U.S. Office of Personnel Management - Ensuring the Federal Government has an effective civilian workforce

Appendix C

Table of Contents

Appendix E

Appendix D

ANALYSIS OF PROPOSED LEGISLATION
DEALING WITH LAW ENFORCEMENT OFFICER PAY
(H.R. 466, H.R. 1676, and S. 985)

I. Introduction

Three bills currently are pending in Congress that deal with pay for Federal law enforcement officers (LEOs): H.R. 466, H.R. 1676, and S. 985. The key provisions of these bills deal with establishing higher geographic adjustments for law enforcement officers and with eliminating the application of premium pay limitations to availability pay for criminal investigators. In this appendix, we provide background information, describe the bills’ provisions, and analyze the justification for the provisions.

As explained in our analysis below, OPM opposes these bills because they attempt to apply across-the-board solutions to a set of problems that should be addressed in a more targeted fashion. For example, they provide higher geographic adjustments to all LEOs across the board even though LEO pay and staffing problems vary significantly by occupation and grade level. Thus, the bills could result in unnecessarily paying some LEOs well above labor market rates. Furthermore, the bills do not consider various negative effects of the proposal to except availability pay from the biweekly premium pay cap. Removal of the cap would create new inequities such as pay compression/inversion between GS criminal investigators and higher-level executives. There are also a number of technical problems with the bills. Finally, we estimate that agency costs under the bills in the initial year would range from $200 to $400 million. In addition, the bills would generate hundreds of millions of dollars in new unfunded liabilities for the CSRS/FERS retirement fund.

II. Background

LEO Geographic Adjustments and Special Rates

 Federal law enforcement officers (LEOs) are entitled to the same locality payments that apply to all other General Schedule employees. However, for a number of years, LEOs in certain locations received higher geographic adjustments. Section 404 of the Federal Law Enforcement Pay Reform Act of 1990 (FLEPRA) (sections 401 through 412 of section 529 of Public Law 101-509, November 5, 1990) provided special geographic pay adjustments for LEOs, ranging from 4 to 16 percent, in eight metropolitan areas—San Francisco, Los Angeles, New York City, and Boston at 16 percent; San Diego at 8 percent; and Chicago, Philadelphia, and Washington, DC, at 4 percent. These LEO geographic adjustments took effect in January 1992. It was the intent of Congress that LEOs in these locations be provided “immediate relief” pending the establishment and phase-in of locality payments for all GS employees. (See House Conference Report 101-906, October 20, 1990, accompanying H.R. 5241, pages 90-92.) The GS locality pay program took effect in January 1994 (although 8 percent interim geographic adjustments were established for all GS employees in the San Francisco, New York City, and Los Angeles metropolitan areas effective in January 1991). FLEPRA expressly required that GS locality payments offset the LEO geographic adjustments; in other words, LEOs were entitled to the higher of (1) the LEO geographic adjustment or (2) the regular GS locality payment. Thus, the LEO geographic adjustments were eliminated as the regular GS locality payments grew in size over time. The 4 percent adjustments in Chicago, Philadelphia, and Washington, DC, were eliminated in January 1994. The last LEO geographic adjustment (in Boston) was eliminated as of January 2004.

The LEO geographic adjustments were limited to the following groups of employees:

• General Schedule (GS) employees, employees in senior-level (SL) and scientific or professional (ST) positions, and members of the Senior Executive Service (SES) who are covered by the LEO retirement provisions of the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS) (5 U.S.C. 5541(3)(A));

• GS, SL/ST, and SES employees who did not meet certain transfer requirements necessary for coverage under the LEO retirement provisions, but who serve in approved supervisory or administrative LEO positions (5 U.S.C. 5541(3)(B)-(C));

• Specified categories of non-GS employees as identified in section 405 of FLEPRA—namely, Secret Service Uniformed Division (SSUD) officers, Park Police officers, Diplomatic Security Service special agents, probation officers, and pretrial services officers. (Note: SSUD officers and Park Police officers were removed from the list of non-GS employees covered by LEO special rates and LEO geographic adjustments effective in 1997 and 2001, respectively. See section 118(e) of Public Law 105-61, October 10, 1997, and sections 907 and 909 of Appendix D, Public Law 106-554, December 21, 2000.) 

