanes and I live in another very high-cost area where 
recruiting is difficult. Indeed, we have to fight very hard 
just to get the annual cost of living increase and get that not 
driven back. But it is not enough to sympathize with it. You 
would like the cost of housing to be taken into effect but you 
indicate that with labor costs, basing this matter on labor 
costs, you say, results in pitting what amounts to a lot of 
extremes.
    Well, I have a couple of questions about that. I couldn't 
imagine that there wouldn't be huge extremes in housing costs, 
or else nobody would be living in California any longer. I am 
not sure if we would be jumping from the frying pan into the 
fire. One would have to look very closely at that one. That 
certainly is one question for me.
    They go to labor cost because most of the time that is more 
closely related, of course, to the cost of living. It is very 
hard to get the Federal Government to do anything even mildly 
reforming, much less as radical as moving to an index that 
would help some areas but not others.
    Have you any confidence that the extremes you speak of in 
the labor market are not also to be found in California's 
housing market, where you have some of the poorest people in 
the United States and some of the richest people in the United 
States and all across the board because it is such a diverse 
population? Has anybody investigated that?
    Ms. Hansen. Well, housing numbers we looked. One of the 
things that using the DOD basic allowance for housing model is 
it is very narrow. If you are assigned to this base, you get a 
housing allowance based on the cost of housing around that 
base. One of the issues----
    Ms. Norton. The cost of housing for who? I mean, you know, 
in the same community you can have very rich people living in 
houses, and at the opposite extreme you have some version of 
what we do with labor costs, to do with housing costs, and you 
have confidence that would straighten California out? Who has 
done it?
    Ms. Hansen. The Department of Defense contracts with an 
organization called Runzimer. In fact, Runzimer has the 
contract for multiple Federal agencies that use housing 
allowances. It is not commonly used by anyone except the 
Department of Defense, but there are some agencies, for 
national security purposes, that have a requirement to have a 
certain person live in a certain city, and it is above their 
grade level.
    I met with this gentleman from Runzimer and he was 
extremely confident in the surveys that they do.
    Ms. Norton. Housing allowances for any Federal employee?
    Ms. Hansen. Well, they do it for the Department of Defense 
active duty employees, and they have been doing it for several 
years.
    Ms. Norton. Any active duty employee?
    Ms. Hansen. Yes.
    Ms. Norton. In a high-cost part of any city?
    Ms. Hansen. Any city. Every active duty----
    Ms. Norton. From the lowest, they give them something?
    Ms. Hansen. Yes, and they have done it for several years, 
and it solved the retention problem the Department of Defense 
was having until the last few years.
    Ms. Norton. For civilian employees?
    Ms. Hansen. No. Active duty. And we have a chart in our 
report that, although the active duty base pay is lower, when 
it is supplemented with the housing allowance they consistently 
make more. It is on page 10 of the written statement. And I 
personally was raised in a military family. My father was a 
tack sergeant. We had six kids and my mother never worked, and 
we lived in high-cost cities and lived in low-cost cities. Our 
quality of live never changed. It really was the great 
equalizer in allowing you to move at the need of the agency.
    Ms. Norton. So are you recommending housing allowances or 
replacement of labor cost figure?
    Ms. Hansen. What we recommend in our report is that the 
rest of the United States become the new base. Let's stop 
pretending that is not the new base. That really is the base, 
our base pay, with the exception of Alaska, Hawaii, and the 
territories, which you guys will be talking about later. Make 
the rest of the United States the new base and then add a 
housing allowance for the communities that it is required. What 
we speculated was, based on our research, that there are going 
to be some cities that aren't going to need a housing 
allowance, that it may already be getting locality pay above 
the rest of the United States. And there are other cities that 
might need a housing allowance.
    We had another chart on cost of housing, financial planners 
recommend that you spend about 30 percent of your household 
income on cost of housing. We took the median priced home, we 
took the average employee, based on a locality pay, and in 
Washington, DC, it takes 38 percent of a GS-9, Step 3 Federal 
employee to afford the median-priced home. These are numbers we 
got from the Housing and Urban Development. In Houston, it 
takes 17 percent. Nationwide it takes 23 percent.
    So if you look at the rest of the U.S. category, they are 
right where they are supposed to be according to financial 
planners. They are spending 23 percent of their income. 
Washington, DC, is spending considerably more than they should. 
Houston is spending considerably less. San Francisco and Los 
Angeles, we don't even bring home 67 or 85 percent of our 
income.
    I also found a report by the Bureau of Labor Statistics for 
2004 in Los Angeles, the average household spent 18 percent of 
their income on gas. That was when gas was $2.14. So if you 
look at our GS-9s who are trying to afford housing, not just 
buying a house, but even renting, and it is taking 67 percent 
of their gross income and they are spending at a minimum 18 
percent of their gross income on fuel, I don't know how they 
are surviving.
    Ms. Norton. I think that is what the next proposal will be, 
that it should be based on how far you have to go to get to 
work.
    Again, my own sympathy for it, nevertheless, drives me to--
well, the closest that you have come to making this sound 
realistic to me is what you say about DOD employees. Of course, 
we have been successful in getting the cost of living pay to be 
the same as military employees.
    Ms. Hansen. A couple of your subcommittee members I noticed 
are on the House Armed Services Committee Readiness 
Subcommittee, which deals with housing issues for active duty 
military.
    Ms. Norton. And because we have been successful, that is an 
analogy that is very important. Of course, while we can see the 
