Hearing of the Federal Workforce, Postal Service and the District of Columbia Subcommittee of the House Oversight and Government Reform Committee - In Search of Equity: An Examination of Locality Pay

Statement

The subcommittee will come to order.

Welcome, Ranking Member Marchant and members of the subcommittee, hearing witnesses, and all those in attendance to the Subcommittee on the Federal Workforce, Postal Service and the District of Columbia's hearing on locality pay and other federal pay concerns.

Hearing no objection, the chair will ask unanimous consent to allow the testimonies of Representatives Barney Frank, Neil Abercrombie, the American Foreign Service Association, the Federal Managers Association, and the COLA Defense Committee of Oahu Inc. to be added to the record.

The chair, ranking member and subcommittee members will each have five minutes to make opening statements, and all members will have three days to submit statements for the record. Hearing no objection, so it is the order.

I will begin. And again, thanks to all of you who have come.

This hearing, entitled "In Search of Equity: An Examination of Locality Pay," serves as a follow-up to a hearing the subcommittee previously held during the first session of the 110th Congress that broadly examined issues related to federal pay and administration policies.

Today's hearing, however, will focus on concerns associated with locality pay, including calculation, geographical application, and the determination of an employee's primary duty station for locality pay purposes.

Keeping in line with the subcommittee's efforts and interest in enhancing the federal government's ability to recruit and retain a highly qualified work force that can operate and function in a manner that meets the challenges of the 21st century, it is my hope that the testimony presented today will help us better understand the formula for which locality pay payments are based and to determine if this basis serves as the most practical methodology to reflect the realities that federal employees, particularly those in high-cost areas, face in providing for their general welfare and that of their families.

Adding locality pay to the base salaries of nearly 2.7 million civilian workers in over 800 different occupations throughout the country, the federal government has committed itself to making sure that its employee compensation systems accommodate workers fairly. However, the question we are examining today is whether the calculation of locality payments as currently prescribed actually meets this objective. This is in addition to the pay levels and benefits federal agencies currently have in place.

In addition to locality pay issues, this hearing is also intended to explore other recently introduced federal pay-related proposals put forth by my colleagues in both the House and the Senate as well as by the Office of Personnel Management. These include Senate 3013, the NonForeign Area Retirement Equity Assurance Act of 2008, which converts white-collar federal employees in the non-foreign areas to a locality pay system; secondly, OPM's Locality Pay Extension Act of 2007, which aims to extend locality pay to white-collar employees in nonforeign areas.

H.R. 1786, introduced by Faleomavaega -- Representative (sic) Faleomavaega - would amend Title 5 USC to allow federal employees stationed in American Samoa to receive nonforeign area cost of living allowances as if stationed in Guam or the Commonwealth of the North Mariana Islands.

H.R. 2375, the Southeastern Massachusetts and Rhode Island Federal Worker Fairness Act of 2007, seeks to improve pay parity in the federal wage system's prevailing rate for bluecollar federal employees in certain high-cost areas.

And H.R. 3202, the Foreign Service Overseas Pay Equity Act of 2007, would amend the Foreign Service Act of 1980 to extend comparability pay adjustments to members of the Foreign Service assigned to posts abroad and for other purposes.

I'd like to thank Representatives Barney Frank and Neil Abercrombie as well as the Foreign Service Association and the Federal Managers Association for submitting their valuable testimony for the record, and I look forward to hearing the testimony of the other witnesses joining us today as we discuss a wide range of federal pay- related issues.

And at this time I'd like to yield to the ranking member, Mr. Marchant, for any opening remarks that he may have.

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Thank you very much, Mr. Marchant.

Mr. Sarbanes, do you have opening comments? (No audible reply.)

Well, thank you very much. Then we will proceed with our witnesses, and I'd like to call our first witness, Ms. Kathrene Hansen.

Ms. Kathrene Hansen is the executive director of the Greater Los Angeles Federal Executive Board. The Federal Executive Boards are responsible for strengthening the management and administration of federal activities. Ms. Hansen is also a coauthor of a report entitled, and I quote, "Imperfect Storm," a Federal Executive Board white paper issued in July of 2006 addressing daunting challenges in determining federal pay.

We welcome you, Ms. Hansen.

If you would stand and raise your right hand, it is the custom of this committee to swear in all witnesses. (Witnesses are sworn in.)

Thank you very much, again. You have five minutes in which to summarize your statement. Of course, the lights just simply indicate it's time to go, it's time to wind down, and then it's time to stop.

So thank you very much, and we're pleased to have you.

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MS. HANSEN: Good morning, Chairman Davis and members of the subcommittee. Thank you for the opportunity to appear before you today to discuss the white paper titled, "Imperfect Storm: The Looming Human Capital Crisis in California's High-Cost Cities," which was prepared in July 2006 by the Greater Los Angeles and San Francisco Bay Area Federal Executive Boards.

The views in this testimony are my own and do not represent the views of the administration, the Department of Homeland Security or the Federal Executive Boards.

Although she is not testifying today, I would like to acknowledge Dianna Louie, my counterpart from San Francisco.

In 1988, the FEBs in New York City and Los Angeles published reports on the recruitment and retention crisis experienced in those high-cost cities. These reports captured the attention of policymakers in Washington, D.C., and the result was the passage of the Federal Employee Pay Comparability Act.

The creation of locality pay was a major breakthrough, but it did not solve the problems identified 20 years ago. Stories we hear in California's high-cost cities are not the reality for the federal worker in most parts of the country. It's surprising the federal employees at the GS13 and 11 and 12 levels qualify for HUD's Section 8 rental assistance program. We hear about employees who sleep in their cars while they save up to get into an apartment, the employees who get their dental work done in Mexico, and employees who share an apartment based on their shift assignment.

With the gas price hike, we are seeing an increase in the number of employees who sleep on a coworker's sofa or in a camper in a nearby park because they can't afford both rent and the gas to drive to work each day.

They do all this so they can stay in California because of family obligations or to keep their jobs while they desperately await a transfer to a lower-cost city.

The key here is that they do their jobs well while they quietly struggle to survive. That is dedication.

