(3) The proposed increase in basic compensation would be meaningless to many older employees nearing the statutory retirement age whose salaries are now in the highest step of their grades. As to many other employees with 25 or more years of service, the potential increase in their annuity upon retirement would be negligible.

(4) In the determination of the amount of the increase in basic compensation, as proposed by H.R. 7401, resort would necessarily be had to comparative commercial jobs in the particular area. There are many Federal employees occupying positions in professional and technical fields under the Classification Act who would be affected by the bill, particularly those stationed in the State of Alaska and the Commonwealth of Puerto Rico, for which there are no comparable positions in private industry.

We appreciate very much the opportunity which you have given us to appear at this hearing.

Mr. UDALL. Thank you for a very fine statement, Mr. Owen. The next witness is Mr. Roy North. An old friend of the members of this committee.

You may proceed, Mr. North.

STATEMENT OF ROY NORTH, LEGISLATIVE REPRESENTATIVE, NATIONAL ASSOCIATION OF POSTMASTERS

Mr. NORTH. Mr. Chairman and members of the committee, my name is Roy M. North, former postmaster at Washington, D.C., and I am now legislative representative of the National Association of Postmasters.

The membership of our association is composed of over 90 percent of the more than 34,000 active postmasters of the 50 States including Puerto Rico and the Virgin Islands. In addition we have approximately 1.500 retired postmasters as associate members.

The bill before us, H.R. 7401, introduced by Chairman Murray on July 8, 1963, would terminate the cost-of-living allowances now granted statutory-salaried Federal civilian employees in the nonforeign areas of Alaska, Hawaii, Puerto Rico, and the Virgin Islands.

We have approximately 400 postmasters who are vitally concerned in this legislation.

Under the Independent Offices Appropriation Act of 1949, as amended, the Civil Service Commission has the authority and responsibility of establishing these allowances after review of the costof-living conditions in such areas.

The Commission announced on January 16 that the allowance in Puerto Rico would be reduced from 12.5 percent of base pay to 5 percent of base pay and the allowance in the Virgin Islands would be reduced from 15 to 5 percent early in April. This action has been postponed until the Commission has had an opportunity to learn the results of congressional action on this bill.

The present allowances of 25 percent in Alaska and 15 percent in Hawaii apparently are not considered subject to reductions at this

time.

There appears to be some good features to H.R. 7401; for instance, it is proposed to phaseout any reductions by degrees over a 6-year period.

The allowances are not includible for retirement or life insurance benefits and they are not subject to Federal income tax.

It is easily understandable that for Federal employees in these areas, a sharp reduction in their expected income would work a real hardship. A phasing out for a 6-year period would, of course, be of some help.

However, this committee has heard a number of witnesses including prominent local officials and congressional Representatives and Senators for each area who oppose H.R. 7401 and maintain that any termination or reduction in allowances is unjustified and an extended investigation in each area would support their contention, while Chairman Macy of the Commission contends that section 504 of the Salary Reform Act of 1962 provides a salary differential authority which would adequately meet the cost-of-living problems.

This section is a followthrough on comparability of Federal pay with that of private enterprise.

Under the provisions of the Independent Offices Appropriation Act of 1949, as amended, these allowances are cost-of-living differentials.

This is an entirely different matter from comparability principles, and the testimony before you, which in our opinion is most impressive, as to the higher living cost in these areas certainly suggests that an extensive analysis be made in each area before any reduction or change be made in existing cost-of-living differentials provided in the amended act of 1949.

We recommend, therefore Mr. Chairman and members of the committee, that you do not approve this legislation and that the Civil Service Commission be constrained to make a comprehensive examination of conditions in each area before any reductions or changes are made.

We appreciate this opportunity of submitting testimony on this most important subject to many of our postmasters.

Mr. UDALL. Thank you, Mr. North, for giving us the benefit of your views.

Next on our witness list is Mr. George D. Riley of the International Association of Bridge, Structural, & Ornamental Ironworkers. You may proceed, Mr. Riley.