Section 403 of FLEPRA established higher rates of basic pay for General Schedule LEOs at grades GS-3 through GS-10 and certain non-GS LEOs as specified in section 405 of FLEPRA. These LEO special rates are 3 to 23 percent higher than the regular rates. They provide larger increases at the lower grades and are phased out at the higher grades. Congress established these LEO special rates to address general pay disparities between Federal LEOs and State and local LEOs at lower grades. (Disparities at lower levels were viewed as a general problem, while pay disparities at higher grades were associated with specific geographic areas; thus, LEO special rates together with LEO geographic adjustments addressed pay problems in a targeted way.) The LEO special rates might also reflect a judgment that lower-level LEO work was not properly valued under the GS classification system.

Availability Pay and Premium Pay Caps

Criminal investigators and certain other law enforcement officers are entitled to law enforcement availability pay under 5 U.S.C. 5545a. Availability pay is a regular supplement equal to 25 percent of the recipient’s adjusted rate of basic pay, subject to premium pay limitations. It is compensation for the first 2 overtime hours on a regular workday and for additional irregular overtime hours. (See 5 U.S.C. 5542(d) and 5545a and 5 CFR 550.181-550.186.)

Under 5 U.S.C. 5547, certain types of premium pay—including availability pay—are payable only to the extent that the payments do not cause the aggregate amount of an employee’s basic pay and premium pay for a biweekly pay period to exceed the greater of (1) the applicable adjusted biweekly rate of basic pay for GS-15, step 10, or (2) the biweekly rate for level V of the Executive Schedule. In some emergency or mission-critical situations, an annual cap may be applied instead of a biweekly cap; however, since availability pay is paid throughout the year, the cap rules require that it always remain subject to a biweekly cap. (See OPM regulations at 5 CFR 550.105-550.107.) In 2004, the premium pay cap (expressed as an annual rate) ranges from $126,064 to $136,900, depending on location.  

III. Summary Descriptions of Legislative Proposals

H.R. 466 (January 29, 2003)

• Amends section 404 of FLEPRA by establishing new LEO geographic adjustments in 32 areas that generally correspond with the existing locality pay areas, effective with the first pay period following enactment. (See table at the end of this section.) This would result in immediate pay increases of 1.6 to 12.2 percent, depending on location.    

• Expands the Boston “Consolidated Metropolitan Statistical Area” to include the State of Rhode Island, the counties of York and Cumberland, ME, and the city of Concord, NH.

• Extends eligibility for LEO geographic adjustments to Capitol Police officers.

• Excepts availability pay from the premium pay limitations in 5 U.S.C. 5547, effective retroactively to April 2002.

H.R. 1676 (April 8, 2003)

• Amends section 404 of FLEPRA by establishing new LEO geographic adjustments in 13 locality pay areas, effective with the first pay period following enactment. (See proposed percentages in the table at the end of this section. Note that H.R. 1676 does not expand the Boston locality pay area.) This would result in immediate pay increases of 0.2 percent (Detroit) to 10.8 percent (Seattle), depending on location.  

• Excepts availability pay from the premium pay limitations in 5 U.S.C. 5547, effective retroactively to April 2002 (same as H.R. 466 and S. 985, below).

• Requires OPM to study and submit a report to Congress on the need for, and the potential benefits of, establishing a separate pay, evaluation, and promotion system for Federal law enforcement officers and authorizes OPM to conduct a demonstration project implementing a new LEO pay system. (Note: The demonstration project would cover only LEOs as defined in the retirement laws. This would exclude certain employees serving in approved supervisory or administrative LEO jobs who lack LEO retirement coverage because they did not transfer directly from a primary Federal LEO job. Such employees are treated as LEOs for various pay purposes. See 5 U.S.C. 5541(3).)