The failure of the current locality pay formula to consider cost of living and extremely high housing costs has resulted in tremendous variation in the quality of life for the federal worker. In many parts of the country, the federal worker is adequately compensated. However, in high-cost cities that is not the case. I am not an economist or a statistician, so I cannot tell you why or exactly how the current locality pay formula creates these inequities. I can only testify that it does.

We know that there are five aspects of the current locality pay system that prevents equity -- the creation of the Rest of U.S., not including cost of living in the formula, the composition of the locality pay areas, not closing the pay gap, and not including the state tax rate.

Based on OPM's response, we know that they believe that if federal agencies would fully implement the human resource flexibilities available to them that their recruitment and retention problems could be eliminated. However, that does not appear to be the reality in the field.

In anticipation of today's hearing, Dianna and I conducted a quick e-mail survey of our members to assess what had changed in the two years since we conducted our study. We had about a 17 percent response rate. We found that most agencies continue to experience the same recruitment and retention challenges, and in many cases the situation has worsened.

Many of the nation's most critical infrastructure exists in California's high-cost cities. To protect them and the millions of residents in these mega cities, the full complement of the federal agencies is needed to keep them safe and secure. However, there is no incentive within the existing federal pay system for employees to serve in these high-cost cities.

If the locality pay funding level changed to consider the cost of living it would negate the need to explore other options and to ease the financial strain on the federal work force in high-cost cities.

In the event of this wholesale formula change, our report highlighted an alternative. Even with the current housing market, housing is still not affordable for many federal employees at all grade levels. In Los Angeles and San Francisco it takes 67 to 85 percent of the average federal employee's salary to afford a medium- priced home. DOD has a proven model to reduce the impact of personnel transfers to high-cost cities. In addition to their base pay, active- duty personnel are given a basic allowance for housing commensurate with their rank based on the housing cost of their assigned city.

Another factor that creates recruitment and retention problems at the other end of the pay chart is pay compression. The amounts at issue are not trivial. For each of the past several years, several GS-15 employees in San Francisco and L.A. have been prevented from receiving thousands of locality pay dollars.

In most parts of the United States, the federal employee is well compensated and able to live the lifestyle of a typical middle-class family. It is heart wrenching to see the financial and quality of life sacrifices that federal employees in California's high-cost cities must make in order to survive because they have chosen to work for an employer who by statute is unable to compensate them fairly and equitably in comparison to their out-of-state peers. In essence, they are penalized for serving in California.

The public deserves -- as our survey has clearly confirmed, when a current or prospective employee is trying to decide whether to move or to stay in California, I guarantee they don't look at cost of labor. They look at cost of living.

The hearing of this title is -- the title of this hearing is "In Search of Equity: An Examination of Locality Pay." I applaud the committee for looking into this matter because I can assure you that the current locality pay system is far from equitable. Thank you.

REP. DAVIS: (Off mike) -- much, and again, we appreciate your testimony.

Let me just ask you, in your written testimony you suggest that locality pay be based on the cost of living versus the cost of labor. Could you tell me the difference between the two?

MS. HANSEN: I'm not a statistician. I will do my best to explain it to my understanding.

The Employer Cost Index, the ECI, is the basis of the cost of labor, and they use a national compensation survey to find like positions to compare to the federal sector. The intention of FEPCA is to get within 5 percent of the non-federal sector. We have no illusions that we'll ever get to -- to be comparable with the private sector, nor is that what we seek.

The cost of living is based on the Consumer Price Index, which is the actual expenditures that a household must spend in order to survive. It includes housing. It includes fuel costs. And I know that in the Los Angeles area, a number of private sector companies actually give their employees every six months a cost of living adjustment. And depending on what's going on with the cost of living, it either goes up or it goes down.

And it's something federal employees -- or not federal employees, but simply those employees feel like they understand when their salary goes down because their expenses have gone down and so it doesn't hurt as badly when the salary is based on cost of living because that's something that we live with every day.

Cost of labor, there are so many variables. Illegal immigration is something that we believe has suppressed the salaries in the California area. The size of the locality pay area makes it so that you're comparing salaries and occupations in radically different economies.

For instance, we've appeared before the Federal Salary Council twice and asked that they make our locality pay area smaller. And even though the Federal Salary Council admitted that if we just looked at the coastal counties that the salaries were almost 20 percent higher in their national salaries compensation survey, they've included the two inland counties, and one of them is actually one of the lowest-cost labor counties in the nation so it dilutes our locality pay calculations based on cost of labor.

We think cost of living based on a county-by-county basis would be a lot more realistic.

REP. DAVIS: You have suggested a variable housing allowance for employees in high-cost areas. Are there other recommendations that you would make to try and rectify the inequities that you cite relative to these areas?

MS. HANSEN: Well, the variable housing allowance was one of the best practices that we learned from the Department of Defense when we did our survey. And the reason we proposed it is because there's existing data. It was something that we thought could be done quickly as a stop-gap measure.

In the absence of something like that, if you're talking about a wholesale revamping of the pay system, of course we would take the position that we would prefer the cost of living to be considered. And if that's not a reality, then just implementing FEPCA and closing the gap within the 5 percent, as the law requires, would be a welcome change to federal employees in high-cost cities.

REP. DAVIS: You cite high-cost areas in California. Do you see this kind of problem existing in other areas or other parts of the country?

MS. HANSEN: Well, I think what we're seeing California, I think we're on the front end of where the issue of locality pay may be going nationwide.

Talking to my co-workers, my colleagues nationwide, a couple of them have had me send copies of our survey because they have similar challenges. I know Boston is extremely expensive. They're having struggles in Key West, Florida. You know, Chicago is an expensive town.

And, you know, we're just a little ahead of the curve because our expenses have gone up so quickly, but I do think that what we're seeing in California is inevitably going to roll out to other high- cost cities.

REP. DAVIS: Well, thank you very much.

And I will yield to Mr. Marchant.

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REP. DAVIS: Thank you very much, Ms. Norton.

Let me just ask you, Ms. Hansen, how would you respond to recent arguments that the rest of the U.S. locality pay rates and actual locality rates in certain high-cost areas are incongruent given the varying cost of living (are ?) labor between different areas?

