Locality Pay and that Federal Pay Raise

By on February 27, 2014 in Current Events, Pay & Benefits with 48 Comments

Buried in the Office of Personnel Management website, minutes of the Federal Salary Council from November 2012 included new federal locality pay areas recommended for addition in 2014. For those who do not follow the minutiae of the complicated federal pay system, the Federal Employees Pay Comparability Act of 1990 replaced the nationwide General Schedule (GS) with a method for setting pay for white-collar employees that uses a combination of across-the-board and locality pay adjustments.

The Federal Salary Council reviewed data for Combined Statistical Areas  and Metropolitan Statistical Areas with 2,500 or more GS employees that were (and still are today) in the “Rest of U.S.” pay area. The Council recommended a phased approach for some areas to be removed from the Rest of U.S. pay area and establishing them as individual locality pay areas.

The locality pay areas to be added were listed in this table:

New Locality Pay Areas

Area March 2012 GS Base Payroll Pay Gap Recommended locality rate (target pay gap)
Albany $166,730,596 55.34% 47.94%
Albuquerque $510,495,966 45.88% 38.93%
Austin $366,557,509 51.17% 43.97%
Charlotte $168,635,266 47.85% 40.81%
Colorado Springs $561,339,429 52.99% 45.70%
Davenport $266,360,779 46.44% 39.47%
Harrisburg $413,576,464 52.18% 44.93%
Laredo $169,685,744 64.25% 56.43%
Las Vegas $275,731,172 60.41% 52.77%
Palm Bay $309,775,047 48.75% 41.67%
St. Louis $783,335,734 52.34% 45.09%
Tucson $491,018,021 50.52% 43.35%
Subtotal $4,483,241,727 51.67%
Rest of U.S. $34,307,554,189 40.13% 33.46%
Adjusted RUS $29,824,312,462 38.40% 31.81%

No doubt, federal employees in these towns from Albany, NY to Tucson and Las Vegas were delighted to hear the news about their pending pay raise.

But, despite the earlier indications, new locality pay areas were not added. Reasons cited, or at least rumored to have been the reason for not adding the locality pay areas, were that the implementing regulations had not been written and could not be implemented in time. Another possible reason is speculation that not adding the locality pay areas was a way to prevent higher federal budget deficits.

In its latest report, the Salary Council added this note that may be encouraging for those working in the pay areas that the Council had recommended for inclusion last year:

“The Council recommended 12 new locality pay areas be established for 2014. While the Pay Agent tentatively agreed, work was not completed on the regulations needed to establish the areas, presumably due to the President’s alternative pay plan for 2014 which holds locality pay percentages at 2013 levels. Since work has not been completed on these 12 areas, we request the Pay Agent publish the required proposed and final regulations as soon as possible to establish the 12 new locality pay areas, as the Pay Agent agreed to this recommendation in its report for 2014.”

The Cost of  Locality Pay Areas

In Executive Order 12748, the President designated the Secretary of Labor and the Directors of the Office of Management and Budget and the Office of Personnel Management to serve as the President’s Pay Agent. The Pay Agent considers the recommendations of the Federal Salary Council, defines locality pay areas, and submits an annual report to the President on the locality pay program. The report compares rates of pay under the General Schedule to non-Federal pay, identifies areas in which a pay disparity exists and specifies the size of the disparity, makes recommendations for locality rates, and includes the views of the Federal Salary Council.

It its report of  May 2013 the President’s Pay Agent evaluated the cost of locality pay areas in 2013 compared to 2014. The costs in 2014 would be considerably higher after adding the recommended new locality pay areas and the total cost attributable to locality pay if it were to paid by the government. The Pay Agent’s conclusion: “[W]e estimate the total cost attributable to the locality rates…over rates currently in effect to be about $25.455 billion on an annual basis. This amount does not include the cost of benefits affected by locality pay raises.”

But the $25 billion or so was actually too low. Some of the records to calculate the cost were not included because of errors in the records.  Including those records would add about $30 million to the cost. Also, the estimate did not include a locality pay cost of about $439 million net of cost-of-living allowance offsets for white-collar employees in Alaska, Hawaii, and the other non-foreign areas under the Non-Foreign Area Retirement Equity Assurance Act of 2009.

So, the bottom line:  Fully implementing the cost of locality pay in all areas in 2014 would have been about $26 billion higher than the amount paid in 2013.

Will Locality Pay Areas Be Added in 2015?

We do not know if the locality pay areas recommended by the Federal Salary Council will be added next year. There is a good chance that they will be implemented but it is not certain. We also do not know if the President’s recommendations for a 1% pay increase will result in another across-the-board increase similar to the action taken in 2013.

Those in locality pay areas, as well as other federal employees,  have not had a substantial pay increase since 2010 when the President recommended and employees eventually received an average pay increase of 2%. Ironically, in the President’s budget message issued for the 2010 fiscal year, the 2% figure was cited as a “sacrifice” by federal employees compared to raises in the immediate preceding years of 3.9% (2009), and 3.5% (2008) and 2.7% (2007). President Obama also proposed a freeze on locality pay in 2010. The freeze on  locality did not happen as Congress approved a 1.5% increase in base pay and an 0.5% increase in locality pay which was implemented. An overall pay freeze was proposed by the President later in 2010 and that freeze was implemented until the pay raise of 1% was granted in 2013.

We are not going to learn from the President’s proposed budget what will happen to locality pay in 2015. It is also possible we will not learn until late in the year what will happen with locality pay rates for 2015.

We know the President is proposing a 1% pay raise. That raise, if implemented, is likely to be an across-the-board pay increase for next year just as was done for the 2014 pay raise. Check out the GS Pay Calculator to see how your pay will stack up with an across-the-board 1% increase depending on your grade, GS step and locality.

Congress could again play a major role in the final decision. 2014 is an election year and that will play a role in the decisions made by Congress as Democrats who are in close elections, and who may often be counted on to favor higher federal employee pay, may see the situation in a different light until after the election results are certified.

The Federal Salary Council’s analysis and recommendations will play a role in the analysis of the President’s Pay Agent. The size of the federal deficit, the national debt, the unemployment rate, the rate of economic growth and the number of “discouraged workers” in the economy (currently at approximately 93 million who are not counted in the unemployment rate) will all play some role in the decision on the rates for 2015.

Also, since Congress has lifted the debt ceiling to allow the federal government to increase the national debt without going through a process to increase the amount of national debt that can be incurred, there will be less pressure to restrict the number of locality pay areas and the locality pay rates.

The result is that the outcome is uncertain. The system will work through a process that, despite the frustration and anger of some federal workers, will likely go on through most of the  year before a final decision is made. As events unfold, we will provide the latest information to our readers.

© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

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About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources.

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