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COLA's, Housing Costs and Lawsuits: How Pay is Determined for Some Federal Employees

Tuesday, August 1, 2006

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At FedSmith, we probably see more e-mail on the subject of pay and pay-related issues than any other. Last year at this time, we ran an article on COLA's for federal employees outside the contiguous 48 states and generated considerable comments from employees in those areas--most of them expressing unhappiness with some aspect of the pay rate system.

Federal employees in Alaska, Hawaii and the Caribbean area have a different pay system than those in the "lower 48" states. The across-the-board pay raises and the locality pay raises that are routine for most readers do not apply in these areas. Instead, they get a cost-of-living increase based on surveys comparing local expenses (housing, utilities, food and transportation) with similar expenses in the Washington, D.C., area.

To show just how happy some of these employees are about their pay, a lawsuit was filed on the issue in 2000. OPM settled the lawsuit and started new cost-of-living studies. All of these surveys attempt to fix a problem brought in an August 2000 class-action lawsuit from federal employees in noncontiguous states who contended their pay did not reflect their economic reality. OPM settled the lawsuit and began new cost-of-living studies in those areas.

OPM has now issued the results of its latest survey. The new survey was a research project to determine if the housing survey was accurate. In effect, OPM uses market rental data for homes to determine the cost of shelter in each area and there were concerns that the survey data were not accurate.

The COLA areas are divided into three regions--the Alaska, Pacific, and Caribbean regions. The Alaska region is composed of the Anchorage, Fairbanks, and Juneau COLA survey areas. The Pacific region is composed of the Honolulu County; Hilo and Kailua Kona, Hawaii County; Kauai County; Maui County; and Guam COLA survey areas. The Caribbean region is composed of the Puerto Rico; St. Croix, USVI, and St. Thomas/St. John, USVI, COLA survey areas.

Despite the new survey, there is a good chance that employees in these areas will not be happy. Their goal, presumably, was to receive more money from Uncle Sam. The purpose of the new survey was to compare owner estimates of the rental value of their homes with market rents for comparable housing in terms of quality and quantity.The results : "OPM will not adjust COLA survey rent indexes to account for homeowner shelter costs. OPM does not see a need to conduct additional ... surveys at this time."

In effect, there was not enough of a difference between rental estimates and market rates to justify extra cost-of-living adjustments for federal employees affected by the survey results.

You can read considerably more about the survey and the methodology that was used in the study in this
Federal Register notice. Comments on this report must be received by the Office of Personnel Management on or before September 29, 2006. Comments can be sent by e-mail to Cola@opm.gov.

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Readers' Comments

  • Housing Cost in the Nashville MSA now are more costly than most areas in the SE - Believe it or not! That includes Atlanta, and most Gold Coast areas of Florida. Yet, this area is considered "rest of the US". A few years back there was an effort to increase the pay here, but it was stifled by "th...
    Posted: June 2, 2008 5:52 PM
  • Cola and Locality pay are two different animals and one has nothing to do with the other. Cola is based on the cost to live in an area and locality pay is based upon the wages paid in an area. There is a lawsuit in progess to include Alaska and Hawaii in the locality pay system and yes Cola is being...
    Posted: February 6, 2007 10:37 AM
  • In COLA areas the issue with COLA for people close to retirement is that it does count in the as income to calculate the retirement benefit. People now close to retirement, in COLA areas, want to have locality pay to boost their pensions. Locality pay is not as good of a deal if you are along wa...
    Posted: August 2, 2006 11:04 AM

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