MS. HANSEN: Well, I know when -- in Los Angeles when we look at the Rest of U.S. category -- I first moved to Los Angeles in 1990 and it was when we got the interim geographic allowance of 8 percent because of the emergencies that had been documented in Los Angeles, San Francisco and New York with regards to recruitment and retention -- and I never had heard of the Federal Executive Boards, but we -- everybody in Los Angeles knows that FEBs got them locality pay. That's the perception. And so that's part of why we have all this information, because whether we were seeking it or not, we were getting this information. And at that time it felt pretty good.

And when you look at the actual locality pay chart, you know, the thinking is, "Well, in Los Angeles, what are they complaining about? They're getting 25.26 percent?" But when you back out the Rest of U.S., the 13.18 percent, we're really only getting 12 percent more than the people who live in some place where you can buy a house for $60,000, you know. I mean, we did our analysis -- even the price of gas varies as much as a dollar and a quarter a gallon, depending on where you're living.

And so it -- the fact that we're now only 4 percent above where we were 18 years ago when we had an emergency and had to get that 8 percent, you know -- we've only made 4 percent progress in 18 years and we can feel it in our pocketbooks in California. I hope that answered your question.

REP. DAVIS: Thank you very much.

Mr. Marchant, if you have any other questions.

Well, thank you very much and you're excused.

MS. HANSEN: Thank you.

REP. DAVIS: (Off mike) -- policy division.

Mr. Grimes previously served as assistant director of compensation policy in the Internal Revenue Service's Strategic Human Resources Division, where he developed and implemented the senior manager performance-based pay system. Mr. Grimes has over 25 years of operational and policy compensation experience.

Mr. Hank Kashden is the deputy chief of business operations for the United States Forest Service. Mr. Kashden started his career with the Forest Service in 1973 and has worked in a variety of positions, including survey technician, forest administrative officer, assistant director in law enforcement and director of the budget department.

Gentlemen, thank you very much and if you would stand and raise your right hand with me. (Witnesses are sworn in.)

Gentlemen, thank you very much. Of course, you know the five- minute procedure that we use to summarize your testimony. Your full written statement is in the record. If you would take five minutes and summarize. The yellow light is an indication that you've got a minute left and hopefully would wind up. The red light indicates it's time to go.

Mr. Grimes, we'll begin with you and thank you very much.

MR. GRIMES: Mr. Chairman and members of the subcommittee, my name is Chuck Grimes and I'm here today on behalf of Linda M. Springer, director of the Office of Personnel Management, to discuss how locality pay is determined and recent proposals to extend locality pay in lieu of cost-of-living allowances to federal employees working in Hawaii, Alaska, Guam, Puerto Rico, U.S. Virgin Islands and other U.S. territories and possessions.

Over the years, the focus of federal pay policy has evolved from simply keeping pace with the overall labor market to effectively competing within that market. In response to perceived recruitment and retention problems in some high-labor-cost markets, Congress enacted the Federal Employees Pay Comparability Act of 1990. Implemented in 1994, FEPCA provides for an annual locality pay adjustment to narrow the gap between federal and non-federal salaries.

Locality pay is a single percentage adjustment within each locality pay area determined to have a federal and non-federal gap greater than 5 percent. The Federal Salary Council recommends establishment of particular locality pay areas and the president's pay agent approves the areas. There currently are 32 locality pay areas, including a catchall Rest of the U.S., or RUS.

The Bureau of Labor Statistics conducts annual salary surveys in each locality pay area, private sector and state and local governments for white-collar jobs similar to general schedule jobs. On behalf of the president's pay agent, OPM's staff compare the survey results to GS pay to get a pay gap for each area. The president's pay agent considers these pay gaps along with recommendations from the Federal Salary Council and submits an annual report of recommendations to the president. The president, after considering the pay agent's report, establishes locality pay percentages for each area based on the pay gaps.

However, FEPCA excluded the non-federal, non-foreign areas from locality pay coverage, leaving the 50-year-old COLA program in effect. The COLA program was originally designed to address recruitment and retention issues resulting from higher cost of living in the non- foreign areas. Accordingly, COLA rates are based on cost-of-living differences between each non-foreign area and Washington, D.C.

COLA has tangible effects on employee's take-home pay and retirement annuity. For instance, some employees like the fact that COLA payments are not subject to federal income tax. On the negative side, given that COLA payments are allowances, they are not considered base pay for retirement purposes. There's a growing perception that pay and retirement of white-collar civilian federal employees in non- foreign areas are gradually eroding in relation to those in the Lower 48.

In May 2007, the administration sent a proposal to Congress to address these issues. We are pleased that Senators Akaka, Inouye, Stevens and Murkowski have recently introduced S. 3013, the Non- Foreign Area Retirement Equity Assurance Act of 2008, to stimulate discussion on how best to transition from COLA to locality pay.

Also, the Federal Managers Association has put forth a proposal. The administration's proposal would phase in locality pay over a seven -year period to limit the impact of locality pay on retirement behavior. During the phase-in period, decreases to COLA would be limited to 85 percent of the increase in locality pay in order to reduce the impact on take-home pay of increased deductions from retirement contributions and tax liability. S. 3013 would reduce the phase-in to locality pay to three years and would set that offset set of COLA at 65 percent of the increase to locality pay.

The FMA proposal would phase locality pay in over two years with an offset of 75 percent. In both the administration's proposal and S. 3013, the RUS rate, subject to the differing phase-in rates, would apply in all areas in the first year of the phase-in, while data are collected, pay gaps are determined and recommendations for pay rates made.

The FMA's proposal would implement the full RUS rate in the first year and the full rate for Hawaii and Alaska in the second year. We believe that Hawaii and Alaska would be established as separate locality pay areas by the Federal Salary Council and the president's pay agent. Puerto Rico, Guam and the Virgin Islands would likely be covered by the RUS locality pay area. We estimate rates for Hawaii and Alaska would be 20.3 percent and 27.68 percent respectively, but current rate for RUS is 13.18 percent.

We believe the administration's proposal addresses the issues in a responsible fashion with regard to cost. S. 3013, welcomed as a step forward in resolving these issues, would cost significantly more to do the shorter phase-in period and reduced offset. The FMA proposal would cost even more.

