Federal White-Collar Pay: FY2006 and FY2007 Salary Adjustments



Order Code RL33158
Federal White-Collar Pay:
FY2006 and FY2007 Salary Adjustments
Updated April 12, 2007
Barbara L. Schwemle
Analyst in American National Government
Government and Finance Division

Federal White-Collar Pay:
FY2006 and FY2007 Salary Adjustments
Summary
Federal white-collar employees are intended by law to receive an annual pay
adjustment and a locality-based comparability payment, effective in January of each
year, under Section 529 of P.L. 101-509, the Federal Employees Pay Comparability
Act (FEPCA) of 1990. The law has never been implemented as originally enacted;
annual and locality payments pursuant to the statute have been reduced each year.
Federal white-collar employees received a 1.7% annual pay adjustment and a 0.5%
locality-based comparability payment in January 2007. President George W. Bush
authorized the average 2.2% pay adjustment in Executive Order 13420, issued on
December 21, 2006. Although the annual adjustment and the locality payment are
sometimes referred to as cost-of-living adjustments, neither is based on changes in
the cost of living.
The annual pay adjustment is based on the Employment Cost Index (ECI),
which measures change in private-sector wages and salaries. The size of the locality
payment is determined by the President and is based on a comparison of nonfederal
and General Schedule (GS) salaries in 32 pay areas nationwide. By law, the disparity
between nonfederal and federal salaries was to be gradually reduced to 5% during the
years 1994 to 2002. Continuing in each year thereafter, FEPCA requires that
amounts payable may not be less than the full amount necessary to reduce the pay
disparity to 5%. For the January 2007 pay adjustment, the ECI showed that the
annual across-the-board increase would be 1.7%. The Federal Salary Council and the
Pay Agent recommended that to carry out FEPCA, the 2007 locality payments range
from 14.10% in the “Rest of the United States” (RUS) pay area to 49.65% in the San
Jose-San Francisco pay area and be 31.36% in the Washington, DC, pay area.
Because the new locality rate replaces the existing locality rate, the rate change is
derived by comparing 2006 locality payments with those recommended for 2007.
This comparison results in recommended net increases for 2007, if the ECI and
locality-based comparability payments were granted as required by law, of 3.13% in
the RUS pay area, 18.27% in the San Jose-San Francisco pay area, and 13.70% in the
Washington, DC, pay area. The nationwide average net pay increase, if the ECI and
locality-based comparability payments were granted as required by law, would have
been 8.64% in 2007. The Pay Agent stated that it would be unwise for the
recommended locality payments to take effect because of “the current national
emergency.” The President’s FY2007 budget proposed a 2.2% federal civilian pay
adjustment. A 2.7% adjustment is included in H.R. 5576, the FY2007
Transportation, Treasury, Housing and Urban Development, the Judiciary, the
District of Columbia, and Independent Agencies Appropriations bill, as passed by the
House of Representatives on June 14, 2006, and as reported by the Senate Committee
on Appropriations on July 26, 2006. No further action occurred on the
appropriations bill. In July 2005, the Administration released a draft proposal that
would extend changes on pay setting similar to those authorized for the Departments
of Homeland Security and Defense government-wide, but legislation has not been
introduced. S. 3492 would have required a federal employee to receive a summary
performance rating of at least fully successful to receive a pay adjustment. This
report will be updated.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Pay Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Annual Pay Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Locality-Based Comparability Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Methodology for Determining the Locality-Based
Comparability Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
January 2006 Pay Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
January 2007 Pay Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Annual Pay Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Locality-Based Comparability Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The President’s Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Congressional Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Changes in the Pay Adjustment Process Advocated . . . . . . . . . . . . . . . . . . . . . . 15
List of Tables
Table 1. Annual and Locality Pay Adjustments Under FEPCA,
1991 to 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Table 2. January 2006 Recommended Locality Payments,
Authorized Locality Payments, and Net Annual and
Locality Pay Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table 3. January 2007 Recommended Locality Payments, Authorized
Locality Payments, and Net Annual and Locality Pay Increase . . . . . . . . . . 24

Federal White-Collar Pay: FY2006 and
FY2007 Salary Adjustments
Introduction
Federal white-collar employees1 paid under the General Schedule (GS), Foreign
Service Schedule, and certain Veterans Health Administration Schedules are intended
by law to receive an annual pay adjustment and a locality-based comparability
payment, effective in January of each year, under Section 529 of P.L. 101-509, the
Federal Employees Pay Comparability Act (FEPCA) of 1990.2 Although the annual
adjustment and the locality payment are sometimes referred to as cost-of-living
adjustments, neither is based on measures of the cost of living. FEPCA has never
been implemented as originally enacted. The annual pay adjustment was not made
in 1994; in 1995, 1996, and 1998, reduced amounts of the annual adjustment were
provided. For 1995 through 2006, reduced amounts of the locality payments were
provided and are being provided for 2007. Table 1 shows the annual and locality pay
adjustments made under FEPCA for the years 1991 through 2007.
Pay Adjustments
Annual Pay Adjustment
Federal white-collar employees usually receive an annual pay adjustment. The
President may annually adjust salaries of administrative law judges. Individuals in
senior-level (SL) and scientific and professional (ST) positions may receive the
1 This report does not cover salary adjustments for federal executive and judicial branch
officials, federal justices and judges, Members of Congress, or the United States Postal
Service. See CRS Report RL33245, Legislative, Executive, and Judicial Officials: Process
for Adjusting Pay and Current Salaries
, and CRS Report RS20388, Salary Linkage:
Members of Congress and Certain Federal Executive and Judicial Officials
, by Barbara L.
Schwemle, and CRS Report RL33128, Senior Executive Service Pay for Performance
System
, by L. Elaine Halchin. See also, CRS Report 97-615, Salaries of Members of
Congress: Congressional Votes, 1990-2006
; CRS Report 97-1011, Salaries of Members of
Congress: A List of Payable Rates and Effective Dates, 1789-2007
; CRS Report RL30014,
Salaries of Members of Congress: Current Procedures and Recent Adjustments; and CRS
Report RL30064, Congressional Salaries and Allowances, by Paul Dwyer.
2 104 Stat. 1389, at 1427.

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annual adjustment at the discretion of agency heads.3 Annual adjustments for
contract appeals board members depend on whether Executive Schedule pay is
adjusted.4
The annual pay adjustment is based on the Employment Cost Index (ECI),
which measures change in private-sector wages and salaries. Basic pay rates are to
be increased by an amount that is 0.5 percentage points less than the percentage by
which the ECI, for the quarter ending September 30 of the year before the preceding
calendar year, exceeds the ECI for that same quarter of the second year (if at all). The
pay adjustment is effective as of the first day of the first applicable pay period
beginning on or after January 1 of each calendar year. For example, the annual
adjustment for January 2006 is based on the ECI for the quarter ending September
30, 2004. The change in the ECI from the previous September 30 (2.6%) is reduced
by 0.5 percentage points, thereby yielding a 2.1% annual adjustment. Therefore, the
data used to calculate the annual adjustment are 15 months old at the time of the
adjustment.
In the event of a national emergency or serious economic conditions affecting
the general welfare, FEPCA authorizes the President to issue an alternative pay plan
that uses a different percentage increase than the one required by the ECI-based
formula. The alternative plan must be submitted to Congress by September 1
preceding the scheduled effective date.5 The President did not issue an alternative
plan for the January 2006 or the January 2007 annual pay adjustments.
Locality-Based Comparability Payments
GS employees are also intended to receive locality-based comparability
payments; the Pay Agent6 may also extend these payments to employees in other pay
systems and has done so for employees in the Foreign Service and in senior-level,
scientific and professional, administrative law judge, administrative appeals judge,
and contract appeals board member positions.7 The Pay Agent determines the
applicable pay cap level for certain non-General Schedule employees to whom
3 According to 5 U.S.C. 5376, the minimum rate of basic pay for SLs and STs is equal to
120% of the minimum rate of basic pay for GS-15; the maximum rate of basic pay for SLs
and STs is equal to level IV of the Executive Schedule. For 2006, basic pay ranges from
$109,808 to $143,000.
4 The Executive Schedule is the pay schedule for cabinet officers and other top government
officials. It has five levels of pay in 2006 as follows: EX I-$183,500, EX II-$165,200, EX
III-$152,000, EX IV-$143,000, and EX V-$133,900.
5 104 Stat. 1389, at 1429-1431; 5 U.S.C. §§5301-5303.
6 The Pay Agent comprises the Secretary of Labor (Elaine L. Chao), the Director of the
Office of Management and Budget (Robert J. Portman), and the Director of the Office of
Personnel Management (Linda M. Springer).
7 The President, by Executive Order, delegated to the Pay Agent the authority to extend
locality-based comparability payments to certain categories of positions not otherwise
covered. U.S. President (Clinton), “Delegating a Federal Pay Administration Authority,”
Executive Order 12883, Federal Register, vol. 58, Dec. 1, 1993, p. 63281.

