[Federal Register Volume 66, Number 218 (Friday, November 9, 2001)]
[Rules and Regulations]
[Pages 56738-56740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-28056]



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Part II





Office of Personnel Management





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5 CFR Part 591



Cost-of-Living Allowances (Nonforeign Areas): Allowance Rate 
Adjustments; Methodology Changes; Commissary/Exchange Rates; Survey 
Frequency; Gradual Reductions; Final Rule, Proposed Rule, and Interim 
Rule

  Federal Register / Vol. 66, No. 218 / Friday, November 9, 2001 / 
Rules and Regulations  

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OFFICE OF PERSONNEL MANAGEMENT

5 CFR Part 591

RIN 3206-AJ26 and 3206-AJ15


Cost-of-Living Allowances (Nonforeign Areas); Allowance Rate 
Adjustments

AGENCY: Office of Personnel Management.

ACTION: Final rule.

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SUMMARY: The Office of Personnel Management (OPM) is adopting as final 
two interim regulations regarding nonforeign area cost-of-living 
allowances (COLAs). OPM is also addressing comments received in 
response to the publication of the 1998 COLA survey report. The two 
interim rules implemented increases in the COLA rates paid to certain 
Federal employees in several of the COLA areas. One interim regulation 
increased COLA rates paid in Hawaii, Guam and the Commonwealth of the 
Northern Mariana Islands (CNMI), Puerto Rico, and the U.S. Virgin 
Islands. These increases were the result of a settlement of litigation 
regarding nonforeign area COLAs. The second interim regulation 
increased the local retail COLA rate paid to certain Federal employees 
in Guam/CNMI. This increase was the result of cost-of-living surveys 
OPM conducted in the COLA areas in 1998.

DATES: Effective December 10, 2001.

FOR FURTHER INFORMATION CONTACT: Donald L. Paquin, (202) 606-2838; fax: 
(202) 606-4264; or e-mail: [email protected].

SUPPLEMENTARY INFORMATION: Section 5941 of title 5, United States Code, 
authorizes the payment of cost-of-living allowances (COLAs) to 
employees of the Federal Government stationed in certain nonforeign 
areas outside the contiguous 48 States whose rates of basic pay are 
fixed by statute. Executive Order 10000, as amended, delegates to OPM 
the authority to administer nonforeign area COLAs and prescribes 
certain operational features of the program.
    The Government pays nonforeign area COLAs to General Schedule, U.S. 
Postal Service, and certain other Federal employees in Alaska, Hawaii, 
Guam and the Commonwealth of the Northern Mariana Islands (CNMI), 
Puerto Rico, and the U.S. Virgin Islands. The Office of Personnel 
Management (OPM) conducts living-cost surveys in each allowance area to 
determine whether, and to what degree, local living costs are higher 
than those in the Washington, DC, area. OPM sets the COLA rate for each 
area based on the results of these surveys. The current COLA rates were 
set pursuant to the settlement of Caraballo, et al. v. United States, 
No. 1997-0027 (D.V.I), August 17, 2000, and became effective in October 
2000.

Interim Increases

    On October 3, 2000, OPM published an interim rule in the Federal 
Register (65 FR 58901) to increase the COLA rates paid to certain 
Federal employees in Hawaii, Guam/CNMI, Puerto Rico, and the U.S. 
Virgin Islands. These rates became effective on the first day of the 
first pay period beginning on or after October 1, 2000, and are still 
in effect. The table below shows the increased allowance rates and the 
places where they apply.

------------------------------------------------------------------------
                                                              COLA rate
                       Allowance area                         (percent)
------------------------------------------------------------------------
Hawaii County..............................................        16.50
Kauai County...............................................        23.25
Maui County................................................        23.75
Puerto Rico................................................        11.50
U.S. Virgin Islands........................................        22.50
------------------------------------------------------------------------

    The interim rule also increased the commissary/exchange COLA rate 
for Guam/CNMI. However, OPM is eliminating the commissary/exchange 
category in a separate document published in this issue of the Federal 
Register. With this change, employees with commissary and exchange 
purchasing privileges will begin receiving the same COLA rate as other 
employees in Guam/CNMI.
    OPM made these changes pursuant to section 9 and Exhibit C of the 
stipulation for settlement of Caraballo et al. v. United States, Civil 
No. 1997/27 (D.V.I.). The court approved the settlement on August 17, 
2000. The settlement prescribed the new COLA rates and required that 
they be made effective on the first day of the first applicable pay 
period beginning on or after October 1, 2000. We issued the interim 
rule with a 30-day comment period, and we received one comment. This 
comment was from a Federal employee union that endorsed the interim 
rule.