distinction between active duty personnel and Federal workers, 
we have also argued successfully that distinction has been 
blurred, if not disappeared, by the nature of the global 
situation today, when Federal employees are doing often more 
vital work related to national security.
    My own sense is always to drive down my preference and to 
drive down my bias and to think more largely of what is more 
likely to happen, and right when I came to Congress locality 
pay was to be instituted. I was very much a part of that. 
Instantly it got driven down in times that were very different, 
very much better than this.
    These are the kind of figures that are going to be hurled 
at us. Everybody will look at the cost to the Government. That 
is what they do just to get what we promised every year.
    Ms. Hansen. I know.
    Ms. Norton. And what we promised every year is ridiculous, 
and the American people wouldn't allow it. If, in fact, the 
average net pay increase, if the cost of living and the 
locality pay comparability payments were granted the way the 
law says, the employees would have been gotten an almost 20 
percent raise in 2009. So we are fooling ourselves, we are 
fooling employees, and we have to come up with something that 
works.
    I'll tell you one thing: Nobody is going to give Federal 
employees, nor should they, a 20 percent increase in their 
wages. This is very much a failed promise, and it may be, Mr. 
Chairman, that what we need to do is to get the housing figures 
from the Defense Department, see where it covers and who it 
covers. Obviously, it is easier to sell when you are talking 
about our active duty military.
    Then, of course, the next thing, we have a lot of military 
bases here, so that serves my purposes. But the next thing you 
would have to deal with is the rest of the country objecting to 
housing.
    Ms. Hansen. Yes.
    Ms. Norton. About the only thing I can say for labor costs 
is that in most places, that is what we are talking about. We 
are talking about the cost of labor, and we are not even 
meeting that standard--cost of labor there, cost of labor here. 
If you go outside of that, I expect more controversy than 
agreement. I am always driven to something that, 
notwithstanding the differences you are likely to get, won't 
look like it is favoring some of us over others of us.
    That is why we go through the Civil Service system, for 
example. A lot of us are against pay parity because we don't 
know any way to draw the distinctions between the folks who are 
supposed to be doing so much better than others, because there 
are too many employees. So what people do when they can't come 
up with a system that sounds to me far more rational, the kind 
of system you have, they fall back on something that is the 
lowest common denominator.
    I appreciate your testimony, because it moves us forward to 
looking at a practical example of having moved beyond the 
lowest common denominator and an example that is analogous to 
one we have insisted upon using for Federal employees with 
active duty military.
    Thank you, Mr. Chairman.
    Mr. Davis of Illinois. Thank you very much, Ms. Norton.
    Let me just ask you, Ms. Hansen, how would you respond to 
recent arguments that the rest of the U.S. locality pay rates 
and actual locality rates for certain high-cost areas are 
incongruent, giving the varying cost of living or labor between 
different areas?
    Ms. Hansen. Well, I know in Los Angeles, when we look at 
the rest of U.S. category--I first moved to Los Angeles in 
1990, and it was when we got the interim geographic allowance 
of 8 percent because of the emergency that had been documented 
in Los Angeles, San Francisco, and New York with regards to 
recruitment and retention. I never had heard of the Federal 
Executive Boards, but everybody in Los Angeles knows that FEB 
has them locality pay. That is the perception. That is part of 
why we have all this information, because whether we were 
seeking it or not we were getting this information. At that 
time it felt pretty good.
    When you look at the actual locality pay chart, the 
thinking is, in Los Angeles what are they complaining about? 
They are getting 25.26 percent, but when you back out the rest 
of the United States, the 13.18 percent, we are really only 
getting 12 percent more than the people who live in some place 
where you can buy a house for $60,000.
    When we did our analysis, even the price of gas varies as 
much as $1.25 a gallon, depending on where you are living. So 
the fact that we are now only 4 percent above where we were 18 
years ago when we had an emergency and had to get that 8 
percent, you know, we have only made 4 percent progress in 18 
years. We can feel it in our pocketbooks in California.
    I hope that answered your question.
    Mr. Davis of Illinois. Thank you very much.
    Mr. Marchant, do you have any other questions?
    Mr. Marchant. No, thank you.
    Mr. Davis of Illinois. Thank you very much. You are 
excused.
    Ms. Hansen. Thank you.
    Mr. Davis of Illinois. Our next panel consists of Charles 
Grimes, who is the Deputy Associate Director of the Office of 
Personnel Management's Policy Division. Mr. Grimes previously 
served as Assistant Director of Compensation Policy in the 
Internal Revenue Service's Strategic Human Resources Division, 
where he developed and implemented the senior manager 
performance based pay system. Mr. Grimes has over 25 years of 
operational and policy compensation experience.
    Mr. Hank Kashden is the Deputy Chief for Business 
Operations for the U.S. Forest Service. Mr. Kashden started his 
career with the Forest Service in 1973 and has worked in a 
variety of positions, including Survey Technician, Forest 
Administrative Officer, Assistant Director in Law Enforcement, 
and Director of the Budget Department.
    Gentlemen, thank you very much. If you would, stand and 
raise your right hands with me.
    [Witnesses sworn.]
    Mr. Davis of Illinois. The record will show that the 
witnesses answered in the affirmative.
    Gentlemen, thank you very much. Of course, you know the 5-
minute procedure that we use to summarize your testimony. Your 
full written statement is in the record, if you would take 5 
minutes and summarize. The yellow light is an indication that 
you have a minute left and hopefully would wind up. The red 
light indicates it is time to go.
    Mr. Grimes, we will begin with you. Thank you very much.

