The Overseas Cost of Living Allowance is a supplement designed to equalize purchasing power between members overseas and their CONUS-based counterparts. The following is a summary of the Overseas Cost of Living Allowance:
The Average COLA Supplement
The average supplement is $300 per month. The basic measurement is a comparison of CONUS shopping behavior and the aggregate shopping behavior at each overseas location. It impacts 320,000 members at approximately 600 locations overseas, including Alaska and Hawaii. The current cost is approx. $1 billion annually.
Two overseas surveys are conducted to determine overseas costs:
- Living pattern survey (LPS): once every three years; samples all members with command-sponsored dependents assigned to each location, asks which local (off-base) stores they use, and percentage of market basket items purchased from on-base and off-base facilities.
- Market basket survey - Retail Price Schedule (RPS): annually at about 200 locations, collects prices for approximately 120 goods and services (normally 6-9 prices each) at sources identified in the LPS. Locations not surveyed get COLA based on reporting locations with similar purchasing advantages (similar time and distance from U.S. supported facilities).
CONUS surveys used to determine U.S. base prices:
- Living pattern survey (LPS): conducted approximately every 3 years, randomly selected 5000 CONUS based members to send questionnaires.
- Market basket price surveys: updates received quarterly from AAFES, DECA, Bureau of Labor Statistics (BLS), State Department and local market sources.
- Weighting for U.S. prices: every two years; measures importance of each of the 120 items in service member's family budget. BLS reports special tabulation of Service families who reported.
- Consumer Expenditure Survey (CES): The CES details how members allocate their disposable income across all the COLA types of goods and services.
Computation of COLA index:
- Weighted average cost of each market basket item is determined (off-base percentage times off-base price plus on-base percentage times on-base price). Same method is used to determine the CONUS weighted average cost. Overseas cost for each market basket item is compared to CONUS cost for the same item to produce an index for each item.
- Indexes are weighted individually and aggregated and summarized for a final location COLA index (an index of 120 means overseas location is 20 percent more expensive than the average U.S. location).
- Changes in exchange rates (where appropriate) are applied to that portion of COLA index that reflects local currency purchases.
- Exchange rates are reviewed at least twice per month.
Payment of COLA is based on the member's Regular Military Compensation (RMC) and their spendable income:
- RMC includes basic pay, BAS, an average BAH, and the tax advantage updated with each military pay raise.
- Estimate of income calculated by number of years of service and dependency status; updated with each pay increase.
- Spendable income is derived from the BLS Consumer Expenditure Survey and represents the aggregate spending pattern of CONUS families varying by income level and family size.
Spending for food consumed at home, food consumed away from home, clothing, personal care, tobacco and alcohol, car purchase, personal care, household operations, transportation, recreation, medical care, and telephone are included in COLA.
Spending for Federal income taxes, shelter expenses, gifts and contributions, life insurance, and savings are not part of COLA.
Data derived from the BLS data provides the aggregate amount families spend on COLA goods and services varying by income level and family size.
COLA is paid as percentage of spendable income. An index of 110 would result in an annual COLA of 10 percent of the spendable income corresponding to the member's grade, years of service, and family size.
Current spendable income table updated October 2002, effective 1 January 2003 using BLS and CES data released in 2002.
Factors that impact COLA:
- The COLA index is highly dependent on the proportion of shopping done in on-base facilities. In general, the higher the proportion of on-base shopping, the lower the index.
- COLA is not intended to measure all of the differences in living overseas and living in CONUS. Cultural differences, climate differences, and inconvenience factors are more properly addressed through Hardship Duty Pay, Location.