[Federal Register Volume 59, Number 56 (Wednesday, March 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-6810]


[[Page Unknown]]

[Federal Register: March 23, 1994]


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Part VII





Office of Personnel Management





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5 CFR Part 591




Cost-of-Living Allowances (Nonforeign Areas); Final Rule
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OFFICE OF PERSONNEL MANAGEMENT

5 CFR Part 591

RIN 3206-AF52

 
Cost-of-Living Allowances (Nonforeign Areas)

AGENCY: Office of Personnel Management.

ACTION: Final rule.

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SUMMARY: The Office of Personnel Management (OPM) is issuing final 
regulations to increase certain cost-of-living allowance (COLA) rates 
paid to General Schedule, U.S. Postal Service, and certain other 
Federal employees in Guam and the Commonwealth of the Northern Mariana 
Islands; the City and County of Honolulu, Hawaii; and St. Thomas and 
St. John, Virgin Islands. The increases are based on living cost 
surveys conducted by Runzheimer International, under contract with OPM, 
during the summer of 1992 and winter of 1993.

EFFECTIVE DATES: These regulations are effective March 23, 1994, and 
are applicable on the first day of the first pay period beginning on or 
after March 23, 1994.

FOR FURTHER INFORMATION CONTACT: Allan G. Hearne, (202) 606-2838.

SUPPLEMENTARY INFORMATION: Under section 5941 of title 5, United States 
Code, certain Federal employees in nonforeign areas outside the 48 
contiguous States are eligible for cost-of-living allowances (COLAs) 
when local living costs are substantially higher than those in 
Washington, DC. Currently, nonforeign area COLAs are paid in the 
following locations: Alaska, Hawaii, Puerto Rico, the U.S. Virgin 
Islands, and Guam and the Commonwealth of the Northern Mariana Islands.
    OPM contracted with Runzheimer International to conduct living cost 
surveys in the allowance areas in 1992 and 1993. All allowance areas, 
except those in Alaska, were surveyed in the summer of 1992. Alaska was 
surveyed during the winter of 1993.
    The surveys showed that adjustments in various COLA rates were 
warranted. This included increases of three COLA rates in three 
allowance areas and reductions of eight COLA rates in six allowance 
areas. However, a provision in the Treasury, Postal Service, and 
General Government Appropriations Act of 1992 (Public Law 102-141) bars 
OPM from reducing any COLA rate through December 31, 1995. Therefore, 
only the COLA rate increases will be implemented.
    The increases implemented by this rulemaking are summarized in the 
following table:

                        Increases in COLA Rates                         
------------------------------------------------------------------------
                                                       Current    Final 
              Allowance area/category                   rate      rate  
------------------------------------------------------------------------
City and County of Honolulu, Hawaii Commissary/                         
 Exchange...........................................      15.0      17.5
Territory of Guam and Commonwealth of the Northern                      
 Mariana Islands:                                                       
  Local Retail......................................      15.0      22.5
  Commissary/Exchange...............................       7.5      17.5
St. Thomas and St. John, Virgin Islands all                             
 employees..........................................      15.0      17.5
------------------------------------------------------------------------

    On August 30, 1993, OPM published proposed regulations (58 FR 
45556) that would effect the above increases in COLA rates. On the same 
day, OPM published a notice (58 FR 45558) that included Runzheimer's 
``Report to OPM on Living Costs in Selected Nonforeign Areas and in the 
Washington, DC Area, May 1993.'' In response to the proposed 
regulations and notice, OPM received comments from nearly 250 persons. 
An analysis of the comments follows.

