[Senate Report 110-456]
[From the U.S. Government Publishing Office]
110th Congress
2d Session SENATE Report
110-456
_______________________________________________________________________
Calendar No. 954
NON-FOREIGN AREA RETIREMENT EQUITY ASSURANCE ACT OF 2008
__________
R E P O R T
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
to accompany
S. 3013
TO PROVIDE FOR RETIREMENT EQUITY FOR FEDERAL EMPLOYEES IN NONFOREIGN
AREAS OUTSIDE THE 48 CONTIGUOUS STATES AND THE DISTRICT OF COLUMBIA,
AND FOR OTHER PURPOSES
September 11, 2008.--Ordered to be printed
COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TED STEVENS, Alaska
THOMAS R. CARPER, Delaware GEORGE V. VOINOVICH, Ohio
MARK L. PRYOR, Arkansas NORM COLEMAN, Minnesota
MARY L. LANDRIEU, Louisiana TOM COBURN, Oklahoma
BARACK OBAMA, Illinois PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri JOHN WARNER, Virginia
JON TESTER, Montana JOHN E. SUNUNU, New Hampshire
Michael L. Alexander, Staff Director
Kevin J. Landy, Chief Counsel
Lawrence B. Novey, Senior Counsel
Jennifer L. Tyree, Counsel, Subcommittee on Oversight of Government
Management, the Federal Workforce, and the District of Columbia
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Amanda Wood, Minority Director of Governmental Affairs
Jennifer A. Hemingway, Minority Staff Director, Subcommittee on
Oversight of Government Management, the Federal Workforce, and the
District of Columbia
Trina Driessnack Tyrer, Chief Clerk
C O N T E N T S
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Page
I. Purpose & Summary................................................1
II. Background.......................................................2
III. Legislative History.............................................11
IV. Section-by-Section Analysis.....................................12
V. Estimated Cost of Legislation...................................14
VI. Evaluation of Regulatory Impact.................................18
VII. Changes in Existing Law.........................................18
Calendar No. 954
110th Congress
SENATE
Report
2d Session 110-456
======================================================================
NON-FOREIGN AREA RETIREMENT EQUITY ASSURANCE ACT OF 2008
_______
September 11, 2008.--Ordered to be printed
_______
Mr. Lieberman, from the Committee on Homeland Security and
Governmental Affairs, submitted the following
R E P O R T
[To accompany S. 3013]
The Committee on Homeland Security and Governmental
Affairs, to which was referred the bill (S. 3013) to provide
for retirement equity for Federal employees in non-foreign
areas outside the 48 contiguous States and the District of
Columbia, and for other purposes, reports favorably thereon
with amendments and recommends that the bill, as amended, do
pass.
I. Purpose & Summary
Since 1948, federal employees in the non-foreign areas \1\
of the U.S. have received a non-foreign cost of living
allowance (COLA) to ensure that their pay reflects the high
cost of living in those areas compared to the cost of living in
Washington, DC. To determine COLA rates, the Office of
Personnel Management (OPM) conducts annual cost surveys of the
prices of over 200 items in the non-foreign areas and in the
Washington, DC area. OPM publishes the results of these surveys
and any recommended changes to the COLA rates in the Federal
Register for comment. A COLA is not subject to federal taxes
and it does not count as part of base pay for retirement
purposes.
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\1\ The term `non-foreign area' generally refers to the non-
contiguous U.S., including Alaska, Hawaii, territories, and
possessions, and the Commonwealth of Puerto Rico and the Commonwealth
of the Northern Mariana Islands.
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In 1990 Congress sought to close the pay gap between
federal employees and workers in the private sector in
metropolitan areas by providing locality pay to federal workers
in the contiguous United States and the District of Columbia as
authorized by the Federal Employees Pay Comparability Act
(FEPCA).\2\ Unlike a COLA, locality pay is taxed and considered
part of base pay, which is used to calculate an employee's
retirement annuity. Another difference is while a COLA reflects
the cost-of-living in a geographic area, locality pay reflects
the cost of wages through a comparison of federal salaries to
private sector salaries in specific geographic areas. A third
difference is that U.S. Postal Service employees in the non-
contiguous areas are eligible to receive COLA, which the Postal
Service calls Territorial COLA (T-COLA). However, postal
employees in the contiguous United States do not receive
locality pay.
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\2\ P.L. 101-509.
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Because locality pay counts towards employees' retirement
whereas COLA does not, federal workers in the non-foreign
areas, who do not receive locality pay, are disadvantaged in
their retirement compared to federal workers in the contiguous
states. S. 3013 would address this problem by phasing in
locality pay and phasing out COLA.
II. Background
Non-Foreign COLA
In the 1940s, military departments and federal agencies
began paying differentials to U.S. citizens recruited for
white-collar civilian positions in Alaska and areas outside the
continental U.S. to help speed up the recruitment of personnel
in those locations. In 1946, in response to widespread reports
of a lack of uniformity in the payment of these differentials,
President Harry S. Truman directed the Civil Service Commission
(CSC) and the Bureau of the Budget to prepare a report on pay
differentials outside the U.S. CSC prepared a draft report that
recommended standardizing pay practices and establishing two
types of adjustments: one based on relative living costs and a
second based on undesirable living conditions. These
recommendations became the basis for the current COLA and post
differential programs.
In 1948, President Truman issued an Executive Order that
made federal employees in the non-foreign areas eligible to
receive additional compensation in two separate programs: one
based on living costs (i.e., the non-foreign area COLA program)
and another based on conditions of environment (i.e., the post
differential program).\3\ That same year, Congress enacted
legislation that codified this pay differential for employees
outside the continental U.S. or in Alaska.\4\
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\3\ E.O. 10,000, 13 Fed. Reg. 5453, 5455 (Sept. 18, 1948).
\4\ Independent Officers Appropriation Act, 1949, ch. 219, sec. 207
(1948) and Supplemental Independent Offices Appropriation Act, 1949,
ch. 775, sec. 104 (1948). See also P.L. 89-554, 5 U.S.C. Sec. 5941.
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This legislation, codified as Section 5941 of title 5,
United States Code, provides for the payment of an allowance
based on differences in living costs or on differences in
conditions of environment, or both. The total payment, however,
may not exceed 25 percent of basic pay. COLAs are payments
designed to recognize substantially higher living costs in the
non-foreign areas relative to those in the Washington, DC area.
The government pays COLAs to both local and non-local hires.
Similar to other allowances,\5\ a COLA is not subject to
federal taxes and does not count toward an employee's
retirement.
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\5\ Most payments received by U.S. government civilian employees
for working abroad, including pay differentials, are taxable. However,
certain foreign area allowances, cost of living allowances, and travel
allowances are tax free. See IRS guidance entitled ``Allowances,
Differentials, and Other Special Pay,'' available at http://
www.irs.gov/businesses/small/international/article/0,,id=97187,00.html
(accessed Aug. 14, 2008).
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Post differentials are recruitment incentives designed to
encourage people from other areas to go to work for the federal
government in a non-foreign area that has (a) extraordinarily
difficult living conditions, (b) excessive physical hardships,
or (c) notably unhealthful conditions compared with the
continental U.S. Since a post differential is a recruitment
incentive to get people to move to a non-foreign area, the
government does not pay post differentials to people who are
local hires. Like COLAs, post differentials do not count toward
retirement but, unlike COLAs, they are subject to federal
taxes.
