	Introduction

In January 2005, federal white-collar employees received a 2.5% annual pay adjustment anda 1.0% locality-based comparability payment under Executive Order 13368, issued by PresidentGeorge W. Bush on December 30, 2004. 108-447 . Federal white-collar employees are 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 , theFederal Employees Pay Comparability Act (FEPCA) of 1990. (2) Although the federal pay adjustmentsare sometimes referred to as cost-of-living adjustments, neither the annual adjustment nor the localitypayment is based on measures of the cost of living. FEPCA has never been implemented asoriginally enacted. The annual pay adjustment is based on the Employment Cost Index (ECI), which measures change in private sector wages and salaries. By law, the disparitybetween non-federal and federal salaries is to be reduced to 5%. In order to meet the target for closing the pay gap, the council recommended locality pay raises ranging from 18.14% in the "Restof the United States" (RUS) pay area to 47.96% in the San Jose-San Francisco pay area. Thepayment recommended for the Washington, DC, pay area is 29.66%. Because the new locality ratereplaces the existing locality rate, the change in locality rates is derived by comparing 2004 localitypayments with those recommended for 2005. This comparison results in recommended net increasesfor 2005, if the ECI and locality-based comparability payments were granted as required by law, of9.19% in the RUS pay area to 22.10% in the San Jose-San Francisco pay area, and 15.94% in theWashington, DC, pay area. The nationwide average net pay increase, if the ECI and locality-basedcomparability payments were granted as required by law, would have been 13.06% in 2005. The number of GS employees in the area by agency. (33)
The Pay Agent estimated that the cost of the January 2005 locality-based comparability payments would be about $8 billion if the full amount necessary to reduce the pay disparity of thetarget gap to 5% were provided in January 2005 as required by FEPCA. (50) The FY2005 budget proposes a 3.5% pay increasefor the military and a 1.5% pay increase for civilian employees. Section 638 of the Departments of Transportation and Treasury and Independent Agencies AppropriationsBill, 2005, H.R. 5025 , as passed by the House of Representatives on September 22,2004, on a 397-12 (Roll No. 465) vote, would provide a 3.5% pay adjustment for federal civilianemployees, including those in the Departments of Defense and Homeland Security. (55)
Section 640 of S. 2806 , the Senate version of the Transportation/Treasury appropriations bill, as reported to the Senate by the Committee on Appropriations, also wouldprovide a 3.5% pay adjustment for federal civilian employees, including those in the Departmentsof Defense and Homeland Security. President Bush signed H.R.4818 on December 8, 2004, and it became P.L. The President's budget proposes a 3.1% pay adjustment for the uniformedmilitary. January 2005 Recommended Locality Payments, Authorized Locality Payments, and Net Annual and Locality Pay Increase
Source: Memorandum for the President's Pay Agent from the Federal Salary Council, Level ofComparability Payments for January 2005 and Other Matters Pertaining to the Locality PayProgram (Washington: Oct. 28, 2003), Attachment 1; and Report on Locality-Based ComparabilityPayments for the General Schedule, Annual Report of the President's Pay Agent (Washington: Dec.2003), p. 24.
Federal white-collar employees are 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 , theFederal Employees Pay Comparability Act (FEPCA) of 1990. The law has never been implementedas originally enacted; annual and locality payments have been reduced. In January 2005, theyreceived a 2.5% annual pay adjustment and a 1.0% locality-based comparability payment underExecutive Order 13368, issued by President George W. Bush on December 30, 2004. Although thefederal pay adjustments are sometimes referred to as cost-of-living adjustments, neither the annualadjustment nor the locality payment is based on measures of 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 index showed that the annual across-the-boardincrease would be 2.5% in January 2005. The size of the locality payment is determined by thePresident, and is based on a comparison of non-federal and General Schedule (GS) salaries in 32 payareas nationwide. By law, the disparity between non-federal and federal salaries was to be graduallyreduced to 5% over the years 1994 through 2002; FEPCA requires that amounts payable may not beless than the full amount necessary to reduce the pay disparity to 5% in January 2005. The FederalSalary Council and the Pay Agent recommended that, to carry out FEPCA, the 2005 localitypayments range from 18.14% in the "Rest of the United States" (RUS) pay area to 47.96% in the SanJose-San Francisco pay area. The payment recommended for the Washington, DC, pay area was29.66%. Because the new locality rate replaces the existing locality rate, the change in locality ratesis derived by comparing 2004 locality payments with those recommended for 2005. Thiscomparison results in recommended net increases for 2005, if the ECI and locality-basedcomparability payments were granted as required by law, of 9.19% in the RUS pay area to 22.10%in the San Jose-San Francisco pay area, and 15.94% in the Washington, DC, pay area. Thenationwide average net pay increase, if the ECI and locality-based comparability payments weregranted as required by law, would have been 13.06% in 2005. President Bush's FY2005 budgetproposed a 1.5% federal civilian pay adjustment. He proposed a 3.5% pay adjustment for theuniformed military, and a number of Members of Congress advocated the same pay adjustment forfederal civilians. The Departments of Transportation and Treasury and Independent Agenciesappropriations bill, 2005 -- H.R. 5025 , as passed by the House of Representatives, and S. 2806 , as reported in the Senate -- provides a 3.5% pay adjustment for federal civilianemployees, including those in the Departments of Defense and Homeland Security. Thisappropriations bill was incorporated as Division H of the Consolidated Appropriations Act forFY2005 ( H.R. 4818 ) which was signed by the President on December 8, 2004, andbecame P.L. 108-447 .
The President's budget for FY2006 proposes pay adjustments of 2.3% for federal civilian employees and 3.1% for the uniformed military. The same pay adjustment for both civilians and themilitary is advocated by several Members of Congress.