STATEMENTS OF CHARLES GRIMES, DEPUTY ASSOCIATE DIRECTOR, OFFICE 
  OF PERSONNEL MANAGEMENT; AND HANK KASHDEN, DEPUTY CHIEF FOR 
            BUSINESS OPERATIONS, U.S. FOREST SERVICE

                  STATEMENT OF CHARLES GRIMES

    Mr. Grimes. Mr. Chairman and members of the subcommittee, 
my name is Chuck Grimes and I am here today on behalf of Linda 
M. Springer, Director of the Office of Personnel Management, to 
discuss how locality pay is determined and recent proposals to 
extend locality pay in lieu of cost of living allowances to 
Federal employees working in Hawaii, Alaska, Guam, Puerto Rico, 
U.S. Virgin Islands, and other U.S. territories and 
possessions.
    Over the years the focus of Federal pay policy has evolved 
from simply keeping pace with the overall labor market to 
effectively competing within that market. In response to 
perceived recruitment and retention problems in some high labor 
costs markets, Congress enacted the Federal Employees Pay 
Comparability Act of 1990. Implemented in 1994, FEPCA provides 
for an annual locality pay adjustment to narrow the gap between 
Federal and non-Federal salaries. Locality pay is a single 
percentage adjustment within each locality pay area determined 
to have a Federal/non-Federal gap greater than 5 percent.
    The Federal Salary Council recommends establishment of 
particular locality pay areas, and the President's pay agent 
approves the areas. There currently are 32 locality pay areas, 
including a catch-all rest of the United States [RUS].
    The Bureau of Labor Statistics conducts annual salary 
surveys in each locality pay area, private sector and State and 
local governments, for white collar jobs similar to General 
Schedule jobs. On behalf of the President's Pay Agent, OPM's 
staff compares the survey results to GS pay to get a pay gap 
for each area. The President's Pay Agent considers these pay 
gaps, along with recommendations from the Federal Salary 
Council, and submits an annual report of recommendations to the 
President.
    The President, after considering the Pay Agent's report, 
establishes locality pay percentages for each area based on the 
pay gaps. However, FEPCA excluded the non-foreign areas from 
locality pay coverage, leaving the 50-year-old COLA program in 
effect. The COLA program was originally designed to address 
recruitment and retention issues resulting from higher cost of 
living in the non-foreign areas. Accordingly, COLA rates are 
based on cost of living differences between each non-foreign 
area and Washington, DC.
    COLA has tangible effects on employees' take-home pay and 
retirement annuity. For instance, some employees like the fact 
that COLA payments are not subject to Federal income tax. On 
the negative side, given that COLA payments are allowances, 
they are not considered base pay for retirement purposes. There 
is a growing perception that pay and retirement of white collar 
civilian Federal employees in non-foreign areas are gradually 
eroding in relation to those in the lower 48.
    In May 2007 the administration sent a proposal to Congress 
to address these issues. We are pleased that Senators Akaka, 
Inouye, Stevens, and Murkowski have recently introduced S. 
3013, the Non-Foreign Area Retirement Equity Assurance Act of 
2008, to stimulate discussion on how best to transition from 
COLA to locality pay. Also, the Federal Managers Association 
has put forth a proposal.
    The administration's proposal would phase in locality pay 
over a 7-year period to limit the impact of locality pay on 
retirement behavior. During the phase-in period, decreases to 
COLA would be limited to 85 percent of the increase in locality 
pay in order to reduce the impact on take-home pay of increased 
deductions for retirement contributions and tax liability.
    S. 3013 would reduce the phase-in of locality pay to 3 
years, and would set that offset of COLA at 65 percent of the 
increase to locality pay. The FMA proposal would phase locality 
pay in over 2 years with an offset of 75 percent.
    In both the administration's proposal and S. 3013, the RUS 
rate subject to their differing phase-in rates, would apply in 
all areas in the first year of phase-in, while data are 
collected, pay gaps are determined, and recommendations for pay 
rates made.
    The FMA's proposal would implement the full RUS rate in the 
first year and the full rate for Hawaii and Alaska in the 
second year. We believe that Hawaii and Alaska would be 
established as separate locality pay areas by the Federal 
Salary Council and the President's Pay Agent. Puerto Rico, 
Guam, and the Virgin Islands would likely be covered by the RUS 
locality pay area.
    We estimate rates for Hawaii and Alaska would be 20.38 
percent and 27.68 percent respectively. The current rate for 
RUS is 13.18 percent.
    We believe the administration's proposal addresses the 
issues in a responsible fashion with regard to cost. S. 3013, 
welcomed as a step forward in resolving these issues, would 
cost significantly more due to the shorter phase-in period and 
reduced offset. The FMA proposal would cost even more.
    The time is upon us to extend locality pay to the non-
foreign areas. Locality pay provides employees in the non-
foreign areas a retirement benefit comparable to employees in 
the continental United States. Additionally, locality pay has 
increased about 1 percentage point over the last few years, 
unlike COLA, which has a history of fluctuations, with most 
areas currently trending downward.
    Mr. Chairman, thank you for the opportunity to discuss this 
important issue with you today and for your support as we work 
toward a more market-based pay system in our non-foreign areas 
which will benefit both employees and agencies. I would be 
happy to address any questions you may have.
    [The prepared statement of Mr. Grimes follows:]

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    Mr. Davis of Illinois. Thank you very much, Mr. Grimes.
    We will proceed to Mr. Kashden.

                   STATEMENT OF HANK KASHDEN

    Mr. Kashden. Thank you, Mr. Chairman, for the opportunity 
to appear before this subcommittee to talk about how the Forest 
Service applies pay and other flexibilities to managing and 
retaining its work force. In talking about this subject, I will 
talk about how we apply those incentives and pay procedures, 
and will defer to Mr. Grimes for policy discussions that may be 
under consideration.
    Recognizing that it is very rare for the U.S. Forest 
Service to appear before this subcommittee, let me just give 
you a brief overview of what the Forest Service is about in 
terms of our mission.
    The mission of the Forest Service is to sustain the health, 
diversity, and productivity of the Nation's forests and 
grasslands to meet the needs of present and future generations. 
We tend to distill that in our work force around a model that 
involves caring for the land and serving people.
    The national forests of America are highly disbursed. We 
have 155 national forests and 20 national grasslands in 44 
States and in Puerto Rico. We have other major branches of the 
Forest Service, including a premier research and development 
branch that is involved in a wide variety of natural resource 
and related sciences. We have a State and private forestry 
program that supports non-industrial private landowners, as 
well as States and tribal areas. We also have something that is 
seldom known in the Forest Service. We, through the Department 
of Labor, administer 22 Job Corps Civilian Conservation Centers 
with around 900 employees that support over 4,000 teenagers and 
young adults in giving them vocational training with a 
conservation basis for that education.
    The Forest Service has a wide variety of job series, and 
those include forestry technicians, professional foresters, 
scientists, teachers, guidance counselors, a variety of 
ologists--that being geologists or wildlife biologists--
administrative personnel, etc.
    We cover a wide geographic area across the entire country. 
We have employees in major metropolitan areas around the 
country. We have employees in very rural areas. We have 
employees in very high-cost resort towns and we have employees 
in areas that might be considered to be the end of the Earth.
    I think that geography and wide array of job series is one 
reason that we might be here today to talk about how we apply 
pay policies and flexibilities. We have a variety of 
recruitment and retention challenges.
    The foresters in the Forest Service, if you are a graduate 
forester you probably have had an aspiration to work for the 
Forest Service for many years, and once you are in the Forest 
Service you will stay there for your entire career, in all 
likelihood.
    Contrast that with contract specialists, a very high-demand 
series. Many of our contract specialists have worked for 
multiple agencies. They are constantly in demand with other 
agencies and even the private sector.
    Overall, the Forest Service has a very stable work force. 
Since 2005, our attrition rate has been 8.6 percent, and that 
compares to a nearly equivalent Federal Government-wide rate of 
8.4.
    The Forest Service uses a broad suite of OPM-delegated 
flexibilities and authorities to manage and recruit its work 
force. A specific example that I think is relevant to Ms. 
Hansen's area is the special pay rate authority that we use to 
recruit and retain employees in targeted occupations where 
there is a tremendous challenge in offsetting a disparity 
between a competing employer. This particularly occurs as a 
major example for the Forest Service in southern California, 
where we apply locality pay and special pay rates to our 
wildland fire fighters, classified as forestry technicians. 
That is an effort to offset the pay disparity found between the 
Federal salary and those received by the California Department 
of Forestry and Fire Protection for their structural and 
wildland fire fighters.
    We also have other areas that require different incentives. 
We use the tool we call in-house the three-Rs dealing with 
recruitment, relocation, and retention that allows us to 
provide incentives in those categories to attract or retain 
employees in geographic areas that are difficult to get 
employees to, and those are areas that are not necessarily 
metropolitan. Clear examples are the high-cost areas like 
Glenwood Springs, CO; Jackson Hole, WY; Steamboat Springs, CO. 
There we will use a retention or relocation bonus process to 
try and bring employees into the system.
    I have a couple of examples in the testimony that I can 
talk to later should you have any questions about that.
    In closing, let me just say that generally speaking, we in 
the Forest Service are able to staff most of our organization 
effectively. I think that is a combination of a reasonable pay 
rate and a mission that we are all very, very proud to be part 
of, and that is caring for the land and serving people. It is 
one of the reasons I have been in the Forest Service for 35 
years, and it is one of the reasons that many of our long-
termers are there.
    I do acknowledge certainly that there are areas where 
keeping that tight hold on the mission is offset by some of the 
challenges of locality cost, such as in southern California or 
in some of those special high-rate geographic areas such as 
small towns.
    With that, I will close my testimony and be happy to answer 
any questions.
    [The prepared statement of Mr. Kashden follows:]