General Comments

    One commenter stated that OPM did not comply with provisions of the 
Treasury, Postal, and General Government Appropriations Act 1992 (Pub. 
L. 102-141) as these provisions apply to COLA. This law requires that 
OPM study living cost issues and submit to Congress a report on 
possible changes in the COLA methodology. The report is due March 1, 
1995. The commenter believes that the law directs OPM to make changes 
in the COLA model before 1995.
    OPM's General Counsel carefully reviewed Pub. L. 102-141 and the 
related Senate Appropriations Committee report. The General Counsel 
determined that the law has two requirements: (1) COLA rates may not be 
reduced through December 31, 1995, and (2) OPM must submit a report to 
Congress on possible changes to the COLA methodology. The law does not 
direct OPM to implement methodological changes at this time.
    The Senate Committee, however, requested that OPM research specific 
methodological issues. This OPM is doing, and OPM plans to include the 
results of this research in its report to Congress. Although the law 
does not require OPM to implement changes, OPM will continue to make 
improvements in the COLA methodology as appropriate.
    Another commenter said that OPM regulations should describe in 
greater detail the COLA model and survey. The commenter also stated 
that all of the data collected should be made public.
    OPM believes that its COLA regulations are adequately detailed and 
that any attempt to subject the COLA survey process to a set of overly 
detailed and inflexible rules would impair rather than improve the COLA 
program. The flexibility results in a more accurate COLA model because 
improvements can be made from one year to the next. Such changes are 
made public because, before COLA rates are adjusted, OPM publishes in 
the Federal Register a detailed report on the survey methodology and 
results. Therefore, employees have the opportunity to comment on any 
changes.
    OPM does not publish all of the raw data collected in the survey 
because of the tremendous volume of data. As Runzheimer stated in its 
report, over 16,000 price quotes were collected. The report, however, 
provides detailed information on the results of the survey. In 
addition, OPM provides to those who request it additional data to the 
extent authorized under the Freedom of Information Act.
    One commenter referred to the confidentiality statement on the 
information collection materials that was included in Appendix 5 of the 
report. The confidentiality statement says that the Government will 
hold all micro or ``raw'' data in confidence. The commenter stated that 
OPM should not keep secret the survey data that it collects.
    Runzheimer inadvertently included an obsolete version of the 
information collection materials in Appendix 5. This version was not 
used in the surveys. OPM's policy is to release ``raw'' or micro data 
to the extent authorized under the Freedom of Information Act. In 
conducting OPM's surveys, Runzheimer does not pledge to hold 
confidential the survey data unless such data are covered by the 
provisions of the Freedom of Information Act that allow certain data to 
be held in confidence.
    One commenter stated that the model was inappropriate and said that 
OPM should measure differences in levels of living rather than 
differences in prices.
    Comparison of levels of living implies comparing lifestyles and 
that involves comparing differences in needs and preferences. This is a 
highly subjective area because one person's ``need'' might be another 
person's luxury. OPM is examining this complex issue and plans to 
include a discussion of it in its report to Congress.
    One commenter stated that OPM should include a component to 
compensate employees for the allowance area's remoteness and isolation. 
He suggested that 5 percentage points be added to all COLA rates to 
reflect intangible living costs caused by remoteness and isolation. The 
commenter did not provide an example of an intangible living cost.
    OPM does not know what the commenter meant by the term ``intangible 
living costs.'' The commenter may have been referring to monetary costs 
that are difficult to measure, or he may have been referring to 
nonmonetary factors, such as hardship and inconvenience.
    OPM believes that the COLA model adequately measures differences in 
monetary costs, although improvements and refinements in the model may 
be possible. For example, OPM is researching certain additional items, 
particularly those that might be purchased more frequently in remote 
areas. These items include air transportation, out-of-area college and 
university education, and extraordinary medical expenses. OPM is 
looking at ways the tangible cost of these items might be included in 
the COLA model and plans to address this issue in its report to 
Congress.
    OPM believes, however, that nonmonetary factors, such as hardship 
and inconvenience, should not be part of the COLA program. There are 
other programs that compensate Federal employees for such 
circumstances.
    One commenter maintained that an item needed in an allowance area, 
but not needed in Washington, DC, should be priced only in the 
allowance area. The commenter said that the frequency of need also 
should be a factor.
    Generally, the model compares the cost of an item in an allowance 
area with the cost for the same item in the DC area. OPM believes that 
this is consistent with the settlement of Hector Arana, et al. v. 
United States, in which the plaintiffs asked that OPM adopt a 
methodology that compared specified brands, models, and sizes whenever 
possible.
    Nevertheless, the COLA model does reflect some differences between 
areas. For example, the model assumes that cars in Alaska have certain 
accessories, such as engine block heaters, that are not common in the 
DC area. Also, differences in home construction (e.g., triple pane 
windows and greater wall insulation common in Alaska) are included in 
the model to the extent that these differences are reflected in real 
estate prices. OPM is researching related issues and plans to address 
them in its report to Congress.
    A few commenters objected to the use of national consumer 
expenditure patterns in the living cost model. The commenters believed 
that local consumption patterns should be used. More than one commenter 
noted that the spending pattern data were old.
    To compare living costs between areas, Runzheimer assigned a common 
set of weights to each item, category, and component. These weights 
reflect how consumers spend their money and were used to derive 
comparative indices measuring overall living costs. Runzheimer used 
Bureau of Labor Statistics (BLS) nationwide Consumer Expenditure Survey 
(CES) data for these weights.
    As discussed in the report, the COLA model uses an indexing 
methodology similar to the Laspeyres index. As the report also notes, 
it would be preferable to use Washington, DC, consumer expenditure data 
with the Laspeyres approach. Washington, DC, CES data, however, are not 
available by income level, and OPM regulations require measurement of 
living costs at multiple income levels. On the other hand, nationwide 
CES data are arrayed by income level. Therefore, Runzheimer used these 
data in the COLA model.
    CES data are also available for Honolulu and Anchorage; but as with 
the Washington, DC, data, the Honolulu and Anchorage data are not 
available by income level. BLS CES data are not available for any other 
nonforeign area (outside the 48 contiguous States), and OPM knows of no 
other source of comprehensive consumer expenditure information by 
income level suitable for use in the COLA model. Therefore, the use of 
local weights is not practical.
    Both OPM and Runzheimer recognize that the CES data are old. OPM is 
developing a methodology to introduce gradually more recent CES data 
into the model. OPM plans to use this approach beginning with the 
surveys to be conducted in the summer of 1994.
    One commenter suggested that the COLA model be simplified to use 
only one income level. The commenter believed that using only one 
income level would reduce survey costs and the number of subjective 
assumptions required.
    As noted earlier, OPM's regulations require the measurement of 
living costs at multiple income levels. This approach recognizes that 
relative living costs may vary by income level and that the 
distribution of employees by income level may vary among areas. 
Therefore, the multiple income approach yields a more accurate measure 
of overall living cost differences than a single income approach.
    Nevertheless, to the extent that multiple income levels require 
additional subjective assumptions, the overall integrity of the model 
might not be impaired by using a single income level. OPM is examining 
this issue and plans to include its findings in the report to Congress.
    One commenter objected to Runzheimer's recommendation that OPM 
include income taxes in the COLA model. The commenter believed that 
this would unduly complicate the model and argued that it would also be 
necessary to compare the level of government services available in each 
area. Another commenter, however, stated that income taxes were high in 
Hawaii and recommended that income taxes be included in the model.
    OPM is studying Runzheimer's recommendation and issues relating to 
Federal, State, and local income taxes and plans to include the results 
of this study in its report to Congress.
    A few commenters seemed to have confused the annual living cost 
surveys with the special Federal Employee Housing and Living Patterns 
Survey, which OPM conducted in the winter of 1992/1993. The commenters 
said they could not see how Runzheimer had incorporated the results of 
the employee survey in calculating living cost indices.
    As OPM stated in the preface to the employee survey, the purpose of 
the survey was to collect information that would be used to improve the 
COLA model. The preface made it clear that the results of the survey 
would not be used directly to set COLA rates.
    OPM is now in the process of analyzing the results of the employee 
survey. It is expected that these analyses will allow OPM to identify 
the subdivisions and communities in which Federal employees live, the 
types of housing expenses they incur, the kinds of stores they 
frequent, their transportation needs, and so on. OPM plans to use this 
information in the design of future COLA surveys to reflect more 
closely Federal employee living costs. The information will also aid 
OPM as it studies the COLA methodology and prepares its report to 
Congress.