S. 985 (May 1, 2003)

• Includes the same provisions as H.R. 466, except that S. 985 provides for a 27.11 percent geographic adjustment in the New York area, instead of 27.17 percent;

• Requires an OPM study and report and authorizes a demonstration project (same provision as in H.R. 1676).

Comparison of Geographic Adjustments        

The following chart compares the 2004 locality pay percentages to the LEO geographic pay percentages proposed by H.R. 466, H.R. 1676, and S. 985:

 

 

IV. Issues and Analysis

A. New LEO Geographic Adjustments

General

The bills would provide all LEOs in all occupations and at all grade levels with the same pay increase in any given location in which an LEO geographic adjustment applies. However, the salary competitiveness problems facing LEOs are not universal across occupations and grade levels. Rather, they vary significantly by occupation and grade level. An across-the-board approach results in some employees receiving pay increases that are not justified, providing pay above the labor market rates for specific groups of employees.

Data available to OPM indicate that some (but not all) LEO groups have a general problem with low pay at entry/developmental levels, but that the degree of the problem varies by occupational group and location. In particular, significant entry/developmental pay problems may exist in locations with very high labor rates, such as San Francisco, Los Angeles, and New York City. However, Federal pay rates are much more competitive at the full performance level. This should not be surprising, given that the GS pay system generally offers rapid pay progression in the years immediately after entry because employees commonly receive regular (generally annual) promotions until they reach the full performance level. For example, GS-1896 border patrol agents hired at GS-5 normally reach GS-11 after just 2 years, which represents a total pay increase of almost 50 percent. In fact, additional increases at the full-performance level may not be necessary for most LEO jobs in most locations. In many cases, the Federal Government has a competitive advantage in that it offers higher levels of work with higher maximum pay potential than are available in State and local government positions and, for some employees, provides a guaranteed overtime supplement that provides a higher standard of living. For example, at the common GS-13 full performance level for Federal criminal investigators, the maximum rates range from $90,692 to $101,576. If 25-percent availability pay is included, the GS-13 maximum rates range from $113,365 to $126,970, depending on location. The low quit rates for Federal LEOs at the full performance level provide further support for the conclusion that Federal LEO pay is generally competitive at that level. (See subsection entitled “Recruitment and Retention.”)

LEO pay changes should be targeted and tailored to address the needs and circumstances of specific groups of LEOs. Pay changes should take into account labor market and staffing conditions as they exist for specific occupations, grades or levels, and locations. This argues for a flexible authority to set pay for LEOs. Under a flexible authority, for example, starting rates for a specific LEO group could be increased without increasing pay rates at the full performance level.  

It is important to note that, to the extent that available data indicate salary gaps for certain law enforcement employees, such gaps are not unique. The salary survey data used in support of the GS locality pay program show an overall average salary gap of 17.5 percent as of March 2003. Thus, employees in various non-law enforcement occupations may be able to cite even larger pay disparities than those found in various law enforcement jobs.

Percentage Factors

 We have not been provided with documentation supporting the proposed percentage factors for the listed pay areas in any of the three bills. It is not clear how the percentage factors were derived or why the 13 pay areas were chosen for H.R. 1676.

Under H.R. 466 and S. 985, the LEO percentage factor for the “Rest of U.S.” (RUS) area is higher than the LEO percentage factor for Huntsville, Indianapolis, and Kansas City. This is inappropriate. The RUS area is designed to be the area with the lowest locality pay percentage factor. Setting a lower LEO geographic adjusted rate for a defined area (like Huntsville, Indianapolis, and Kansas City) and a higher LEO geographic adjusted rate for the RUS area would have the illogical result of LEOs stationed in the defined area receiving a lower rate than those LEOs stationed just outside the defined area.