Post differentials are currently authorized for Guam, the
Commonwealth of the Northern Mariana Islands (CNMI), American
Samoa, and Johnston, Wake, and Midway Atolls. Non-local hired
employees in Guam are eligible for a post differential of up to
20 percent while those in CNMI and the other areas are eligible
to receive a 25 percent differential. Guam and CNMI are the
only areas that are authorized for both a post differential and
COLA, which when combined cannot exceed 25 percent of base pay.
Employees in Guam and CNMI currently receive the same 25
percent COLA, but because of the cap do not receive a post
differential.
By law, a COLA is required to reflect the differences in
the living costs between the COLA area and Washington, DC. Many
factors other than price level differences affect the cost of
living in a particular place. Employees have long argued that
the COLA methodology is deficient and violates federal law by
considering only price level differences and failing to
consider differences in non-price factors such as remoteness,
isolation, and quantity or quality of goods and services needed
or available. As a result, the COLA program has been the
subject of litigation since 1981.\6\
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\6\ See Alaniz v. OPM, No. A81-072 (D. Alaska); Karamatsu v. United
States, No. 224-85C (C1. Ct.); and Arana v. United States, No. 389-86C
(C1. Ct).
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In the early 1990s attorneys representing employees in the
COLA litigation formulated a proposal to resolve all of the
remaining controversies concerning the COLA program through
what came to be known as the Safe Harbor Process. The name was
chosen because, if an agreed methodology could be achieved, the
government would receive a safe harbor against future
litigation. In the interim, the plaintiffs filed four
additional lawsuits that were stayed pending the conclusion of
the Safe Harbor Process and court approval of a settlement
agreement.\7\ On June 20, 2000, the parties involved filed a
joint stipulation for settlement of the litigation with the
District Court for the Virgin Islands, which was approved.
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\7\ Angelet v. United States, No. 97-1378RU (D.P.R.), Caraballo v.
United States, No. 1997-0027 (D.V.I.), Cruz v. United States, No. 98-
00021 (D. Guam), and Matsuo v. United States, No. 97-01418 (D. Hawaii).
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The settlement agreement provided for employee involvement
with OPM in implementing the Safe Harbor Principles and to
ensure local employee input for the future. It also provided
for expanded employee access to materials supporting the
regular price surveys and it established parameters for the
conduct of future surveys. The settlement made a number of
technical improvements to the methodology used to determine
COLA rates, which brought it into conformance with modern cost
of living comparisons--such as the weighting of prices, sources
of data, collection of prices, and the method of measuring
housing costs. Under the settlement, OPM could not reduce COLA
rates under the new methodology until the last survey of all
three regions was finalized and any reductions to COLA rates
thereafter could not exceed one point per year. In addition the
settlement provided for an award of back pay and interest in
the amount of $234 million.
COLA rates in effect today are listed below:
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COLA area COLA rate
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Anchorage, AK.......................................... 24%
Fairbanks, AK.......................................... 24%
Juneau, AK............................................. 24%
Rest of Alaska......................................... 25%
City and County of Honolulu, HI........................ 25%
Maui County, HI........................................ 25%
Kauai County, HI....................................... 25%
Hawaii, County HI...................................... 18%
Guam/Northern Mariana Islands.......................... 25%
U.S. Virgin Islands.................................... 23%
Puerto Rico............................................ 13%
------------------------------------------------------------------------
Due to an increase in the cost-of-living in Washington, DC,
the differential between Washington, DC and the COLA areas has
decreased. Therefore, OPM expects COLA rates to decrease by one
percent in Guam and in all of the Hawaii COLA areas late in the
summer of 2009. Anchorage, Fairbanks, and Juneau, Alaska are
expected to fall by one percent as well in the fall of 2008.
Creation of Locality Pay
Although the federal government's pay policy was supposed
to set federal employee pay rates to be comparable with the
private sector,\8\ it became increasingly evident in the late
1980's that there was a large gap between federal salaries and
the private sector across the country. These pay disparities
seriously impeded the ability of federal agencies to recruit
and retain highly-qualified employees. The Government
Accountability Office (GAO) reported in 1990 that 78.3 percent
of federal managers and personnel officers surveyed said that
low pay was the reason employees left the federal government.
The same GAO survey showed that 72.5 percent believed that job
candidates declined job offers with the federal government
because of the low pay offered.\9\
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\8\ 5 U.S.C. Sec. 5301.
\9\ Recruitment and Retention: Inadequate Federal Pay Cited as
Primary Problem by Agency Officials, (GAO/GGD-90-117) at 4, September
1990.
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To address these disparities, Congress passed the Federal
Employees Pay Comparability Act (FEPCA) of 1990. FEPCA requires
the annual pay adjustment for General Schedule (GS) employees
to be based on the Employment Cost Index (ECI), which measures
change in private-sector wages and salaries. Under FEPCA, basic
pay rates are to be increased.\10\
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\10\ In the event of a national emergency or serious economic
conditions the President may issue an alternative pay plan. See 5
U.S.C. Sec. Sec. 5301-5303 and 5304-5304a.
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Under FEPCA, federal employees also receive locality-based
comparability payments. The locality pay procedure established
by FEPCA provides that payments are to be made within each
locality determined to have a nonfederal/federal pay disparity
greater than five percent. When uniformly applied to GS
employees within a locality, the adjustment is intended to make
their pay rates substantially equal to those of non-federal
workers in the same locality.
All GS federal employees employed within the continental
U.S. are entitled to receive locality pay.\11\ However, FEPCA
specifically excludes federal employees in Hawaii and Alaska
and the other non-foreign areas from receiving locality
pay.\12\ The legislative history is silent as to why Congress
chose to exclude Hawaii and Alaska employees from receiving
locality pay.
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\11\ The President's Pay Agent has extended these payments to
employees in other pay systems, including employees in senior level,
scientific and professional positions, administrative law judges,
administrative appeals judges, and contract appeals board members.
\12\ 5 U.S.C. Sec. 5304(f)(1)(A) and 5 U.S.C. Sec. 5701(6).
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Not all employees received the full amount of the locality
pay adjustment because of statutory maximum pay levels for GS
level employees or because of other limitations in the law.\13\
In addition, GS special rate employees receive either the
special rate supplement or the locality payment, whichever is
higher. Law enforcement officers receiving special base rates
receive both special base rates and locality pay.
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\13\ As of January 2008, basic pay cannot exceed $139,600 (EX Level
V); basic pay and locality pay combined cannot exceed $149,000 (EX
Level IV); and total compensation, including bonuses and allowances,
cannot exceed $191,300 (EX Level I).
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Under the law, the Bureau of Labor Statistics (BLS)
conducts surveys under the National Compensation Survey (NCS)
program that document non-federal rates of pay in each locality
pay area. In January 2009 there will be 32 pay areas
nationwide.\14\ The BLS survey results are submitted to OPM,
which serves as the staff to the Federal Salary Council \15\
and the President's Pay Agent.\16\ OPM documents federal rates
of pay in each of the pay areas and compares non-federal and GS
salaries by grade for each pay area. By law, the disparity
between non-federal and federal salaries is to be reduced to
five percent. The Federal Salary Council uses OPM's data to
advise the President's Pay Agent on recommendations to the
President on locality rates for each pay area.