Comments on the Goods and Services Component

    A commenter from Hawaii said that Federal employees on Oahu did not 
make many catalog purchases. In contrast, an employee from Maui stated 
that she made many catalog purchases. Likewise, a St. Croix resident 
wrote that Virgin Island employees made frequent catalog purchases.
    OPM asked Runzheimer to include a limited number of catalog items 
in the survey because catalogs are a common source of retail goods and 
are used by many persons in all areas, including the Washington, DC, 
area. Of course, all catalog prices surveyed included shipping costs 
and any applicable local sales and excise taxes. Catalog pricing also 
allows better comparisons of items that would otherwise be difficult to 
compare. For example, some furniture items were priced in catalogs 
because finding comparable styles, brands, and models in earlier 
surveys proved difficult.
    In the employee survey, OPM asked Federal employees about their 
purchasing patterns including whether they typically purchased various 
types of items by catalog. OPM plans to use this information in 
designing future surveys and in its report to Congress on possible 
changes in the COLA methodology.
    One commenter believed that catalog pricing understated price 
differences between the allowance area and the Washington, DC, area. 
The commenter said that in the DC area consumers could buy an item 
locally if catalog prices were relatively high but that in the 
allowance areas consumers frequently did not have that choice.
    Many of the items that Runzheimer priced by catalog are not sold 
locally unless the catalog retailer also has a local retail outlet and 
that outlet carries the same item. If the item is sold locally by the 
retailer, it is usually sold at a price comparable to the catalog 
price, unless the item is on sale in either the catalog or in the 
retail store. Since Runzheimer does not survey sale prices, the use of 
catalog pricing probably does not cause bias.
    Another commenter questioned whether representative types of stores 
were surveyed in the allowance areas. He believed that stores 
frequented in the allowance areas could be significantly different from 
those frequented in the Washington, DC, area. He also stated that there 
was only one ``warehouse-type'' grocery store on Oahu and that, because 
this outlet was less accessible than others, it was inappropriate to 
include it in the survey.
    Runzheimer surveyed prices at the largest, most popular stores in 
each area. These stores included major grocery stores, department 
stores, discount stores, and specialty stores. OPM believes that this 
process is objective and leads to an equitable comparison of typical 
prices between areas.
    In addition, Runzheimer selects outlets that are apt to be 
frequented by residents of the living communities in which housing is 
surveyed. At times, a balance between the types of outlets and their 
proximity to certain living communities is difficult to achieve. During 
the 1992 survey on Oahu, the grocery store in question was included in 
the survey. Subsequently, it was determined that this store was 
probably located outside the area normally frequented by residents of 
the living communities covered by the survey. Therefore, for the 1993 
survey a different outlet was selected to replace the one in question. 
Since there were no other ``warehouse-type'' outlets on Oahu, the new 
outlet was a conventional, large supermarket.
    In the employee survey, OPM asked Federal employees where they 
lived, where they shopped, what they purchased, and so on. The survey 
included specific questions on the kinds of stores employees 
frequented. OPM plans to use the results of the employee survey to 
review outlet selection and make changes as appropriate.
    One commenter criticized Runzheimer for not considering the cost of 
college and university education in the living cost surveys. The 
commenter stated that due to limited post-high school educational 
opportunities in the allowance areas, Federal employees must send their 
children to out-of-area schools.
    Runzheimer noted in the report that post-high school educational 
opportunities vary significantly among the allowance areas. Most of the 
allowance areas, however, have colleges or universities in the major 
population areas, and many of these institutions offer a wide range of 
degree programs. Nevertheless, Federal employees may send their 
children to out-of-area schools.
    Without additional information about the frequency of use of 
within-area and out-of-area schools, it is not appropriate to include 
post-high school education expense in the COLA model. In the employee 
survey, OPM asked employees several questions about college and 
university usage. OPM plans to use the results of the employee survey 
to review the issue of post-high school education. OPM is also 
researching the cost of within-area and out-of-area tuition, books, 
room and board, transportation, and related expenses. OPM plans to 
include the results of this research and the employee survey in its 
report to Congress.
    Several commenters questioned whether Runzheimer's survey 
adequately covered childcare expenses. An employee from Alaska stated 
that her childcare costs were high and accounted for a large percentage 
of her total budget.
    Two kinds of childcare are included in the survey--day care and 
babysitting. Runzheimer prices the monthly cost of professional day 
care services (eight hours a day, five days a week). Runzheimer also 
obtains the price of casual babysitting services. Both are assigned 
appropriate weights based on the CES and are used in the COLA model.