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locality pay is extended.8 OPM published final regulations in December 2001 to
clarify and redefine the limitations.9 Blue-collar workers under the Federal Wage
System (FWS) receive a prevailing rate adjustment that is generally capped at the
average percentage pay adjustment received by federal white-collar employees.10 For
2006, notwithstanding the cap, the blue-collar pay adjustment in a particular location
is no less than the increase received by GS employees in that location. Blue-collar
workers in Alaska, Hawaii, and other nonforeign areas receive a pay adjustment that
is no less than the increase received by GS employees in the Rest of the United States
(RUS) pay area.11 GS special-rate employees receive either the special rate
supplement or the locality payment, whichever is higher. Law enforcement officers
receiving special rates under Section 403 of FEPCA receive both special rates and
locality pay. Federal employees in Alaska and Hawaii and outside of the continental
United States, receive a cost-of-living (COLA) allowance rather than locality pay.
A locality rate of pay is considered as basic pay in computing danger pay
allowances and post differentials for certain employees who are temporarily assigned
to foreign areas and for whom the Department of State has established allowances for
8 The President, by Executive Order, delegated to the Pay Agent the authority to determine
the applicable pay cap level for certain non-General Schedule employees to whom locality
pay is extended. U.S. President (Clinton), “Adjustments of Certain Rates of Pay and
Delegation of a Federal Pay Administration Authority,” Executive Order 13106, Federal
Register
, vol. 63, Dec. 9, 1998, p. 68152.
9 The proposed regulations stated the following: “To provide consistent treatment between
General Schedule (GS) and non-GS employees receiving locality payments, OPM proposes
to provide that (1) non-GS positions whose maximum scheduled annual rate of pay is less
than or equal to the maximum payable scheduled annual rate of pay for GS-15 will be
subject to a locality pay cap equal to the rate for level IV of the Executive Schedule, and (2)
non-GS positions whose maximum scheduled annual rate of pay exceeds the maximum
payable scheduled annual rate of pay for GS-15, but is not more than the rate for level IV
of the Executive Schedule, will be subject to a locality pay cap equal to the rate for level III
of the Executive Schedule.” U.S. Office of Personnel Management, “Locality-Based
Comparability Payments,” Federal Register, vol. 65, Mar. 24, 2000, pp. 15875-15877. U.S.
Office of Personnel Management, “Locality-Based Comparability Payments,” Federal
Register
, vol. 66, Dec. 28, 2001, pp. 67069-67070.
10 For FY2006, this provision is at Section 813 of the Transportation, Treasury, Housing and
Urban Development, the Judiciary, and Independent Agencies Appropriations Bill for
FY2006 (H.R. 3058), P.L. 109-115. (The bill is commonly referred to as the TTHUD bill.)
It was included at Section 913 of the House-passed bill, Section 811 of the Senate-passed
bill, and Section 813 of the conference report (H.Rept. 109-307). For FY2007, the provision
is included in both the House-passed and Senate-reported versions of H.R. 5576, the
TTHUD bill. It is Section 913 of the House bill and Section 813 of the Senate bill.
11 For FY2006, this provision is at Section 843(b) of the Transportation, Treasury, Housing
and Urban Development, the Judiciary, and Independent Agencies Appropriations Bill for
FY2006 (H.R. 3058), P.L. 109-115. It was included at Section 943(b) of the House-passed
bill , Section 836(b) of the Senate-passed bill, and Section 843(b) of the conference report
(H.Rept. 109-307). For FY2007, the provision is included in both the House-passed and
Senate-reported versions of H.R. 5576, the TTHUD bill. It is Section 940(b) of the House
bill and Section 841(b) of the Senate bill.

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danger.12 (See 5 C.F.R. 531.610 for other purposes for which locality rates are
treated as basic pay.)
The locality-based comparability payments procedure established by FEPCA
provides that payments are to be made within each locality determined to have a
nonfederal/federal pay disparity greater than 5%. When uniformly applied to GS
employees within a locality, the adjustment is intended to make their pay rates
substantially equal, in the aggregate, to those of nonfederal workers for the same
levels of work in the same locality.
FEPCA authorizes the President to fix an alternative level of locality-based
comparability payments if, because of a national emergency or serious economic
conditions affecting the general welfare, the President considers the level that would
otherwise be payable inappropriate. At least one month before these comparability
payments would be payable (by November 30, 2006, for the 2007 payment), the
President would have to prepare and transmit to Congress a report describing the
intended alternative level of payments, including the reasons why the alternative level
would be necessary.13 For January 2006, President Bush did not issue an alternative
plan as he signed the legislation that included the January 2006 pay adjustment, P.L.
109-115, on November 30, 2005. The President issued an alternative plan for the
January 2007 locality pay adjustment on November 30, 2006.14
Once the annual and locality pay percentage amounts are determined, the actual
pay rates are calculated as follows. First, the basic General Schedule (GS) is
increased by the annual adjustment percentage, resulting in a new GS schedule.
These new basic GS rates are then increased by the locality payment. For 2007, the
resulting pay rates (annual + locality) are compared with the 2006 pay rates (annual
+ locality) to derive the net increase in pay.
Methodology for Determining the Locality-Based Comparability
Payments. Under the law, the Bureau of Labor Statistics (BLS) conducts surveys
that document nonfederal rates of pay in each locality pay area. (In January 2007,
there will be 32 pay areas nationwide.) Prior to October 1996, the surveys were
conducted under the Occupational Compensation Survey Program (OCSP), which
had been approved by the Federal Salary Council15 and the Pay Agent. Since then,
12 U.S. Office of Personnel Management, “Locality-Based Comparability Payments,”
Federal Register, vol. 69, Aug. 5, 2004, pp. 47353-47354. U.S. Office of Personnel
Management, “Changes in Pay Administration Rules for General Schedule Employees,”
Federal Register, vol. 70, May 31, 2005, pp. 31279-31280, 31305.
13 104 Stat. 1389, at 1429-1436, as amended by 106 Stat. 1355-1356 and 1360; 5 U.S.C.
§§5301-5302 and §§5304-5304a.
14 U.S. President (Bush), “Text of a Letter from the President to the Speaker of the House
of Representatives and the President of the Senate,” Nov. 30, 2006.
15 The council includes nine members. Members generally recognized for their impartiality,
knowledge, and experience in labor relations and pay policy are Terri Lacy, chair; George
Nesterczuk, vice-chair; and Rudy J. Maestas. The other members represent the American
Federation of Government Employees (Frank Ferris); the National Treasury Employees
(continued...)

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the surveys have been conducted under the National Compensation Survey (NCS)
program, which was not approved for use with the January 2000 through January
2003 locality payments. In its memorandum to the Pay Agent on the January 2001
locality payments, the council recommended five improvements in the NCS
program.16 For the January 2004 through January 2006 locality payments, a phase-in
of NCS survey data was approved.17 The Federal Salary Council recommends that
100% of the NCS data be used for the January 2007 locality payments and that the
OCSP data no longer be used.
The survey results are submitted to the Office of Personnel Management
(OPM), which serves as the staff to the Federal Salary Council and the Pay Agent.
OPM documents federal rates of pay in each of the pay areas and compares
nonfederal and GS salaries, by grade, for each pay area. The average salaries at each
grade, both federal and nonfederal, are then aggregated and compared to determine
an overall average percentage pay gap for each area. By law, the disparity between
nonfederal and federal salaries is to be reduced to 5%. Therefore, the overall average
percentage pay gap for each pay area is adjusted annually to this level by OPM. This
adjusted gap, called the target gap, is used to determine the locality rates for each pay
area recommended to the President by the Pay Agent, after receiving advice from the
Federal Salary Council. The pay gaps on which the locality payments are based are
22 months old by the effective date of the adjustment; thus, March 2005 gaps
determine the January 2007 locality payments.
FEPCA also stipulates that a certain percentage of the target gap between GS
average salaries and nonfederal 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% of the gap was to be closed each year
thereafter, meaning that 30% of the gap was to be closed in 1995, 40% in 1996, 50%
15 (...continued)
Union (Colleen M. Kelley); the National Federation of Federal Employees (Richard N.
Brown); the Association of Civilian Technicians (Thomas G. Bastas); and the Fraternal
Order of Police (James Pasco).
16 These recommendations, endorsed by the Pay Agent, were that (1) four factors, rather than
nine, be used to assign the correct federal grade levels to the nonfederal jobs surveyed, and
grade level guides for occupational families be provided; (2) a model be developed to
estimate missing data; (3) the matching of federal survey jobs with nonfederal survey jobs
be improved, and subcategories be provided for occupations that are not elsewhere
classified; (4) for supervisory occupations, the highest level of work supervised be graded
and the grade level be adjusted based on the level of supervision, instead of grading the
supervisory job itself; and (5) criteria be developed to identify and exclude jobs that would
be classified above GS-15 in government. (Memorandum for the President’s Pay Agent
from the Federal Salary Council, Level of Comparability Payments for January 2001 and
Other Matters Pertaining to the Locality Pay Program
[Washington: Oct. 22, 1999], p. 8.)
Each of the recommendations has been implemented, and the full effect of the changes will
be seen gradually.
17 For the January 2004 locality payments, equal weights of 50% were applied to the NCS
and OCSP results. For January 2005, weights of 75% and 25% were applied to the NCS and
OCSP results, respectively. The Federal Salary Council recommended that weights of 90%
NCS and 10% OCSP be applied for January 2006.

