Federal locality pay: Broken or underfunded?

There’s a debate quietly brewing over the future of the federal locality pay program.

Much of the discussion is still confined to the Federal Salary Council, the entity responsible for recommending changes and additions to the locality pay program.

Once again, the council is not recommending any new locality pay areas for 2022. There are currently 53 distinct locality pay areas including the “rest of the U.S.” with a 54th area pending final approval from the president.

Council members, which include three presidentially-appointed members and a handful of representatives from federal employee unions, spent part of a four-hour meeting on Wednesday debating possible changes and discussing their frustrations with the existing locality pay system.

“I think the system is broken,” Chairman Ron Sanders said Wednesday afternoon at the first-ever virtual meeting of the Federal Salary Council. “It’s broken in more ways than we can count and in more ways than we have time to address this afternoon.”

Federal employees unions on Wednesday dismissed the concept that federal locality pay is “broken,” suggesting the government lacks the funding needed to accurately calculate pay disparities between the public and private sectors.

“We do not share the view that the locality pay program is broken,” Tony Reardon, national president of the National Treasury Employees Union, said. “We do though, believe that it needs to be properly funded, including adequate funding for the Bureau of Labor Statistics to do the work that it needs to do to provide the best data possible on pay gaps.”

The council heard from federal employees in regions around the country, who all described a wide variety of recruitment and retention challenges. They all argue pay disparities have contributed to those challenges.

According to the latest assessment from BLS, federal employees are underpaid by 23.11% compared to their counterparts in the private sector. Conservative think-tanks dispute that number, citing — again — issues with the methodology.

“The methodology that we’re using is the product of budget cuts,” Sanders said. “It’s the best that BLS and the Office of Personnel Management can buy, given their current budgets. We deserve our own methodology tailored to the federal locality pay program, not as a write-on to what the Office of Management and Budget is doing or BLS is doing.”

OPM to date is tracking 38 different areas that lack their own distinctive locality pay area, but none meet the highly specific criteria needed to earn their own designation — or join an existing locality pay area.

Federal employees from a few regions presented the council with recruitment and retention data, including instances where their agencies tried using special pay authorities or flexibilities to attract top talent.

Employees from Charleston, South Carolina, for example, presented a compelling case for pay disparities among certain occupations and grade levels in the area, Sanders said.

But the council doesn’t have the legal authority to grant “spot” changes to the locality pay program in the region for certain occupations and grade levels, and Charleston still doesn’t meet the statistical tests needed to earn its own locality pay distinction.

The director of the Veterans Affairs health system in Nashville, Tennessee, said the quit-and-job offer declination rate at the facility in her region is higher than the departmentwide average. Employees who leave or job candidates who reject offers cite the position’s low salary as the common reason.

A Bureau of Prisons site in Thomson, Illinois, described a scenario where their officers were working up to 70 hours a week in overtime because of severe staffing shortages. The region doesn’t meet the statistical tests needed to become part of an existing locality pay because they have too many vacancies, and the Salary Council said it is willing to grant it an exception.

Employees in Austin, Texas, argued their current locality pay rates aren’t high enough to resolve recruitment challenges in their region. Austin recently earned its own locality pay area in 2016.

For Sanders, the testimony of employees, VA medical center directors and U.S. attorneys presented Wednesday is evidence of a “broken” system.

He suggested the council, with help from BLS, OPM and others in the administration, could develop a new statistical methodology that better compared federal jobs and wages across U.S. labor markets with comparable positions in the private sector — within current law and statute.

There are, however, areas where Congress needs to step in, he said.

“I’d like us to be able to, by law, take things like cost-of-living into account. We’re legally bound to ignore that,” Sanders said. “We have to look at cost of labor, even though cost of living may have a lot to do with the reason for pay disparities. I think we ought to take total compensation into account. I know that the employee organizations take exception to that, but if we don’t count benefits, which are a cost of doing business, particularly where federal benefits are more generous, we’re missing the boat.”

He also suggested a quadrennial review of federal pay and benefits, a recommendation that Sanders has made before.

The comments that Sanders and federal employee unions made Wednesday are a preview of the report and recommendations the council will give to the president’s pays agent near the end of the year.

The president’s pay agent, which includes the directors of OPM and OMB and the Labor secretary, has expressed its own concerns with the federal locality pay program before.

Employees unions agree, in part, with some of the changes Sanders and the rest of the presidentially-appointed members of the Federal Salary Council have suggested.

But they warn against making the kinds of sweeping changes to federal pay that may involve a big political fight.

“If the Trump administration experience has taught us anything, it’s the dangers of allowing our agencies and the treatment of the federal workforce to be corrupted by political influence,” Jacque Simon, director of public policy for the American Federation of Government Employees. “Creating a pay system that is not rule based and is not consistent and allows all kinds of discretion on the part of agency heads, managers and supervisors is inviting trouble. It’s inviting corruption, even if the intentions are just the best and meeting the market and providing better for the better workforce. Opening it up to discretion is opening it up to discrimination.”

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