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\14\ The Federal Salary Council recommended that the 32 locality
pay areas recommended for 2008 continue in 2009. In not recommending
any new pay areas, the council noted that, were new areas to be
proposed, criteria for their establishment would have to be developed
and the BLS would need additional funding. According to the council,
BLS has indicated that, based on its current funding and resources, it
cannot expand its current NCS program to increase samples in existing
locality pay areas or to cover more areas. See Federal Salary Council
Memorandum for January 2009, p. 6.
\15\ The council consists of nine members: Terri Lacy, chair;
George Nesterczuk, vice-chair; Rudy J. Maestas; and representatives of
the American Federation of Government Employees; the National Treasury
Employees Union; the National Federation of Federal Employees; the
Association of Civilian Technicians; and the Fraternal Order of Police.
\16\ The Pay Agent is comprised of the Secretary of Labor, the
Director of the Office of Management and Budget, and the Director of
OPM.
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FEPCA requires that a certain percentage of the adjusted
gap between GS average salaries and non-federal average
salaries in each pay area is to be closed each year. Twenty
percent of the gap was closed in 1994, the first year of
locality pay, as authorized by FEPCA. An additional 10 percent
of the gap was supposed to be closed each year thereafter until
January 2002, when pay rates should have been sufficient to
reduce the pay disparity to five percent.
However, FEPCA has never been implemented as originally
enacted. The annual pay adjustment was not made in 1994 because
the entire pay adjustment went to fund locality pay
adjustments. During that year, federal employees in Alaska,
Hawaii, and the other non-foreign areas did not receive a pay
increase. For 1995 through 2008, reduced amounts of the
locality payments were provided.\17\ As of 2008, only 58.3
percent of the pay gap has been reduced. The amount needed to
reduce this disparity to five percent averages 36.89 percent
for 2009 and would cost approximately $12.1 billion.\18\
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\17\ The President usually includes a proposal on the federal
civilian pay adjustment in the Budget of the United States issued in
February of each year. The pay adjustment is considered annually by
Congress, which may legislate an adjustment that is different from the
one recommended by the President or that might be authorized by the
President in an alternative plan. The January 1999, January 2000, and
January 2002 through January 2006 overall pay adjustment amounts were
set by Congress. P.L. 105-277, P.L. 106-58, P.L. 107-67, P.L. 108-7,
P.L. 108-199, P.L. 108-447, and P.L. 109-115, respectively, provided
the pay adjustments but reserved to the President the decision as to
how the increases would be allocated between the annual and locality
pay adjustments.
\18\ Annual Report of the President's Pay Agent on Locality-Based
Comparability Payments for the General Schedule, at 18 and 21, December
6, 2007.
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The problem and solution
Because locality pay, but not a COLA, is included in
calculating retirement contributions and annuities, the
exclusion of Hawaii and Alaska federal employees and those in
the other non-foreign areas from receiving locality pay under
FEPCA means that these employees are not able to contribute as
much or receive as much matching contributions from their
employing agency to their retirement accounts under the Thrift
Savings Plan as similarly situated employees in the contiguous
U.S. Additionally, these non-foreign area employees' base pay
for determining their highest three years (``high 3'') for
calculating their retirement annuities is less than similarly
situated contiguous U.S. employees who receive locality pay.
Since FEPCA's enactment, the exclusion of Hawaii and Alaska
federal employees and those in the non-foreign areas has
influenced federal employees' decisions about whether to move
to the contiguous U.S. to receive locality pay.\19\ As
employees in the COLA areas near retirement, many consider and
seek short term employment in the contiguous U.S. where their
``high 3'' salaries are boosted by locality pay.\20\ As a
result of this disparity, federal agencies in the non-foreign
areas face staffing problems, especially for employees near
retirement.
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\19\ Matsuo v. U.S., No. 05-00398 at 5 (D-Hawaii, Jan. 30, 2008).
\20\ Non-Foreign COLA: Finding an Equitable Solution, Hearing
before the Subcommittee on Oversight of Government Management, the
Federal Workforce, and the District of Columbia of the Senate Committee
on Homeland Security and Governmental Affairs, 110th Congress, May 29,
2008, (Statement of Chuck Grimes, Office of Personnel Management) at 3-
4.
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On June 22, 2005, federal employees in Hawaii and Alaska
filed a class action lawsuit against the federal government
alleging that FEPCA's exclusion of federal employees who work
and reside in Hawaii and Alaska violates the Equal Protection
Clause of the Fifth Amendment to the U.S. Constitution. They
also contend that federal employees have a property interest in
their salary and that exclusion from locality pay violates
their due process rights under the Fifth Amendment.\21\ The
lawsuit seeks locality pay for federal employees who work in
those jurisdictions dating back to the implementation of FEPCA.
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\21\ Supra note 19 at 2.
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On January 30, 2008, the U.S. District Court in Hawaii
granted the government's motion to dismiss the case and urged
Congress to rectify the situation. The Court said, ``Congress
has a legitimate interest in creating and managing compensation
packages for its employees to compensate employees adequately,
to recruit and retain employees, and to allocate limited
resources among employees. That Congress may have discharged
its legislative responsibilities imperfectly does not give this
Court fiat to rewrite the legislation to rectify the current
disparity. It suggests strongly instead that Congress should
correct the incongruity made so evident by this case.'' \22\
The plaintiffs filed an appeal of the decision on February 29,
2008.
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\22\ Id. at 22.
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In an effort to address the retirement inequity of
employees in the non-foreign areas and the issues raised by the
litigation, President George W. Bush in his fiscal year 2008
Budget proposed to extend locality pay to white-collar federal
employees in the non-foreign areas. On May 30, 2007, OPM
Director Linda Springer submitted the specific legislative
proposal to Congress. Under the OPM proposal, COLA rates in
effect on December 31, 2007, would be locked in place and OPM
would no longer conduct COLA surveys. Beginning with the first
pay period in January 2008, locality pay would begin to be
phased in for federal employees in the non-foreign areas while
the COLA program is phased out. This initial transition process
would take seven years, with the locality rate for each area
being phased in each year. In the first year, the locality pay
rate for the ``Rest of the U.S.'' (i.e., the default rate that
applies outside of the metropolitan areas where specific rates
are established) would be applied to all areas in order to give
BLS and OPM time to work with the Federal Salary Council and
the President's Pay Agent to determine the locality pay rates
for each non-foreign area. OPM has estimated that the locality
pay rate for the State of Hawaii would be 20.38 percent, the
rate for the State of Alaska would be 27.68 percent, and the
rate for the other non-foreign areas would be the Rest of the
U.S. locality pay rate, which is currently set at 13.18
percent.\23\ An employee would continue to receive some amount
of COLA until the locality pay rate is more than the locked-in
COLA rate.
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\23\ Supra note 20 at 6. The estimated pay gap in Anchorage, AK is
54.96 percent and in Honolulu, HI is 41.72 percent. Supra note 14 at 9.
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Under this OPM proposal, the Federal Salary Council would
have the authority to set locality rates in all the non-foreign
areas, including areas such as Guam, American Samoa, and Wake
Atoll, that are currently authorized for post differentials.