The time is upon us to extend locality pay to the non-foreign areas. Locality pay provides employees in the non-foreign areas a retirement benefit comparable to employees in the continental United States. Additionally, locality pay has increased about one percentage point a year over the last two years, unlike COLA which has a history of fluctuations with most areas currently trending downward.

Mr. Chairman, thank you for the opportunity to discuss this important issue with you today and for your support as we work towards a more market-based pay system in our non-foreign areas, which will benefit both employees and agencies. I would be happy to address any questions you may have.

REP. DAVIS: Thank you very much, Mr. Grimes.

And we will proceed to Mr. Kashden.

MR. KASHDEN: Thank you, Mr. Chairman, for the opportunity to appear before this subcommittee to talk about how the Forest Service applies pay and other flexibilities to managing and retaining its work force. In talking about the subject, I'll talk about how we apply those incentives and pay procedures and will defer to Mr. Grimes for policy discussions that may be under consideration.

Recognizing that it's very rare for the U.S. Forest Service to appear before this subcommittee, let me just give you a brief overview of what the Forest Service is about in terms of our mission.

The mission of the Forest Service is to sustain the health, diversity and productivity of the nation's forest and grasslands to meet the needs of present and future generations. We tend to distill that in our work force around a model that involves caring for the land and serving people.

The national forests of America are highly dispersed. We have 155 national forests and 20 national grasslands in 44 states and in Puerto Rico. We have other major branches of the Forest Service, including a premiere research and development branch that's involved in a wide variety of natural resource and related sciences. We have a state and private forestry program that supports non-industrial private land owners as well as states and tribal areas.

We also have something that's seldom now in the Forest Service. We, through the Department of Labor, administer 22 Job Corps civilian conservations centers with around 900 employees that support over 4,000 teenagers and young adults in giving them vocational trades with a conservation basis for that education.

The Forest Service has a wide variety of job series and those include forestry technicians, professional foresters, scientists, teachers, guidance counselors, a variety of "ologists" -- that means geologists or wildlife biologists -- administrative personnel, et cetera. We cover a wide geographic area across the entire country. We have employees in major metropolitan areas around the country; we have employees in very rural areas. We have employees in very high- cost resort towns and we have employees in areas you might consider to be the end of the Earth.

And I think that geography and wide array of job series is one reason that we might be here today to talk about how we apply pay policies and flexibilities.

We have a variety of recruitment and retention challenges. The foresters in the Forest Service -- if you're a graduate forester, you probably have had an aspiration to work for the Forest Service for many years and once you're in the Forest Service you'll stay there for your entire career in all likelihood.

Contrast that with contract specialists, a very high-demand series. Many of our contract specialists have worked for multiple agencies. They're constantly in demand with other agencies and even the private sector. Overall, the Forest Service has a very stable work force. Since 2005 our attrition rate has been 8.6 percent and that compares to a nearly equivalent federal governmentwide rate of 8.4 percent.

The Forest Service uses a broad suite of OPM-delegated flexibilities and authorities to manage and recruit its work force. A specific example that I think is relative to Ms. Hansen's area is the special pay rate authority that we use to recruit and retain employees in targeted occupations where there's a tremendous challenge in offsetting a disparity between a competing employer.

This particularly occurs as a major example for the Forest Service in Southern California, where we apply locality pay and special pay rates to our wildland firefighters, classified as forestry technicians. And that's in an effort to offset the pay disparity found between the federal salary and those received by the California Department of Forestry and Fire Protection for their structural and wildland firefighters.

We also have other areas that require different incentives. We use the tool we call in-house the three R's, dealing with recruitment, relocation and retention that allows us to provide incentives in those categories to attract or retain employees in geographic areas that are difficult to get employees to. And those are areas that aren't necessarily metropolitan; some clear examples are the high-cost areas like Glenwood Springs, Colorado; Jackson Hole, Wyoming; Steamboat Springs, Colorado. There we will use a retention or relocation bonus process to try and bring employees into the system.

I've got a couple examples in the testimony that I can certainly talk to later should you have questions about that. In closing, let me just say that generally speaking, we in the Forest Service are able to staff most of our organization effectively. I think that's a combination of a reasonable pay rate and a mission that we're all very, very proud to be part of, and that's caring for the land and serving people. It's one of the reasons I've been in the Forest Service for 35 years, and it's one of the reasons that many of our long-termers are there.

I do acknowledge, certainly, that there are areas where keeping that tight hold on the mission is offset by some of the challenges of locality costs, such as in Southern California or in some of those special high-rate geographic areas such as small towns.

So with that, I'll close my testimony and be happy to answer any questions.

REP. DAVIS: Thank you very much. And again, I appreciate both of your testimonies.

Mr. Grimes, let me ask you -- you have heard the testimony of previous witnesses in support of locality pay being based on cost of living as opposed to cost of labor . And we think in the way the locality pay areas are defined -- how you respond to these notions.

MR. GRIMES: The notion of locality pay is based, as you mentioned, on the cost of labor, Mr. Chairman. We believe -- the administration believes it's a very equitable way to pay employees. There are a number of factors that drive private sector and the state and local government pay, and living costs are certainly among those.

Private sector folks and state and local government folks have to buy houses as well, so when DLS surveys the private sector and the state and local governments and provides that data to us to establish the gaps between federal pay and private sector and state and local government pay, we're able to pay a locality pay that's in accord with those gaps. Now, it's not perfect, but it's a step in the right direction, and we believe that it works.

REP. DAVIS: OPM has previously suggested that federal agencies already have wide latitude under the various pay flexibility initiatives to address recruitment and retention of issues. If this is the case, why do you think many agencies seem to still have difficulty recruiting and retaining employees in these high-cost areas?

MR. GRIMES: I'm not sure why they're experiencing the difficulties, because they do have the tools to use to recruit and retain. In fact, we've got a report here that we submitted to Congress on 2006 use of the three R's, the so-called three R's. There was over 2,000 instances that the three R's were used in 2006, amounting to some $140 million dollars. So those tools do exist, and they are being used. And of course there's plenty of room to be used more often where they need to be used.

