The President's Pay Agent
Cost of Locality Payments
Estimated Cost of Locality Payments
The cost of locality payments is the sum of all individual locality payments during a calendar year, offset by special salary rates. This amount is estimated using OPM records of all Federal employees with duty stations within the continental United States (CONUS) as of March 2005 and covered by the General Schedule or other pay plan to which locality pay has been extended, together with the percentage locality payments from Table 2. The estimate assumes that the average number and distribution of employees (by locality, grade, and step) in CONUS in 2007 will not differ substantially from the number and distribution in March 2005. The estimate does not include increases in premium pay costs or Government contributions for retirement, life insurance, or other employee benefits that may be attributed to locality payments.
Cost estimates are derived as follows. First, both the "scheduled annual rate of pay," as defined in 5 CFR 531.602, and the annual rate inclusive of special rates are determined for each employee. These rates are adjusted to include an assumed 2.1 percent across-the-board increase in January 2006 and the 1.7 percent across-the-board increase that would become effective in January 2007 under current law (under FEPCA, across-the-board increases are based on the change in the applicable ECI minus 0.5 percentage points). Both annual rates are converted to expected annual earnings by multiplying each by an appropriate work schedule factor.9 The "gross locality payment" is computed for each employee by multiplying expected annual earnings from the scheduled annual rate by the proposed locality payment percentage for the employee's locality pay area. The sum of these gross locality payments is the cost of locality pay before offset by special rates.
Second, for each employee, the gross locality payment is compared to the amount by which expected annual earnings from the annual rate inclusive of special rates exceeds the expected annual earnings from the scheduled annual rate. This second amount is the "cost" of any special rate. If the gross locality payment is less than or equal to the cost of any special rate, the net locality payment is set at zero. In this case, the locality payment is completely offset by an existing special rate. If the gross locality payment is greater than the cost of any special rate, the net locality payment is equal to the gross locality payment minus the cost of any existing special rate. In this case, the locality payment is at most partially offset. If the scheduled annual rate is the same as the annual rate inclusive of special rates (i.e., the cost of any special rate is zero), then there is no offset and the net locality payment equals the gross locality payment. The sum of the net locality payments so derived is the estimated cost of local comparability payments.
Estimated Cost of Locality Payments in 2007
Table 4, below, compares the cost of the projected 2006 locality rates to those that would be authorized in 2007 under 5 U.S.C. 5304(a)(3)(I), as identified in Table 2. For the purpose of this cost estimate, we have assumed that there will be a 2.1 percent across-the-board increase in January 2006 and locality pay increases as recommended by the Federal Salary Council at its letter of October 21, 2005 (as shown in Appendix I). The "2006 Baseline" cost would be the cost of locality pay in 2007 if the assumed 2006 locality rates are not increased, i.e., the percentage locality payments in 2006 on top of 2007 base pay rates including an assumed 2.1 percent across-the-board adjustment in January 2006 and an assumed 1.7 percent adjustment in January 2007.
The "2007 Locality Pay" columns show what the total locality payments would be and the net increase in 2007. The "2007 Increase" column shows the 2007 total payment minus the 2006 baseline-i.e., the increase in locality pay in 2007 attributable to higher locality pay rates. Based on the assumptions outlined above, we estimate the total cost attributable to the locality rates shown in Table 2 to be about $5.3 billion on an annual basis. This amount does not include the cost of benefits or the cost of the 1.7 percent increase in rates of basic pay that would take effect in January 2007 under current law.
This cost estimate excludes 826 records of white-collar workers which were unusable because of errors. Many of these employees may receive locality payments. Including these records would add about $3.4 million to the net cost of locality payments. The cost estimate covers only General Schedule employees and employees covered by pay plans that receive locality pay by action of the Pay Agent. It excludes the cost of pay raises for employees under other pay systems that may be linked in some fashion to locality pay increases. These other pay systems include the Federal Wage System for blue-collar workers, under which pay raises often are capped or otherwise affected by increases in locality rates for white-collar workers; pay raises for employees of the Federal Aviation Administration and other agencies that have independent authority to set pay; and pay raises for employees covered by various demonstration projects.
Cost of Local Comparability Payments in 2007 (in millions of dollars)
The work schedule factor equals 1 for full-time employees and one of several values less than 1 for the several categories of non-full-time employees.