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    Mr. Davis of Illinois. Thank you very much. Again, I 
appreciate both of your testimonies.
    Mr. Grimes, let me ask you, you have heard the testimony of 
previous witnesses in support of locality pay being based on 
cost of living as opposed to cost of labor and rethinking the 
way the locality pay areas are defined. How do you respond to 
these notions?
    Mr. Grimes. The notion of locality pay is based, as you 
mentioned, on the cost of labor, Mr. Chairman. We believe and 
the administration believes that it is a very equitable way to 
pay employees. There are a number of factors that drive private 
sector and the State and local government pay, and living costs 
are certainly among those. Private sector folks and State and 
local government folks have to buy houses, as well.
    So when BLS surveys the private sector and the State and 
local governments and provides that data to us to establish the 
gaps between Federal pay, private sector, and State and local 
government pay, we are able to pay a locality pay that is in 
accord with those gaps. Now it is not perfect, but it is a step 
in the right direction and we believe that it works.
    Mr. Davis of Illinois. OPM has previously suggested that 
Federal agencies already have wide latitude under the various 
pay flexibility initiatives to address recruitment and 
retention issues. If this is the case, why do you think many 
agencies seem to still have difficulty recruiting and retaining 
employees in these high-cost areas?
    Mr. Grimes. I am not sure why they are experiencing the 
difficulties because they do have the tools to use to recruit 
and retain. In fact, we have a report here that we submitted to 
Congress on 2006's use of the three-Rs, the so-called three-Rs. 
There was over 22,000 instances that the three-Rs were used in 
2006 amounting to some $140 million, so those tools do exist 
and they are being used.
    Of course, there is plenty of room to be used more often 
where they need to be used. Agencies have the authority to pay 
up to 25 percent of pay, for example, for a retention 
allowance. And some of the limits on the three-Rs can be 
exceeded if people come in to OPM and ask. To date, we have 
been asked once and we granted it. So we stand ready to hear 
agency complaints and help them work through these issues.
    Mr. Davis of Illinois. On the issue of non-foreign COLA, I 
understand that you have been to Hawaii, Alaska, and several of 
the territories to discuss the change to locality pay. What 
have been the main concerns raised by employees in these areas, 
and what has been OPM's response to these concerns?
    Mr. Grimes. Well, one of the main concerns expressed by a 
number of employees is that it has taken a long time to address 
this problem, and they are heartened by the fact that a bill 
has been introduced. There is a worry among a number of 
employees that the bill will get too expensive and may not make 
it through the process. Certain other employees are concerned 
about the length of time it may take to phase in locality pay. 
Some are concerned about the offset that we propose being too 
low and favor the one that is in the Senate bill. But generally 
speaking, I think employees are in favor of having us extend 
locality pay to the non-foreign areas and would like to get it 
done.
    Mr. Davis of Illinois. I understand that there is a 
decision pending on whether Rhode Island and southeast 
Massachusetts prevailing wage rate workers should receive the 
same pay rate as those in the Boston area. Is that a correct 
assessment?
    Mr. Grimes. That is an issue that would be handled by the 
Federal Prevailing Rate Advisory Committee, and I would be 
happy to address that question for the record if you would like 
to submit it.
    Mr. Davis of Illinois. All right.
    Let me just ask you, unlike their domestic counterparts, 
the Foreign Service officers do not receive locality pay when 
they serve overseas. This means that a Foreign Service officer 
who is transferred to Washington, DC, from another location is 
given an increase in pay. The Foreign Affairs Committee is 
considering changing the locality pay for these officers. Of 
course, our committee will also be looking at various proposals 
on this issue.
    One option is for Foreign Service officers to continue to 
receive Washington, DC, locality pay. Another option says that 
Washington locality pay is higher than all but a few places in 
the United States and for these employees to receive the 
locality pay for the rest of the United States.
    Or yet another option might be for Foreign Service officers 
to receive pay that is commensurate with the location where 
they are stationed. So, for example, a Foreign Service officer 
living in London may receive one rate of pay while a Foreign 
Service officer living in Guatemala might receive another rate.
    Does OPM have a position? And should Foreign Service 
officers receive District of Columbia locality pay or other 
locality pay for the rest of the Nation or for the area where 
they are living?
    Mr. Grimes. Mr. Chairman, this is a complicated issue. When 
Foreign Service officers or others go overseas, they receive a 
number of allowances and so forth that help them deal with the 
local economy.
    I am not aware of an OPM position on one option or the 
other, but, again, would be happy to provide you any technical 
information for the record if you would like to submit a 
question.
    Mr. Davis of Illinois. You are aware of the fact that the 
subcommittee has been looking seriously at the whole question 
of telework and actually promoting further utilization of it as 
a concept. In your opinion, should a teleworker's locality pay 
be based on the employee's regular workplace or the telework 
location? And do you have any opinion as to who should be 
responsible for the employee's travel, the agency or the 
employee?
    Mr. Grimes. The travel?
    Mr. Davis of Illinois. For the employee who may be 
teleworking from Chicago but has to come in to headquarters 
whatever period of time or whenever or however many times. Who 
should cover that travel expense, the employee or the agency?
    Mr. Grimes. I am not an expert here, but often when someone 
teleworks it is probably at least somewhat near where their 
duty station is, and their duty station controls how they get 
paid. If someone were to telework from a distant city, there 
probably are existing rules that govern whether someone would 
get paid to come into the office or not. That is not my area of 
expertise.
    Again, I could get it to the right people if you would 
like.
    Mr. Davis of Illinois. I think that currently the employee 
is paying. That is sort of a bone of contention that the 
employee is paying travel expense. Obviously, there are people 
who would think that this is cutting into the employee's 
compensation. It is an issue that I think certainly bears a 
tremendous amount of scrutiny, review, and looking at, if we 
are going to be able to telework to the extent that certainly 
the subcommittee would like to see us begin to do.
    Mr. Kashden, let me just make sure that I understand. Your 
testimony basically suggests that there are no super serious 
concerns relative to locality pay in your agency?
    Mr. Kashden. What I would say, Mr. Chairman, is that 
looking across the board at our geography, we are generally in 
good shape. Where I certainly acknowledge some issues, is that 
it is a very hot issue, if you will, in southern California. 
Recently, as much as just a couple of hours ago, I talked to 
our forest supervisor there in southern California and, while 
we are managing our work force adequately, if you take fire 
fighters where you have employees whose roots are in southern 
California, who are committed to a profession in fire fighting, 
just candidly, sir, the Forest Service, in terms of its annual 
compensation, would have a hard time competing with the 
California Division of Forestry or local agencies.
    Now, in southern California where we have employees who see 
a longer-term career in natural resource management, of which 
fire is a part of that, and they are more flexible in their 
duty locations, then we are able to compete quite effectively 
in terms of keeping them in the organization, although we do 
acknowledge that the annual compensation package that they 
receive as part of the fire fighting job in southern California 
is less than what they are getting from a competitor. So it is 
a balance between personal preference in terms of your long-
term value, whether you are wedded to southern California and 
you want a career in fire, or whether you want a natural 
resource career, and those play into those decisions.
    Certainly in our contingent of employees in high resort 
areas it is also tough. We will find long commutes in order to 
perform the mission there. Obviously, these areas have the 
benefit of being extremely beautiful and desirable places to 
work and it is a rewarding career in natural resource 
management, so you get those things that tradeoff against those 
economic challenges.
    Elsewhere in the country, in San Francisco we have some 
folks and certainly Washington, DC, there are some challenges 
for recruiting. But generally across our geography we are doing 
fine.
    Mr. Davis of Illinois. Well thank you, gentlemen, very 
much. We appreciate your testimony. You are excused.
    We will now proceed to our third panel. Our witnesses are 
Ms. Colleen Kelley, the national president of the National 
Treasury Employee's Union, which is the Nation's largest 
independent Federal sector union, representing employees in 31 
separate Government agencies. As the union's top elected 
official, she leads in CEU's efforts to achieve the dignity and 
respect Federal employees deserve.
    Jacqueline Simon is the public policy director for the 
American Federation of Government Employees [AFL-CIO], a union 
that represents more than 600,000 Federal and District of 
Columbia employees throughout the Nation and around the world. 
Ms. Simon's area of specialization includes the Federal budget, 
Social Security, and Federal pay systems.
    Mr. Art Gordon is the national president of the Federal Law 
Enforcement Officers Association, a volunteer organization 
which represents more than 25,000 Federal agents from over 65 
different Federal law enforcement agencies. Mr. Gordon is also 
the Assistant Federal Security Director for Law Enforcement 
with the Transportation Security Administration at the Marshall 
BWI Airport. Mr. Gordon has served in various law enforcement 
positions for over 29 years.
    We welcome all three of you and thank you very much.
    [Witnesses sworn.]
    Mr. Davis of Illinois. The record will show that the 
witnesses answered in the affirmative.
    Thank you all very much. Of course, your entire statement 
is included in the record. We would ask that you summarize in 5 
minutes and observe the lights. The yellow light is an 
indication that you have a minute in which to wrap up, and the 
red light means that it is time to stop.
    Ms. Kelley, we will begin with you.

