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5 U.S.C. 5941; E.O. 10000, 3 CFR, 1943-1948 Comp., p. 792; and E.O. 12510, 3 CFR, 1985 Comp., p. 338.
67 FR 22340, May 3, 2002, unless otherwise noted.
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Subscribe to: 5 CFR Part 591 Subpart B - Cost-of-Living Allowances
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Nomenclature changes to subpart B of part 591 appear at 70 FR 31313, May 31, 2005.
(a) OPM designates, within nonforeign areas, areas where agencies pay employees a COLA by virtue of living costs that are substantially higher than those in the Washington, DC, area. In establishing the boundaries of COLA areas, OPM considers—
(1) The existence of a well-defined economic community,
(2) The availability of consumer goods and services,
(3) The concentration of Federal employees covered by this subpart, and
(4) Unique circumstances related to a specific location.
(b) If a department or agency wants OPM to consider establishing or revising the definition of a COLA area, the head of the department or agency or his or her designee must submit a request in writing to OPM.
OPM has established the following COLA areas:
(a) City of Anchorage, AK, and 80-kilometer (50-mile) radius by shortest route using paved roads when available, as measured from the Federal courthouse to the official duty station;
(b) City of Fairbanks, AK, and 80-kilometer (50-mile) radius by shortest route using paved roads when available, as measured from the Federal courthouse to the official duty station;
(c) City of Juneau, AK, and 80-kilometer (50-mile) radius by shortest route using paved roads when available, as measured from the Federal courthouse to the official duty station;
(d) Rest of the State of Alaska;
(e) City and County of Honolulu, HI;
(f) County of Hawaii, HI;
(g) County of Kauai, HI;
(h) County of Maui (including Kalawao County), HI;
(i) Commonwealth of Puerto Rico;
(j) Territory of Guam and Commonwealth of the Northern Mariana Islands; and
(k) U.S. Virgin Islands.
[67 FR 22340, May 3, 2002, as amended at 73 FR 65245, Nov. 3, 2008]
OPM establishes COLA rates based on price differences between the COLA area and the Washington, DC, area, plus an adjustment factor. OPM expresses price differences as indexes.
(a) OPM computes price indexes for various categories of consumer expenditures.
(b) OPM combines the price indexes using Consumer expenditure weights to produce an overall price index for the COLA area.
(c) To combine overall price indexes for COLA areas with multiple survey areas, OPM uses employment weights to combine overall price indexes by survey area for COLA areas. The COLA areas that have multiple survey areas are listed in § 591.215(b).
(d) OPM adds an adjustment factor to the overall price index for the COLA area.
(a) The price index is the COLA area price divided by the DC area price and multiplied by 100.
(b) Example:
COLA Area Average Price for Item A = $1.233
DC Area Average Price for Item A = $1.164
Computation:
$1.233/$1.164 = 1.0592783
1.0592783 × 100 = 105.92783.
(c) In the case of the final index, OPM rounds the index to two decimal places.
(a) A weight is the relative importance or share of a subpart of a group compared with the total for the group. A weight is frequently expressed as a percentage. For example, in a pie chart, each wedge has a percentage that represents its relative importance or the size of the wedge compared with the whole pie.
(b) OPM uses two kinds of weights: Consumer expenditure weights and employment weights.
(1) Consumer expenditure weights. The consumer expenditure weight for a category of expenditures (e.g., Food) is the relative importance or share (often expressed as a percentage) of that category in terms of total consumer expenditures. OPM derives consumer expenditure weights from the tabulated results of the Bureau of Labor Statistics (BLS) Consumer Expenditure Survey (CES).
(2) Employment weights. The employment weight is the relative employment population of the survey area compared with the employment population of the COLA area as a whole. OPM uses the number of General Schedule employees in the survey area to compute employment weights. OPM uses these employment weights as described in § 591.216(b).
OPM uses three different types of categories: Major expenditure groups, primary expenditure groups, and detailed expenditure categories.
(a) Major expenditure groups. OPM groups expenditures into nine major expenditure groups (MEGs). These categories are food, shelter and utilities, clothing, transportation, household furnishings and supplies, medical, education and communication, recreation, and miscellaneous.
(b) Primary expenditure groups. OPM subdivides each MEG into primary expenditure groups (PEGs). There are approximately 40 PEGs.
