Citing a national emergency that has existed since the 2001 terrorist attacks, President Bush said Wednesday he will cut the pay raises that most civilian federal employees were to receive in January.

In a letter to congressional leaders, Bush said he was using his authority to change the pay structure in times of "national emergency or serious economic conditions" to limit raises to 2 percent.

Federal employees covered by the government's general schedule pay system were to receive a 2.7 percent across-the-board boost of basic pay and also an increase based on private-sector wages in the areas where they work, called locality pay (search).

About 1.2 million of the 1.8 million civilian federal work force are under the general schedule system and would be affected by the change, according to the Office of Personnel Management (search).

Bush said granting those full raises would cost about $11 billion more than he had proposed in his budget.

"Such cost increases would threaten our efforts against terrorism or force deep cuts in discretionary spending or federal employment to stay within budget," Bush wrote. "Neither outcome is acceptable."

Bush set the across-the-board raise at 1.5 percent, with the remaining 0.5 percent for locality pay.

Military personnel aren't affected. Bush has proposed a 4.1 percent raise for them starting in January.

The government faces a record $480 billion shortfall in 2004, congressional budget analysts said this week.

Bush also has proposed $500 million in the new budget for performance-based raises for federal workers and urged congressional passage.

"Providing higher pay for employees whose exceptional performance is critical to the achievement of the agency mission is preferable to spreading limited dollars across the board to all employees regardless of their individual performance or contribution," he said.

Bush said any pay raise above 2 percent likely would go unfunded by Congress anyway, and agencies would be forced to absorb the additional cost. Departure rates also are at an all-time low of 1.7 percent, he said.

Bush's decision to limit raises - his second - is another blow to the civilian federal work force, which is the target of sweeping changes the administration is making to the government bureaucracy.

The administration is moving forward with plans to let private companies compete for nearly half the 1.8 million federal jobs.

It stripped the collective bargaining rights (search) of some federal employees at the Justice and Homeland Security departments and for airport screeners. Defense Department employees may lose theirs as well.

While limiting raises for federal workers, the White House two years ago restored cash bonuses for some 2,100 political appointees at federal agencies. The Clinton administration had stopped the practice after concluding the first Bush administration used the system to reward political cronies with nearly $400,000 before leaving office.

AFL-CIO President John Sweeney (search) called the president's move to limit raises "shameful."

"Bush is making federal employees pay for his own fiscal recklessness," he said. "While Bush is cutting workers' wages in the name of fighting terrorism, he has meanwhile pushed through unaffordable millionaire tax cuts that do nothing to create jobs and which worsen our nation's long-term economic prospects."

Federal pay also was an issue during negotiations over the current budget, in which Bush broke with the normal custom of giving military personnel and civilian employees similar raises.

The military received a 4.1 percent raise in basic pay. But Bush cited the national emergency created by the war on terrorism in holding the civilian pay increase to 3.1 percent.