[Public Papers of the Presidents of the United States: WILLIAM J. CLINTON (2000-2001, Book III)]
[November 30, 2000]
[Pages 2599-2601]
[From the U.S. Government Publishing Office www.gpo.gov]



Letter to Congressional Leaders Transmitting an Alternative Plan for 
Federal Employee Locality-Based Comparability Payments
November 30, 2000

Dear Mr. Speaker:  (Dear Mr. President:)
    I am transmitting an alternative plan for Federal employee locality-
based comparability payments (locality pay) for 2001.
    Federal employees are the key to effective Government performance. 
During the last 8 years, the number of Federal employees has declined 
while their responsibilities have stayed

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the same or increased. Nonetheless, recent surveys show the American 
public believes it is now getting better quality and more responsible 
service from our Federal employees. We need to provide them fair and 
equitable compensation to recognize their important role, and to enable 
the Federal Government to continue to attract and retain a high-quality 
workforce.
    Under title 5, United States Code, most Federal civilian employees 
would receive a two-part pay raise in January 2001: (1) a 2.7 percent 
base salary raise linked to the part of the Employment Cost Index (ECI) 
that deals with changes in the wages and salaries of private industry 
workers; and (2) a locality pay raise, based on the Bureau of Labor 
Statistics' salary surveys of non-Federal employers in local pay areas, 
that would cost about 12.3 percent of payroll. Thus, on a cost-of-
payroll basis, the total Federal employee pay increase for most 
employees would be about 15 percent in 2001.
    For each part of the two-part pay increase, title 5 gives me the 
authority to implement an alternative pay adjustment plan if I view the 
pay adjustment that would otherwise take effect as inappropriate because 
of ``national emergency or serious economic conditions affecting the 
general welfare.'' Over the past three decades, Presidents have used 
this or similar authority for most annual Federal pay raises.
    In evaluating ``an economic condition affecting the general 
welfare,'' the law directs me to consider such economic measures as the 
Index of Leading Economic Indicators, the Gross National Product, the 
unemployment rate, the budget deficit, the Consumer Price Index, the 
Producer Price Index, the Employment Cost Index, and the Implicit Price 
Deflator for Personal Consumption Expenditures.
    Earlier this year, I decided that I would implement--effective in 
January 2001--the full 2.7 percent base salary adjustment. As a result, 
it was not necessary to transmit an alternative pay plan by the legal 
deadline (August 31) for that portion of the pay raise.
    In assessing the appropriate locality pay adjustment for 2001, I 
reviewed the indicators cited above along with other major economic 
indicators. As noted above, the full locality pay increases, when 
combined with the 2.7 percent base salary increase, would produce a 
total Federal civilian payroll increase of about 15 percent for most 
employees. In fiscal year (FY) 2001 alone, this increase would add $9.8 
billion above the cost of the 3.7 percent increase I proposed in the 
fiscal 2001 Budget.
    A 15 percent increase in Federal pay would mark a fundamental change 
of our successful policy of fiscal discipline, and would invite serious 
economic risks--in terms of the workings of the Nation's labor markets; 
inflation; the costs of maintaining Federal programs; and the impact of 
the Federal budget on the economy as a whole.
    First, an across-the-board 15 percent increase in Federal pay scales 
would be disruptive to labor markets across the country. This increase 
would be three to four times the recent average annual changes in 
private-sector compensation, built into the base of the pay structure 
not just for 2001, but for subsequent years as well. With job markets 
already tight and private firms reporting great difficulties in 
attracting and retaining skilled employees, this increase in Federal 
salaries could pull prospective job seekers away from private employment 
opportunities.
    Second, in the face of such a large Federal pay increase, private 
firms would almost certainly react by increasing their own wage offers. 
Thus, beyond the labor-market disruption of such a Federal pay increase, 
there would follow a serious risk of inflation; and that risk would far 
exceed the direct effects of the Federal pay raise taken in isolation. 
Pay rates economy-wide have already enticed a record percentage of the 
adult population into the labor force and paid employment. There are few 
unemployed or underemployed workers available for hire; if private firms 
need additional labor, they must raise their wage offers to attract 
workers from other firms. Such bidding wars for labor--which constitutes 
roughly two-thirds of business costs in this economy--have been at or 
near the core of all inflationary outbursts in our recent history. To 
date, intense competitive pressures have prevented private firms from 
allowing their wage offers to step out of line with productivity gains, 
and inflationary pressures have remained contained. However, a shock 
arising outside of the competitive labor market itself--such as an 
administratively determined Federal pay increase--could convince private 
business managers that they must increase their offers beyond the 
current norms. In the past to reverse accelerating inflation, the Nation 
paid an enormous toll through policies designed to slow the economy and 
reduce the pressure on prices. In numerous instances, the result was 
recession and

