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[House Document 106-316]
[From the U.S. Government Publishing Office]

106th Congress, 2d Session - - - - - - - - - - - House Document 106-316

 
   IMPLEMENTATION OF LOCALITY-BASED COMPARABILITY PAYMENTS UNDER AN 
                       ALTERNATIVE PLAN FOR 2001

                               __________

                             COMMUNICATION

                                  from

                   THE PRESIDENT OF THE UNITED STATES

                              Transmitting

HIS REPORT ON THE IMPLEMENTATION OF AN ALTERNATIVE PLAN FOR FEDERAL 
  EMPLOYEE LOCALITY-BASED COMPARABILITY PAYMENTS (LOCALITY PAY) FOR 2001, 
  PURSUANT TO 5 U.S.C. 5305(a)(3)

 December 4, 2000.--Referred to the Committee on Government Reform and 
                         ordered to be printed

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
89-011                     WASHINGTON : 2000

                                           The White House,
                                     Washington, November 30, 2000.
Hon. J. Dennis Hastert,
Speaker of the House of Representatives,
Washington, DC.
    Dear Mr. Speaker: 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 
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 Economics 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 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 1969, 
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.

Locality-Based Comparability Payments Under Alternative Plan

                              [In percent]

                                                           Comparability
                                                       Payment Effective
Pay Locality: \1\                                           January 2001
    Atlanta MSA...............................................      8.66
    Boston CMSA...............................................     12.13
    Chicago CMSA..............................................     13.00
    Cincinnati CMSA...........................................     10.76
    Cleveland CMSA............................................      9.17
    Columbus MSA..............................................      9.61
    Dallas CMSA...............................................      9.71
    Dayton MSA................................................      8.60
    Denver CMSA...............................................     11.90
    Detroit CMSA..............................................     13.14
    Hartford MSA..............................................     12.65
    Houston CMSA..............................................     16.66
    Huntsville MSA............................................      8.12
    Indianapolis MSA..........................................      7.89
    Kansas City MSA...........................................      8.32
    Los Angeles CMSA..........................................     14.37
    Miami CMSA................................................     11.09
    Milwaukee CMSA............................................      8.91
    Minneapolis MSA...........................................     10.30
    New York CMSA.............................................     13.62
    Orlando MSA...............................................      7.71
    Philadelphia CMSA.........................................     10.80
    Pittsburgh MSA............................................      8.54
    Portland CMSA.............................................     10.32
    Richmond MSA..............................................      8.60
    Sacramento CMSA...........................................     10.73
    St. Louis MSA.............................................      8.00
    San Diego MSA.............................................     11.31
    San Francisco CMSA........................................     16.98
    Seattle CMSA..............................................     10.45
    Washington CMSA...........................................     10.23
    Rest of United States.....................................      7.68

\1\ Pay localities as defined in 5 CFR 531.603.

Note.--MSA means Metropolitan Statistical Area and CMSA means 
Consolidated Metropolitan Statistical Area, both as defined by the 
Office of Management and Budget (OMB) in OMB Bulletin 99-04, June 30, 
1999.
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