Comments on the Housing Component

    Some commenters objected to trimming the high and low values in the 
housing component. The commenters believed that housing market price 
anomalies should be tolerated or that another approach should be used 
to reduce these anomalies.
    As was stated in the report, the purpose of trimming was to 
stabilize the housing data from one year to the next. Trimming is 
essentially a nonparametric technique, similar to using the median 
rather than the average. OPM and Runzheimer considered using the median 
but rejected it because the limited number of observations obtained in 
some smaller allowance areas could cause the median to be erratic from 
one year to the next. Runzheimer recommended trimming as an alternative 
to the median, and OPM agreed. Trimming provides stability; and because 
equal numbers of high and low values are trimmed, no bias is 
introduced.
    Another commenter objected to the comparison of new and older home 
prices combined. He felt that the survey should compare the prices of 
homes of a similar age as well as a similar size and room count.
    Numerous factors influence rents and selling prices. Information on 
some of these factors is readily available, but much of it is not. 
Runzheimer uses home size and room count as the major criteria in 
housing comparisons because these factors generally have the most 
influence on housing costs. Age is not used because it frequently is 
not available and probably has less influence.
    One commenter from Alaska noted the high cost of her new home in 
Alaska. She also said that the cost of drilling a deep well 
significantly increased the cost of her new home.
    Runzheimer surveys the selling price of homes that sold during the 
6 month period prior to the survey. The selling price generally 
reflects the cost of construction, including the cost of appurtenances 
such as water wells.
    One commenter stated that the residential areas surveyed on Oahu 
did not properly reflect where Federal employees live nor the income 
levels that Runzheimer associated with the communities.
    OPM recognizes that community selection is an important part of the 
COLA survey. The communities surveyed in Hawaii were changed in 
response to comments OPM received on earlier surveys. Additional 
changes may be warranted. OPM plans to use the results of the employee 
survey to review community selection and make appropriate changes.
    A commenter from Alaska stated that the cost of utilities was high 
and provided examples of her utility costs. She also stated that 
utility costs vary with the size of the home.
    Runzheimer included in the COLA surveys the cost of utilities. The 
average costs for Owners and Renters for each area were shown in 
Appendix 7 of the report and were part of the Federal Register notice. 
As shown in the appendix, the cost of utilities is the second highest 
cost of housing, exceeded only by the cost of mortgage payments or 
rent.
    The COLA model takes into account that utility costs vary with home 
size. Section 4.2.4.1 of the report described the process used and the 
factors that were applied.
    One commenter stated that the survey failed to take into 
consideration the use of solar water heaters in Hawaii and Guam. The 
commenter believed that the model did not account for the capital cost 
of such heaters nor the possible reduction in overall utility 
consumption.
    As noted above, significant home features and improvements 
generally are reflected in the selling price of the home.
    Therefore, OPM's living cost surveys will reflect the cost of solar 
water heaters to the extent that such items influence home market 
values and are commonly found on homes in any area, including Hawaii 
and Guam. If the use of solar water heaters is so common that it 
generally reduces the consumption of utilities, this too will be 
reflected in the survey results.
    This is as it should be. The COLA model compares overall living 
costs in the allowance area with overall living costs in the DC area. 
If housing is more expensive because solar heaters are common in an 
allowance area but not the DC area and if overall utility costs are 
lower in the allowance area because solar heaters are used extensively 
but are not used in the DC area, the final comparison of overall 
housing costs will be equitable. No special consideration of capital 
improvement costs or reduced utility consumption is appropriate.
    Several commenters noted that employees in the allowance areas face 
extreme weather disturbances, particularly typhoons or hurricanes. The 
commenters stated that these weather disturbances create higher costs 
in home maintenance and insurance.
    Runzheimer surveys the cost of home insurance. If insurance costs 
increase after a major natural disaster, the COLA surveys will reflect 
these higher costs. Other issues, such as the cost of repairing storm 
damage, are more difficult to address in the surveys. Although it may 
be possible to price the cost of repairing or replacing an item such as 
a window or a roof, it is difficult to know how often this must be done 
in each allowance area compared with the Washington, DC, area. In the 
employee survey, OPM asked about storm damage, home maintenance, and 
frequency of repairs. OPM plans to review this issue carefully in light 
of the results of the employee survey.