And agencies have the authority to pay up to 25 percent of pay, for example, for a retention allowance and some of the limits on the three R's can be exceeded if people come into OPM and ask. And today we've been asked once, and we've granted it. So we stand ready to hear agency complaints and help them work through these issues.

REP. DAVIS: On the issue of non-foreign COLA, I understand that you've been to Hawaii, Alaska and several of the territories to discuss the change to locality pay. What have been the main concerns raised by employees in these areas and what has been OPM's response to these concerns?

MR. GRIMES: Well, one of the main concerns expressed by a number of employees is that it's taken a long time to address this problem and they're heartened by the fact that a bill has been introduced. There is a worry among a number of employees that the bill will get too expensive and may not make it through the process. Certain other employees are concerned about the length of time it may take to phase in locality pay. Some are concerned about the offset that we proposed being too low and then favor the one that's in the Senate bill.

But generally speaking, I think employees are in favor of having us extend locality pay to the non-foreign areas and would like to get it done.

REP. DAVIS: I understand that there is a decision pending on whether Rhode Island and southeast Massachusetts' prevailing wage rate workers should receive the same pay rate as those in the Boston area. Is that a correct assessment?

MR. GRIMES: That's an issue that would be handled by the Federal Prevailing Rate Advisory Committee, and I would be happy to address that for the record if you'd like to submit it.

REP. DAVIS: All right. Let me just ask you, unlike their domestic counterparts, the Foreign Service officers do not receive locality pay when they serve overseas. This means that a Foreign Service officer who is transferred to Washington, D.C. from another location is given is an increase in pay. The Foreign Affairs Committee is considering changing the locality pay for these officers, and of course our committee will also be looking at various proposals on this issue.

One option is for Foreign Service officers to continue to receive Washington, D.C. locality pay. Another option, since Washington locality pay is higher than all but a few places in the United States, is for these employees to receive the locality pay for the rest of the United States. Or yet another option might be for Foreign Service officers to receive pay that is commensurate with the location where they are stationed.

So, for example, a Foreign Service officer living in London may receive one rate of pay, while a Foreign Service officer living in Guatemala might receive another rate. Does OPM have a position, and should Foreign Service officers receive District of Columbia locality pay or the locality pay for the rest of the nation or for the area where they are living?

MR. GRIMES: Mr. Chairman, this is a complicated issue. When Foreign Service officers or others go overseas, they receive a number of allowances and so forth that help them deal with the local economy. I am not aware of an OPM position on one option or the other but, again, would be happy to provide you any technical information for the record, if you'd like to submit a question.

REP. DAVIS: You are aware of the fact that the subcommittee has been looking seriously at the whole question of telework and actually promoting further utilization of it as a concept. In your opinion, should a teleworker's locality pay be based on the employee's regular workplace or the telework location? And do you have any opinion as to who should be responsible for the employee's travel -- that is, the agency or the employee?

MR. GRIMES: The travel --

REP. DAVIS: For the employee who may be, oh, say teleworking from Chicago but has to come into headquarters whatever period of time or however many times. Who should cover that travel expense, the employee or the agency?

MR. GRIMES: I am not an expert here, but the -- often when someone teleworks it's probably at least somewhat near where their duty station is. And their duty station controls how they get paid. If someone were to telework from a distant city, there probably are existing rules that govern whether someone would get paid to come into the office or not, and that is not my area of expertise. So again, I could get it to the right people, if you'd like.

REP. DAVIS: All right, because I think that currently the employee is paying. I mean, that's sort of a bone of contention that the employee is paying travel expense, which -- obviously there are people who would think that this is cutting into the employee's compensation. And it's an issue that I think certainly bears a tremendous amount of scrutiny and review and looking at if we're going to be able to telework to the extent that certainly the subcommittee would like to see us begin to do.

Mr. Kashden, let me just make sure that I understand -- your testimony basically suggests that there are no super-serious concerns relative to locality pay in your agency?

MR. KASHDEN: What I would say, Mr. Chairman, is that looking across the board at our geography, that we are generally in good shape. Where I certainly acknowledge some issues, it's a very hot issue, if you will, in Southern California. Recently, as much as just a couple of hours ago, talked to our forest supervisor there in Southern California, and while we're managing our wood forests adequately, if you take firefighters where you have employees whose roots are in Southern California, who are committed to a profession in firefighting, just cumulatively, sir, the Forest Service, in terms of its annual compensation would have a hard time competing with the California Division of Forestry or other local agencies.

Now, in Southern California, where we have employees who see a longer-term career in natural resource management of which fire is a part of that and they're more flexible in their duty locations, then we're able to compete quite effectively in terms of keeping them in the organization, although we do acknowledge that the annual compensation package that they receive as part of a firefighting job in Southern California is less than what they're getting from a competitor.

So it's a balance between personal preference in terms of your long-term value, whether you're wedded to California or Southern California and you want a career in fire or whether you want a natural resource career. And those pay into those decisions. Certainly in our -- our contingent of employees in high resort areas, it's also tough. We'll find long commutes, in order to perform the mission there.

Obviously these areas have the benefit of being extremely beautiful and desirable places to work and it's a rewarding career, natural resource management. So you get those things that trade off against those economic challenges.

Elsewhere in the country, San Francisco -- we have some folks in San Francisco; certainly Washington, D.C. has some challenges for recruiting. But generally, across our geography, we're doing fine.

REP. DAVIS: Well, thank you, gentlemen, very much. We appreciate your testimony and you're excused.

We will now proceed to our third panel. Our witnesses are: Ms. Colleen Kelley is the national president of the National Treasury Employees Union, which is the nation's largest independent federal sector union representing employees in 31 separate government agencies. As the union's top-elected official, she leads in TEU's efforts to achieve the dignity and respect federal employees deserve.

Ms. Jacqueline Simon is the public policy director for the American Federation of Government Employees, AFofL-CIO, a union that represents more than 600,000 federal and District of Columbia employees throughout the nation and around the world. Ms. Simon's area of specialization includes the federal budget, Social Security and federal pay systems.