  STATEMENTS OF COLLEEN KELLEY, PRESIDENT, NATIONAL TREASURY 
  EMPLOYEE'S UNION; JACQUELINE SIMON, PUBLIC POLICY DIRECTOR, 
 AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES; AND ART GORDON, 
  NATIONAL EXECUTIVE VICE PRESIDENT, FEDERAL LAW ENFORCEMENT 
                      OFFICERS ASSOCIATION

                  STATEMENT OF COLLEEN KELLEY

    Ms. Kelley. Thank you very much, Chairman Davis.
    I have the privilege of serving on the Federal Salary 
Council, which makes recommendations to the President's Pay 
Agent on a variety of issues relating to Federal pay, including 
locality pay. I know firsthand that employees face challenges 
in making ends meet, especially in light of recent economic 
woes that include rising gas prices that affect commuting to 
work, increased food prices, prices of commodities, and a 
declining housing market. Regional variations add pressure and 
weigh heavily on many Federal employees trying to provide a 
good quality of life for themselves and their families.
    Regional concerns over the differing levels of locality pay 
and overall fairness of the current Federal pay system can best 
be fixed through full implementation of the Federal Employees 
Pay Comparability Act [FEPCA]. Congress enacted, as we know, 
FEPCA to replace the previous nationwide system with a method 
for setting pay for white collar employees that uses a 
combination of across-the-board and locality pay adjustments. 
The raises are indexed to wage increases in the private sector, 
as measured by the employment cost index.
    The locality component of pay adjustment of FEPCA was 
supposed to be phased in over a 9-year period. In 1994 the 
minimum comparability increase was to be two-tenths of the pay 
gap. That is the amount that was needed to reduce the gap to 5 
percent. And for each successive year the comparability 
increase was scheduled to be at least one-tenth of the pay gap.
    For 2002 and thereafter, the law authorized the full amount 
necessary to reduce the pay disparity in each locality area to 
5 percent; however, as we know, the schedule under FEPCA has 
not been followed. Every year since 1995 the President has 
exercised his authority under FEPCA to submit an alternative 
pay plan citing ``a national emergency or serious economic 
conditions affecting the general welfare,'' and separate 
legislation enacting a lower pay raise has been enacted by 
Congress.
    The overall average pay gap in 2007, as we have heard, 
including the average locality rate of 16.88 percent, today 
amounts to 22.97 percent. If FEPCA had been fully implemented, 
that gap should be no more than the statute's 5 percent target. 
In order to catch up, Federal employees in San Francisco should 
receive a locality adjustment of 17.2 percent for 2008 on top 
of what they already receive. Los Angeles Federal employees 
should get an additional 10.2 percent in salary for locality 
pay.
    NTEU believes that by far the biggest problem for Federal 
employees in large metropolitan areas is this lack of 
implementation of FEPCA rather than the method that is used to 
measure the private versus public pay gaps.
    NTEU believes it would be a mistake, however, to change 
from a cost of labor measurement as required under FEPCA to a 
cost of living measure. The current pay system is based on the 
concept that Federal pay should be comparable with private 
sector pay.
    The BLS data accurately depicts a huge pay gap in large 
cities. Fully implementing FEPCA would solve the problem 
without changing the underlying tenets of Federal compensation, 
which are based on comparable pay between Federal and private 
sector employees.
    Unfortunately, not all Federal employees in the GS system 
received the full Federal pay raise that was set by Congress 
this year, and they may not receive the entire raise again in 
2009. These employees' salaries are capped when they bump up 
against the Executive Schedule and by law cannot exceed it. 
This pay compression was first seen in San Francisco, but it 
now affects other cities, including Houston, Boston, Chicago, 
Detroit, Los Angeles, and Washington, DC. Since Federal 
retirement is calculated on salary, these caps also can lower 
retirement amounts, as well.
    NTEU recognizes and supports fixing the problem. Federal 
employees who serve in the Government should not suffer because 
they worked hard, got promoted, and reached the top of the pay 
scale.
    Finally, NTEU supports the efforts to fix the non-foreign 
COLAs, the pay system that pertains to Hawaii, Alaska, and the 
Puerto Rico and U.S. territories. This unique system that was 
established long ago, as we have heard, is outdated and is in 
need of reform. NTEU supports S. 3013, legislation introduced 
in the Senate by Chairman Daniel Akaka, to transition these 
employees to the locality pay system based on pay 
comparability.
    The provisions of S. 3013 are superior to the 
administration's proposals that would be phased in over 7 years 
and that lack employee protections in a number of areas.
    In summary, I would like to emphasize that NTEU's continued 
recommendation is full implementation of FEPCA. NTEU also 
supports FEPCA's continued utilization of the cost of labor 
standard, since it reflects the basic tenet of pay 
comparability with the private sector in a way that cost of 
living comparisons do not.
    Finally, NTEU supports removing inequities caused by pay 
compression and reforming the non-foreign COLA for Alaska, 
Hawaii, and the U.S. territories.
    Thank you. I will be happy to answer any questions.
    [The prepared statement of Ms. Kelley follows:]

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    Mr. Davis of Illinois. Thank you very much, Ms. Kelley.
    We will proceed to Ms. Simon.

                 STATEMENT OF JACQUELINE SIMON

    Ms. Simon. Mr. Chairman, thank you for the opportunity to 
testify today.