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in 1997, 60% in 1998, 70% in 1999, 80% in 2000, and 90% in 2001. By January
2002, and continuing each year thereafter, FEPCA specified that amounts payable
could not be less than the full amount necessary to reduce the pay disparity of the
target gap to 5%. In each of the years since 1994, the locality pay increase has been
implemented at a much lower percentage than the law requires. As a result, the gap
is being reduced slowly; 23.5% of the gap was closed in 1995, 25.9% in 1996, 28.3%
in 1997, 29.2% in 1998, 31% in 1999, 33.5% in 2000, 38.1% in 2001, 42.3% in
2002, 44% in 2003, 53.7% in 2004, 58.84% in 2005, and 62.75% in 2006.
Evaluating Areas in the Vicinity of Locality Pay Areas. To evaluate
areas currently in the “Rest of the United States” pay area for possible inclusion in
adjacent locality pay areas, the following criteria18 apply:
For adjacent Metropolitan Statistical Areas (MSAs) and Combined
Statistical Areas (CSAs):
To be included in an adjacent locality pay area, an
adjacent MSA or CSA currently in the RUS locality pay area must have at least
1,500 GS employees and an employment interchange measure19 of at least 7.5%.
For adjacent counties that are not part of a multi-county MSA or CSA: To
be included in an adjacent locality pay area, an adjacent county that is currently
in the RUS locality pay area must have at least 400 GS employees and an
employment interchange measure of at least 7.5%.
For federal facilities that cross locality pay area boundaries: To be included
in an adjacent locality pay area, the whole facility must have at least 500 GS
employees, with the majority of those employees in the higher-paying locality
pay area, or that portion of a federal facility outside of a higher-paying locality
pay area must have at least 750 GS employees; the duty stations of the majority
of these employees must be within 10 miles of the separate locality pay area; and
a significant number of these employees must commute to work from the higher-
paying locality pay area.20
18 Report on Locality-Based Comparability Payments for the General Schedule, Annual
Report of the President’s Pay Agent
(Washington, Dec. 2003), p. 19.
19 The council recommended that commuting rates be calculated using the employment
interchange measure, which is defined by the Census as “A measure of the ties between two
adjacent entities.” It is “the sum of the percentage of employed residents of the smaller
entity who work in the larger entity and the percentage of the employment in the smaller
entity that is accounted for by workers who reside in the larger entity.” (Memorandum for
the President’s Pay Agent from the Federal Salary Council, Level of Comparability
Payments for January 2005 and Other Matters Pertaining to the Locality Pay Program
,
Washington, DC: Oct. 28, 2003, p. 7. [Hereafter referred to as Federal Salary Council
Memorandum for January 2005.])
20 The Federal Salary Council, in its October 21, 2005, memorandum to the Pay Agent on
the January 2007 locality payments, recommended that this criteria be revised to also
include the requirement that “To be included in an adjacent locality pay area, the whole
facility must have at least 500 GS employees, with the majority of those employees in the
higher-paying locality pay area or ....” The council recommended that the remainder of the
existing criteria text stay the same. (Memorandum for the President’s Pay Agent from the
Federal Salary Council, Level of Comparability Payments for January 2007 and Other
(continued...)

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Areas already included in a locality pay area through an application of the
criteria are not subject to further review.
Requests for Changes in Locality Pay Area Boundaries. To be
considered by the council, requests for changes in the boundaries of locality pay areas
must include the following information:
! Credentials of the requesting group that establish how the group
represents GS employees in the area.
! Identification of the geographic area covered by the proposal.
! The number of GS employees in the area, by agency.
! A detailed explanation of why the area should be added to the
adjacent locality pay area.
! Current job vacancy rates in the area for GS positions.
! Documentation of recruitment or retention problems for GS
employees in the area.
! Documentation that agencies have tried other pay flexibilities,
including requests for special salary rates and use of recruitment,
retention, and relocation payments, and that these flexibilities did
not solve recruitment and retention problems.
! An indication that the headquarters of affected agencies know about
and support the request.
! Distance measures, by road, between the requesting area and the
locality pay area.
! A summary of transportation facilities linking the requesting area
and the locality pay area, including commuter rail or other mass
transit facilities.
! Agency organizational relationships between activities covered by
the proposal and activities in another locality pay area.21
20 (...continued)
Matters Pertaining to the Locality Pay Program, Washington, DC: Oct. 21, 2005, p. 5.
[Hereafter referred to as Federal Salary Council Memorandum for January 2007.]) The Pay
Agent approved this recommendation. (Report on Locality-Based Comparability Payments
for the General Schedule, Annual Report of the President’s Pay Agent
(Washington: Dec.
2005), p. 13.)
21 Federal Salary Council Memorandum for January 2005, p. 10.

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January 2006 Pay Adjustment
Federal white-collar civilian employees, including those in the Department of
Homeland Security and the Department of Defense, received an average 3.1% pay
adjustment in January 2006, as authorized in the Transportation, Treasury, Housing
and Urban Development, the Judiciary, the District of Columbia, and Independent
Agencies Appropriations Bill for FY2006 (H.R. 3058). The bill was signed by
President Bush on November 30, 2005, and became P.L. 109-115.22 Section 701 of
the law requires the pay raises to be funded within appropriated levels and Section
843 authorizes the pay adjustment. On December 22, 2005, the President issued
Executive Order 13393, which allocated the average 3.1% pay increase as 2.1%
annual and 1.0% locality.23 OPM published the 2006 salary tables on its website and
these are available at [http://www.opm.gov]. Table 2 shows the recommended
locality payments, the authorized locality payments, and the net annual and locality
pay increases. A 3.1% pay adjustment for the uniformed military was included in the
National Defense Authorization Act for FY2006, enacted as P.L. 109-163 on January
6, 2006.24
The Office of Management and Budget’s (OMB’s) statement of administration
policy on the House version of H.R. 3058 expressed strong opposition to the
government-wide pay adjustment provision and stated that recruitment or retention
problems “are limited to a few areas and occupations.” Similarly, the statement on
the Senate version of the legislation reflected strong opposition to any provision
providing a government-wide pay adjustment in excess of the 2.3% recommended
22 H.R. 3058 passed the House of Representatives on June 30, 2005, on a 405-18 (Roll No.
358) vote and the Senate on October 20, 2005, on a 93-1 (No. 264) vote. The House of
Representatives agreed to the conference report (H.Rept. 109-307) by a 392-31 (Roll No.
605) vote on November 18, 2005. Under a unanimous consent agreement the same day, the
Senate agreed to the adoption of the conference report upon the Senate’s receipt of it from
the House and notwithstanding the adjournment of the Senate. The Senate agreed to the
conference report by unanimous consent on November 21, 2005. The 3.1% pay adjustment
is included at Section 943 of the House-passed bill, Section 836 of the Senate-passed bill,
and Section 843 of the conference report. U.S. Congress, Conference Committees, 2005,
Making Appropriations for the Departments of Transportation, Treasury, and Housing and
Urban Development, the Judiciary, District of Columbia, and Independent Agencies for the
Fiscal Year Ending September 30, 2006, and For Other Purposes
, conference report to
accompany H.R. 3058, 109th Cong., 1st sess., H.Rept. 109-307 (Washington, DC: GPO,
2005).
23 U.S. President (Bush), “Adjustments of Certain Rates of Pay,” Executive Order 13393,
Federal Register, vol. 70, Dec. 27, 2005, pp. 76655-76664. The Federal Salary Council
included a recommendation that the 3.1% pay adjustment in January 2006 be allocated as
2.1% annual and 1.0% locality in its memorandum to the Pay Agent on the January 2007
locality payments. (Federal Salary Council Memorandum for January 2007, Attachment 2.)
24 See CRS Report RL33446, Military Pay and Benefits: Key Questions and Answers, by
Charles A. Henning.