STATEMENT OF GEORGE D. RILEY, LEGISLATIVE REPRESENTATIVE, INTERNATIONAL ASSOCIATION OF BRIDGE, STRUCTURAL, & ORNAMENTAL IRONWORKERS, AFL-CIO

Mr. RILEY. At the request of the financial secretary of Local Union No. 625, Ironworkers, Honolulu, I am presenting our opposition to H.R. 7401. I believe the same statements can be applicable to conditions in Alaska, Puerto Rico, and elsewhere.

While our members are wage earners in contrast to salary groups, the impact would be considerable when prevailing rates of whatever character are concerned.

When most of the necessities of life have to be transported to any part of the globe, the cost of such commodities is bound to rise.

Tourism, while important, nevertheless is not the entire sustaining factor of any worthwhile economy. But when Federal Government

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budgets are involved, the removal of such basic consideration can only have a major effect. Federal pay has a decisive tendency to pull other class of pay for personal services upward. The reverse is bound to happen from an adverse movement.

Paring the Federal budget has become something of an order of the day lately.

We do not join forces with those who say "Look elsewhere to economize." But we certainly do not regard the eager action of the U.S. Civil Service Commission as constructive, useful, or in the best interests of all concerned.

Because of the general situation involved and because a "tax cut" accompanied by a pay cut is no way to get anywhere, I suggest referring the bill, H.R. 7401, to the limbo of forgotten proposals.

Mr. UDALL. Thank you, Mr. Riley. As usual, you have presented a terse, but fine, statement.

Mr. McAvoy, I believe you are our next witness. You may proceed with your statement.

STATEMENT OF HAROLD MCAVOY, NATIONAL PRESIDENT, POST OFFICE MAIL HANDLERS, WATCHMEN, MESSENGERS & GROUP LEADERS

Mr. McAvoy. Mr. Chairman and members of the subcommittee, for the record my name is Harold McAvoy. I am national president of the Post Office Mail Handlers, Watchmen, Messengers & Group Leaders and our membership in the Bureau of Facilities.

We are members of the American Federation of Labor and Congress of Industrial Organizations, and the Government Employes' Council. Our national office is located at 900 F Street NW., Washington, D.C.

I fully appreciate this opportunity to give the views of our national organization pertaining to the proposed legislation known as H.R. 7401. This bill, if enacted into law, would terminate the costof-living allowances for our people in non foreign places-Alaska, Hawaii, Puerto Rico.

Again, for the record, our national organization's stand is definitely opposed to H.R. 7401 being enacted into law.

We understand this bill was introduced by request. That the Civil Service Commission contends it is acting under a mandate from the Congress, continued in the Federal Salary Reform Act of 1962, section 502-sets up a criterion of comparability with private enterprise salary rates for the same levels of work upon the basis of national averages. I fail to find any mandate which would tell the Civil Service Commission to abolish, through legislation, the cost-ofliving allowances in nonforeign areas, where the rates of pay found by determining nationwide averages are inadequate and therefore invalid. This, I believe, should show that in passing the 1962 Salary Act, which Congress fully intended the base rates to be established would apply to the nonforeign areas without changing the cost-ofliving allowance.

As far as I know, the cost-of-living allowance was established because postal employees just could not make ends meet. This allowance was a must for our people in Hawaii, Puerto Rico, Alaska, and

the Virgin Islands to combat the cost of living and was established under section 207 of the Independent Offices Appropriation Act of 1949. It has been pointed out by various witnesses, who testified before this committee, that said allowance did not entirely cover the excessive difference between nonforeign areas and the 48 States. It was a big help in eliminating the hardship that prevailed at said time. I would like to point out that time has not changed the picture of said areas.

I would like to urge you and the committee members, at this time, to vote "No" on H.R. 7401, and for the near future to consider increasing the cost-of-living allowance for those non foreign areas.

Thank you for the privilege of appearing before you and presenting the views of our national organization.

Mr. UDALL. Thank you, Mr. McAvoy.

Our next witness is Mr. William H. Ryan, president, International Association of Machinists.

