The Federal Pay Freeze That Isn't

That seemed to be behind President Barack Obama’s recent proposal to freeze federal pay, a smaller government proposal that preempts the Republicans.
Trouble is, President Obama’s federal pay freeze really isn’t a pay freeze.
About two-thirds of the 2.2 million federal workers affected will get pay increases each year anyway. Why?

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Because the freeze only applies to cost-of-living increases for 2011 and 2012 — tiny anyway, at about 1.4%, given low core inflation (not counting food and energy prices).
Most federal employees will still receive automatic seniority-based pay increases, called “step-pay” increases, for satisfactory job performance (most every federal worker gets a passing grade).
Federal workers will also continue to get promotions in grade, overtime pay, as well as bonuses.
So a new GS-15 would have started this year at about $124,000. After a year on the job, that government worker’s step-pay increase would lift that salary to about $128,000, even with the President’s pay freeze. And that’s before bonuses and overtime pay.
The President’s fiscal 2011 budget had envisioned a 1.4% pay increase. His plan to freeze federal pay by getting rid of the COLA adjustment for two years would save an estimated $28 billion over five years.
But even the American Federation of Government Employees (AFGE) says the President’s pay freeze is largely symbolic.
“Many federal workers would still get pay raises the next two years,” AFGE Legislative and Political Director Beth Moten wrote in a Dec. 2 letter to House and Senate lawmakers.
Moten tartly added: “Denying pay increases to federal workers will have no measurable impact on the deficit, won’t spur economic growth or job creation and won’t free up resources to refurbish the nation’s public infrastructure.”
Moten noted: “It will do nothing but create operational and morale problems,” plus “impoverish the already modestly-paid federal work force.”
Also, the President’s federal pay freeze would not affect members of Congress or their staffs. Last May, Congress voted to freeze its own pay for 2011. Base pay for House and Senate lawmakers is $174,000, though leaders earn a higher salary. The cost-of-living increase would have given lawmakers an estimated $1,600 average raise in 2011.
The President’s pay freeze also exempts military troops, but it does affect Defense Department employees.
Obama had hoped to turn the tables on the Republicans, similar to how Clinton triangulated with welfare reform in 1996 after the GOP swept Congress in 1994. Obama’s federal pay freeze won praise and raised comparisons to President Ronald Reagan, who froze pay in 1986, and even with Clinton, who also tried to freeze federal pay in 1994.
But the President’s attempt at a limited federal pay freeze may not even fly in Congress. The President “cannot freeze federal pay unilaterally,” even for just his proposed cap on COLA pay hikes, notes the Heritage Foundation. It would also take an act of Congress to stop federal step- pay increases and bonuses, among other things.
The President needs Congress to act on his proposal, which he wants to take effect January 1. Doubtful that would happen in the very crowded lame duck session.
Also, the President’s pay freeze does not affect the reason why federal compensation is higher than the private sector -- very rich federal benefits, like government pensions federal workers can start drawing down on as early as age 56. Those pensions are typically based on the highest three years of salary, versus five at private companies.
“Those federal benefits are a big reason why federal worker compensation is so out of whack with private sector reality,” the Heritage Foundation says.
The average federal employee gets compensation (wages and benefits) that is about 30% to 40% greater than what a comparable private sector worker gets, says James Sherk, a labor economist with the Heritage Foundation.
“Worse, the current federal pay system does little to reward performance,” Sherk says. “As a result, the federal government is both overpaying underperforming workers and underpaying the most skilled federal employees.”
Sherk says Congress should replace the federal general pay schedule with “pay-for-performance systems tied to market compensation.” He also says federal benefits should be brought in line with the private sector, and that the federal retirement age should be raised from 56 to the Social Security retirement age.
That age is also much lower than the age of 62 that taxpayers must reach to get Social Security benefits — proposals to cut the deficit would raise that age to 67 in 2027).
Sherk says his federal pay reforms would save taxpayers $47 billion every year, versus the president’s $28 billion over five years.
The National Commission on Fiscal Responsibility and Reform, which President Obama created, also has a pay freeze proposal that goes beyond the President’s plan.
The commission proposes a three-year pay freeze on federal workers and Defense Department civilians that would freeze step-pay increases and bonuses, saving more than $60 billion in three years.
How does the average salary for civilian federal employees stack up against the private worker? says it was $81,258 in 2009 — about 61% higher than the $50,462 paid to the average private sector worker, based on statistics from the Bureau of Economic Analysis. also notes reports that say that the federal government paid $41,791 in benefits for every federal civilian worker — far more than the $10,589 spent on benefits for the average private-sector worker.
But these figures are inflated, the watchdog group says. It notes that “these numbers were arrived at by dividing full-time equivalent employees for private industries and federal government by their total compensation or their total wage and salary. But the statistics on federal employees exclude the military as well as postal workers.”
Also, points out that the BEA says that total compensation for federal workers could be overstated as well, as it includes an unknown amount for retirees’ health and life insurance benefits.
Meaning, it includes billions of dollars that Congress appropriates each year to pay "unfunded liabilities" for retirees and current workers covered by the old Civil Service Retirement System before it was replaced for newly hired workers starting Jan. 1, 1987.

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