Right now, only Guam and CNMI are authorized for both a COLA
and a post differential. Absent OPM making any regulatory
change, once the reduction of a COLA begins under the proposed
legislation, the post differential will start to increase. When
the Guam and CNMI COLA drops to zero, the post differential
paid to non-local hires would be 20 percent in Guam and 25
percent in CNMI. OPM last reviewed the amount of and need for
post differentials in 1995 and does not plan to review post
differential rates at this time.\24\
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\24\ See Responses from OPM provided in 2007 to Senator Akaka's
Frequently Asked Questions on the Administration's Proposal to Convert
Non Foreign COLA to Locality Pay, available at: http://
akaka.senate.gov/public/index.cfm?FuseAction=Issues.Home&issue=Non-
Foreign%20COLA%20Update&content_id=33#Non-Foreign%20COLA%20Update
(accessed August 14, 2008). See also information provided to Committee
staff by OPM, June 16, 2008.
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To help address the adverse impact on a non-foreign
employee's take home pay due to the increase in taxes and
retirement contributions, OPM proposed that COLA be phased out
at a slower rate than locality pay is phased in. Under this OPM
proposal, the conversion to locality pay would be offset by a
corresponding 85 percent reduction in COLA. Thus, for every
dollar of locality pay that is phased in under the proposal,
the employee's COLA would be reduced by 85 cents. After the
initial seven-year phase in period, when 100 percent of
locality pay would be provided, some fraction of the COLA rate
could also continue to be paid until the locality pay rises
high enough that subtraction of 85 percent would reduce the
COLA payment to zero. According to OPM, this formula would
protect the take home pay of federal workers at the GS-7 step 3
level and below.\25\ Approximately 50 percent of the federal
workers in Alaska and Hawaii are at or below this level.\26\
Postal employees, other than Postal Inspectors and employees of
the Postal Service Inspector General, would continue to receive
the locked-in COLA rates, because similarly situated postal
employees in the contiguous U.S. do not receive locality pay.
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\25\ Information provided to Committee staff at a staff briefing by
OPM, June 4, 2007.
\26\ Information provided to Committee staff by OPM, April 1, 2008.
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During the week of July 1-7, 2007, the Oversight of
Government Management Subcommittee of the Committee on Homeland
Security and Governmental Affairs conducted fact finding
meetings on the OPM proposal on the islands of Oahu and Maui in
Hawaii. Subcommittee staff met with close to 1,000 federal
employees in over 20 agencies. The questions and concerns
raised by the federal workers can be broken down into several
themes.
First, employees were concerned about the impact on their
take-home pay due to the conversion to locality pay. Given the
current economic climate and the increasing gas prices, many
federal workers stressed the importance of not reducing their
take-home pay and believed that the 85 percent offset did not
go far enough. The impact on take-home pay is one of the
reasons that several employees have expressed an interest in
retaining COLA and not converting to locality pay.
Second, with an estimated 59.3 percent of federal workers
in Hawaii and 62.1 percent in Alaska retirement eligible,\27\
many employees expressed concern over the seven year phase-in
period, noting that they would have to work 10 additional years
in order to take full advantage of locality pay. Several
employees proposed an immediate conversion with no phase-in
period or a two year phase in with the first year using the
Rest of the U.S. locality rate.
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\27\ Information provided to Committee staff by OPM, May 1, 2008.
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Third, many employees raised concern over the scope of
coverage. This included questions about which employees would
be covered by the proposal, how the proposal would work in
unique personnel systems such as the National Security
Personnel System (NSPS) at the Department of Defense (DoD) and
the system at the Postal Service, and how the proposal would
treat employees receiving special rates, since federal
employees in the non-foreign areas may receive both COLA and
special rates, but employees in the contiguous U.S. receive the
higher of special rates or locality pay.
After considering the questions and concerns from employees
and comments from federal agencies, Senators Daniel K. Akaka
(D-HI), Ted Stevens (R-AK), Daniel K. Inouye (D-HI), and Lisa
Murkowski (R-AK) introduced the Non-Foreign Area Retirement
Equity Assurance Act of 2008, or the Non-Foreign AREA Act (S.
3013), on May 13, 2008. The legislation would apply to federal
employees in all of the non-foreign areas, including Alaska,
Hawaii, the Virgin Islands, Puerto Rico, Guam, CNMI, American
Samoa, and Johnston, Wake, and Midway Atolls.
S. 3013 is similar to OPM's proposal, in that it would lock
in current COLA rates and phase in locality pay as COLA is
phased out. However, S. 3013 differs from the OPM proposal in
several important ways. The bill will phase in locality pay
over a period of three years, compared to seven under the OPM
proposal. Moreover, the bill will offset the locality pay by
subtracting 65 percent of that pay from the COLA, which is a
lower percentage than under the OPM proposal (85 percent). The
65 percent offset is designed to better protect employees'
take-home pay.
In addition, S. 3013 establishes that employees who receive
special rates and would not receive locality pay will not lose
any pay, because the bill provides that their special rates
will increase like locality pay during the conversion from COLA
to locality pay. In addition, the bill includes a provision
expressing the sense of Congress that an employee's take home
pay should not decrease as a result of the bill. For those
employees who continue to oppose the conversion to locality
pay, S. 3013 would allow current employees to make an
irrevocable choice to continue to receive the locked-in COLA
rates and not covert to locality pay. All future employees
would be converted to locality pay.
In addition to having a shorter phase in period, S. 3013
allows employees who retire within the three year phase in
period to elect to treat any amount of COLA they receive during
that period as part of their base pay (as if it were locality
pay), up to the full amount of locality pay in place for that
area notwithstanding the phase-in limitations. The employee
would be required to pay additional retirement contributions on
the additional amounts they elect to be part of their base pay.
According to OPM, 62.1 percent of federal employees in
Alaska and 59.3 percent of federal employees in Hawaii are
eligible to retire within six years or less. In addition, it is
well known that federal employees in the non-foreign areas seek
out employment in the contiguous U.S. late in their careers to
help improve their retirement annuity.\28\ OPM testified that
agencies have succession plans and recruitment and retention
strategies in place to address the impending retirement wave
facing federal agencies across the country and the unique
staffing problems facing federal agencies in the non-foreign
areas.\29\ The Committee believes that a three year phase in
with an opportunity for employees close to retirement to buy
into the locality pay system would help those employees subject
to mandatory retirement laws and those planning to retire in
the next three years without adversely affecting the staffing
of agencies in the non-foreign areas.
---------------------------------------------------------------------------
\28\ Supra note 20.
\29\ Id. Draft transcript, response from Mr. Grimes, at 34-36.
---------------------------------------------------------------------------
The Federal Salary Council and the President's Pay Agent
have recommended that the number of locality pay areas should
remain at 32 for 2009, noting that, were new areas to be
proposed, criteria for their establishment would need to be
developed and BLS would need more funding to expand its current
NCS program to cover more areas.\30\ However, the Committee
believes that upon enactment of this Act, the number of
locality pay areas should be increased by two--one covering the
entire State of Alaska and one covering the entire State of
Hawaii--because of the high cost of living in those areas, and
S. 3013 states the sense of Congress that BLS should conduct
surveys pursuant to the establishment of the two new locality
pay areas.
---------------------------------------------------------------------------
\30\ Supra note 14.
---------------------------------------------------------------------------
S. 3013 also provides that all current and future employees
in the non-foreign areas who are eligible to receive a COLA,
whether or not they actually do receive it, are covered by this
legislation and would therefore receive locality pay under the
bill. This includes GS employees, administrative law judges,
members of the Senior Executive Service, senior level and
senior technical (SL/ST) employees, administratively determined
employees, GS employees in the non-foreign areas that do not
receive COLA, and employees in agencies with unique personnel
systems such as the Transportation Security Administration,
DoD, the Federal Aviation Administration, the Department of
Veterans Affairs, and those agencies covered by the Financial
Institution, Reform, Recovery and Enforcement Act.\31\
According to DoD it already has broad flexibility with regard
to setting and changing pay rates for non-appropriated fund
(NAF) employees. As such, should COLA be phased out and
locality pay phased in, DoD would increase pay rates for those
NAF employees who currently receive a COLA to offset the loss
of that adjustment.\32\
---------------------------------------------------------------------------
\31\ P.L. 101-73.