(c) Detailed expenditure categories. OPM further subdivides each PEG into other categories down to the detailed expenditure categories (DECs), which are generally equivalent to the most detailed level of tabulated CES categories. OPM classifies each DEC into one of the PEGs to aggregate DECs with similar demand and cost characteristics into PEGs. Alternatively, OPM may remove the DEC entirely from the list of expenditures. Therefore, the classification of the DECs into PEGs and sub-PEGs does not necessarily follow that used in published CES tables.
(a) OPM selects a sufficient number of items to represent PEGs and reduce overall price index variability. In selecting these items, OPM applies the following guidelines. The item should be—
(1) Relatively important (i.e., represent a DEC with a relatively large weight) within the PEG;
(2) Relatively easy to find in both COLA and DC areas;
(3) Relatively common, i.e., what people typically buy;
(4) Relatively stable over time, e.g., not a fad item; and
(5) Subject to similar supply and demand functions.
(b) To the extent practical, the items OPM surveys in the COLA area must be identical to the items that OPM surveys in the DC area or be of closely similar quality and quantity, with quantity adjustments as necessary. An example of a quantity adjustment is converting prices for 10 and 12 oz. packages to a price per pound.
(c) Within any DEC, OPM may specify items that differ in quality and quantity from other items specified for the same DEC. However, when OPM compares prices for such items between the COLA area and the DC area, OPM compares prices of like products.
(a) OPM surveys the price charged to the consumer at the time of the survey. The price includes any sales, excise, or general business tax passed on to the consumer at the time of sale and any discounts, mark-downs, or “sales” in progress at the time the price was collected.
(b) Exceptions:
(1) OPM does not collect coupon prices, clearance prices, going-out-of-business prices, or area-wide distress sale prices.
(2) OPM prices automobiles at dealers and obtains the sticker (i.e., non-negotiated) price for the model and specified options. The prices are the manufacturer's suggested retail price (including options), destination charges, additional shipping charges, appropriate dealer-added items or options, dealer mark-up, and taxes.
(3) OPM estimates prices for selected items, such as health insurance and K-12 education, based on employee usage of the item. For example, OPM estimates health insurance prices based on the employee's share of the premium costs and weights reflecting Federal enrollment, as reported in OPM's Central Personnel Data File, in the various plans available to Federal employees in each area.
[67 FR 22340, May 3, 2002, as amended at 69 FR 59762, Oct. 6, 2004]
(a) OPM collects most prices by visiting or calling retail outlets in each survey area and observing or verbally obtaining the item prices.
(b) OPM prices some items by catalog, Internet, or a similar source. Other items, not normally sold within an area, may be priced in a different area. In either case, the price of such items includes any applicable taxes, shipping, and handling charges. When an item is normally sold within an area but is not available at the time of survey, OPM may, on a case-by-case basis, use the price of the item in a neighboring survey or COLA area.
(a) Survey areas. Each COLA area has one survey area, except Hawaii County, HI, and the U.S. Virgin Islands COLA areas. Hawaii County has two survey areas: the Hilo area and the Kailua Kona/Waimea area. The U.S. Virgin Islands also has two survey areas: the Island of St. Croix and the Islands of St. Thomas and St. John. The Washington, DC, area has three survey areas: the District of Columbia, the Maryland suburbs of the District of Columbia, and the Virginia suburbs of the District of Columbia. OPM collects non-housing data throughout the survey area, and for selected items such as golf, snow skiing, and air travel, OPM collects non-housing data in additional geographic locations. OPM may collect housing data throughout the survey area or in specific housing data collection areas. The following table shows the survey areas:
| COLA and reference areas | Survey areas and geographic coverage |
|---|---|
| Anchorage | City of Anchorage. 1 |
| Fairbanks | Fairbanks/North Pole area. 1 |
| Juneau | Juneau/Mendenhall/Douglas area. 1 |
| Rest of Alaska | See paragraph (c) of this section. |
| Honolulu | City and County of Honolulu. |
| Hawaii County | Hilo area. 1 |
| Kailua Kona/Waimea area. | |
| Kauai | Kauai Island. |
| Maui | Maui Island. |
| Guam & CNMI | Guam. |
| Puerto Rico | San Juan/Caguas area. 2 |
| U.S. Virgin Islands | St. Croix. |
| St. Thomas/St. John area. 3 | |
| Washington, DC-DC | District of Columbia. 1 |
| Washington, DC-MD | Montgomery County and Prince Georges County. 1 |
| Washington, DC-VA | Arlington County, Fairfax County, Prince William County, City of Alexandria, City of Fairfax, City of Falls Church, City of Manassas, and City of Manassas Park. 1 |
| 1 For selected items, such as golf, snow skiing, and air travel, these survey areas may include additional geographic locations beyond these jurisdictions. | |
| 2 OPM may collect housing data in other areas in Puerto Rico that have a significant concentration of Federal employees stationed in those areas. | |
| 3 OPM collects housing data in St. John. OPM also may collect non-housing data from selected outlets in St. John. | |
(b) Rest of the State of Alaska COLA area. OPM may collect survey data onsite, use alternative indicators of relative living costs (e.g., price and cost information published by the University of Alaska), or both. If the use of alternative indicators would result in a COLA rate reduction, OPM will conduct onsite surveys in one or more locations in the Rest of the State of Alaska COLA area, before making a reduction, to ensure that the reduction is warranted.
