2023 Pay Raise Moving With Congressional Inaction
In March 2023, the president’s budget requested a 4.6% federal pay raise for 2023. That annual pay raise amount is moving closer to reality. A new draft appropriations bill in the Senate silently concurs with the president’s 4.6% pay raise proposal. This means that the House and the Senate, at least so far this year, are going along with the proposed 2023 federal pay raise of 4.6%.
While the proposed pay raise is moving along as it often does without any Congressional action on it, nothing has passed into law that finalizes the 2023 pay raise. In August, President Biden will issue an alternative pay plan letter.
Last year, President Biden issued an alternative pay plan letter for a 2.2% across-the-board raise with locality pay increases to provide a 2.7% overall average for 2022. His letter for the 2023 pay raise will most likely be issued late in August.
In a nutshell, the president’s alternative pay plan is related to the Federal Employees Pay Comparability Act (FEPCA). This law was passed about 40 years ago. It was intended to change the way pay is set each year for the General Schedule and to maintain pay comparability by locality. It also called for establishing several special pay plans. It has never been implemented as intended and the alternative pay plan letter issued each year supersedes FEPCA being implemented to provide a higher federal pay raise.
2023 Pay Raise And Inflation Above 9%
A lot has happened since the 2023 pay raise was proposed back in March, including raging inflation. President Biden initially declared inflation would not occur and that it was transitory. Perhaps that was a factor in arriving at the 4.6% proposed pay raise.
In reality, according to the Bureau of Labor Statistics, over the last 12 months, inflation has increased by 9.1%. This is the largest 12-month increase since the period ending November 1981. And, as consumers have noticed, the inflation is not transitory or temporary but has gone up and will be difficult to bring back down.
Moreover, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 9.8% over the last 12 months. The reason this is important to federal retirees and Social Security recipients is that this is the index that is used for calculating the COLA increase later this year that will be paid to recipients starting in January 2023.
While a raise of 4.6% would be the largest raise since 2000, when it was 4.8%, a raise of this size still reflects a significant loss of purchasing power as the cost of goods and services soars way above 4.6%. In addition, of course, a pay raise that shows up in January 2023 means that inflation has already been eating away at the purchasing power of a paycheck for more than a year.
2023 Pay Raise and Inflation Bonus
Congress is obviously aware of the impact of inflation on purchasing power but may not be sure what to do about it. The National Defense Authorization Act for 2023 contains a provision called “Inflation Bonus Pay.” Under this provision, Department of Defense civilian employees earning less than $45,000 per year would be eligible for the 2023 inflation bonus. However, the White House is opposed to the amendment and it has not been finalized so it is unknown whether this will be passed into law.
Even if it did go into effect, the average federal employee salary as of December 2021 was $92,977. This means that the “inflation bonus” would not have much of an impact. One impact of inflation is that the amount of interest paid on the federal debt also goes up. With the federal debt standing at $28.43 trillion last year, the interest being paid on this debt will be massive with interest rates going up to more normal levels rather than the very low rates of the past decade.
Action Occurring on Pay Freeze for Some Senior Federal Employees
Since at least January 2014, the annual salary has been “frozen” for political appointees making more than career federal employees in the Executive Schedule’s EX-IV salary schedule. This means that for 2022, their pay was frozen at $176,300.
According to the Office of Personnel Management, “Unless extended by new legislation, the pay freeze expires at the end of the last pay period that begins in calendar year 2022. That last pay period begins on December 18, 2022, and ends on December 31, 2022.”
The pay freeze impacts the following categories of federal employees according to OPM:
- An employee serving in an Executive Schedule (EX) position, or in a position for which
the rate of pay is fixed by statute at an EX rate, and who holds a position under a political appointment;
- A chief of mission or ambassador at large;
- A noncareer appointee in the Senior Executive Service (SES) paid at or above the official
rate for EX-IV ($176,300 in 2022);
- A limited term appointee or limited emergency appointee in the SES serving under a
political appointment and paid at or above the official rate for EX-IV; and
- Any other type of employee paid at or above the official rate for EX-IV who serves under
a political appointment.
Action to Reduce Impact of Pay Freeze
The latest bill in the Senate would reduce the impact of this long-standing pay freeze. The bill states on page 163:
[T]he payable rate for an employee serving in an Executive Schedule position, or in a position for which the rate of pay is fixed by statute at an Executive Schedule rate, shall be increased by 4.6 percent (relative to the preexisting rate actually payable) at the time the official rate is adjusted in January 2023.
In addition, a bill is being introduced by Eleanor Holmes Norton (D-DC) to reduce federal pay compression. Her press release states “While this bill would not solve all pay compression issues in the federal government, Norton believes it is an important step and is exploring ways to reduce pay compression in all federal pay systems.”
The text of this bill is not yet available for any analysis of which federal employees would be impacted should this bill be passed into law.