    One commenter asserted that Federal employees frequently purchase 
disaster insurance (e.g., home insurance covering damage caused by 
floods, storms, or earthquakes) and criticized Runzheimer for not 
including the cost of these additional insurance riders.
    Runzheimer interviews local insurance agents to obtain the cost of 
insurance in each area. In these interviews, Runzheimer asked agents 
about disaster insurance and whether it was typically purchased by 
homeowners in the allowance area. Runzheimer concluded from these 
interviews that such insurance is not typically purchased and, 
therefore, recommended against including it in the COLA model. OPM 
agreed. However, questions regarding disaster insurance were included 
in the employee survey. OPM plans to reevaluate this issue in light of 
the results of the employee survey and address this issue in its report 
to Congress.
    The same commenter noted that Runzheimer was unable to obtain the 
price of home insurance on Guam because insurance companies had issued 
a temporary ``moratorium'' on the sales of new policies after Typhoon 
Omar. The commenter criticized Runzheimer for using 1991 survey data in 
place of the missing data.
    Runzheimer discussed the Guam insurance issue with OPM as soon as 
the issue arose. Because there was no indication of the amount of any 
forthcoming rate increase or that rates would increase at all, 
Runzheimer and OPM believed that it was inappropriate to adjust 
artificially the 1991 insurance rates. To the extent insurance 
companies adjusted their rates after the moratorium, such rate changes 
were obtained in the following Guam survey and will be appropriately 
reflected in the results of that survey.
    One commenter questioned how Runzheimer obtained survey data in 
Kauai after Hurricane Iniki because the Runzheimer researcher from the 
central office had not been allowed to visit the island.
    Most of the living cost data are obtained by either: (1) Local data 
collectors who are residents of the area or (2) by telephone research 
conducted from Runzheimer's central office. Senior personnel from 
Runzheimer's central office visit the allowance areas to monitor and 
review the survey process. These visits are conducted after the on-site 
data collection is complete.
    In the case of the Kauai survey, all on-site data collection had 
been completed prior to the arrival of Iniki. The fact that Runzheimer 
officials from the central office were unable to visit the island is 
not significant because the data collector had done an excellent job, 
and the quality of the data collected was quite good. Because the 
prices surveyed were pre-Iniki, they were not influenced by any short-
term perturbations caused by the hurricane. Runzheimer officials were 
able to visit Kauai as part of the summer 1993 survey, and a great deal 
of attention was given to collecting and analyzing data from that later 
survey.
    The commenter also stated that because some utilities were not 
widely available for an extended period after Hurricane Iniki, the 
living cost surveys might show that utility usage was low. He said that 
this could bias the survey results.
    The utility usage factors that Runzheimer obtained on Kauai were 
based on a period prior to Iniki. Therefore, the hurricane did not 
distort the survey data. In the conduct of the most recent survey, 
Runzheimer paid close attention to utility usage rates to ensure that 
the survey results were not unduly influenced by the effects of Iniki.
    Several commenters said that climate conditions (such as high 
humidity, high rainfall, sunlight intensity, airborne salt, snow, and 
cold weather) resulted in higher home maintenance costs in the 
allowance areas than in the Washington, DC, area. One commenter 
believed that some home maintenance expenses were incurred more 
frequently in the allowance areas but that Runzheimer considered only 
annual maintenance costs.
    In the employee survey, OPM asked several questions concerning home 
maintenance, such as painting and roof replacement. OPM is also 
studying these issues in a closely related, special research project. 
OPM plans to integrate the results of the employee survey with the 
special research and include this in its report to Congress.
    One commenter from Hawaii stated that leasehold to fee-simple 
ownership conversions contributed to higher housing costs in Hawaii.
    Runzheimer surveys only fee-simple home sales in Hawaii. Leasehold 
properties are excluded. OPM believes that the fair market value of 
fee-simple property adequately reflects the market as a whole--both the 
leasehold market (in which the homeowner may have to purchase the land 
or renegotiate a land lease) and the fee-simple market.
    Another commenter expressed concern whether the survey of fee-
simple home sales only resulted in the survey of typical housing. The 
commenter suggested that Runzheimer also survey leasehold properties 
and include the annual cost of the land lease.
    When OPM published previous Runzheimer reports in the Federal 
Register, numerous commenters expressed the view that leasehold sales 
in Hawaii should not be included in OPM's living cost surveys. For the 
reasons discussed above, OPM agrees with this position and has directed 
Runzheimer to continue its practice of surveying only fee-simple sales.