Mr. Ryan, we are happy to have you here, and you may proceed. STATEMENT OF WILLIAM H. RYAN, PRESIDENT, INTERNATIONAL ASSOCIATION OF MACHINISTS

Mr. RYAN. Mr. Chairman and members of the committee, my name is William H. Ryan, and I am president and legislative representative of District 44 of the International Association of Machinists, AFL-CIO, with offices located in suite 811, 400 First Street NW., Washington, D.C.

District 44 of the International Association of Machinists is composed of affiliated locals of the I.A. of M. which are made up of membership of Government employees throughout the 50 States and insular possessions of the United States.

I have been authorized by International President A. J. Hayes to speak in behalf of the 900,000 members of the I.A. of M. in reference to H.R. 7401 which is receiving the consideration of this committee.

The general purpose of H.R. 7401 is to repeal the statutes which provide the authority for the payment of certain cost-of-living allowances and percentage differentials to Federal statutory-salaried employees in non foreign areas.

The affected employees are, generally, those whose pay is fixed by the Congress under the Classification Act of 1949, as amended, and by part III of title 39, United States Code, in the postal field service. These historic cost-of-living differentials authorized by the aforementioned statutes are paid to the affected employees only during the period that they are actively employed in the areas for which such differentials are authorized.

These differentials have always been recognized by the affected employees as a condition of employment which played a part in their decision to accept, and to continue, employment in such areas. These differentials have had a tax-free character, and the elimination of such statutory differentials, and the substitution of additional base pay, would remove the tax-free character of this additional pay and adversely affect these employees in varying degrees, depending upon their salary income status.

It must be recognized that the availability of the same grade and quality of housing, foods, clothing, and other necessary living commodities and services, comparable to those available to employees in other than these areas, is always a problem.

In order to provide these employees with a living standard which is not inferior to that available to Government employees in other areas, we strongly recommend that this subcommittee vote that the provisions of H.R. 7401 be not adopted.

The economics of the cost of living in the affected areas are so unstable and unpredictable that we submit that it would be unfair to the affected employees to take any action which would adversely affect their income and standard of living.

Conversely, the proposed objectives of H.R. 7401 could conceivably hamper the recruitment and retention of qualified personnel in these areas, as well as adversely affecting the morale of those presently employed in the affected areas.

Our organization expresses appreciation to this committee for the opportunity to set forth our views in respect to H.R. 7401. Mr. UDALL. Thank you, Mr. Ryan.

Are there questions?

Mr. GROSS. No questions.

Mr. BARRY. No questions, Mr. Chairman.

Mr. UDALL. Thank you for coming. You may be excused.

The next witness is Mr. George Meagher, legislative representative of the American Federation of Government Employees. Mr. Meagher, we are happy to have you, and you may proceed with your presentation.

STATEMENT OF GEORGE MEAGHER, LEGISLATIVE REPRESENTATIVE, AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES

Mr. MEAGHER. Mr. Chairman, my name is George Meagher, director of legislation, American Federation of Government Employees. I am accompanied by Mr. William Voss, director of research.

Our national president, Mr. Griner, intended to be here this morning and regrets that he could not make it.

With your permission, sir, this is a five-page statement so I will just read part of it.

Mr. UDALL. This would be appreciated because we have a large number of witnesses, and without objection, the statement which is before us consisting of five pages and a table appendix will be printed in the record as though read in full, and you may highlight the statement or make whatever presentation you desire.

(The complete statement follows:)

STATEMENT OF GEORGE MEAGHER, DIRECTOR OF LEGISLATION, AMERICAN FEDERATION

OF GOVERNMENT EMPLOYEES

The bill H.R. 7401 is unacceptable to the American Federation of Government Employees for reasons which I shall enumerate in this statement. I propose that no action be taken to change the existing differential based on living costs as a means of insuring adequate compensation for Federal employees who are recruited and assigned to Alaska, Hawaii, Puerto Rico, and the Virgin Islands. Accordingly, my recommendation is that the committee take no action on this bill. The change from cost-of-living allowances to salary comparability with private industry will not affect sound economies. It will make recruiting and retention