It should be remembered that the proposed LEO geographic adjustment percentage amounts would be frozen in law. This means that, absent statutory amendments, regular locality payments might catch up to these rates over time. In areas where higher LEO geographic adjustments are in place, the annual pay adjustments for LEOs would be smaller than the annual pay adjustments for non-LEOs, since LEOs would receive only the applicable general pay increase, while non-LEOs might receive an additional adjustment resulting from a higher locality pay percentage. While this is the natural result of providing LEOs with higher geographic pay, past experience suggests that some LEOs would not understand the benefit they are receiving and would focus on the fact that their annual adjustment is less than that received by other employees.

Senior Executive Service

Under section 1125 of Public Law 108-136 (November 24, 2003), a new pay system was established for members of the Senior Executive Service (SES) (including, by extension, the Federal Bureau of Investigation-Drug Enforcement Administration SES) effective in January 2004. Under the new pay system, SES members are not entitled to locality payments under 5 U.S.C. 5304.  SES members’ locality-adjusted rates of basic pay were converted to rates of basic pay with no locality pay component. The SES rate of basic pay is capped at the rate for level III of the Executive Schedule (EX), or at the rate for level II if a certified SES performance appraisal system is in place.

About 370 SES members have LEO retirement status. When LEO geographic adjustments were in effect, SES LEOs in the designated areas received those geographic adjustments. By law, LEO geographic adjustments are subject to offset by any applicable locality payments and must be administered in the same manner as locality payments under 5 U.S.C. 5304. The LEO geographic adjustment law (section 404 of FLEPRA) did not anticipate that it would cover employees not eligible for locality pay. In fact, section 404(c)(1) expressly provides that LEO geographic adjustments must be administered in the same manner as locality pay.

If new LEO geographic adjustments are established under one of the proposed bills, we will face a number of issues with respect to SES LEOs. Will SES LEOs be entitled to LEO geographic adjustments even though they are not entitled to locality pay? If they are so entitled, they would receive the full geographic adjustment (ranging from 14 to 33 percent) on top of their existing rate of basic pay (which reflects the locality payments they previously received). Would such payments be capped? In the past, LEO geographic adjusted rates for SES members were capped at the rate for level III of the Executive Schedule ($145,600 in 2004), consistent with the EX-III locality rate cap for SES members. (See OPM’s regulations at 5 CFR 531.302(c).) Virtually all SES members receiving the LEO geographic adjustments would reach an EX-III cap. Also, it is not clear how an EX-III cap on LEO geographic-adjusted rates would coexist with an EX-II cap on SES rates of basic pay (for those covered by a certified SES performance appraisal system). Accordingly, we believe SES LEOs should not be covered by any new LEO geographic adjustments; all SES members should be subject to the same pay ranges. 

Pay Compression

The proposed new LEO geographic adjustments would increase pay compression as more employees would hit basic pay caps. This is because the LEO adjusted rates of basic pay would continue to be limited to the rate for level IV of the Executive Schedule ($136,900 in 2004) for General Schedule employees and the rate for level III ($145,600 in 2004) for SL/ST employees. For example, in San Francisco (under any of the bills), the cap would affect LEOs at GS-15, step 7, and higher—meaning pay would be the same at steps 7 through 10. (Currently, San Francisco locality rates are capped at steps 9 and 10 of GS-15.) Similarly, under H.R. 1676, the cap would affect GS-15, steps 9 and 10, in the Washington, DC, locality pay area. GS LEOs at steps where the cap applies would not benefit from higher LEO geographic adjustments. Similarly, more SL/ST LEOs would hit the EX-III cap. Finally, the new LEO geographic adjustments would compress the differences in pay between SES LEOs and lower-level LEOs.

Since the San Francisco GS locality rates have already reached the EX-IV cap at GS-15, steps 9 and 10, this raises the question as to whether there is room for significant increases in locality pay or geographic adjustments without concomitant increases in Executive Schedule salaries.