    AFGE is a strong supporter of the market based locality pay 
systems formed under FEPCA. FEPCA, passed in 1990, promised to 
take the politics out of Federal pay and base annual salary 
adjustments on both the national and regional labor market data 
collected and analyzed by the Bureau of Labor Statistics. The 
law was passed specifically to address what were and still are 
enormous gaps between Federal and non-Federal salaries. It 
affirmed that comparability with the private sector measured 
objectively by the BLS is the best standard for Federal pay.
    The Federal Government cannot pay below-market salaries and 
expect to be anything other than an employer or last resort, 
and we believe that market comparability is not only the best 
way to ensure recruitment and retention of a high-quality 
Federal work force, it is also the fairest way to set Federal 
pay.
    The case against the locality pay system that has been 
advanced by proponents of pay for performance centers on the 
charge that the locality pay system is old and needs to become 
more contemporary. In fact, the employment cost index and 
locality pay combination has only been around since 1994. They 
also like to claim that it is inflexible when, in fact, the 
current system provides numerous flexibilities.
    We know these flexibilities are rarely used because of 
budget restraints, so it is not that the system itself is 
either inflexible or antiquated, it is just under-funded. 
Under-funding is also responsible for the fact that the 
Government failed to meet FEPCA's promise of closing the 
Federal/non-Federal pay gap by 2002. Pay gaps in some 
localities are still strikingly large. Federal salaries remain 
behind those in the private sector by huge amounts in many 
high-cost U.S. cities, including Washington, Baltimore, New 
York, L.A., San Francisco, Boston, and Chicago, to name just a 
few. Employees in all these cities have difficulty maintaining 
a decent standard of living and buying even a median-priced 
house.
    The obvious answer is full funding for FEPCA, but in the 
absence of that AFGE recommends taking on the housing issue 
head-on. We recommend pilot programs in counties with median 
house prices that are at least 25 percent above the median 
house price within the locality. Agencies could experiment with 
a variety of approaches, including programs modeled after the 
Federal Teacher Next Door program that allows public school 
teachers to purchase homes owned by HUD at half price, and 
California's Extra Credit Teacher Home Purchase program that 
makes low-interest mortgages and reduced down payments 
available to teachers.
    In addition, agencies should be able to provide lump sum 
housing allowances equivalent to those provided to the 
military.
    AFGE's proposal for pilot programs to ease housing costs 
for Federal employees in cities with prohibitive real estate 
prices is not a proposal to replace locality pay with housing 
allowances. We strongly oppose efforts to eliminate the FEPCA 
guarantee of locality pay for Federal employees working in 
these cities. These experiments are necessary supplements to 
annual salary adjustments based upon both ECI and locality 
data, not replacements.
    AFGE also strongly supports S. 3013, the Non-Foreign Area 
Retirement Equity Assurance Act of 2008 introduced by Senators 
Akaka, Stevens, Inouye, and Murkowski. We support the bill's 
gradual replacement of COLAs with locality pay over a 3-year 
period and the fact that it ensures that employees' take-home 
pay is not adversely affected during the transition.
    The Senate bill also wisely makes the transition to 
locality pay voluntary for current employees. We are pleased 
that employees who choose to forego locality pay will be 
permitted to lock in the 2008 COLA rate; however, there are 
already approved increases in COLAs awaiting the lengthy 
rulemaking process in OMB and OPM that might not be finalized 
in time to meet the deadline described in the legislation.
    We have requested that language be added to allow the lock-
in to include amounts provided in pending increases in non-
Foreign COLAs. This will let workers in Puerto Rico whose COLA 
is scheduled to rise by 13 to 14 percent by next year at the 
latest to obtain the higher amount if they choose to remain in 
the COLA system.
    Finally, the Senate bill provides an opportunity for both 
regulation employee Sand those subject to mandatory retirement 
ages who become eligible to retire during the transition period 
to pay into the Civil Service Retirement Fund so that their 
annuities will not be affected by their late entry into the 
locality pay system. They deserve the ability to pay into the 
system to make themselves whole, and AFGE strongly supports the 
provisions of S. 3013 that allow them to do so.
    We are also working with the Senate committee to provide 
two additional protections to the bill. The first would 
guarantee that no non-foreign area will ever receive locality 
pay that is less than the rest of the United States. Second, we 
ask for additional explicit language to create two new 
localities that cover the entire States of Hawaii and Alaska, 
since the dawn of locality pay program funding at DOL has been 
cited by the Pay Agent as an excuse for severely limiting the 
number of pay localities. In 2006 Orlando, Kansas City, and St. 
Louis all had to be dropped in order to make room for cities 
with larger pay gaps because budget limits allowed only 32 
cities to be surveyed, no more. It would be wrong to eliminate 
two existing localities to facilitate the addition of Hawaii 
and Alaska; likewise, it would be wrong to force Federal 
employees and Alaska to remain part of RUS when preliminary 
data show their pay gaps are far in excess of those in RUS.
    This concludes my statement. I would be happy to answer any 
questions.
    [The prepared statement of Ms. Simon follows:]