\32\ Supra note 20. Draft transcript, response from Mr. Bunn, at
29-30.
---------------------------------------------------------------------------
Following OPM's submission of its proposal, many postal
employees in the non-foreign areas expressed concern over how
they would be treated, because postal employees in the
contiguous U.S. generally do not receive locality pay. (Only
employees of the Postal Service Inspector General and Postal
Inspectors receive it.) Many postal employees outside of the
contiguous U.S. expressed a desire to be treated like all other
workers in the non-foreign areas, as they were concerned about
ending up as the only group of employees receiving COLA. S.
3013 as introduced would have allowed all postal employees to
transition from T-COLA to Territorial Pay in the same manner
that GS workers were converting from COLA to locality pay. (As
noted earlier, ``T-COLA'' refers to Territorial COLA, which is
the Postal Service's term for COLA, and ``Territorial Pay'' is
similar to locality pay.) The Postal Service, while agreeing
that the proposal in the OPM draft legislation was not a long
term solution, expressed opposition to the provisions in S.
3013 over the cost, estimated to be $12.5 million per year, and
the precedent it would set for other postal workers.\33\ To
address this concern, S. 3013 was amended to allow Postal
Inspectors and employees of the Postal Service Inspector
General in the non-foreign areas to transition to locality pay
like other federal employees in the non-foreign areas. Other
postal employees in the non-foreign areas, both current and
future employees, would continue to receive T-COLA; however,
the 25 percent cap would be lifted and employees would receive
the greater of the locked in T-COLA rate in effect for the area
or an amount equal to the locality pay rate in effect for the
area. Consistent with current law, the T-COLA rates would not
be subject to collective bargaining
---------------------------------------------------------------------------
\33\ Letter to Senator Akaka from Marie Therese Dominguez, Vice
President, Government Relations and Public Policy, May 16, 2008.
---------------------------------------------------------------------------
III. Legislative History
S. 3013 was introduced by Senators Akaka, Stevens, Inouye,
and Murkowski on May 13, 2008, and was referred to the
Committee on Homeland Security and Governmental Affairs. The
bill was referred to the Subcommittee on Oversight of
Government Management, the Federal Workforce, and the District
of Columbia (OGM) on June 19, 2008.
On May 29, 2008, the OGM Subcommittee held a field hearing
on the legislation and the Administration's proposal at the
Oahu Veterans Center in Honolulu, Hawaii. Witnesses included
Mr. Chuck D. Grimes, Deputy Associate Director, Strategic Human
Resources Policy Division, OPM; Mr. Bradley Bunn, Program
Executive Officer, NSPS, DoD; Ms. Jo Ann Mitchell, Manager,
Accounting Services, United States Postal Service; Ms. Joyce
Matsuo, President, Oahu COLA Defense Committee, Inc.; Ms.
Sharon Warren, President, COLA Defense Committee of Anchorage,
Inc.; Mr. Manuel Q. Cruz, President, COLA Defense Committee of
Guam; Mr. Michael Fitzgerald, President, Chapter 187, Naval
Facilities Engineering Command Hawaii, Federal Managers
Association; and Ms. Terry Kaolulo, President, Hawaii State
Association of Letter Carriers.
On June 24, 2008, OGM favorably polled out S. 3013 and on
June 25, 2008, the Committee considered S. 3013. Senators Akaka
and Stevens offered an amendment that made technical
corrections to the bill. Senator Thomas R. Carper offered an
amendment to change the treatment of most postal employees
under the legislation. Under the amendment, all current and
future postal employees in Alaska, Hawaii, and the non-foreign
areas would continue to receive T-COLA, but the way T-COLA is
calculated would change. Specifically, postal employees would
receive the greater of the T-COLA rates in effect on December
31, 2008, or the locality pay rate in effect for that area. No
employee would receive less than their current T-COLA rate, and
the 25 percent cap on T-COLA would be removed. Employees of the
Postal Service Inspector General and Postal Inspectors would
transition from T-COLA to locality pay. Senator Akaka offered a
second degree amendment making a technical correction to the
Carper amendment. All three amendments were accepted and the
bill, as amended, was ordered reported favorably by voice vote.
Members present were Senators Lieberman, Akaka, Carper, Pryor,
McCaskill, Tester, Collins, Stevens, Coleman, Coburn, and
Sununu.
IV. Section-by-Section Analysis
Section 1 states that the legislation may be cited as the
``Non-Foreign Area Retirement Equity Assurance Act of 2008'' or
the ``Non-Foreign AREA Act of 2008.''
Section 2(a) amends section 5304 of title 5 by including
the non-foreign areas in the list of areas where locality pay
is paid to federal employees and clarifying that members of the
Senior Executive Service in the non-foreign areas are eligible
to receive locality pay regardless of whether their agencies
are participating in an OPM-certified performance appraisal
system under section 5382 of title 5.
Section 2(b) amends section 5941 of title 5 to retain a
COLA that is phased out as locality pay is phased in. Paragraph
(1) adds a provision freezing the COLA rates that are in effect
on December 31, 2008. Paragraphs (2) and (3) add further
provisions adjusting these frozen COLA rates downward as
locality pay is phased in pursuant to section 4 of the bill.
This downward adjustment is governed by a formula in the
legislation under which, for every dollar of locality pay that
the employee receives, the employee will give up only 65 cents
of the COLA that the employee would receive under the end-of-
2008 COLA rate, thereby helping to mitigate the additional cost
burdens to employees due to the fact that locality pay is
subject to federal income taxes and retirement contributions.
(To achieve this result, the formula in the legislation will
calculate the employee's COLA in four steps: (1) start with the
COLA rate frozen as of the end of 2008, (2) subtract 65 percent
of the applicable locality pay rate, (3) divide the resulting
percentage by the sum of 1 plus the applicable locality pay
rate, and (4) multiply this resulting percentage times the
employee's basic pay, which is comprised of both base salary
and the applicable locality-based payment.)
Section 3 states that employees in the non-foreign areas
who receive special rates shall not receive locality pay, but
shall have their special rates increased by the same amount as
locality pay increases for other federal employees in the non-
foreign areas who do not receive special rates. The increases
for special rates would continue until the employees' COLA
rates have been completely phased out. The Director of OPM, who
regulates special rates generally, and the Secretary of
Veterans Affairs, who regulates special rates for the
Department of Veterans Affairs, may temporarily raise statutory
limitations on special rates until the end of the transition
period, at which time any special rate pay in excess of the cap
shall be converted to a retained rate under section 5363 of
title 5.
Section 4 states that non-foreign COLA shall be phased out
and that locality pay shall be phased in over a period of three
years starting the first pay period beginning on or after
January 1, 2009. During the first year, 2009, the amount of
locality pay phased in shall be based on using one-third of the
locality pay percentage for the rest of the U.S. locality pay
area. The second year, 2010, the phased-in amount shall be
based on using two-thirds of the applicable comparability
payment approved by the President for each non-foreign area.