(c) Determining Survey Coverage. To aid OPM in determining survey coverage, OPM may from time to time conduct surveys of Federal employees in the COLA areas and/or the Washington, DC, area to determine where employees shop and what they spend on certain goods or services and to collect other information related to the price surveys and the calculation of price indexes.
[67 FR 22340, May 3, 2002, as amended at 69 FR 59762, Oct. 6, 2004]
(a) Washington, DC, area. For each survey item except shelter, OPM averages separately the prices collected in each of the DC survey areas identified in § 591.215(a) and then averages these average prices together using equal weights to compute an overall average by item for the DC area.
(b) COLA areas with multiple survey areas. OPM computes weighted average indexes at the item, PEG, MEG, and/or overall level by using the corresponding indexes and Federal employment weights from each survey area within the COLA area.
[67 FR 22340, May 3, 2002, as amended at 69 FR 59763, Oct. 6, 2004]
OPM collects prices in popular outlets in each survey area. OPM selects these outlets based on their proximity to the housing data collection areas, accessibility by road, physical size, advertising, and other characteristics that reflect sales volume. To the extent practical, OPM prices like items in the same types of outlets in the COLA areas and the Washington, DC, area. As warranted, OPM also may conduct point-of-purchase surveys and select outlets based on the results of those surveys.
Except for shelter and energy utilities, OPM averages by item the prices collected in each survey area. For the Washington, DC, area, OPM computes a simple average for each item based on the average prices from each DC survey area. On an item-by-item basis, OPM divides the COLA survey area average price by the DC average price and produces a price index.
(a) In addition to rental and rental equivalence prices and/or estimates, OPM obtains for each unit surveyed information about the important characteristics of the unit, such as size, number of bathrooms, and other amenities that reflect the quality of the unit.
(b) OPM then uses these characteristics and rental prices and/or estimates in hedonic regressions (a type of multiple regression) to compute for each COLA survey area the price index for rental and/or rental equivalent units of comparable quality and size between the COLA survey area and the Washington, DC, area.
[67 FR 22340, May 3, 2002, as amended at 69 FR 59763, Oct. 6, 2004]
(a) OPM calculates energy utility cost indexes based on the relative cost of maintaining a standard size dwelling in each area at a given ambient temperature and the cost of other energy uses. Although the dwelling size may vary from one COLA survey area to another, OPM compares the utility cost for the same size dwelling in the COLA survey area and the Washington, DC, area.
(b) OPM applies the following six-step process to compute a cost index(es) for heating and cooling a standard home to a given ambient temperature and to combine the cost index(es) by energy type (e.g., electricity and natural gas) with cost indexes for other energy uses.
(1) Step 1. OPM obtains technical information about the requirements by major energy type for heating and cooling a standard size dwelling, built according to current local building practices and codes in each area, given local climatic conditions (e.g., seasonal temperature and humidity). OPM also obtains similar information for use of energy types in other household operations (e.g., hot water, cooking, cleaning, recreation).
(2) Step 2. OPM obtains from the shelter survey, a survey of Federal employees, or other appropriate sources, information on dwelling size and the types and prevalence of heating and cooling equipment and energy types (e.g., electricity, gas, and oil) in each area.
(3) Step 3. OPM computes estimates of total home energy requirements by energy type attributable to heating and cooling plus all other household energy uses for the COLA survey area and the Washington, DC, area.