Also, higher LEO geographic adjustments would mean that more LEOs would reach the biweekly cap on premium pay, resulting in more pay compression. The LEOs most affected by the biweekly premium pay cap are high-graded criminal investigators who receive a 25 percent availability pay supplement. While the three proposed bills would provide that availability pay is not subject to the biweekly cap, this change would present other problems, as discussed in subsection B. 

Employee Coverage

Under H.R. 466, H.R.1676, and S. 985, the LEO geographic adjustments would apply to LEOs as defined in FLEPRA (see section II above). This definition excludes employees who are outside the GS, SL/ST, or SES pay systems, except for certain groups listed in section 405 of FLEPRA. This definition also excludes Park Police and SSUD officers, who are no longer covered by section 405. However, H.R. 466 and S. 985 would cover Capitol Police officers. Even if one presumes that all GS LEOs should receive the locality pay increases provided by the bills in all occupations and at all levels, there should be some logic behind including some non-GS LEOs and excluding others. It would be reasonable to exclude non-GS LEOs who are already receiving competitive pay under their alternative pay systems. For example, SSUD and Park Police officers have received larger pay increases in recent years than other Federal LEOs to ensure that their pay levels are competitive in the labor market. That being the case, it would not make sense to provide them with the same pay increases provided to GS LEOs. 

There is no basis for including Capitol Police officers, who are the highest paid Federal police officers and whose pay appears already to be competitive in the DC-area labor market (due to significant pay increases granted by Congress in recent years that exceed those provided to other Federal LEOs). Furthermore, as drafted, H.R. 466 and S. 985 would appear to apply the new LEO geographic adjustment percentages on top of Capitol Police officers’ existing rates of pay with no offset. This is because Capitol Police officers do not receive locality pay as a separate supplement; thus, there is no locality pay to offset the LEO geographic adjustment, as occurs with GS LEOs. While GS LEOs in the DC area would receive a pay increase of 4.23 percent when their locality adjustment is increased from 14.63 to 19.48 percent, Capitol Police officers would receive a full 19.48 percent pay increase.

Recruitment and Retention

An important factor in determining the appropriate basic pay solutions for Federal law enforcement employees is the level of recruitment and retention difficulty agencies are experiencing. OPM does not have readily available data that would provide measurements of the success of agency recruitment efforts for Federal LEOs. However, OPM is aware that, for many of these jobs, agencies have indicated that they receive a large number of applications. Also, agencies have not reported significant problems to OPM in recruiting LEOs. Since agencies have not requested new or higher special rates in recent years for LEOs, we are left to conclude that recruitment is not a major problem area. However, we believe agencies may be experiencing some recruitment problems in high-cost cities such as New York, San Francisco, and Los Angeles for lower-graded LEO jobs, especially if those jobs are filled on a local labor market basis (e.g., correctional officers). We also acknowledge that the quality of applicants and newly hired employees can be affected by the level of starting salaries and that this is an area where greater flexibility might be appropriate. (While the GS system allows agencies to appoint employees above step 1 based on superior qualifications or a special agency need, this approach can lead to earlier hires being leapfrogged by later hires. A banding system that allows more flexibility in setting entry/development rates of pay could avoid this problem.)  

We analyzed LEO quit rates using data from OPM’s Central Personnel Data File (CPDF) for fiscal years 2001 through 2003. We found that the overall annual quit rates for LEOs ranged from 2.2 to 2.5 percent, which are relatively low and close to overall GS averages. There is no indication of a trend toward higher quit rates. The quit rates vary to some degree by occupation, as shown in the table below:

Selected LEO Occupations	Range of Annual Quit Rates (Percent) FY 2001 – 2003
GS-0007 Correctional Officers	2.7 – 3.9
GS-0025 Park Rangers	0.9 – 1.6
SP-0083 Park Police	1.5 – 2.3
LE-0083 Secret Service Uniformed Officer	3.2 – 5.2
GS-1811 Criminal Investigators	0.7 – 0.8
GS-1896 Border Patrol Agents	5.2 – 5.8

Generally, the higher quit rates for certain occupations were largely attributable to higher quit rates at entry/developmental grades. In some cases (e.g., Border Patrol Agents), the higher quit rates at entry/developmental grades can be associated with resignations in response to failure to meet the training requirements. Such quits are not attributable to a pay problem.