The third year, 2011, and each subsequent year shall be based
on the full amount of the applicable comparability payment for
each non-foreign area.
Section 5(a) expresses the sense of Congress that the
application of the Non-Foreign AREA Act to any employee not
result in a decrease in the take home pay of that employee.
Section 5(b) states that it is the sense of Congress that
the Bureau of Labor Statistics will conduct separate surveys
pursuant to the establishment by the President's Pay Agent of
one new locality area for the entire State of Hawaii and one
new locality area for the entire State of Alaska, and that upon
completion of the phase-in period no employee shall receive
less than the rest of the U.S. locality pay rate.
Section 5(c) states that employees who currently receive a
special rate and continue to remain stationed in a non-foreign
area shall receive an increase in the special rate consistent
with increases in the special rate schedule. The minimum step
rate for any grade of a special rate shall be increased at the
time of an increase in the applicable locality rate percentage
for the area by not less than the dollar increase in the
locality payment for a non-special rate employee. In addition,
this section states that if an employee currently receives a
COLA and would receive a rate of basic pay and locality pay
that would be in excess of the maximum rate limitation set
under 5304(g) of title 5, United States Code, the employee
would continue to receive the COLA rate in effect for the area
until the employee leaves the allowance area or is eligible to
receive a basic pay at a higher rate.
Section 6(a) defines who is an employee covered by this
Act. Covered employees include any current and future employee
eligible to receive a COLA, whether or not they actually
received it. This includes employees at the Transportation
Security Administration, intelligence community employees, and
postal employees. In addition, employees who receive locality
pay as a result of the application of this Act shall not be
eligible to bargain over the amount of locality pay they
receive under this Act and shall not have any amount of
locality pay provided under this Act reduced on the basis of
the performance of that employee.
Section 6(b) states that the provisions of this Act
(converting T-COLA to locality pay) will apply to Postal
Inspectors and employees of the Postal Service Inspector
General, but will not apply to other postal employees such as
mail handlers, letter carriers, and postal supervisors. Those
postal employees in the non-foreign areas will continue to
receive T-COLA. However, the method for calculating the T-COLA
rate will change and the cap on the amount of T-COLA an
employee may receive will be lifted. Under the Act, current and
future postal employees will receive a T-COLA rate that is the
greater of the frozen T-COLA rate on December 31, 2008, or the
applicable locality pay percentage for the area.
Section 7 states that employees who retire from federal
service between January 1, 2009, and December 31, 2011, and who
file an election with OPM by December 31, 2011, may count a
certain amount of COLA they receive during that time period
before they retire as if it is locality pay for purposes of
computation of their retirement annuity. The limit on the
amount of COLA an employee may count as locality pay is the
amount of locality pay that would be in effect for that area if
not for the phase in provisions in section 4 of this Act.
Section 8 states that current employees may make an
irrevocable election no later than 60 days after the enactment
of this Act to continue to receive COLA at the rate in effect
on December 31, 2008, or phase into locality pay as provided
under this Act. All future employees will be covered by the
provisions of this Act and will not be able to opt out. To the
greatest extent practicable, OPM shall provide timely notice of
the election which may be filed under this section.
Section 9 states that the Director of OPM shall prescribe
regulations to carry out this Act, including rules for special
rate employees, employees who are not entitled to receive
locality pay, and for setting and adjusting retained rates. In
addition, the administrator of a pay system not administered by
OPM shall prescribe regulations with the concurrence of the
Director of OPM that is consistent with OPM's regulations
issued under this Act.
Section 10 states the effective dates of this Act as the
date of enactment, except as provided in sections 2 and 4 of
the Act, which shall take effect on the first day of the first
applicable pay period beginning on or after January 1, 2009.
V. Estimated Cost of Legislation
U.S. Congress,
Congressional Budget Office,
Washington, DC, July 29, 2008.
Hon. Joseph I. Lieberman,
Chairman, Committee on Homeland Security and Governmental Affairs, U.S.
Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 3013, the Non-
Foreign AREA Act of 2008.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Amber
Marcellino.
Sincerely,
Robert A. Sunshine
(For Peter R. Orszag, Director).
Enclosure.
S. 3013--Non-Foreign AREA Act of 2008
Summary: S. 3013 would phase in the use of locality-based
comparability payments (``locality pay'') to replace cost-of-
living allowances (COLAs) for federal employees in certain
areas of the United States (Alaska, Hawaii, and the U.S.
Territories).
The bill would affect the amount of pay received by certain
federal employees and the amount of future retirement benefits
those employees receive. By increasing some salaries, S. 3013
would result in additional agency payments for employees'
retirement benefits and payroll taxes. In total, CBO estimates
that discretionary spending would increase by $2.2 billion
through 2018, assuming appropriation of the necessary amounts.
The legislation also would increase the amount of pay included
in the calculation of retirement and Social Security benefits,
thereby increasing direct spending by an estimated $302 million
over the 2009-2018 period. Furthermore, including additional
pay in the calculation of retirement benefits would increase
revenues--from higher employee contributions towards those
benefits and from additional tax receipts--totaling an
estimated $1 billion over the 2009-2018 period.
S. 3013 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would impose no cost on state, local, or tribal
governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of S. 3013 is shown in the following table.
The direct spending impacts of the bill fall within budget
functions 600 (income security) and 650 (Social Security); the
discretionary costs fall within many other budget functions.
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------------------------------------------------------
2009- 2009-
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2013 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION (On-Budget)
Salary Payments and Other Discretionary
Spending:
Estimated Authorization Level........... 35 117 181 175 170 167 164 163 163 163 677 1,498
Estimated Outlays....................... 35 117 181 175 170 167 164 163 163 163 677 1,498
Employer Contributions\1\:
Estimated Authorization Level........... 17 51 78 78 80 82 84 88 90 93 304 741
Estimated Outlays....................... 17 51 78 78 80 82 84 88 90 93 304 741
Total Changes in Spending Subject to
Appropriation:
Estimated Authorization Level........... 52 168 259 253 250 249 250 251 253 256 981 2,239
Estimated Outlays....................... 52 168 259 253 250 249 250 251 253 256 981 2,239
CHANGES IN DIRECT SPENDING (OUTLAYS)
Total Changes in Direct Spending............ 2 7 13 21 28 35 42 47 52 56 71 302
On-Budget Spending...................... 2 7 12 21 28 34 41 46 50 54 70 295
Off-Budget Spending..................... 0 0 * * * 1 1 1 2 2 * 7
CHANGES IN REVENUES
Total Changes in Revenues................... 24 70 106 105 109 112 116 119 123 127 415 1,011
On-Budget Revenues...................... 19 54 82 81 84 86 89 91 94 97 321 778
Off-Budget Revenues..................... 5 16 24 24 25 26 27 28 29 30 94 233
Memorandum:
Total Intragovernmental Collections from -17 -51 -78 -78 -80 -82 -84 -88 -90 -93 -304 -741
Employer Contributions \1\.................
On-Budget............................... -12 -35 -54 -54 -55 -56 -57 -60 -61 -63 -210 -508
Off-Budget.............................. -5 -16 -24 -24 -25 -26 -27 -28 -29 -30 -94 -233
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: Components may not sum to totals because of rounding.
* = costs of less than $500,000 annually.
\1\ Employer contributions are intragovernmental transactions that do not affect the deficit or surplus.
Sources: Congressional Budget Office and Joint Committee on Taxation.