Comments on the Transportation Component

    A number of commenters stated that private transportation costs 
were greater in the allowance areas because of the high cost of 
automobiles and increased auto maintenance due to poor roads, rough 
terrain, salt air, and harsh weather. Many also felt that their 
automobile insurance premiums were quite high. One commenter suggested 
that OPM price the cost of tinting car windows.
    The COLA model takes into consideration automobile purchase price, 
maintenance, insurance, and depreciation. Purchase costs and insurance 
are based on price data obtained in each area. Maintenance is also 
based on local price data, and the model assumes that certain types of 
maintenance occur more frequently in the allowance areas than in the DC 
area. For example, the model assumes that tires wear out faster in the 
allowance areas than in the Washington, DC, area, and that tires have 
to be purchased more frequently in the allowance areas.
    Depreciation is based on used car values, and Runzheimer found that 
used cars generally depreciate at the same rate in nearly all areas. 
The exceptions are Nome and Fairbanks where cars depreciate at a faster 
rate, perhaps because of the severe climate. Runzheimer used special 
factors for these two areas to reflect greater depreciation.
    In the employee survey, OPM asked employees about their car 
purchases, accessories, maintenance, road conditions, terrain, and 
several other issues. OPM plans to review transportation costs in light 
of the results of the employee survey. OPM plans to address items, such 
as window tinting, at that time.
    Some commenters were confused about the composition of the Public 
Transportation Category. Some commenters from the Virgin Islands stated 
that the lack of an effective mass transportation system compelled them 
to purchase cars or to use taxis.
    As explained in the report, Runzheimer surveys airline fares to 
determine the cost of Public Transportation. Runzheimer does not survey 
municipal mass transportation. The cost of bus, subway, or taxi service 
is not part of the surveys because the service available in many 
allowance areas is not comparable to the service available in the DC 
area. Instead of public mass transportation, Runzheimer compares the 
cost of round-trip airfare from the allowance area to Los Angeles, 
California, with the cost of round-trip airfare from Washington, DC, to 
Los Angeles.
    Two commenters objected to the selection of Los Angeles as the 
common destination point for comparing airfares. They stated that the 
Los Angeles routes were highly competitive and resulted in lower fares 
compared with other destinations.
    As stated in the report, Los Angeles was selected because it is a 
common point within the continental United States that is roughly 
equidistant from each of the allowance areas and the Washington, DC, 
area. The route may be highly competitive, but that does not invalidate 
cost comparisons because it is the relative cost of air travel that is 
being measured. If competition reduces fares, the reductions will be 
reflected in the Washington, DC, to Los Angeles fares as well as the 
allowance area to Los Angeles fares. Therefore, OPM believes the 
comparisons are appropriate.
    Some commenters stated that the model did not measure true air 
transportation costs. The commenters stated that inter-island travel, 
travel within Alaska, and travel to the contiguous 48 States required 
more frequent use of air transportation.
    OPM included in the employee survey several questions regarding 
travel. OPM plans to review the transportation component of the COLA 
model in light of the results of the employee survey.