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    Mr. Davis of Illinois. Thank you very much.
    We will proceed to Mr. Gordon.

                    STATEMENT OF ART GORDON

    Mr. Gordon. Thank you, Chairman Davis. It is an honor to be 
here today. I just want to correct one thing: actually, I 
retired as a Federal employee as of several months ago after 33 
years.
    I am the national president of the Federal Law Enforcement 
Officers Association, representing 26,000 Federal agents. These 
are the men and women who carry a badge and a gun and put their 
lives on the line every day for all of us.
    I just want to trace a little bit of the history of Federal 
law enforcement pay reform and locality pay for all of you, and 
I am just going to summarize it briefly.
    In 1988 there was a commission called NACLE, the National 
Advisory Commission on Law Enforcement. This was set up by 
Senator Deconcini. They held hearings and they came up with 
recommendations on Federal law enforcement pay.
    The two conclusions they came to were: Federal pay was too 
low for the law enforcement occupations and needed to be 
increased at all levels; and the only long-term solution to 
Federal law enforcement pay and benefits was to provide for a 
separate Federal law enforcement pay system.
    As a result of this, legislation was passed, Public Law 
101-509, on November 5, 1990. It was signed into law. It was 
the first major Government-wide pay reform in almost 30 years. 
What it did, it granted special emergency pay adjustments to 
certain pay districts. It called for a 9-year phase-in of 
locality pay, which we have spoken about. And it required OPM 
to provide Congress no later than January 1, 1993 a plan to 
establish a separate pay and classification system for Federal 
law enforcement officers. To this date that has not been done.
    I wish that I was not here to tell you that there are 
first-year Federal law enforcement officers who qualify for 
public assistance. We should not be able to tell you there are 
Federal law enforcement officers who commute before dawn to the 
city in which they work, then sleep in their cars to catch up 
on their sleep before reporting to work because they live so 
far away and cannot afford a house closer to the city they work 
in. We should not be able to tell you they have to re-hire and 
train people for Federal law enforcement, that there are 
Federal agents who leave in order to work for State or local 
law enforcement agency so they can make a better salary and get 
better benefits.
    There have been several bills in Congress initiated and 
introduced by Representative Peter King in the last three 
sessions of Congress. The most recent bill, H.R. 4901, mirrors 
the other two bills, H.R. 466 and H.R. 566, which were designed 
to correct the locality pay inequities for Federal law 
enforcement.
    We now know that many Federal agents leave Federal law 
enforcement and move to State and local agencies because they 
cannot afford the cost of staying a Federal agent.
    It should be noted that some State and local police 
departments are not recruiting from the ranks of Federal law 
enforcement, so in effect what is happening is we pay to train 
qualified candidates only to see these individuals leave 
Federal service to go to a better-paying law enforcement job.
    There is also another issue, which is pay compression. Many 
Federal agents are at the pay cap, and the reason being is 
Federal law enforcement officers receive their salary plus 25 
percent of their salary for law enforcement availability pay, 
and as a result you have grade 13 street agents, grade 14 and 
15 supervisors all at the pay cap, and they have no incentive 
to move up in management and no incentive to move to higher-
cost cities.
    I would like to read a statement that Senator Dodd put in 
the record when he introduced S. 985 in May 2003. He said, 
``All over America Federal law enforcement personnel are 
enduring tremendous stress associated with our Nation's effort 
to protect citizens from the threat of terrorism. 
Unfortunately, that stress has been compounded by ongoing 
pressing concerns among many such personnel about their pay. I 
have heard from officers who have described long commutes, high 
personal debt, and in some cases almost all-consuming concerns 
about financial insecurity. Many of these problems occur when 
our agents or officers are transferred from low-cost parts of 
the country to high-cost areas. I have been told that some 
Federal officers are forced to separate from their families and 
rent rooms in cities to which they have been transferred 
because they cannot afford to rent or buy homes large enough 
for their family.''
    Again, we need to resolve the Federal law enforcement pay 
issues.
    I also agree that we should go with full implementation of 
FEPCA. I would like to see a leap put above the pay cap to 
avoid pay compression. We would support the housing allowances 
in conjunction with FEPCA. And also we would support the 
changes for Alaska and Hawaii and other territories.
    Thank you.
    [The prepared statement of Mr. Gordon follows:]