LEO quit rates were very low at GS grades representing an occupation’s nonsupervisory full performance level or higher (e.g., GS-11 and above for Border Patrol Agents and GS-12 and above for Criminal Investigators). Generally, these quit rates were less than 1 percent. Higher quit rates were found at lower grades associated with an entry or developmental level. However, as noted above, some of those quit rates appear to be affected by nonpay factors such as failure to meet basic training requirements or an employee’s reevaluation of a career choice after exposure to the work. Nevertheless, it may also be the case that more flexibility in setting starting rates is needed to make Federal agencies more competitive in specific local labor markets and to attract higher quality candidates who have a greater commitment to the career in question.

Geographic Area Definitions

There are some technical problems with the geographic area descriptions in all three bills:   

• The “Consolidated Metropolitan Statistical Area” (CMSA) and “Metropolitan Statistical Area” (MSA) definitions that have been used in the GS locality pay program were revised by OMB in June 2003 based on the 2000 Standards for Defining Metropolitan and Micropolitan Statistical Areas. Under the new definitions, “Consolidated Metropolitan Statistical Areas” have been replaced by “Combined Statistical Areas.” For now, the GS locality pay program continues to use the older terms and definitions, but we plan to use the new OMB definitions beginning in 2005. Any LEO geographic adjustment areas should be linked directly to the GS locality pay areas.

• Under H.R. 466 and S. 985, the geographic definition of the Boston CMSA includes several areas not covered by the former Boston CMSA or the Boston locality pay area and leaves out areas currently covered by the Boston locality pay area. No justification is provided for adding/subtracting these locations to/from the Boston area. This would result in complaints of inequitable treatment. (We note that some of the additional areas being proposed for inclusion are currently under consideration by the President’s Pay Agent for inclusion in the Boston locality pay area.)

• Since the bills generally rely on the terms “Consolidated Metropolitan Statistical Area and “Metropolitan Statistical Area,” they would exclude certain “areas of application” that have been added to locality pay areas under the GS locality pay program. Again, we believe the LEO geographic areas should be linked to the locality pay area definitions used in the GS locality pay program.

• In all three bills, various geographic areas are not correctly identified. For example, there is no such thing as a “Rest of United States Consolidated Metropolitan Statistical Area” (H.R. 466 and S. 985).

B. Availability Pay and the Premium Pay Cap

All three bills would remove availability pay from the types of premium pay that are subject to the biweekly limitation on premium pay in 5 U.S.C. 5547. As discussed in section II (Background), availability pay may be capped if an employee’s aggregate basic pay and premium pay exceeds the biweekly limit.  

We know of no compelling justification to exempt just one type of premium pay—i.e., availability pay—from the biweekly premium pay cap. Many employees (including LEOs) receive other types of premium pay and will continue to be subject to the biweekly cap.

One of the primary purposes of the cap is to phase out overtime pay for FLSA-exempt employees so that, in effect, they become “salaried” at a high level of pay.  (In 2004, the cap ranges from $124,064 to $136,900, depending on location.) In the private sector, FLSA-exempt employees are salaried and generally receive no overtime pay. Furthermore, we do not believe significant increases in high-level criminal investigator salaries are needed to match labor market rates.   