(4) Step 4. OPM surveys utility prices for each major energy type appropriate to the area.
(5) Step 5. OPM combines the above data to produce for each COLA survey area the cost of maintaining the standard size dwelling at a given ambient temperature and the cost of other household energy uses.
(6) Step 6. OPM compares the COLA survey area cost with the DC area cost to produce a price index.
OPM uses the following ten-step process to compute consumer expenditure weights:
(a) Step 1. OPM obtains the latest BLS tabulated CES data nationwide and for the Washington, DC, area.
(b) Step 2. In both the nationwide and DC area tabulated data, OPM replaces the homeowners' expenditures for shelter with estimated rental values of owned homes that are available elsewhere in tabulated CES data. Note: These replacements are consistent with the rental equivalence approach described in § 591.219.
(c) Step 3. OPM selects the central income groups in the nationwide CES tabulation.
(d) Step 4. OPM calculates the expenditure shares (i.e., percentages) for each central income group by dividing each of its DEC expenditures by total expenditures for the income group. OPM also calculates expenditure shares for total nationwide expenditures by dividing each nationwide DEC expenditure by total nationwide expenditures.
(e) Step 5. OPM computes a democratic distribution of expenditure shares by averaging the central income groups' shares at each DEC and higher level of aggregation.
(f) Step 6. OPM computes a set of ratios by dividing each expenditure share of the nationwide democratic distribution by the corresponding expenditure share of the total national distribution.
(g) Step 7. OPM computes estimated expenditures for Washington DC for each DC DEC and higher level of aggregation that BLS reported by multiplying the reported expenditure by the corresponding ratio derived in Step 6.
(h) Step 8. For each DC DEC and higher level of aggregation that BLS did not report, OPM computes expenditures for DC by distributing the DC expenditure calculated in step 7 using the distribution of expenditure shares derived in step 5.
(i) Step 9. As described in § 591.211(c), OPM classifies each DEC and aggregate into PEGs.
(j) Step 10. OPM computes expenditure weights by dividing each DEC or aggregate by the total expenditure derived from the DC expenditure computed in step 8. Therefore, the sum of the MEGs, PEGs, and DECs, will separately total 100, i.e., so that all consumer expenditures in the original tabulation are accounted for.
OPM uses a three-step process to combine price indexes.
(a) Step 1. For each DEC represented by one or more items for which OPM could make valid price comparisons (e.g., OPM was able to collect representative prices in both the COLA and DC areas), OPM computes the unweighted geometric average (the nth root of the product of n numbers) of the price index(es) of all item(s) representing the DEC.
(b) Step 2. OPM multiplies the price index for each DEC by its expenditure weight, sums the cross products, and divides by the sum of the weights used in the calculation. This produces a price index for the level of aggregation (e.g., PEG or sub-PEG) in which the DEC is categorized.
(c) Step 3. OPM repeats the process described in Step 2 at each level of aggregation within the PEG to produce a price index for the PEG, at the PEG level to produce an index for the MEG, and at the MEG level to produce the overall price index for the COLA area.
[67 FR 22340, May 3, 2002, as amended at 69 FR 59763, Oct. 6, 2004]
(a) OPM conducts a survey in each COLA area once every 3 years on a rotational basis and surveys the Washington, DC, area concurrently with each COLA area survey. The order of the COLA area surveys is as follows:
(1) Year 1. All COLA areas in the Commonwealth of Puerto Rico and the U.S. Virgin Islands.
(2) Year 2. All COLA areas in the State of Alaska, except as provided in paragraph (b)(2) of this section.
(3) Year 3. All COLA areas in the State of Hawaii and the Territory of Guam and CNMI.
(b) Exceptions:
(1) Nothing in this subpart precludes OPM from conducting interim surveys or implementing some other change in response to conditions caused by a natural disaster or similar emergency, provided OPM publishes a notice or rule in the Federal Register explaining the change and the reason(s) for it.
(2) As provided in § 591.215(c), OPM does not conduct surveys in the Rest of the State of Alaska COLA area unless COLA rate reductions appear warranted.
(a) OPM adjusts price indexes between the triennial surveys in each COLA area that is not surveyed in that year. To do this, OPM uses the annual or biennial change in the Consumer Price Index (CPI) for the COLA area relative to the annual or biennial change in the CPI for the Washington, DC, area. OPM uses the annual change for those areas surveyed the preceding year. OPM uses the biennial change for those areas surveyed 2 years before.