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by the President in the FY2006 budget.25 The American Federation of Government
Employees (AFGE) and the National Treasury Employees Union (NTEU) issued
statements supporting a 3.1% pay adjustment.26
A provision to deny federal civilian employees a pay adjustment in January
2006 was included in S. 1928, the SMART Act, introduced by Senator John Ensign
on October 27, 2005, and referred to the Senate Committee on Homeland Security
and Governmental Affairs.27 The provision would not have affected a pay adjustment
for federal law enforcement officers (LEOs) who are considered LEOs for retirement
purposes. No further action occurred during the first session of the 109th Congress
on the bill, which identified the pay freeze as one of several spending reductions
designed to offset the cost of rebuilding the Gulf Region in the aftermath of
Hurricanes Katrina and Rita.
If the annual and locality-based comparability payments had been granted as
required by FEPCA, the average net pay increase nationwide in January 2006 would
have been 6.93%.
January 2007 Pay Adjustment
Annual Pay Adjustment
Recent ECI data indicate that the annual across-the-board pay adjustment in
January 2007 should be 1.7%. This figure reflects the September 2004 to September
2005 change in private-sector wages and salaries of 2.2%, minus 0.5%.28 Because
President Bush did not issue an alternative plan for the annual adjustment, under
FEPCA, the annual adjustment must be 1.7% in January 2007.

Locality-Based Comparability Payments
The Federal Salary Council reported that as of March 2005, the overall gap
between GS average salaries (excluding existing locality payments, special rates, and
25 U.S. Executive Office of the President, Office of Management and Budget, Statement of
Administration Policy, H.R. 3058 — Transportation, Treasury, Housing and Urban
Development, the Judiciary, and the District of Columbia Appropriations Bill, FY2006
, June
29, 2005, p. 4. U.S. Executive Office of the President, Office of Management and Budget,
Statement of Administration Policy, H.R. 3058 — Transportation, Treasury, Judiciary,
HUD, and Related Agencies Appropriations Bill, FY2006
, Oct. 19, 2005, p. 3.
26 “AFGE Applauds Senate Bill’s Pay Parity Inclusion,” Oct. 21, 2005
([http://www.afge.org]) and “Senate Approves Funding Bill With Pay Parity Provision,”
Oct. 21, 2005 ([http://www.nteu.org]).
27 The cosponsors of the bill are Senators Sam Brownback, Tom Coburn, John Cornyn, Jim
DeMint, Lindsey Graham, John McCain, and John Sununu.
28 U.S. Department of Labor, Bureau of Labor Statistics, Employment Cost Index —
September 2005 (Washington, DC: Oct. 28, 2005), pp. 2, 14.

CRS-10
certain other payments) and nonfederal average salaries was 30.36%.29 The amount
needed to reduce this disparity to 5%, as mandated by FEPCA, averages 24.15% for
2007.30 To meet the target for closing the pay gap, the council recommends locality
pay raises ranging from 14.10% in the “Rest of the United States” (RUS) pay area to
49.65% in the San Jose-San Francisco pay area. The payment recommended for the
Washington, DC, pay area is 31.36%. Because the new locality rate replaces the
existing locality rate, the change in locality rates is derived by comparing 2006
locality payments with those recommended for 2007. This comparison results in
recommended net increases for 2007, if the ECI and locality-based comparability
payments were granted as required by law, of 3.13% in the RUS pay area, 18.27%
in the San Jose-San Francisco pay area, and 13.70% in the Washington, DC, pay
area. The nationwide average net pay increase, if the ECI and locality-based
comparability payments were granted as required by law, would have been 8.64% in
2007.
The President issued an alternative plan for the January 2007 locality pay
adjustment on November 30, 2006, which provides a 0.5% locality payment.31
The council recommended that the 32 locality pay areas recommended for 2006
continue in 2007. The Kansas City, Orlando, and St. Louis pay areas were
recommended to become part of the “Rest of the United States” pay area in 2006
because the pay gaps in these areas are below that in RUS and, therefore, should
receive the same adjustment as RUS.32 The Pay Agent endorsed this
recommendation and OPM published proposed regulations in the Federal Register
on June 20, 2005, to implement this change.33 The resources previously used to
conduct surveys in Kansas City, Orlando, and St. Louis were to be used to carry out
surveys “in as many of the following locations as possible”: Phoenix-Mesa-
Scottsdale, AZ MSA; Memphis, TN-MS-AR MSA; Austin-Round Rock, TX MSA;
Louisville-Elizabethtown-Scottsberg, KY-IN CSA; Buffalo-Cheektowaga-
29 The calculation of the overall average pay gap excludes the locality payments made in
2005. The average locality rate paid in 2005 was 14.99%; the overall average pay gap in
2005 was 13.37%.
30 Federal Salary Council Memorandum for January 2007, p. 3.
31 U.S. President (Bush), “Text of a Letter from the President to the Speaker of the House
of Representatives and the President of the Senate,” Nov. 30, 2006.
32 Under the methodology that has been used since locality pay was first implemented in
1994, areas with little data available in BLS surveys and pay gaps that were two-tenths of
a percentage point (0.2%) or more below RUS or below the RUS pay area for three surveys
were to be dropped as surveyed discrete pay areas, and the resources used to conduct these
surveys were to be redirected to survey new locations.
33 U.S. Office of Personnel Management, “General Schedule Locality Pay Areas,” Federal
Register
, vol. 70, June 20, 2005, pp. 35383-35385. The proposed regulations also would
add Fannin County to the Dallas, TX, locality pay area because the Office of Management
and Budget revised the Dallas Combined Statistical Area (CSA); make a minor change in
the description of the Los Angeles, CA, locality pay area; and note that Culpeper County,
VA, is part of the Washington, DC-Baltimore, MD, CSA and therefore part of the
Washington/Baltimore locality pay area proper and no longer an area of application.

CRS-11
Tonawanda, NY MSA; and Raleigh-Durham-Cary, NC CSA.34 Based on Bureau of
Labor Statistics data available to the Federal Salary Council, the council recommends
that implementation of the new locality pay areas for Buffalo, Phoenix, and Raleigh
be completed, but that Austin, Louisville, and Memphis should not be made separate
locality pay areas at this time.35
After considering the council’s recommendations, the Pay Agent endorsed them
in its December 13, 2005, annual report to the President on the 2007 locality
payments. The Pay Agent stated that, “Given the current national emergency,
however, ... it would be unwise to allow the locality pay increases shown in [its]
report to take effect in January 2007.”36
The Pay Agent estimated that the cost of the January 2007 locality-based
comparability payments would be about $5.3 billion if the full amount necessary to
reduce the pay disparity of the target gap to 5% were provided in January 2007 as
required by FEPCA.37 Table 3 shows the council’s and the Pay Agent’s
recommended locality payments for January 2007.
As for the improvements in the BLS National Compensation Survey (NCS)
Program, the Pay Agent stated its support of “the Council’s recommendation to
complete the phase-in of salary survey data collected under the [NCS] program and
use that data exclusively to set locality pay.”38 In endorsing the council’s
recommendation that implementation of the new locality pay areas for Buffalo,
Phoenix, and Raleigh be completed, the Pay Agent asked the BLS to “expedite
renewal of its salary survey in the Raleigh area” which had been cancelled because
of budget reductions.39
The Pay Agent reiterated that it “has serious concerns about the utility of a
process that requires a single percentage adjustment in the pay of all white-collar
civilian Federal employees in each locality pay area without regard to the differing
labor markets for major occupational groups or the performance of individual
employees” and is “encouraged by the discussion resulting from the Administration’s
draft legislative proposal, the Working for America Act.”40
The President’s Recommendation
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. In the FY2007
34 Federal Salary Council Memorandum for January 2005, pp. 3-4.
35 Federal Salary Council Memorandum for 2007, p. 4.
36 Report on Locality-Based Comparability Payments for the General Schedule, Annual
Report of the President’s Pay Agent
(Washington: Dec. 2005).
37 Ibid., p. 19.
38 Ibid., cover letter and p. 3.
39 Ibid., p. 12.
40 Ibid., cover letter.