Mr. Art Gordon is the national president of the Federal Law Enforcement Officers Association, a volunteer organization which represents more than 25,000 federal agents from over 65 different federal law enforcement agencies. Mr. Gordon is also the assistant federal security director for law enforcement with the Transportation Security Administration at the Marshall BWI Airport. Mr. Gordon has served in various law enforcement positions for over 29 years.

And we welcome all three of you and thank you very much.

If you would stand and raise your right hand to be sworn in. (Witnesses are sworn in.)

Thank you all very much, and of course your entire statement is included in the record. We would ask that you summarize in five minutes and observe the lights. The yellow light is an indication that you've got a minute in which to wrap up and the red light means that it's time to stop.

And Ms. Kelley, we'll begin with you.

MS. KELLEY: Thank you very much, Chairman Davis. I have the privilege of serving on the Federal Salary Council, which makes recommendations to the president's pay agent on a variety of issues relating to federal pay, including locality pay. I know firsthand that employees face challenges in making ends meet, especially in light of recent economic woes that include rising gas prices that affect commuting to work, increased food prices, prices of commodities and a declining housing market.

Regional variations add pressure and weigh heavily on many federal employees trying to provide a good quality of life for themselves and for their families. We feel concerns over the differing levels of locality pay, and overall fairness in the current federal pay system can best be fixed through full implementation of the Federal Employees Pay Comparability Act, FEPCA.

Congress enacted, as we know, FEPCA to replace the previous nationwide system with a method for setting pay for white-collar employees that uses a combination of across-the-board and locality pay adjustments. Wages are indexed to wage increases in the private sector, as measured by the Employment Cost Index.

The locality component of the pay adjustment on the FEPCA was supposed to be phased in over a nine-year period.

In 1994 the Minimum Comparability Increase was to be two-tenths of the pay gap. That is the amount that was needed to reduce the gap to 5 percent, and for each successive year the comparability increase was scheduled to be at least one-tenth of the pay gap.

For 2002 and thereafter, the law authorized the full amount necessary to reduce the pay disparity in each locality area to 5 percent. However, as we know, the schedule under FEPCA has not been followed. In every year since 1995 the president has exercised his authority under FEPCA to submit an alternative pay plan saying, and I quote, "a national emergency or serious economic conditions affecting the general welfare," and separate legislation designating a lower pay raise has been enacted by Congress.

The overall average pay gap in 2007, as we've heard, including the average locality rate of 16.88 percent, today amounts to 22.97 percent. If FEPCA had been fully implemented, that gap should be no more than the statute's 5 percent target. In order to catch up, federal employees in San Francisco should receive a locality adjustment of 17.2 percent for 2008 on top of what they already receive. Los Angeles federal employees should get an additional 10.2 percent in salary for locality pay.

NTEU believes that by far the biggest problem for federal employees in large metropolitan areas is this lack of implementation of FEPCA, rather than the method that's used to measure the private versus public pay gaps. NTEU believes it would be a mistake, however, to change from a cost-of-labor measurement as required under FEPCA to a cost-of-living measure. The current pay system is based on the concept that federal pay should be comparable with private sector pay.

The BLS data accurately depicts a huge pay gap in large cities. Fully implementing FEPCA would solve the problem without changing the underlying tenets of federal compensation which are based on comparable pay between federal and private sector employees.

Unfortunately, not all federal employees in the GS system received the full federal pay raise that was set by Congress this year, and they may not receive the entire raise again in '09. These employees' salaries are capped when they bump up against the Executive Schedule and by law cannot exceed it. This pay compression was first seen in San Francisco, but it now affects other cities, including Houston, Boston, Chicago, Detroit, Los Angeles and Washington, D.C.

Since federal retirement is calculated on salary, these caps also can lower retirement amounts as well. NTEU recognizes and supports fixing the problem. Federal employees who serve in the government should not suffer because they worked hard, got promoted and reached the top of the pay scale.

Finally, NTEU supports the efforts to fix the non-foreign COLAs, the pay system that pertains to Hawaii, Alaska and Puerto Rico and the U.S. territories. This unique system that was established long ago, as we've heard, is outdated and is in need of reform.

NTEU supports S. 3013, legislation introduced in the Senate by Chairman Daniel Akaka to transition these employees to the locality pay system based on pay comparability. The provisions of S. 3013 are superior to the administration's proposals that would be phased in over seven years and that lack employee protections in a number of areas.

In summary, I would like to emphasize that NTEU's continued recommendation is full implementation of FEPCA and to also support FEPCA's continued utilization of the cost-of-labor standard since it reflects the basic tenet of pay comparability with the private sector in a way that cost of living comparisons do not.

Finally, NTEU supports removing inequities caused by pay compression and reforming the non-foreign COLA for Alaska, Hawaii and the U.S. territories.

Thank you. And I'll be happy to answer any questions.

REP. DAVIS: Thank you very much, Ms. Kelley.

And we will proceed to Ms. Simon.

MS. SIMON: Mr. Chairman, thank you for the opportunity to testify today.

AFGE -- (cross talk) -- okay, starting again. AFGE is a strong supporter of the market-based locality pay system formed under FEPCA. FEPCA -- passed in 1990 -- promised to take the politics out of federal pay and base annual salary adjustments on both the national and regional labor market data collected and analyzed by the Bureau of Labor Statistics.

The law was passed specifically to address what were, and still are, enormous gaps between federal and non-federal salaries. It affirmed that comparability with the private sector measured objectively by the BLS is the best standard for federal pay.

The federal government cannot pay below-market salaries and expect to be anything other than an employer of last resort. And we believe that market comparability is not only the best way to ensure recruitment and retention of a high-quality federal work force, it's also the fairest way to set federal pay.

The case against the locality pay system that has been advanced by proponents of pay for performance centers on the charge that the locality pay system is old and needs to become more contemporary. In fact, the Employment Cost Index and locality pay combination has only been around since 1994. They also like to claim that it's inflexible when in fact the current system provides numerous flexibilities.

We know these numerous -- these flexibilities are rarely used because of budget restraints. So it's not that the system itself is either inflexible or antiquated, it's just underfunded. Underfunding's also responsible for the fact that the government failed to meet FEPCA's promise of closing the federal-non-federal pay gap by 2002.