Another primary reason for the premium pay cap is to prevent pay inversions between GS employees and higher level officials. Uncapping availability pay would result in inversions between GS criminal investigators and their SES managers. SES members do not receive availability pay or any other form of premium pay. The table below provides examples of how the LEO geographic adjustments in conjunction with the removal of the availability cap would affect a GS-15, step 10, criminal investigator in four different locality pay areas. The table shows maximum pay rates using the current locality pay percentages and the proposed LEO geographic adjustments both with and without a cap on availability pay. (Note that the rates in the table reflect the EX-IV cap on geographic-adjusted rates of pay ($136,900 in 2004).)

 

Impact of Removing the Cap on Availability Pay on the Maximum Pay Rate for a GS-15, Step 10, Criminal Investigator (Including 25% Availability Pay) (2004 Rates)
Locality Pay Area	Current Pay Rates		Pay Rates Proposed by H.R. 466 and S. 985		Pay Rates Proposed by H.R. 1676
	With Cap	Uncapped	With Cap	Uncapped	With Cap	Uncapped
Rest of U.S.	$128,200	$157,580	$129,804	$162,255	$128,200	$157,580
Washington, DC	$130,305	$162,881	$135,818	$169,773	$136,900	$171,125
New York City, NY	$135,602	$169,503	$136,900	$171,125	$136,900	$171,125
San Francisco, CA	$136,900	$171,125	$136,900	$171,125	$136,900	$171,125

In comparison, SES rates in 2004 range from a minimum rate of $104,927 to a maximum rate of $145,600 (EX-III) for employees not covered by a certified performance appraisal system and up to a maximum rate of $158,100 (EX-II) for employees covered by a certified performance appraisal system. We note that, in some situations, the uncapped rates also would exceed the rates for many Executive Schedule officials and Members of Congress. The maximum possible rate of $171,125 would be close to the EX-I rate of $175,700, which applies to heads of Cabinet-level departments.  

All three bills also would make the removal of availability pay from the limitation on premium pay effective as if enacted as part of section 1114 of the National Defense Authorization Act for Fiscal Year 2002 (Public Law 107-107), which became effective on April 27, 2002. A retroactive effective date would be extremely problematic. First, it would impose additional costs for which agencies have not planned. (See section V.) Second, it would create administrative problems, since all pay actions for affected employees would have to be recomputed. Also, some affected employees will have retired, and their annuities would have to be recomputed. As a general matter of policy, OPM opposes retroactive pay adjustments. We do not see a compelling justification for retroactive pay adjustments in this case.      

We understand that the biweekly premium pay cap has the effect of creating pay compression problems among high-level criminal investigators—that employees at different rates of basic pay can end up receiving exactly the same total pay. Nevertheless, we believe it would be prudent to explore alternative methods of addressing this issue that do not create the other problems cited in this analysis.

V. Cost Estimates

Costs Associated With the New LEO Geographic Adjustments

OPM estimates that the total annual cost to employing agencies resulting from the proposed higher LEO geographic adjustments would be roughly $390 million under H.R. 466 and S. 985 and roughly $200 million under H.R. 1676. These costs would decrease over time if regular locality payments are allowed to catch up to the higher LEO geographic adjustments.

These costs are an aggregate of (1) direct salary increases, (2) increases in overtime payments resulting from increased rates of basic pay, (3) increases in agency contributions for retirement, and (4) increases in agency contributions for other benefits. Below, we show the estimates for these categories for about 86,000 LEOs in the GS and SL pay plans. The new LEO geographic adjustments also would apply to (1) about 5,400 probation and pretrial services officers in the judicial branch, (2) about 800 Diplomatic Security Service special agents in the State Department who are stationed in the U.S., and (3) about 1,500 Capitol Police officers. Thus, we inflated the GS/SL costs by 9 percent in computing the overall costs shown in the preceding paragraph. (We are aware that the Postal Service also would have additional costs for about 1,900 Postal inspectors, whose pay is linked by law to the pay for GS criminal investigators. We did not attempt to estimate those costs.)

Salary Costs – OPM estimates that the total increase in annual salary costs resulting from the higher geographic adjustments would be about $231 million under H.R. 466 and S. 985 and $120 million under H.R. 1676.  