CRS-12
budget, the President proposed a 2.2% pay adjustment for federal civilian employees.
(He also proposed a 2.2% pay raise for the uniformed military.) This is the overall
average increase, including locality and special pay adjustments.41 Prior to the
release of the budget, eight Members of Congress from the Washington, DC,
metropolitan area wrote a letter to President Bush asking him to “embrace the
principle of pay parity” between federal civilian employees and the uniformed
military. The Members also stated that they “remain open to initiatives that seek to
find ways to more effectively allocate our human capital expenditures” to recruit,
retain, and reward federal employees.42 The FY2007 budget also stated that the
Administration would work with Congress to enact the Working for America Act
(see the next section below) which, if enacted, could affect the allocation of the pay
adjustment between annual, locality, and special pay components.43
As stated earlier, the President did not issue an alternative plan for the annual
pay adjustment therefore, under FEPCA, the January 2007 annual adjustment must
be 1.7%. He issued an alternative plan for the locality pay adjustment on November
30, 2006, which provides a 0.5% January 2007 locality payment. President Bush
authorized the average 2.2% January 2007 pay adjustment in Executive Order 13420,
issued on December 21, 2006.44 OPM published the 2007 salary tables on its
website, which are available at [http://www.opm.gov]. Table 3 shows the
recommended locality payments, the authorized locality payments, and the net annual
and locality pay increases for January 2007.
Congressional Recommendations
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.45 The Concurrent Resolution on the Budget, which provides the
41 U.S. Executive Office of the President, Office of Management and Budget, Budget of the
United States Government Fiscal Year 2007; Analytical Perspectives
(Washington: GPO,
2006), p. 169.
42 “Hoyer Leads Bipartisan Fight for Pay Parity; Bipartisan, Regional Delegation Sends
Letter to President Bush
,” Jan. 17, 2006. The letter was signed by Representatives
Benjamin L. Cardin, Thomas M. Davis, III, Steny Hoyer, James P. Moran, Chris Van
Hollen, Frank R. Wolf, Albert R. Wynn, and Delegate Eleanor Holmes Norton.
43 U.S. Executive Office of the President, Office of Management and Budget, Budget of the
United States Government Fiscal Year 2007
(Washington: GPO, 2006), pp. 29 and 305, and
Appendix, p. 1080. Tim Kauffman, “Proposed New Formula Would Lower Raises for
Many,” Federal Times, Feb. 14, 2006.
44 U.S. President (Bush), “Adjustments of Certain Rates of Pay,” Executive Order 13420,
Federal Register, vol. 71, Dec. 26, 2006, pp. 77569-77580.
45 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
(continued...)

CRS-13
framework within which Congress subsequently considers spending legislation, has
several times in the past included language expressing the sense of Congress on the
federal civilian pay adjustment. The FY2007 budget resolution as agreed to by the
Senate (S.Con.Res. 83) and the House (H.Con.Res. 376) does not include such a
provision.
Any congressional recommendation on the pay adjustment has usually been
included in the appropriations bill that funds the Department of the Treasury and
General Government. In the 109th Congress, this measure is known as the
Department of Transportation, Treasury, Housing and Urban Development, the
Judiciary, the District of Columbia, and Independent Agencies Appropriations Bill,
commonly referred to as the TTHUD bill.
The House of Representatives version of the TTHUD bill for FY2007, H.R.
5576, as passed by the House on a 406 to 22 (Roll No. 286) vote on June 14, 2006,
includes a 2.7% pay adjustment for federal civilian employees, including those at the
Departments of Defense and Homeland Security. The provision is at Section 940(a)
of the bill. Section 801 provides that the pay raise must be funded within
appropriated levels. The bill was ordered to be reported on June 6, 2006, and was
reported by the Committee on Appropriations (H.Rept. 109-495) on June 9, 2006.46
The appropriations subcommittee approved the bill by voice vote during markup on
May 25, 2006, and the full committee approved it by voice vote during markup on
June 6, 2006.
The Senate version of the TTHUD bill for FY2007 also includes a 2.7% pay
adjustment. It was ordered to be reported, with an amendment in the nature of a
substitute, on July 20, 2006, and was reported by the Committee on Appropriations
(S.Rept. 109-293) on July 26, 2006.47 The appropriations subcommittee approved
the bill by voice vote during markup on July 18, 2006, and the full committee
approved it by a 28-0 vote during markup on July 20, 2006. The pay adjustment is
included at Section 841(a) and must be funded within appropriated levels according
to Section 701. No further action occurred on the appropriations bill.
Section 111 of H.J.Res. 20, the Revised Continuing Appropriations Resolution
for FY2007, provides increased funding to cover at least half the cost of the 2.2% pay
45 (...continued)
adjustments.
46 U.S. Congress, House Committee on Appropriations, Departments of Transportation,
Treasury, and Housing and Urban Development, the Judiciary, District of Columbia, and
Independent Agencies Appropriations Bill, 2007
, report to accompany H.R. 5576, 109th
Cong., 2nd sess., H.Rept. 109-495 (Washington: GPO, 2006).
47 U.S. Congress, Senate Committee on Appropriations, Transportation, Treasury, Housing
and Urban Development, the Judiciary, and Related Agencies Appropriations Bill, 2007
,
report to accompany H.R. 5576, 109th Cong., 2nd sess., S.Rept. 109-293 (Washington: GPO,
2006).

CRS-14
adjustment which became effective in January 2007.48 The resolution, which
continues appropriations through September 30, 2007, was passed by the House on
a 286 to 140 vote (Roll No. 72) on January 31, 2007. (The rule on consideration of
the resolution was passed on a 225 to 191 vote (Roll No. 67) the same day.) The
Senate passed H.J.Res. 20 on an 81 to 15 vote (No. 48) on February 14, 2007. The
President signed the legislation on February 15, 2007, and it became P.L. 110-5.49
Both the John Warner National Defense Authorization Act for FY2007 (H.R.
5122) and the Department of Defense Appropriations Act for FY2007 (H.R. 5631)
provide a 2.2% pay adjustment for the uniformed military. H.R. 5122, as passed by
the House on a 396 to 31 vote (Roll No. 145) on May 11, 2006, authorized a 2.7%
pay adjustment. As passed by the Senate by unanimous consent on June 22, 2006,
H.R. 5122 provided a 2.2% pay adjustment.50 The conference agreement included
the Senate provision. The House agreed to the conference report (H.Rept. 109-702)
on a 398 to 23 vote (Roll No. 510) on September 29, 2006, and the Senate agreed to
it by unanimous consent on September 30, 2006.51 The President signed the bill on
October 17, 2006, and it became P.L. 109-364. The pay provision is at Title VI,
Subtitle A, Section 601(b). H.R. 5631, as passed by the House on a 407-19 vote
(Roll No. 305) on June 20, 2006, and as passed by the Senate on a 98 to 0 vote (No.
239) on September 7, 2006, included a 2.2% pay adjustment. The House agreed to
the conference report (H.Rept. 109-676) on a 394 to 22 vote (Roll No. 486) on
September 26, 2006, and the Senate agreed to it on a 100 to 0 vote (No. 261) on
September 29, 2006.52 It became P.L. 109-289 when the President signed the bill the
same day.
In a statement of administration policy on H.R. 5576, OMB expressed strong
opposition to the 2.7% pay adjustment for federal civilian employees, stating that it
exceeds the annual pay increase required by FEPCA for federal employees and the
average private sector pay adjustment. According to OMB, “arbitrary across-the-
board increases” do not address recruitment or retention challenges which “are
limited to a few areas and occupations.” Additionally, the Administration opposes
48 H.J.Res. 20 was introduced by Representative David Obey on January 29, 2007, and
referred to the House Committee on Appropriations.
49 P.L. 110-5, Feb. 15, 2007, 121 Stat. 8, at 10-11.
50 The Senate passed its version of the National Defense Authorization Act for FY2007, S.
2766, on a 96-0 vote (No. 186) on June 22, 2006. The same day, the Senate struck all after
the enacting clause and inserted the text of S. 2766 into H.R. 5122.
51 U.S. Congress, Conference Committees, 2006, John Warner National Defense
Authorization Act for Fiscal Year 2007
, conference report to accompany H.R. 5122, H.Rept.
109-702, 109th Cong., 2nd sess. (Washington: GPO, 2006), p. 161.
52 U.S. Congress, Conference Committees, 2006, Making Appropriations for the Department
of Defense for the Fiscal Year Ending September 30, 2007, and For Other Purposes
,
conference report to accompany H.R. 5631, H.Rept. 109-676, 109th Cong., 2nd sess.
(Washington: GPO, 2006). See also these press releases: U.S. Congress, House Committee
on Appropriations, Conferees Approve FY07 Defense Appropriations Bill, Sept. 22, 2006,
and U.S. Congress, Senate Committee on Appropriations, Conferees Approve FY2007
Defense Spending Bill
, Sept. 21, 2006.