Pay gaps in some localities are still strikingly large. Federal salaries remain behind those in the private sector by huge amounts in many high-cost U.S. cities, including, Washington, Baltimore, New York, L.A., San Francisco, Boston and Chicago, to name just a few. Employees in all these cities have difficulty maintaining a decent standard of living and buying even a median-priced house.

The obvious answer is full funding for FEPCA, but in the absence of that, AFGE recommends taking on the housing issue head-on. We recommend pilot programs in counties with median house prices that are at least 25 percent above the median house price within the locality.

Agencies could experiment with a variety of approaches, including programs modeled after the federal Teacher Next Door program that allows public school teachers to purchase homes owned by HUD at half price, and California's Extra Credit Teacher Home Purchase program that makes low-interest mortgages and reduced down payments available to teachers. In addition, agencies should be able to provide lump-sum housing allowances equivalent to those provided to the military.

AFGE's proposal for pilot programs to ease housing costs for federal employees in cities with prohibitive real estate prices is not a proposal to replace locality pay with housing allowances. We strongly oppose efforts to eliminate the FEPCA guarantee of locality pay for federal employees working in these cities. These experiments are necessary supplements to salary -- annual salary adjustments based upon both the ECI and locality data -- not replacements.

AFGE also strongly supports S. 3013, the Non-foreign Area Retirement Equity Assurance Act of 2008, introduced by Senators Akaka, Stevens, Inouye and Murkowski. We support the bill's gradual replacement of COLAs with locality pay over a three-year period and the fact that it ensures that employees' take-home pay is not adversely affected during the transition.

The Senate bill also wisely makes the transition to locality pay voluntary for current employees. We're pleased that employees who choose to forgo locality pay will be permitted to lock in the 2008 COLA rate. However, there are already approved increases in COLAs awaiting the lengthy rulemaking process in OMB and OPM that might not be finalized in time to meet the deadline described in the legislation.

We've requested that language be added to allow the lock in to include amounts provided in pending increases in non-foreign COLAs. This will let workers in Puerto Rico whose COLA's scheduled to rise from 13 to 14 percent by next year at the latest to obtain the higher amount if they choose to remain in the COLA system.

Finally, the Senate bill provides an opportunity for both regular employees and those subject to mandatory retirement ages who become eligible to retire during the transition period to pay into the Civil Service Retirement Fund so their annuities will not be affected by their late entry into the locality pay system. They deserve the ability to pay into the system to make themselves whole, and AFGE strongly supports the provisions of S. 3013 that allow them to do so.

We're also working with the Senate committee to provide two additional protections to the bill. The first would guarantee that no non-foreign area will ever receive locality pay that's less than the Rest of U.S. Second, we ask for additional explicit language to create two localities that cover the entire states of Hawaii and Alaska.

Since the dawn of the locality pay program, funding at DOL has been cited by the pay agent as an excuse for severely limiting the number of pay localities. In 2006, Orlando, Kansas City and St. Louis all had to be dropped in order to make room for cities with larger pay gaps because budget limits allowed only 32 cities to be surveyed -- no more. It'd be wrong to eliminate two existing localities to facilitate the addition of Hawaii and Alaska. Likewise, it would be wrong to force federal employees in Hawaii and Alaska to remain part of RUS when preliminary data show their pay gaps are far in excess of those in RUS.

This concludes my statement. I'd be happy to answer any questions.

REP. DAVIS: Thank you very much.

And we will proceed to Mr. Gordon.

MR. GORDON: Thank you, Chairman Davis. It's an honor to be here today. I just want to correct one thing -- I'm actually a retired federal employee as of several months ago -- after 33 years.

REP. DAVIS: Okay.

MR. GORDON: I am the national president of the Federal Law Enforcement Officers Association, representing 26,000 federal agents. These are the men and women who carry a badge and a gun and put their lives on the line every day for all of us.

I just want to trace a little bit of the history of federal law enforcement pay reform and locality pay for all of you, and I'm just going to summarize it briefly, but in 1988 there was a commission called NACLE, the National Advisory Commission on Law Enforcement. This was set up by Senator Dennis DeConcini. They held hearings and they came up with the recommendations on federal law enforcement pay.

The two conclusions they came to were federal pay was too low for the law enforcement occupations and needed to be increased at all levels, and the only long-term solution to federal law enforcement pay and benefits was to provide for a separate federal law enforcement pay system.

As a result of this, legislation was passed. Public Law 101-509, on November 5, 1990, was signed into law. It was the first major governmentwide pay reform in almost 30 years. What it did -- it granted special emergency pay adjustments to certain pay districts; it called for a nine-year phase-in on locality pay, which we've spoken about; and it required OPM to provide Congress no later than January 1st, 1993, a plan to establish a separate pay and classification system for federal law enforcement officers. To this date, that has not been done.

I wish that we were not here -- that I was not here to tell you that there are first-year federal law enforcement officers who qualify for public assistance.

We should not be able to tell you there are federal law enforcement officers commute before dawn to the city in which they work, then sleep in their cars to catch up on their sleep before reporting to work because they live so far away and cannot afford a house closer to the city they work in.

We should not be able to tell you that after we hire and train people for federal law enforcement that there are federal agents who leave in order to work for a state or local law enforcement agency so they can make a better salary and get better benefits.

There have been several bills in Congress initiated and introduced by Representative Peter King in the last three sessions of Congress. The most recent bill, H.R. 4901, mirrors the other two bills -- H.R. 466 and H.R. 566 -- which were designed to correct locality pay inequities for federal law enforcement.

We now know that many federal agents leave federal law enforcement, move to state and local agencies because they cannot afford the cost of staying a federal agent. It should be noted that some state and local police departments are now recruiting from the ranks of federal law enforcement. So in effect what is happening is we pay to train qualified candidates only to see these individuals leave federal service to go to a better paying law enforcement job.

There is also another issue which is pay compression. Many federal agents are at the pay cap. And the reason being is federal law enforcement officers receive their salary, plus 25 percent of their salary, for law enforcement availability pay. As a result you have Grade 13 street agents, Grade 14 and 15 supervisors all at the pay cap and they have no incentive to move up in management and no incentive to move to higher cost cities.

