Federal Pay Raise: The Chosen Frozen

President Obama’s surprise decision to freeze non-postal federal pay for two years (2011 and 2012) will also have a major impact on lots and lots of people who don’t work for the federal government.

Among them:

  • Those federal contractors, located in all 50 states, whose pay raises are tied to the percentage adjustments civil servants get.
  • Employees of some foreign embassies based in Washington whose governments typically grant them the same raise as U.S. federal workers.
  • Employees of some Washington-based unions, trade associations and national organizations who are linked to federal pay raises.
  • State and local government employees who are paid in whole or part with federal funds.
  • State and local government workers who have no direct linkage to federal salaries, but who may find things frosty when local politicians and taxpayers seek ways to cut costs and follow Uncle Sam’s lead.

In addition to the two-year pay freeze itself (assuming Congress goes along), it will have a major impact on future retirement benefits of current workers. Federal employee annuities are based on two things: salary and length of service. The pension is based on the highest three-year average salary (which for most people is the last three years worked). If that high-3 figure is frozen it will mean smaller than expected benefits when workers do retire.

Pay Factoids:

  • The last time federal white collar workers did NOT get a pay raise was in fiscal year 1986, during the Reagan administration. In 1985 civil servants got a 3.5 percent raise and in 1987 they got 3 percent.
  • The biggest federal increase in recent years came in FY 1981 when President Carter granted workers a 9.1 percent increase. Though that seems like a lot now, federal unions denounced it at the time because it was a period of double-digit inflation.
  • Most white collar federal workers (below the executive ranks) get longevity (within grade raises) every one, two or three years within their 10 step pay grade. Those WIG raises, which are typically worth about 3 percent are in addition to any general pay increase. It is not known if the pay freeze will permit, or prevent, WIGs in 2011 and 2012.
  • Federal and postal retirees do not get pay raises. Their annuities are linked to inflation as measured by the Consumer Price Index. Because of low inflation (and periods of deflation) the retirees did not get a cost of living adjustment in January of this year, nor will they get a COLA in 2011.

Federal union leaders – all of whom worked hard for the president’s election – were gob-smacked by the pay freeze announcement. Several of them reportedly tried all morning to get through to the White House when the first rumors (of a 3-year pay freeze) starting circulating in the Washington grapevine.

” I would have expected this from the Republicans,” a union official said, “but Obama? Unbelievable.”

Another recalled that when he first took office, President Bill Clinton proposed a federal pay freeze. Congress overrode him in that case, although it did go along with a 270,000 federal job reduction. Each year of his presidency Clinton proposed raises that were smaller than those called for by the 1990 federal pay law formula (FEPCA). President George W. Bush didn’t propose a pay freeze, but he too proposed (and like Clinton was usually overridden by Congress) smaller-than-the-FEPCA-formula raises.

To reach me, email me at mcausey@federalnewsradio.com.

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