CRS-15
extension of the 2.7% pay adjustment to DHS and DOD employees because it will
“unnecessarily complicate” implementation of “modernized pay systems” at these
agencies. Further, the Administration believes that continuing to grant prevailing rate
employees (blue-collar workers) in a particular location a pay adjustment that is no
less than the increase received by GS employees in that location results in paying
these employees “at rates higher than those in the private sector and will perpetuate
a host of technical and equity pay problems.”53
Prior to the House appropriations subcommittee markup of the FY2007 TTHUD
bill, ten Members of the House sent a letter to the full and subcommittee chairmen
and ranking members of the Committee on Appropriations urging them to include
language authorizing a 2.7% pay adjustment in the measure. The letter noted that the
President’s “[b]udget submission recognized the importance of pay parity between
military and civilian employees” and stated that “the vast wage gap that exists
between public and private sector wages” makes it imperative for parity to continue.54
Representatives Steny Hoyer, Frank Wolf, and Jim Moran also had prepared an
amendment providing for a 2.7% pay adjustment to be offered during full committee
markup of the TTHUD bill, but the subcommittee action made that unnecessary.
Changes in the Pay Adjustment
Process Advocated
The methodology for setting federal pay adjustments has been questioned since
shortly after FEPCA’s enactment. For example, in 1993, a draft memorandum from
the Pay Agent to the Federal Salary Council concluded that “the current methodology
is flawed because the completeness of the data varies greatly among survey areas,
because the gaps are not credible in light of other labor market indicators, and
because the single percentage adjustment for all jobs in a locality is a poor reflection
of market realities.”55 A white paper on compensation issued by OPM in April 2002
reviewed current policies and the need for more flexibility in setting General
Schedule pay, but it did not include any recommendations.56 In forwarding
recommendations to the President on locality pay, the Pay Agent stated in December
2003 that although it supported updating the boundaries of locality pay areas, such
changes were “an interim measure, pending fundamental reforms in the Federal
53 U.S. Executive Office of the President, Office of Management and Budget, Statement of
Administration Policy, H.R. 5576 — Transportation, Treasury, Housing, the Judiciary, and
the District of Columbia Appropriations Bill, FY2007
, June 14, 2006, pp. 4-5.
54 Letter to Representatives Jerry Lewis , Joe Knollenberg, David Obey, and John Olver
from Representatives Tom Davis, Steny Hoyer, Frank Wolf, Jim Moran, Jon Porter, Henry
Waxman, Chris Van Hollen, Albert Wynn, and Danny Davis and Delegate Eleanor Holmes
Norton, May 15, 2006. Provided to CRS by electronic mail by House Appropriations
Committee staff, May 23, 2006.
55 Draft memorandum from the President’s Pay Agent to Anthony F. Ingrassia, Acting
Chairman, Federal Salary Council (Mar. 1993).
56 U.S. Office of Personnel Management, A White Paper; A Fresh Start for Federal Pay:
The Case for Modernization
(Washington, DC: OPM, April 2002).

CRS-16
white-collar pay system.” The Agent expressed “serious concerns about the utility of
a process that requires a single percentage adjustment in the pay of all white-collar
civilian Federal employees in each locality pay area without regard to the differing
labor markets for major occupational groups or the performance of individual
employees.”57
The Senate Subcommittee on Oversight of Government Management, the
Federal Workforce, and the District of Columbia of the Committee on Governmental
Affairs conducted a hearing to examine the progress made in implementing human
capital flexibilities on July 20, 2004. Testifying before the subcommittee, OMB’s
Deputy Director for Management, Clay Johnson III, identified pay increases targeted
to meet specific recruitment or retention needs as an eventuality for the federal
workforce. According to Mr. Johnson,
Today, we have targeted, not widespread, recruitment and retention problems in
our civilian workforce, and pay surveys reveal that we are currently overpaying
employees in some occupational groups in some locations.... [W]e certainly
should not grant all civilian employees the same increase no matter what the need
because that wouldn’t be focusing on the desired result: that would be providing
too small an increase where we do have recruitment and retention problems, and
too large an increase where we do not have a problem.58
In August 2004, the Coalition for Effective Change59 released a paper that
strongly endorsed implementation of a pay-for-performance system in the federal
government. The group identified several factors as essential to establishing such a
system, including that it be flexible, reviewable, periodically evaluated and adjusted,
and adequately funded.60 Implementation of new personnel systems at the
Department of Homeland Security (DHS) and the Department of Defense (DOD) is
underway, with the publication of final regulations in the Federal Register61 and the
57 Report on Locality-Based Comparability Payments for the General Schedule, Annual
Report of the President’s Pay Agent
(Washington, DC: Dec. 2003), cover letter.
58 U.S. Congress, Senate Committee on Governmental Affairs, Subcommittee on Oversight
of Government Management, the Federal Workforce, and the District of Columbia, Building
the 21st Century Federal Workforce: Assessing Progress in Human Capital Management
,
hearing, 108th Cong., 2nd sess., July 24, 2004 (Washington, DC: GPO, 2004), p. 39.
59 The coalition includes the American Foreign Service Association, Blacks in Government,
Executive Women in Government, the Federal Bar Association, the Federal Librarians
Round Table, the National Association of Retired Federal Employees, the National
Academy of Public Administration, and the Senior Executives Association.
60 Coalition for Change, Linking the Pay of Federal Employees to Their Performance, Aug.
2004.
61 The Department of Homeland Security and the Department of Defense published final
regulations on their new personnel systems in the Federal Register on Feb. 1, 2005, and
November 1, 2005, respectively. See U.S. Department of Homeland Security and U.S.
Office of Personnel Management, “Department of Homeland Security Human Resources
Management System,” Federal Register, vol. 70, Feb. 1, 2005, pp. 5271-5347, and U.S.
Department of Defense and U.S. Office of Personnel Management, “Department of Defense
(continued...)

CRS-17
development of implementing directives (DHS) and implementing issuances (DOD).
Broad pay bands (replacing the General Schedule) and performance management
processes tied to agency missions and specific performance standards are central
features of the systems at both departments.
Reform of the federal government’s pay and performance management systems
is identified as a top priority in a report entitled “OPM’s Guiding Principles for Civil
Service Transformation.” The report advocates government-wide legislation that
provides personnel flexibilities similar to those provided to DHS and DOD to other
executive branch agencies. Replacing the 15 grades of the General Schedule with
broad pay bands encompassing ranges of pay rates and basing pay adjustments on
performance expectations met and exceeded rather than time in service requirements
fulfilled are among the flexibilities mentioned in the report.62
OMB released a draft legislative proposal, the Working For America Act, in
mid-July 2005 and circulated it among Members of Congress and staff, the executive
branch departments and agencies, and other interested parties.63 The draft bill would
change the process for adjusting federal pay by providing
! a national increase that would vary by occupational group and pay
band and would be based on national labor market rates for
employees whose performance is “fully successful” or better;
! a locality increase that would vary by occupational group, pay band,
and location and would be based on local labor market rates for
employees whose performance is “fully successful” or better; and
! performance increases based on an employee’s rating level within a
pay pool funded with monies that would have been used for step
increases, quality step increases, and promotions.
Details on how such changes would be implemented were not included with the
draft legislation, and The Working For America Act has not been introduced. The
President’s FY2007 budget states that OPM will work to support implementation of
“a modern classification, pay, and performance management system” for the civil
service as proposed in the Working for America Act.64
61 (...continued)
Human Resources Management and Labor Relations Systems: Final Rule,” Federal
Register
, vol. 70, Nov. 1, 2005, pp. 66115-66220.
62 U.S. Office of Personnel Management, OPM’s Guiding Principles for Civil Service
Transformation
, (Washington, 2004), p. 6.
63 “President’s Management Agenda, Working for America Act,” available at
[http://www.whitehouse.gov/results/agenda/working.html].
64 U.S. Executive Office of the President, Office of Management and Budget, Budget of the
United States Government Fiscal Year 2007
(Washington: GPO, 2006), p. 305.

CRS-18
On June 13, 2006, Senator George Voinovich, Chairman of the Senate
Homeland Security and Governmental Affairs’ Subcommittee on Oversight of
Government Management, the Federal Workforce, and the District of Columbia,
introduced S. 3492, the Federal Workforce Performance Appraisal and Management
Improvement Act of 2006.65 It was referred to the Senate Committee on Homeland
Security and Governmental Affairs. The subcommittee conducted a hearing entitled
“Enhancing Employee Performance,” which included consideration of the bill, on
June 29, 2006.66 No further action occurred on the bill. Among other provisions, the
bill would have required agencies to establish one or more performance appraisal
systems having at least three summary rating levels — unacceptable, fully successful,
and above fully successful; made it mandatory that managers and supervisors receive
training in performance management; and required agencies to establish
comprehensive management succession programs providing training to develop
employees to become managers. S. 3492 also would have required an employee to
receive a summary performance rating of at least fully successful to receive a within-
grade increase, an annual pay adjustment, a locality pay adjustment, a special rate,
or a prevailing rate (blue-collar) adjustment. Agencies would have been required to
provide employees with annual performance evaluations in writing.
Under current law (5 U.S.C. §5376(b)(1)(B)) Senior-Level (SL) and scientific
and professional (ST) employees may receive basic pay up to Level IV of the
Executive Schedule ($145,400, as of January 2007). In a significant change, S. 3492
would have amended current law to provide that SL and ST employees in agencies
whose performance appraisal systems had been certified by OPM as making
meaningful distinctions in performance, could have received basic pay up to Level
II of the Executive Schedule ($168,000, as of January 2007). In agencies whose
performance appraisal systems had not been so certified by OPM, SL and ST
employees could have received basic pay up to Level III of the Executive Schedule
($154,600, as of January 2007).
In his statement upon introducing the legislation, Senator Voinovich said that
he thought it would be easier for federal agencies, and cause less anxiety among
federal workers, “to implement enhanced employee appraisals first.” He noted that
the proposal “is not set in stone, and I imagine that it will undergo many changes.”
His intention is to
transform the culture of the Federal workforce into a high-performing,
continually improving organization that focuses on achieving results for the
American people. The Federal workforce must be as agile, nimble, and
intellectually energetic as the leading nongovernmental organizations or dot-com
companies, capable of addressing the wide ranging challenges facing the [United
States] ....67
65 In the 110th Congress, Senator Voinovich introduced similar legislation — S. 1045 and
S. 1046. (See CRS Report RL33732 for a discussion of the bills.)
66 The hearing testimony is available at [http://hsgac.senate.gov].
67 Statement of Senator George Voinovich, Congressional Record, daily edition, vol. 152,
June 13, 2006, p. S5782.