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    Mr. Davis of Illinois. Well thank you all very much. We 
certainly appreciate your testimony.
    Let me just ask you, Ms. Kelley, your statement suggests 
that NTEU supports maintaining the current cost of labor 
methodology used for calculating locality pay. In your opinion, 
how do you see us being able to address the problems with 
employee recruitment and retention in these high-cost areas 
that we are discussing?
    Ms. Kelley. Well, I think there are a couple of things. 
There has been a lot of talk about the recruiting incentives 
and the flexibilities that agencies have, and the fact is they 
do have them. They don't use them. They don't use them nearly 
to the extent that they can or should. Why they would tell you 
that? I don't know. They might say funding. They might say 
because they just want to use it selectively. In my experience 
they use it very, very selectively and very rarely. So they 
have tools that they are not using right now.
    I think the idea of looking at a housing allowance in 
addition to FEPCA, not in place of, is something that should be 
looked at with a defined criteria so that cities who meet that 
criteria could be considered for that.
    And I also think that the question of cost of labor versus 
cost of living, actually, the cost of living would end up being 
included in a scenario that was mentioned earlier where private 
sector employers give cost of living adjustments every 6 months 
or so. If they are doing that, then their salary numbers would 
be increasing, and it is those salary numbers that are used to 
compare Federal employees to adjust what the locality pay 
should be over periods of time. So eventually that cost of 
living adjustment that private sector employers are doing would 
be taken into account when it comes to calculating the locality 
adjustment for Federal employees.
    I think the easiest answer is to fully implement FEPCA. 
There was some concern indicated earlier by Representative 
Norton that the public would not allow a 17 percent pay raise 
to Federal employees. Well, if FEPCA had been implemented as it 
was intended and there was, say, a 2 percent additional 
increase given to employees over 10 years, we wouldn't be 
looking at a 17 percent increase now that is needed.
    So I think fully implementing FEPCA and figuring out how to 
do that. And if it can't be done in 1 year, we would be glad to 
work with you, Mr. Chairman, or anyone else to figure out how 
to do that.
    Mr. Davis of Illinois. So greater utilization of the tools 
and opportunities that we currently have would, in your mind, 
go quite a ways?
    Ms. Kelley. Absolutely. If what was currently in the law 
was implemented from a flexibility, recruiting bonuses, 
incentive, all that, as well as implementation of FEPCA, as 
well as in areas where, like I said, if we could agree on a 
defined criteria for some kind of a housing allowance. I would 
echo, though, that I would never support it in lieu of locality 
pay. It would need to be in addition to those areas where it is 
confirmed that it is needed.
    Mr. Davis of Illinois. Thank you very much.
    Ms. Simon, your testimony suggests that a possible remedy 
for the Federal recruitment and retention problem is to offer 
workers in high-cost areas a housing subsidy. Given the current 
pressures that I guess our Federal Government seems to be 
experiencing relative to pay and relative to budgetary issues 
and constraints, do you think it is realistic that agencies 
will be able to afford the housing allowance concept?
    Ms. Simon. Well, it depends. You are asking me whether it 
is realistic for us to afford it. I think that we can afford 
what we need. Our Nation has never been wealthier than it is at 
this moment, and it is really a matter of priorities and how 
you decide to distribute the money and the budget.
    Everyone has talked for a long time about the impending 
retirement of the Baby Boom and what is going to take to 
recruit the next generation of Federal employees. Reference has 
also been made to the fact that people in the Civil Service 
Retirement System have a tremendous incentive to stay with the 
Federal Government, even though their salaries were far below 
the market, because of the nature of the older Federal 
retirement system. FERS allows a little more mobility, and I am 
not sure that the Government is going to be able to get away 
with paying salaries that are so far below the market when they 
try to recruit the next generation.
    We think that, as President Kelley suggested and as we 
propose in our testimony, the idea of using these housing 
allowance ideas ought to be restrained. We are not proposing an 
equivalent housing allowance for every Federal employee 
employed in every single place in the entire United States. We 
really thought that in places where median house prices far 
exceed the median within a pay locality, housing allowances 
would be justified and affordable.
    Mr. Davis of Illinois. Thank you very much.
    Mr. Gordon, much of your testimony points to the difference 
in pay and benefits between Federal law enforcement agencies 
and State and local police departments. What, in your opinion, 
are the differences in duties and job functions between the 
Federal agencies and these other jurisdictions? In other words, 
is the notion of equal pay or pay differential based upon 
essentially the same duties and responsibilities, or are there 
different duties and responsibilities to the extent that one 
might say we are not comparing apples with apples, but maybe 
apples with oranges?
    Mr. Gordon. Sir, we are comparing apples to apples. What we 
did is we looked, back when we testified in 2004, at the rate 
of pay for a detective with 5 years on the job and felt that 
they were equivalent to a Federal law enforcement officer's 
based on the standards that Federal law enforcement officers 
are required to meet. We felt, based on that, in cities like 
New York, L.A., and San Francisco, that there was a big 
disparity in the salaries and the Federal agents were making 
significantly lower money.
    The question you asked is if they are doing the same job. 
Since 2001, since the formation of the FBI Joint Terrorism Task 
Force, Federal agents work side by side with NYPD detectives, 
LAPD detectives, all across the country. They are all doing the 
same job. The detectives are deputized as Federal agents. They 
go out, they do investigations, they conduct interviews, they 
do surveillance. So we believe there is a similarity or 
comparison as to what they are doing.
    Mr. Davis of Illinois. Well, I don't have any other 
questions, and I believe that other Members are trying to 
finish up their day, so let me thank you all for your testimony 
and for being with us. We appreciate your coming.
    This hearing is adjourned.
    [Whereupon, at 4:14 p.m., the subcommittee was adjourned.]
    [The prepared statements of Hon. Elijah E. Cummings, Hon. 
Luis G. Fortuno, and additional information submitted for the 
hearing record follow:]

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