Comments on the Miscellaneous Component

    One commenter objected to the assumption in the model that the cost 
of certain Miscellaneous Component items is the same in the allowance 
area as in the Washington, DC, area. The commenter said that cultural 
differences might lead to larger expenditures for gifts. The commenter 
also noted that the Senate Committee asked OPM to review the 
Miscellaneous Component to ensure that the results reflect actual 
living costs and do not assume equal costs between areas.
    The relative costs of the majority of the items in the 
Miscellaneous Component are based on surveyed prices. Therefore, the 
Miscellaneous Component index reflects ``actual'' living cost 
differences. The cost of only two items does not differ among areas--
(1) Life insurance and pensions and (2) cash contributions and gifts.
    For Federal employees, the cost of life insurance and required 
contributions to a Federal retirement system do not vary by area. Any 
additional insurance or contributions to retirement systems are a 
matter of personal preference. Gifts and cash contributions for church, 
charity, or other purposes are a matter of personal preference and/or 
reflect lifestyle differences that are beyond the scope of the COLA 
program. As noted earlier, OPM is studying the issue of lifestyle 
differences and plans to discuss it in its report to Congress.
    One commenter proposed using the Goods and Services Component index 
to adjust the cash contributions/gifts category to reflect the cost of 
gift items purchased locally.
    OPM is researching this issue along with the general composition of 
and assumptions used in the Miscellaneous Component. OPM plans to 
include the results of this review in its report to Congress.
    One commenter said that the medical expense portion of the 
Miscellaneous Component failed to reflect the higher out-of-pocket 
expenses that Federal employees in the allowance areas frequently 
incurred. The commenter cited several possible causes for such higher 
costs including higher costs not covered by insurance carriers, the 
absence of Health Maintenance Organizations (HMOs) in several allowance 
areas, and the need to travel outside the area to obtain some medical 
services.
    In the employee survey, OPM asked several questions regarding 
medical expenses, and in addition, OPM is researching related health 
cost issues. OPM plans to include the results of its research and the 
employee survey in its report to Congress.
    One commenter stated that employees in the allowance areas have to 
save at a higher rate to afford the down payment for a house or car or 
to pay for college/university education. The commenter said that OPM 
should take this into consideration and use the Goods and Services 
Component index to adjust the amount of money saved relative to 
Washington, DC.
    As noted in the report, Runzheimer believes that savings and 
investments made for the purpose of future purchases of housing, 
durable goods, education, and similar items are best accounted for in 
the category or component associated with the item. OPM agrees with 
this approach and notes that this approach is consistent with the 
methodology the Bureau of Labor Statistics uses in the CES.
    The commenter also stated that the COLA model should take into 
consideration the fact that COLAs do not count toward retirement. The 
commenter believed that Federal employees had to invest at a higher 
rate in pensions and other savings vehicles to afford to retire in the 
allowance areas.
    Under sections 8331(3) and 8401(4) of title 5, United States Code, 
allowances (which includes COLAs) are excluded from basic pay in the 
computation of Federal annuities under the Civil Service Retirement 
System and the Federal Employees' Retirement System. It would be 
inappropriate to adjust COLA to take into consideration that which the 
law has specifically excluded. Therefore, OPM believes that no 
adjustments to the pensions and investments portion of the model are in 
order.

Comments About the Virgin Islands Surveys

    A number of employees from the Virgin Islands felt that the COLA 
surveys did not accurately reflect living costs, particularly in St. 
Croix. The employees said that the COLA rates were too low. One 
commenter questioned the validity of the price data collected in St. 
Croix.
    OPM closely monitors Runzheimer's work and believes that the 
surveys and analyses are accurate. OPM specifically reviewed in great 
detail all survey data from the Virgin Islands. We are satisfied that 
Runzheimer followed appropriate procedures in collecting data, 
analyzing, and reporting data.
    Some commenters from St. Croix referred to a Virgin Island 
Department of Labor survey that indicated that food costs in St. Croix 
were 25 percent higher than food costs in the Washington, DC, area. The 
employees cited this as evidence that the St. Croix COLA rate should be 
higher.
    Runzheimer priced a wide variety of food items in each allowance 
area, including St. Croix. The results of the food portion of the 
survey were provided in Appendix 4 of the report and were part of the 
Federal Register notice. These results showed that food consumed at 
home was approximately 28 percent more expensive in St. Croix than in 
the DC area.
    COLA rates, however, are based on more than just the relative cost 
of food; and in St. Croix, the relative costs of other items were 
generally lower than the relative cost of food. Therefore, the St. 
Croix COLA rate is lower than the food index.
    Over 200 employees from St. Croix, stated that their COLA rate 
should be the same as the rate for St. Thomas and St. John.
    The COLA surveys for the two areas showed that some prices were 
higher in St. Croix than in St. Thomas and that some were lower. 
Overall, St. Croix prices were about 4 percentage points lower than St. 
Thomas prices. The difference in the final COLA rates for the two areas 
generally reflects this overall price difference.
    OPM notes that the American Chamber of Commerce Research 
Association (ACCRA) surveyed living costs in the Virgin Islands in 
1992. The results of the ACCRA survey also showed that living costs in 
St. Thomas were higher than living costs in St. Croix.
    One commenter stated that the Virgin Island COLA surveys should not 
be conducted during the summer. He maintained that pricing in the 
summer reflected lower, off-season prices.
    OPM recognizes that survey timing is an important consideration, 
and COLA surveys are scheduled to collect prices in a ``typical'' 
month. OPM believes that the current surveys are conducted at a 
reasonable time of year but will consider timing changes. Survey timing 
will be part of OPM's report to Congress.
    Several commenters from the Virgin Islands stated that certain 
medical services were not available in their area and that they had to 
fly to other areas to obtain these services. One commenter from Alaska 
also noted this problem. In addition, many commenters in St. Croix 
stated that the local hospital was not accredited. They said they had 
to fly to Puerto Rico or to the U.S. mainland for hospital services.
    OPM is studying the availability and cost of medical services in 
the allowance areas. In addition, OPM's employee survey included 
questions regarding where Federal employees obtain medical services. 
OPM plans to include the results of its research and the employee 
survey in its report to Congress.
    Many employees in St. Croix cited the high cost of air travel for 
medical treatment. They also noted the cost of air ambulance service.
    As part of its research, OPM is studying the cost of obtaining 
medical services in the appropriate area if such services are not 
available locally. OPM is also researching the issue of air ambulance 
insurance. OPM plans to include the results of this research in its 
report to Congress.
    Many commenters from St. Croix criticized the quality of public 
schools in their area and said that a high percentage of Federal 
employees sent their children to private schools. The commenters 
believed that OPM should consider the cost of private education in the 
survey.
    OPM is studying private education issues. In addition, OPM asked 
employees in the employee survey whether they sent their children to 
public or private schools. OPM plans to include the results of this 
research in its report to Congress.
    Some employees in St. Croix want OPM to take into account the cost 
of sending children to out-of-area colleges and universities. They 
noted the high cost of travel, campus housing, and out-of-state 
tuition.
    OPM is studying the cost of college and university education, and 
the employee survey included questions concerning college and 
university education. OPM plans to include the results of its research 
and the employee survey in its report to Congress.