CRS-19
Representatives of the Federal Executive Boards in Los Angeles and San
Francisco, California, reportedly met with Members of Congress in late July 2006,
to discuss a proposal to replace locality-based comparability payments with a variable
housing allowance patterned after that provided to members of the uniformed
military. Under the proposal, reportedly, the housing allowance would not be taxable
or count towards retirement or the salary cap, the locality pay rate for the Rest of the
United States pay area “would become the new base pay for federal employees in the
continental United States,” and employees in certain metropolitan areas where the
cost of housing is high would receive a housing allowance.68
68 Aimee Curl, “Housing Allowance for Feds? Some Execs Say Yes,” Federal Times, July
10, 2006, pp. 1,4; and Aimee Curl, “Hard Sell on the Hill; California Execs Hone Strategy
to Get Support on Pay Proposal,” Federal Times, July 24, 2006, p. 10.

CRS-20
Table 1. Annual and Locality Pay Adjustments Under FEPCA,
1991 to 2007
Locality
Net Increase,
ECI-Based
Locality
Payments
Annual and
Annual
Annual
Payments
Required
Locality Pay
Year
Adjustment
Adjustment
Authorized
by FEPCA
(National
Required by
Authorized
(National
(National
Average,
FEPCA
Average)
Average)
weighted)
1991

4.1%


4.1%
1992
4.2%
4.2%


4.2%
1993
3.7%
3.7%


3.7%
1994
2.2%
0
3.95%
3.95%
3.95%
1995
2.6%
2.0%
6.44%
5.05%
3.08%
1996
2.4%
2.0%
8.58%
5.56%
2.49%
1997
2.3%
2.3%
11.29%
6.37%
3.09%
1998
2.8%
2.3%
14.30%
6.93%
2.84%
1999
3.1%
3.1%
16.95%
7.50%
3.65%
2000
3.8%
3.8%
20.62%
8.62%
4.89%
2001
2.7%
2.7%
23.12%
9.77%
3.76%
2002
3.6%
3.6%
25.92%
10.95%
4.72%
2003
3.1%
3.1%
27.59%
12.12%
4.21%
2004
2.7%
2.7%
25.71%
13.81%
4.24%
2005
2.5%
2.5%
25.51%
15.01%
3.54%
2006
2.1%
2.1%
25.85%
16.22%
3.19%
2007
1.7%
1.7%
24.15%
16.80%
2.24%
Sources: For the ECI-required annual adjustment, see U.S. Department of Labor, Bureau of Labor Statistics,
Employment Cost Index, September of each year. For the locality payments required by FEPCA, see Report on
Locality-Based Comparability Payments for the General Schedule, Annual Report of the President’s Pay Agent
,
December of each year. For the annual and locality pay adjustments authorized, see E.O. 12736, Dec. 12, 1990;
E.O. 12786, Dec. 26, 1991; E.O. 12826, Dec. 30, 1992; Presidential memorandum of Dec. 1, 1993; E.O. 12944,
Dec. 28, 1994; E.O. 12984, Dec. 28, 1995; E.O. 13033, Dec. 27, 1996; E.O. 13071, Dec. 29, 1997; E.O. 13106,
Dec. 7, 1998; E.O. 13144, Dec. 21, 1999; E.O. 13182, Dec. 23, 2000; E.O. 13249, Dec. 28, 2001; E.O.’s 13282,
Dec. 31, 2002, and 13291, Mar. 21, 2003; E.O.’s 13322, Dec. 30, 2003, and 13332, Mar. 3, 2004; E.O. 13368,
Dec. 30, 2004; E.O. 13393, Dec. 22, 2005; and E.O. 13420, Dec. 21, 2006.
Notes: Locality-based comparability payments began in 1994. The actual pay rates are calculated as follows.
First, the basic General Schedule (GS) is increased by the annual adjustment percentage, resulting in a new GS
schedule. The new basic GS rates are then increased by the locality payment. The resulting pay rates (annual
+ locality) are compared with the pay rates (annual + locality) for the previous year to derive the net increase in
pay for the current year. Salary tables for 2007 are available on the Internet at [http://www.opm.gov].

CRS-21
Table 2. January 2006 Recommended Locality Payments,
Authorized Locality Payments, and Net Annual and
Locality Pay Increase
2006
2006
Net Increase,
Recommended
Authorized
Annual and
Pay Areas
Locality
Locality
Locality Pay
Payments
Payments
(weighted)
Atlanta-Sandy Springs-
26.38%
15.10%
3.20%
Gainesville, GA-AL CSA
Boston-Worcester-Manchester,
31.96%
19.99%
3.39%
MA-NH CSA, plus the
Providence-New Bedford-Fall
River, RI-MA MSA, Barnstable
County, MA, and Berwick,
Eliot, Kittery, South Berwick,
and York towns in York
County, ME
Buffalo-Niagara-Cattaraugus,
21.27%
13.52%
3.75%
NY CSA
Chicago-Naperville-Michigan
31.06%
21.15%
3.34%
City, IL-IN-WI CSA
Cincinnati-Middletown-
22.16%
17.08%
3.02%
Wilmington, OH-KY-IN CSA
Cleveland-Akron-Elyria, OH
24.89%
15.41%
3.15%
CSA
Columbus-Marion-Chillicothe,
18.50%
14.85%
2.88%
OH CSA
Dallas-Fort Worth, TX CSA
28.10%
16.39%
3.27%
Dayton-Springfield-Greenville,
20.76%
13.83%
2.98%
OH CSA
Denver-Aurora-Boulder, CO
30.56%
19.49%
3.34%
CSA, plus the Ft. Collins-
Loveland, CO MSA and Weld
County, CO
Detroit-Warren-Flint, MI, CSA,
28.43%
21.00%
3.23%
plus Lenawee County, MI
Hartford-West Hartford-
38.03%
21.30%
3.62%
Willimantic, CT CSA, plus the
Springfield, MA MSA and New
London County, CT
Houston-Baytown-Huntsville,
34.16%
26.37%
3.41%
TX CSA
Huntsville-Decatur, AL CSA
19.77%
13.35%
2.94%
Indianapolis-Anderson-
17.92%
12.85%
2.87%
Columbus, IN CSA, plus Grant
County, IN

CRS-22
2006
2006
Net Increase,
Recommended
Authorized
Annual and
Pay Areas
Locality
Locality
Locality Pay
Payments
Payments
(weighted)
Kansas City-Overland Park-
17.00%
12.52%
2.25%
Kansas City, MO-KS CSA
Los Angeles-Long Beach-
32.61%
23.18%
3.38%
Riverside, CA CSA, plus the
Santa Barbara-Santa Maria, CA
MSA and all of Edwards Air
Force Base, CA
Miami-Fort Lauderdale-Miami
22.88%
17.84%
3.04%
Beach, FL MSA, plus Monroe
County, FL
Milwaukee-Racine-Waukesha,
23.96%
14.74%
3.11%
WI CSA
Minneapolis-St. Paul-St. Cloud,
28.22%
17.31%
3.26%
MN-WI CSA
New York-Newark-Bridgeport,
42.28%
22.97%
3.77%
NY-NJ-CT-PA CSA, plus
Monroe County, PA and
Warren County, NJ
Orlando-The Villages, FL CSA
17.00%
12.52%
2.80%
Philadelphia-Camden-Vineland,
29.33%
18.04%
3.30%
PA-NJ-DE-MD CSA, plus Kent
County, DE, Atlantic County,
NJ, and Cape May County, NJ
Phoenix-Mesa-Scottsdale, AZ
19.87%
12.65%
2.95%
MSA
Pittsburgh-New Castle, PA CSA
20.25%
13.81%
2.96%
Portland-Vancouver-Beaverton,
26.23%
17.16%
3.18%
OR-WA MSA, plus Marion
County, OR, and Polk County,
OR
Raleigh-Durham-Cary, NC
24.51%
15.57%
5.62%
CSA, plus the Fayetteville, NC
MSA, the Goldsboro, NC MSA,
and the Federal Correctional
Complex, Butner, NC
Richmond, VA MSA
21.27%
14.15%
3.00%
Sacramento — Arden-Arcade
29.91%
17.91%
3.33%
— Truckee, CA-NV CSA, plus
Carson City, NV
St. Louis-St. Charles-
17.00%
12.52%
2.49%
Farmington, MO-IL CSA
San Diego-Carlsbad-San
32.23%
19.19%
3.41%
Marcos, CA MSA