Overtime Costs – The increases in basic rates also will result in increases in overtime pay and other forms of premium pay received by LEOs, since premium payments are based on basic rates. OPM estimates that the annual cost of increased availability pay for criminal investigators would be roughly $34 million under H.R. 466 and S. 985 and $19 million under H.R. 1676 because of the higher basic rates provided by these proposals. Also, OPM estimates that the annual cost of increased AUO pay for Border Patrol agents would be roughly $5 million under H.R. 466 and S. 985 and $3 million under H.R. 1676.   

Retirement Costs – In addition to direct salary costs, Federal agencies would incur additional retirement costs because of increases in retirement-creditable basic pay (including availability pay). OPM estimates that annual agency retirement contributions for affected LEOs would increase by $57 million under H.R. 466 and S. 985 and $30 million under H.R. 1676.

Note: The agency retirement contribution rate for LEOs under FERS is 23.8 percent. Under CSRS, the agency retirement contribution rate for LEOs is 7.5 percent. About 9.5 percent of all LEOs are under CSRS (representing about 13 percent of total basic payroll for LEOs). This results in an average agency contribution of about 22 percent, which was used in computing the estimates above. However, the Administration proposed legislation in 2001 that would require agencies to pay the full cost of CSRS benefits, which would require an agency LEO CSRS retirement contribution of 32.8 percent instead of 7.5 percent. If CSRS benefits were fully funded, the average agency retirement contribution for LEOs would be about 25 percent, which would result in costs of roughly $66 million under H.R. 466 and S. 985 and $35 million under H.R. 1676).  

Other Agency Costs – The new LEO geographic adjustments also would result in additional agency costs for life insurance contributions, Medicare taxes, Social Security taxes (FERS employees only), and Thrift Savings Plan contributions (FERS only). We estimate that these costs would be at least 10 percent of the basic pay and premium pay increases resulting from the LEO geographic adjustments. Thus, we estimate these costs to be about $27 million under H.R. 466 and S. 985 and about $14 million under H.R. 1676.

Costs to the CSRS/FERS Retirement Fund – Based on the above salary cost estimates, OPM estimates that H.R. 466 and S. 985 LEO geographic adjustments would increase retirement-creditable basic pay by $265 million, resulting in an additional Treasury obligation estimated at just under $1 billion. H.R. 1676 LEO geographic adjustments would increase retirement-creditable basic pay by $139 million, resulting in an additional Treasury obligation of roughly $500 million. These unfunded liabilities would be funded by 30-year amortization payments from the Treasury to the retirement fund. These estimates assume Congress intends for this to be a permanent benefit. The costs would be less if the higher LEO geographic adjustments are phased out over time.

Costs Associated With Uncapping Availability Pay

The direct salary costs resulting from not applying the biweekly premium pay cap to availability pay are more than $12 million annually. This estimate is based on current rates and caps. Costs would grow if pay rates grow faster than pay caps over time. If the additional agency contributions for retirement, Thrift Savings Plan, Social Security, and Medicare are considered, the estimate would increase by about $4 million, for a total of more than $16 million. Unfunded liabilities also would be imposed on the retirement fund, since agencies and employees have not been making the necessary retirement contributions to fund a retirement benefit based on uncapped availability pay. For example, some employees near retirement would suddenly be entitled to a lifetime annuity that is 25 percent higher than it would have been. We did not attempt to quantify those costs.

VI. Conclusion

OPM opposes enactment of any of the three bills discussed in this analysis—H.R. 466, S. 985, and H.R. 1676—because they attempt to apply across-the-board solutions to a set of problems that should be addressed in a more targeted fashion. This could lead to paying some LEOs well above labor market rates.   Furthermore, the bills do not consider the negative effects that would result—e.g., new inequities, pay compression/inversion problems, and unfunded costs.      

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Appendix C

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Appendix E