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sharp increases in unemployment. With labor markets as tight as they are 
we should not undertake a policy likely to shock the labor market.
    Third, Federal program managers are already under considerable 
pressure to meet their budgets, while still providing quality service to 
the taxpayers. Increasing the Federal employment costs at such an 
extraordinary rate would render those budgets inadequate to provide the 
planned level of services. Appropriations for the coming fiscal year 
have already been legislated for much of the Federal Government, and all 
sides hope that spending bills for the remaining agencies will pass in 
the very near future. In particular, agencies that have the greatest 
responsibility for person-to-person service--the Social Security 
Administration, the Internal Revenue Service, and the Veterans Affairs 
healthcare programs, to name just three--could not be expected to bear 
double-digit pay increases without the most thorough review and 
adjustment of their budgets.
    Finally, despite the current budget surpluses, the Federal 
Government continues to face substantial budgetary challenges.When my 
Administration took office in January 1993, we faced the largest budget 
deficit in the Nation's history--over $290 billion in fiscal year (FY) 
1992. By the projections of the Office of Management and Budget (OMB), 
the Congressional Budget Office (CBO), and every other authority, the 
deficit would only get bigger. Furthermore, under both of these 
projections, the public debt, and the interest burden from that debt, 
were expected to be in a vicious upward cycle.
    While we have pulled the budget back from this crisis, and in fact 
we have enjoyed the first budget surpluses since l969, adverse budgetary 
forces are just a few years away. The Social Security system will come 
under increasing pressure with the impending retirement of the large 
baby-boom generation. In addition, the aging of the population will 
increase costs for Medicare and Medicaid. If we become complacent 
because of the current budget surplus and increase spending now, the 
surplus could well be gone even before the baby-boom generation retires.
    My Administration has put these budgetary challenges front and 
center. A 15 percent Federal pay increase, built into the Government's 
cost base for all succeeding years, would be a dangerous step away from 
budget discipline. The budgetary restraint that produced the current 
budget surpluses must be maintained if we are to keep the budget sound 
into the retirement years of the baby boom generation.
    Therefore, I have determined that the total civilian raise of 3.7 
percent that I proposed in my 2001 Budget remains appropriate. This 
raise matches the 3.7 percent basic pay increase that I proposed for 
military members in my 2001 Budget, and that was enacted in the FY 2001 
Defense Authorization Act. Given the 2.7 percent base salary increase, 
the total increase of 3.7 percent allows an amount equal to 1.0 percent 
of payroll for increases in locality payments.
    Accordingly, I have determined that:
    Under the authority of section 5304a of title 5, United States Code, 
locality-based comparability payments in the amounts set forth on the 
attached table shall become effective on the first day of the first 
applicable pay period beginning on or after January 1, 2001. When 
compared with the payments currently in effect, these comparability 
payments will increase the General Schedule payroll by about 1.0 
percent.
    Finally, the law requires that I include in this report an 
assessment of how my decisions will affect the Government's ability to 
recruit and retain well-qualified employees. I do not believe this will 
have any material impact on the quality of our workforce. If the needs 
arise, the Government can use many pay tools--such as recruitment 
bonuses, retention allowances, and special salary rates--to maintain the 
high-quality workforce that serves our Nation so very well.
         Sincerely,

                                                      William J. Clinton

Note: Identical letters were sent to J. Dennis Hastert, Speaker of the 
House of Representatives, and Albert Gore, Jr., President of the Senate. 
This letter was released by the Office of the Press Secretary on 
December 1.