I'd like to read a statement that Senator Dodd put into record when he introduced S. 985 in May 2003. He said, "All over America, federal law enforcement personnel were enduring tremendous stress associated with our nation's effort to protect citizens from the threat terrorism. Unfortunately, that stress has been compounded by ongoing pressing concerns among many such personnel about their pay.

"I have heard from officers who have described long commutes, high personal debts, and in some cases, almost all-consuming concerns about financial insecurity. Many of these problems occur when our agents or officers are transferred from low-cost parts of the country to high-cost areas. I've been told that some federal officers are forced to separate from their families and rent rooms in cities to which they've been transferred because they cannot afford to rent or buy homes large enough for their family."

Again, we need to resolve the federal law enforcement pay issues. I also agree that we should go with full implementation of FEPCA. I would like to see the (leap ?) put above the pay gap to avoid pay compression.

We would support the housing allowances in conjunction with FEPCA. And also we would support the changes for Alaska and Hawaii and other territories.

Thank you.

REP. DAVIS: Well, thank you all very much. And we certainly appreciate your testimony.

Let me just ask you, Ms. Kelley, your statement suggests that NTEU supports maintaining the current cost of labor methodology used to calculate locality pay. In your opinion, how do you see us being able to address the problems with employee recruitment and retention in these high-cost areas that we are discussing?

MS. KELLEY: Well, I think there are a couple of things. There's been a lot of talk about the recruiting incentives and the flexibilities that agencies have, and the fact is they do have them. They don't use them. They don't use them nearly to the extent that they can or should.

Why they would tell you that I don't know. They might say funding. They might say because they just want to use it selectively. In my experience, they use it very, very selectively and very rarely.

So they have tools that they're not using right now.

I think the idea of looking at a housing allowance in addition to FEPCA, not in place of, is something that should be looked at with a defined criteria so that cities who meet that criteria could be considered for that.

And I also think that the question of cost of labor versus employment -- or versus cost of living -- actually that the cost of living would end up being included in a scenario that was mentioned earlier where private sector employers give cost of living adjustments every six months or so.

If they are doing that, then their salary numbers would be increasing. And it's those salary numbers that are used to compare to federal employees to adjust what the locality pay should be, you know, over periods of time. So eventually that cost of living adjustment that private sector employers are doing would be taken into account when it comes to calculating the locality adjustment for federal employees.

But I think the easiest answer is to fully implement FEPCA. There was some concern indicated earlier by Representative (sic) Norton that, you know, the public would not allow a 17 percent pay raise to federal employees. Well, if FEPCA had been implemented as it was intended, and there was, say, a 2 percent additional increase given to employees every 10 years, we wouldn't be looking at a 17 percent increase now that's needed.

So I think fully implementing FEPCA and figuring out how to do that, and if it can't be done in one year, you know, we would be glad to work with you, Mr. Chairman, or anyone else to figure out how to do that.

REP. DAVIS: So greater utilization of the tools and opportunities that we currently have would, in your mind, go quite a way?

MS. KELLEY: Absolutely. If what was currently in the law was implemented, from a flexibility, recruiting, bonuses, incentives, all of that as well as implementation of FEPCA -- as well as, you know, in areas where like I said, if we could agree on a defined criteria for some kind of a housing allowance. I would, you know, echo, though, that it could never ever -- I would never support it in lieu of locality pay. It would need to be in addition to in those areas where it, you know, is confirmed that it's needed.

REP. DAVIS: Thank you very much.

Ms. Simon, your testimony suggests that a possible remedy for the federal recruitment and retention problem is to offer workers in high- cost areas a housing subsidy. Given the current pressures that, I guess, our federal government seems to be experiencing relative to pay and relative to budgetary issues and constraints, do you think it's realistic that agencies will be able to afford the housing allowance concept?

MS. SIMON: Well, it depends, you know -- you're asking me whether it's realistic for us to afford it. I think that, you know, we can afford what we need. Now, our nation has never been wealthier than it is at this moment and it's really a matter of priorities and how you decide to distribute the money in the budget.

Everyone's talked for a long time about the impending retirement of the baby boom and what it's going to take to recruit the next generation of federal employees. And reference has also been made to the fact that people in the Civil Service Retirement System have a tremendous incentive to stay with the federal government even though their salaries were far below the market because of the nature of the older Federal Retirement System.

FERS allows a little more mobility and I'm not sure that the government's going to be able to get away with paying salaries that are so far below the market when they try to recruit the next generation.

And we think that as President Kelley suggested, and as we propose in our testimony, the idea of using these housing allowance ideas ought to be restrained. We're not proposing an equivalent housing allowance for every federal employee employed every single place in the entire United States. We really thought that in places where median house prices far exceed the median within a pay locality housing allowances would be justified and affordable.

REP. DAVIS: Thank you very much.

Mr. Gordon, much of your testimony points to the difference in pay and benefits between federal law enforcement agencies and state and local police departments. What in your opinion are the differences in duties and job functions between the federal agencies and these other jurisdictions?

And, in other words, is the notion of equal pay, or pay differential, based upon essentially the same duties and responsibilities? Or are there different duties and responsibilities to the extent that one might say that we're not comparing apples with apples but maybe apples with oranges?

MR. GORDON: Well, sir, we are comparing apples to apples. And what we did is we looked at -- back when we testified in 2004 we looked at the rate of pay for a detective with five years on the job, felt they were equivalent to a federal law enforcement officer based on the standards that federal law enforcement officers are required to meet. And we felt based on that in cities like New York and L.A. and San Francisco that there was a big disparity in the salaries, and the federal agents were making significantly lower money.

And the question you ask is, are they doing the same job? Since 2001, since the formation of the FBI Joint Terrorism Task Force, federal agents sit side by side with NYPD detectives, LAPD detectives. All across the country they're all doing the same job. The detectives are deputized as federal agents. They go out, they do investigations, they conduct interviews, they do surveillance.

So we believe there is a similarity, a comparison, as to what they're doing.

REP. DAVIS: Well, I don't have any other questions, and I believe that other members are trying to finish up their day. So let me thank you all for your testimony, for being with us. And we appreciate you coming.

(Sounds gavel.) And this hearing is adjourned.

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