Basis of estimate: For this estimate, CBO assumes that S.
3013 will be enacted near the beginning of fiscal year 2009 and
that the necessary amounts will be appropriated for each year.
The bill would affect approximately 46,000 federal employees
working in Alaska, Hawaii, Puerto Rico, the U.S. Virgin
Islands, Guam, and the Northern Mariana Islands.
Currently, federal employees in those areas receive a COLA
to offset higher costs of living in those areas. (In contrast,
federal employees in the contiguous 48 states receive locality
pay under the General Schedule to narrow the pay gap between
comparable federal and non-federal positions.) S. 3013 would
phase in the use of locality pay for employees in the specified
areas over three years and would phase out the COLA, in most
cases, over a longer period of time. Such changes would affect
the federal budget because, while the COLA is not subject to
federal income or payroll taxes and is not used to calculate
federal retirement benefits, locality pay is both taxable and
creditable for retirement benefits.
Spending subject to appropriation
S. 3013 would increase discretionary spending by $2.2
billion over the 2009-2018 period, assuming the appropriation
of necessary amounts, primarily for increased salary payments
and agencies' payments for retirement benefits and payroll
taxes.
Salary payments and other spending. Raising salaries for
federal employees in the designated jurisdictions would result
in $1.5 billion in additional discretionary spending over the
2009-2018 period, CBO estimates.
The conversion to locality pay for approximately 38,000
eligible federal employees would increase salaries by $1.5
billion over the next 10 years. For those employees, a
provision in S. 3013 provides for a phase-out of COLAs over
time, intended to preserve the take-home salaries of those
employees as their non-taxable COLA pay is replaced with
taxable locality pay. As a result, salaries would increase to
maintain the take-home pay of affected employees.
A small amount of savings--$2 million over 10 years--would
result from discontinuing the surveys currently used by OPM to
calculate the COLA adjustments for non-foreign areas.
Employer contributions. Similar to the rise in employees'
contributions due to the transition to locality pay (which is
creditable towards retirement), federal agencies' costs for
payroll taxes and retirement contributions also would increase.
Assuming appropriation of the necessary amounts, CBO estimates
that spending for those contributions would increase by $741
million through 2018. Those payments are intragovernmental
transactions that are recorded as offsetting receipts elsewhere
in the budget.
Direct spending
Increased retirement benefits (a product of increases in
salaries) would accrue to approximately 13,000 federal
employees anticipated to retire between 2009 and 2018. As a
result, CBO estimates that direct spending would increase by a
total of $302 million over 10 years--$295 million for
additional retirement benefits and $7 million for higher Social
Security benefits.
Under S. 3013, an estimated 8,000 employees of the U.S.
Postal Service (USPS) would not convert to locality pay and
would continue to receive COLAs, but a provision of the bill
would adjust the COLA calculation. If enacted, future
calculations of COLAs for those employees would equal the
greater of either the COLA in effect on December 31, 2008, or
the locality pay applicable to other federal employees (that
is, those who converted to locality pay under this bill) for
that year and jurisdiction. CBO estimates that the provision
could result in an increase in direct spending of about $50
million (off-budget) over the 2009-2018 period. However, CBO
assumes that any increase would be offset by additional
receipts from postage rates charged by the USPS over the same
period, and would have no net effect on the budget.
Revenues
S. 3013 would increase the portion of salary on which
employees must pay taxes and would increase the amount of pay
used to calculate employees' contributions for federal
retirement benefits. Accordingly, the legislation would
increase revenues by a total of $1 billion over the next 10
years from additional income and payroll tax collections and
from additional retirement contributions from employees, CBO
and the Joint Committee on Taxation estimate. That total
revenue change represents both on- and off-budget activity.
Additional on-budget revenues would total $778 million,
including $739 million from Medicare payroll taxes and income
tax collections and $39 million from higher contributions from
employees toward retirement benefits. The increase in off-
budget revenues would total $233 million from additional Social
Security tax receipts.
Intergovernmental and private-sector impact: S. 3013
contains no intergovernmental or private-sector mandates as
defined in UMRA and would impose no cost on state, local, or
tribal governments.
Estimate prepared by: Federal costs: Amber G. Marcellino
(retirement), Sheila M. Dacey (Social Security); Impact on
federal revenues: Zach Epstein; Impact on state, local, and
tribal governments: Elizabeth Cove; Impact on the private
sector: Paige Piper/Bach.
Estimate approved by: Theresa Gullo, Deputy Assistant
Director for Budget Analysis.
VI. Evaluation of Regulatory Impact
Pursuant to the requirements of paragraph 11(b) of rule
XXVI of the Standing Rules of the Senate, the Committee has
considered the regulatory impact of this bill. CBO states that
there are no intergovernmental or private-sector mandates as
defined in the Unfunded Mandates Reform Act and no costs on
state, local, or tribal governments. The legislation contains
no other regulatory impact.
VII. Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic and existing law, in which no
change is proposed, is shown in roman):
TITLE 5, UNITED STATES CODE: GOVERNMENT ORGANIZATION AND EMPLOYEES
PART III--EMPLOYEES
CHAPTER 53--PAY RATES AND SYSTEMS
Subchapter I--Pay Comparability System
SEC. 5304. LOCALITY-BASED COMPARABILITY PAYMENTS.
* * * * * * *
(f) (1) The pay agent may provide for such pay localities
as the pay agent considers appropriate, except that--
[(A) each General Schedule position (excluding any
outside the continental United States, as defined in
section 5701(6) shall be included with a pay locality;]
(A) each General Schedule position in the United
States, as defined under section 5921(4), and its
territories and possessions, including the Commonwealth
of Puerto Rico and the Commonwealth of the Northern
Mariana Islands, shall be included within a pay
locality; and
(B) the boundaries of pay localities shall be
determined based on appropriate factors which may
include local labor market patterns, commuting
patterns, and practices of other employers.
(2) (A) The establishment or modification of any such
boundaries shall be effected by regulations which,
notwithstanding subsection (a)(2) of section 553, shall be
promulgated in accordance with the notice and comment
requirements of such section.
(B) Judicial review of any regulation under this
subsection shall be limited to whether or not it was
promulgated in accordance with the requirements
referred to in subparagraph (A).
(g)(1) Except as provided in paragraph (2), comparability
payments may not be paid at a rate which, when added to the
rate of basic pay otherwise payable to the employee involved,
would cause the total to exceed the rate of basic pay payable
for level IV of the Executive Schedule.
(2) The applicable maximum under this subsection shall be
level III of the Executive Schedule for--
(A) positions under subparagraphs (A)-(C) of
subsection (h)(1); [and]
(B) positions under subsection (h)(1)(D) not covered
by appraisal systems certified under section 5382; and
[B](C) any positions [under subsection (h)(1)(D)]
under subsection (h)(1)(E) which the President may
determine.
(3) The applicable maximum under this subsection shall be
level II of the Executive Schedule for positions under
subsection (h)(1)(D) covered by appraisal systems certified
under section 5307(d).