(b) Paragraph (a) of this section applies beginning with the effective date of the results of the 2005 survey conducted in Puerto Rico and the U.S. Virgin Islands.
(c) Based on additional housing data that may be collected before the 2005 survey conducted in Puerto Rico and the U.S. Virgin Islands, OPM will adjust as warranted the price indexes and COLA rates for Puerto Rico, the U.S. Virgin Islands, and the COLA areas in the State of Alaska. OPM will implement any such adjustments on a one-time basis on the effective date of the results of the 2004 surveys conducted in Hawaii and Guam/CNMI, and subject to § 591.228. OPM will publish such adjustments as provided in § 591.229.
[67 FR 22340, May 3, 2002, as amended at 69 FR 59763, Oct. 6, 2004]
OPM uses the following CPIs:
(a) For the Washington, DC, area—the BLS Consumer Price Index, All Urban Consumers (CPI-U);
(b) For all COLA areas in the State of Alaska—the BLS CPI-U for Anchorage, AK;
(c) For all COLA areas in the State of Hawaii and for Guam and the CNMI—the BLS CPI-U for Honolulu, HI; and
(d) For Puerto Rico and the U.S. Virgin Islands—the Puerto Rico CPI as produced by the Puerto Rico Department of Work and Human Resources.
(a) OPM uses a three-step process to adjust price indexes by relative annual or biennial changes in the CPIs. For steps 1 and 2, OPM computes the annual change by dividing the CPI from 1 year after the survey by the CPI from the time of the survey. OPM computes the biennial change by dividing the CPI from 2 years after the survey by the CPI from the time of the survey.
(1) Step 1. OPM computes the annual or biennial CPI change for the COLA area.
(2) Step 2. OPM computes the annual or biennial CPI change for the DC area.
(3) Step 3. OPM multiplies the COLA area price index from the last survey by the COLA area CPI change computed in step 1 divided by the DC area CPI change computed in step 2. The adjusted price index is rounded to the second decimal place.
(b) Example:
| 2008 | 2009 | |
|---|---|---|
| COLA Area CPI | 172.2 | 174.7 |
| DC Area CPI | 159.7 | 161.9 |
| COLA Area Survey Index | 117.33 | (1) |
| COLA Area CPI Adjusted Index | (2) | 117.42 |
| 1 No survey. | ||
| 2 N/A | ||
Computation:
117.33 × (174.7/172.2)/(161.9/159.7) = 117.4159, which would round to 117.42.
OPM adds to the price index an adjustment factor that reflects differences in need, access to and availability of goods and services, and quality of life in the COLA area relative to the DC area. The following table shows the adjustment factor for each area:
| COLA area | Amount |
|---|---|
| Anchorage, AK | 7.0 |
| Fairbanks, AK | 9.0 |
| Juneau, AK | 9.0 |
| Rest of the State of Alaska | 9.0 |
| City and County of Honolulu, HI | 5.0 |
| Hawaii County, HI | 7.0 |
| Kauai County, HI | 7.0 |
| Maui County, HI | 7.0 |
| Guam and CNMI | 9.0 |
| Commonwealth of Puerto Rico | 7.0 |
| U.S. Virgin Islands | 9.0 |
| 1 Amount added to the price index. | |
(a) OPM converts the price index plus the adjustment factor to a COLA rate as shown in the following table:
| Price index plus adjustment factor | COLA rate subject to paragraph (b) of this section |
|---|---|
| Equal to or greater than 124.50 | 25 percent. |
| Equal to or greater than 102.00 but less than 124.50 | Price index plus the adjustment factor, minus 100, expressed to the nearest whole percent. |
| Less than 102.00 | 0 percent. |
(b) This section is applicable on an area-by-area basis beginning with the effective date of the results of the first survey conducted in each area.
(c) OPM may reduce the COLA rate in any area by no more than 1 percentage point in any 12-month period. Any reduction in the COLA rate for any COLA area cannot be effective until the effective date of the first survey conducted in Hawaii and Guam and CNMI under these regulations.
OPM publishes COLA area survey summary reports, MEG and PEG indexes, and COLA rates in the Federal Register. OPM makes survey data and other information available to the public to the extent authorized by the Freedom of Information Act and the Privacy Act.