Regulatory Flexibility Act

    I certify that this regulation will not have a significant economic 
impact on a substantial number of small entities because the regulation 
will affect only Federal agencies and employees.

List of Subjects in 5 CFR Part 591

    Government employees, Travel and transportation expenses, Wages.

U.S. Office of Personnel Management.
James B. King,
Director.

    Accordingly, OPM is amending 5 CFR part 591 as follows:

PART 591--ALLOWANCES AND DIFFERENTIALS

Subpart B--Cost-of-Living Allowance and Post Differential--
Nonforeign Areas

    1. The authority citation for subpart B of part 591 continues to 
read as follows:

    Authority: 5 U.S.C. 5941; E.O. 10000, 3 CFR, 1943-1948 Comp., p. 
792; E.O. 12510, 3 CFR, 1985 Comp., p. 338.

    2. Appendix A of subpart B is revised to read as follows:

Appendix A of Subpart B--Places and Rates at Which Allowances Shall 
Be Paid

    This appendix lists the places where a cost-of-living allowance has 
been approved and shows the allowance rate to be paid to employees 
along with any special eligibility requirements for the allowance 
payment. The allowance percentage rate shown is paid as a percentage of 
an employee's rate of basic pay. 

------------------------------------------------------------------------
                                                              Authorized
                                                               allowance
           Geographic coverage/allowance category                rate   
                                                               (percent)
------------------------------------------------------------------------
                       State of Alaska                                  
                                                                        
City of Anchorage and 50 mile radius by road:                           
  Local retail..............................................       25.0 
  Commissary/exchange.......................................       17.5 
City of Fairbanks and 50 mile radius by road:                           
  Local retail..............................................       25.0 
  Commissary/exchange.......................................       20.0 
City of Juneau and 50 mile radius by road:                              
  All employees.............................................       25.0 
Rest of the State:                                                      
  All employees.............................................       25.0 
                                                                        
                       State of Hawaii                                  
                                                                        
City and County of Honolulu:                                            
  Local retail..............................................       22.5 
  Commissary/exchange.......................................       17.5 
County of Hawaii:                                                       
  All employees.............................................       15.0 
County of Kauai:                                                        
  All employees.............................................       17.5 
County of Maui and County of Kalawao:                                   
  All employees.............................................       22.5 
                                                                        
 Territory of Guam and Commonwealth of the Northern Mariana             
                           Islands                                      
                                                                        
All locations:                                                          
  Local retail..............................................       22.5 
  Commissary/exchange.......................................       17.5 
                                                                        
                 Commonwealth of Puerto Rico                            
                                                                        
All locations:                                                          
  Local retail..............................................       10.0 
  Commissary/exchange.......................................        0.0 
                                                                        
                     The Virgin Islands                                 
                                                                        
St. Croix:                                                              
  All employees.............................................       12.5 
St. Thomas and St. John:                                                
  All employees.............................................       17.5 
------------------------------------------------------------------------

Definitions of Allowance Categories

    The following definitions of the allowance categories identified in 
the tables in this appendix shall be used to determine employee 
eligibility for the appropriate allowance rate:


------------------------------------------------------------------------
         Allowance category                       Definition            
------------------------------------------------------------------------
Local retail.......................  This category includes those       
                                      employees who purchase goods and  
                                      services from private retail      
                                      establishments.                   
Commissary/exchange................  This category includes those       
                                      employees who shop at private     
                                      retail establishments, but who, as
                                      a result of their Federal civilian
                                      employment, also have unlimited   
                                      access to commissary and exchange 
                                      facilities. This category is      
                                      established only in those         
                                      allowance areas that have these   
                                      facilities.                       
------------------------------------------------------------------------

    Note: Eligibility for access to military commissary and exchange 
facilities is determined by the appropriate military department. If 
an employee is furnished with these privileges for reasons 
associated with his or her Federal civilian employment, he or she 
will have an identification card that authorizes access to such 
facilities. Possession of such an identification card--i.e., one 
issued by reason of his or her Federal civilian employment--is 
sufficient evidence that the employee uses the facilities.

[FR Doc. 94-6810 Filed 3-22-94; 8:45 am]
BILLING CODE 6325-01-P