(h)(1) For the purpose of this subsection, the term
``position'' means--
(A) a position to which section 5376 applies
(relating to certain senior-level positions);
(B) a position to which section 5372 applies
(relating to administrative law judges appointed under
section 3105);
(C) a position to which section 5372a applies
(relating to contract appeals board members); [and]
(D) a Senior Executive Service position under section
3132 stationed within the United States, but outside
the 48 contiguous States and the District of Columbia
in which the incumbent the day before the date of
enactment of the Non-Foreign Area Retirement Equity
Assurance Act of 2008 was eligible to receive a cost-
of-living allowance under section 5941; and
[(D)] (E) a position within an Executive agency not
covered under the General Schedule or any of the
preceding subparagraphs, the rate of basic pay for
which is (or, but for this section, would be) no more
than the rate payable for level IV of the Executive
Schedule; but does not include--
(i) a position to which subchapter IV applies
(relating to prevailing rate systems);
(ii) a position as to which a rate of pay is
authorized under section 5377 (relating to
critical positions);
(iii) a position to which subchapter II
applies (relating to the Executive Schedule)
stationed in the 48 contiguous States and the
District of Columbia, or stationed within the
United States, but outside the 48 contiguous
States and the District of Columbia, in which
the incumbent the day before the date of
enactment of the Non-Foreign Area Retirement
Equity Assurance Act of 2008 was not eligible
to receive a cost-of-living allowance under
section 5941; and;
(iv) a Senior Executive Service position
under section 3132;
(v) a position in the Federal Bureau of
Investigation and Drug Enforcement
Administration Senior Executive Service under
section 3151; or
(vi) a position in a system equivalent to the
system in clause (iv), as determined by the
President's Pay Agent designated under
subsection (d).
(2)(A) Notwithstanding subsection (c)(4) or any other
provision of this section, but subject to subparagraph (B) and
paragraph (3), upon the request of the head of an Executive
agency with respect to 1 or more categories of positions, the
President may provide that each employee of such agency who
holds a position within such category, and within the
particular locality involved, shall be entitled to receive
comparability payments.
(B) A request by an agency head or exercise of authority by
the President under subparagraph (A) shall cover--
(i) with respect to the positions under subparagraphs
(A) through (C) of paragraph (1), all positions
described in the subparagraph or subparagraphs involved
(excluding any under clause (i), (ii), (iii), (iv),
(v), or (vi) of such paragraph); and
(ii) with respect to positions under paragraph
(1)(D), such positions as may be considered appropriate
(excluding any under clause (i), (ii), (iii), (iv),
(v), or (vi) of paragraph (1)).
(C) Notwithstanding subsection (c)(4) or any other
provision of law, but subject to paragraph (3), in the case of
a category with positions that are in more than 1 Executive
agency, the President may, on his own initiative, provide that
each employee who holds a position within such category, and in
the locality involved, shall be entitled to receive
comparability payments. No later than 30 days before an
employee receives comparability payments under this
subparagraph, the President or the President's designee shall
submit a detailed report to the Congress justifying the reasons
for the extension, including consideration of recruitment and
retention rates and the expense of extending locality pay.
(3) Comparability payments under this subsection--
(A) may be paid only in any calendar year in which
comparability payments under the preceding provisions
of this section are payable with respect to General
Schedule positions within the same locality;
(B) shall take effect, within the locality involved,
on the first day of the first applicable pay period
commencing on or after such date as the President
designates (except that no date may be designated which
would require any retroactive payments), and shall
remain in effect through the last day of the last
applicable pay period commencing during that calendar
year;
(C) shall be computed using the same percentage as is
applicable, for the calendar year involved, with
respect to General Schedule positions within the same
locality; and
(D) shall be subject to the applicable limitation
under subsection (g).
CHAPTER 59--ALLOWANCES
Subchapter IV--Miscellaneous Allowances
SEC. 5941. ALLOWANCES BASED ON LIVING COSTS AND CONDITIONS OF
ENVIRONMENT; EMPLOYEES STATIONED OUTSIDE
CONTINENTAL UNITED STATES OR ALASKA
(a) Appropriations or funds available to an Executive
agency, except a Government controlled corporation, for pay of
employees stationed outside the continental United States or in
Alaska whose rates of basic pay are fixed by statute, are
available for allowances to these employees. The allowance is
based on--
(1) living costs substantially higher than in the
District of Columbia;
(2) conditions of environment which differ
substantially from conditions of environment in the
continental United States and warrant an allowance as a
recruitment incentive; or
(3) both of these factors.
The allowance may not exceed 25 percent of the rate of basic
pay. Except as otherwise specifically authorized by statute,
the allowance is paid only in accordance with regulations
prescribed by the President establishing the rates and defining
the area, groups of positions, and classes of employees to
which each rate applies. Notwithstanding any preceding
provision of this subsection, the cost-of-living allowance rate
based on paragraph (1) of this subsection shall be the cost-of-
living allowance rate in effect on December 31, 2008, except as
adjusted under subsection (c).
(b) This section shall apply only to areas that are
designated as cost-of-living allowance areas as in effect on
December 31, 2008.
(c)(1) The cost-of-living allowance rate payable under this
section shall be adjusted on the first day of the first
applicable pay period beginning on or after--
(A) January 1, 2009; and
(B) on January 1 of each calendar year in which a
locality-based comparability adjustment takes effect
under section 4 (2) and (3) of the Non-Foreign Area
Retirement Equity Assurance Act of 2008.
(2)(A) In this paragraph, the term ``applicable locality-
based comparability pay percentage'' means, with respect to
calendar year 2009 and each calendar year thereafter, the
applicable percentage under section 4 (1), (2), or (3) of Non-
Foreign Area Retirement Equity Assurance Act of 2008.
(B) Each adjusted cost-of-living allowance rate under
paragraph (1) shall be computed by--
(i) subtracting 65 percent of the applicable
locality-based comparability pay percentage from the
cost-of-living allowance percentage rate in effect on
December 31, 2008; and
(ii) dividing the resulting percentage determined
under clause (i) by the sum of--
(I) one; and
(II) the applicable locality-based
comparability payment percentage expressed as a
numeral.
(3) No allowance rate computed under paragraph (2) may be
less than zero.
(4) Each allowance rate computed under paragraph (2) shall
be paid as a percentage of basic pay (including any applicable
locality-based comparability payment under section 5304 or
similar provision of law and any applicable special rate of pay
under section 5305 or similar provision of law).
[(b)] (d) An employee entitled to a cost-of-living
allowance under section 5924 of this title may not be paid an
allowance under subsection (a) of this section based on living
costs substantially higher than in the District of Columbia.
TITLE 39, UNITED STATES CODE: POSTAL SERVICE
PART III--PERSONNEL
CHAPTER 10--EMPLOYMENT WITHIN THE POSTAL SERVICE
Subchapter I--Pay Comparability System
SEC. 1005. APPLICABILITY OF LAWS RELATING TO FEDERAL EMPLOYEES.
* * * * * * *
(b)(1) [Section 5941] Except as provided under paragraph
(2), section 5941 of title 5 shall apply to the Postal Service.
[For purposes of such section,] Except as provided under
paragraph (2), for purposes of section 5941 of that title, the
pay of officers and employees of the Postal Service shall be
considered to be fixed by statute, and the basic pay of an
employee shall be the pay (but not any allowance or benefit) of
that officer or employee established in accordance with the
provisions of this title.
(2) On and after the date of enactment of the Non-Foreign
Area Retirement Equity Assurance Act of 2008--
(A) the provisions of that Act and section 5941 of
title 5 shall apply to officers and employees covered
by section 1003(b) and (c) whose duty station is in a
nonforeign area; and
(B) with respect to officers and employees of the
Postal Service (other than those officers and employees
described under subparagraph (A)) section 6(b)(2) of
that Act shall apply.