CRS-23
2006
2006
Net Increase,
Recommended
Authorized
Annual and
Pay Areas
Locality
Locality
Locality Pay
Payments
Payments
(weighted)
San Jose-San Francisco-
49.01%
28.68%
3.95%
Oakland, CA CSA, plus the
Salinas, CA MSA and San
Joaquin County, CA
Seattle-Tacoma-Olympia, WA
29.88%
17.93%
3.33%
CSA
Washington-Baltimore-
32.55%
17.50%
3.44%
Northern Virginia, DC-MD-
VA-WV CSA, plus the
Hagerstown-Martinsburg, MD-
WV MSA, the York-Hanover-
Gettysburg, PA CSA, Culpeper
County, VA, and King George
County, VA
Rest of the U.S. (RUS)
17.00%
12.52%
2.83%
Average
25.85%
16.22%
3.19%
Sources: Memorandum for the President’s Pay Agent from the Federal Salary Council, Level of
Comparability Payments for January 2007 and Other Matters Pertaining to the Locality Pay Program
(Washington, DC: Oct. 21, 2005), Attachment 2. U.S. President (Bush), “Adjustments of Certain
Rates of Pay,” Executive Order 13393, Federal Register, vol. 70, Dec. 27, 2005, pp. 76655-76664.
MSA refers to a Metropolitan Statistical Area. CSA refers to a Combined Statistical Area. The
component parts of each pay area are described in U.S. Office of Management and Budget, Revised
Definitions of Metropolitan Statistical Areas, New Definitions of Micropolitan Statistical Areas and
Combined Statistical Areas, and Guidance on Uses of the Statistical Definitions of These Areas
, OMB
Bulletin No. 03-04, June 6, 2003.
Notes: The actual pay rates are calculated by the following means. First, the basic General Schedule
(GS) is increased by the annual adjustment percentage, resulting in a new GS schedule. These new
basic GS rates are then increased by the locality payment. The resulting pay rates (annual + locality)
are compared with the pay rates (annual + locality) for the previous year to derive the net increase in
pay for the current year.

CRS-24
Table 3. January 2007 Recommended Locality Payments,
Authorized Locality Payments, and Net Annual and Locality Pay
Increase
Net
Increase,
2007
2007
Annual
Recommend
Authorized
Pay Areas
and
ed Locality
Locality
Locality
Payments
Payments
Pay
(weighted)
Atlanta-Sandy Springs-Gainesville, GA-
25.13%
15.89%
2.40%
AL CSA
Boston-Worcester-Manchester, MA-NH
CSA, plus the Providence-New Bedford-
Fall River, RI-MA MSA, Barnstable
32.44%
20.97%
2.53%
County, MA, and Berwick, Eliot, Kittery,
South Berwick, and York towns in York
County, ME
Buffalo-Niagara-Cattaraugus, NY CSA
21.59%
14.15%
2.26%
Chicago-Naperville-Michigan City, IL-IN-
29.29%
21.79%
2.24%
WI CSA
Cincinnati-Middletown-Wilmington, OH-
20.85%
17.38%
1.96%
KY-IN CSA
Cleveland-Akron-Elyria, OH CSA
22.42%
15.96%
2.18%
Columbus-Marion-Chillicothe, OH CSA
16.70%
15.00%
1.83%
Dallas-Fort Worth, TX CSA
28.45%
17.34%
2.53%
Dayton-Springfield-Greenville, OH CSA
19.41%
14.27%
2.09%
Denver-Aurora-Boulder, CO CSA, plus
the Ft. Collins-Loveland, CO MSA and
26.19%
20.02%
2.15%
Weld County, CO
Detroit-Warren-Flint, MI, CSA, plus
27.71%
21.53%
2.15%
Lenawee County, MI
Hartford-West Hartford-Willimantic, CT
CSA, plus the Springfield, MA MSA and
35.78%
22.44%
2.66%
New London County, CT
Houston-Baytown-Huntsville, TX CSA
29.90%
26.65%
1.93%
Huntsville-Decatur, AL CSA
16.57%
13.60%
1.92%
Indianapolis-Anderson-Columbus, IN
14.77%
13.00%
1.84%
CSA, plus Grant County, IN
Los Angeles-Long Beach-Riverside, CA
CSA, plus the Santa Barbara-Santa Maria,
34.03%
24.03%
2.40%
CA MSA and all of Edwards Air Force
Base, CA
Miami-Fort Lauderdale-Miami Beach, FL
23.65%
18.30%
2.10%
MSA, plus Monroe County, FL

CRS-25
Net
Increase,
2007
2007
Annual
Recommend
Authorized
Pay Areas
and
ed Locality
Locality
Locality
Payments
Payments
Pay
(weighted)
Milwaukee-Racine-Waukesha, WI CSA
24.95%
15.54%
2.41%
Minneapolis-St. Paul-St. Cloud, MN-WI
28.29%
18.17%
2.45%
CSA
New York-Newark-Bridgeport, NY-NJ-
CT-PA CSA, plus Monroe County, PA
43.40%
24.57%
3.02%
and Warren County, NJ
Philadelphia-Camden-Vineland, PA-NJ-
DE-MD CSA, plus Kent County, DE,
28.40%
18.85%
2.40%
Atlantic County, NJ, and Cape May
County, NJ
Phoenix-Mesa-Scottsdale, AZ MSA
19.94%
13.22%
2.21%
Pittsburgh-New Castle, PA CSA
18.30%
14.16%
2.01%
Portland-Vancouver-Beaverton, OR-WA
MSA, plus Marion County, OR, and Polk
23.19%
17.63%
2.11%
County, OR
Raleigh-Durham-Cary, NC CSA, plus the
Fayetteville, NC MSA, the Goldsboro, NC
23.34%
16.18%
2.24%
MSA, and the Federal Correctional
Complex, Butner, NC
Richmond, VA MSA
17.51%
14.41%
1.93%
Sacramento — Arden-Arcade — Truckee,
31.65%
18.99%
2.63%
CA-NV CSA, plus Carson City, NV
San Diego-Carlsbad-San Marcos, CA
33.80%
20.34%
2.68%
MSA
San Jose-San Francisco-Oakland, CA
CSA, plus the Salinas, CA MSA and San
49.65%
30.33%
3.00%
Joaquin County, CA
Seattle-Tacoma-Olympia, WA CSA
26.21%
18.58%
2.26%
Washington-Baltimore-Northern Virginia,
DC-MD-VA-WV CSA, plus the
Hagerstown-Martinsburg, MD-WV MSA,
31.36%
18.59%
2.64%
the York-Hanover-Gettysburg, PA CSA,
Culpeper County, VA, and King George
County, VA
Rest of the U.S. (RUS)
14.10%
12.64%
1.81%
Average
24.15%
16.80%
2.24%
Sources: Memorandum for the President’s Pay Agent from the Federal Salary Council, Level of
Comparability Payments for January 2007 and Other Matters Pertaining to the Locality Pay Program
(Washington, DC: Oct. 21, 2005), Attachment 1; Report on Locality-Based Comparability Payments

CRS-26
for the General Schedule, Annual Report of the President’s Pay Agent (Washington: Dec. 2005), p.
16; and U.S. President (Bush), “Adjustments of Certain Rates of Pay,” Executive Order 13420,
Federal Register, vol. 71, Dec. 26, 2006, pp. 77569-77580. MSA refers to a Metropolitan Statistical
Area. CSA refers to a Combined Statistical Area. The component parts of each pay area are described
in U.S. Office of Management and Budget, Revised Definitions of Metropolitan Statistical Areas, New
Definitions of Micropolitan Statistical Areas and Combined Statistical Areas, and Guidance on Uses
of the Statistical Definitions of These Areas
, OMB Bulletin No. 03-04, June 6, 2003. The Kansas
City-Overland Park-Kansas City, MO-KS CSA; Orlando-The Villages, FL CSA; and St. Louis-St.
Charles-Farmington, MO-IL CSA become part of the Rest of the United States pay area in January
2006 and receive the same locality pay adjustment as RUS.
Notes: The actual pay rates are calculated by the following means. First, the basic General Schedule
(GS) is increased by the annual adjustment percentage, resulting in a new GS schedule. These new
basic GS rates are then increased by the locality payment. The resulting pay rates (annual + locality)
are compared with the pay rates (annual + locality) for the previous year to derive the net increase in
pay for the current year.