Guam/CNMI Rate Increase

    On July 17, 2000, OPM published an interim regulation for comment 
in the Federal Register (65 FR 44100) to implement a rate increase for 
the Guam/CNMI COLA area. This increase was the result of cost-of-living 
surveys OPM conducted in the nonforeign allowance areas in 1998. The 
interim regulation increased the local retail COLA rate for Guam/CNMI 
from 22.5 percent to 25 percent. We received no comments on this 
change, and we are adopting it as final.

Comments on the 1998 Survey Report

    OPM also published for comment on July 17, 2000 (65 FR 44103), the 
complete ``Report on 1998 Surveys Used to Determine Cost-of-Living 
Allowances in Nonforeign Areas,'' which described the survey process 
and how OPM derived the new Guam/CNMI rate. We received one written and 
two verbal responses to our request for comments. One respondent 
commented on a number of issues as they relate to Anchorage, Alaska. 
The other respondents commented on the Guam commissary/exchange COLA 
rate. We discuss these comments below.
    Earthquake insurance. One commenter believes OPM should survey the 
cost of earthquake insurance. The commenter stated that even though we 
were unable to assign a cost to earthquake insurance and that some 
employees do not buy it, these circumstances should have no bearing on 
including such insurance as a necessary cost of living in Anchorage. 
While our survey notice mentioned some complexities related to 
determining flood insurance requirements, we did not note these 
complexities with regard to earthquake insurance. We wrote in the 
survey notice commentary, however, that less than 10 percent of the 
population in each allowance area purchases earthquake insurance. We 
believe this number was insufficient to warrant surveying earthquake 
insurance, as it did not represent a cost for a large number of Federal 
employees in the allowance areas.
    In future surveys, OPM will use a new methodology we are adopting 
as a result of the Caraballo settlement. Caraballo was a class-action 
lawsuit in which the plaintiffs contested the methodology OPM used to 
determine COLA rates. The class included all Federal employees who 
received a COLA from October 1, 1990, through September 30, 2000. Under 
the new methodology, OPM will use rents and/or a rental equivalence 
approach to determine shelter costs. The rental equivalence approach 
compares the rental values of homes. Home insurance is implicit in 
these values. Therefore, OPM will no longer directly survey any type of 
homeowner insurance. We will continue to survey renter's insurance, 
which typically covers loss due to earthquakes.
    Medical services. The commenter also believes OPM's survey 
methodology underestimates the cost and restricted availability of 
medical services in

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Anchorage. In particular, the commenter noted that there are no health 
maintenance organizations (HMOs) among the Federal providers in 
Anchorage and that other plans cost more. OPM's averaging of premium 
costs (see section 6.3.1 of the report) took into consideration the 
absence of lower-cost HMOs in Anchorage and other areas. The average in 
Anchorage was higher because it did not include lower-cost HMOs. The 
average in the Washington, DC, area was lower because it included HMOs 
and other lower-cost plans. We derived area indexes by comparing the 
allowance area against the Washington, DC, area; therefore, the index 
for Anchorage reflects the higher premium costs in that area.
    The Caraballo settlement provides for special adjustment points to 
cover factors such as local differences in quantity or quality of goods 
and services. In future surveys, OPM will add these adjustment points 
to the COLA index in consideration of factors such as higher out-of-
pocket costs associated with obtaining health services.
    The commenter also noted that dental care is more expensive in 
Anchorage. We surveyed costs associated with common dental care 
services and included these costs in our area comparisons.
    Utility costs. The commenter remarked that utility costs are high 
in Anchorage and that trash removal and recycling are not covered by 
taxes. We surveyed utility costs (see section 4.2.4.1 of the report) 
and included these costs in our price comparisons. We did not survey 
trash removal or recycling, as we have found that the extent to which 
consumers pay these fees in lieu of higher taxes or utility fees 
differs significantly by area.
    Vehicle operation costs. The commenter believes Anchorage has a 
high accident rate and that automobile glass loss is common. We 
surveyed the cost of automobile insurance in the allowance areas (see 
section 5.2.9 of the report). If accident rates are higher in Alaska 
than in the Washington, DC, area, and this is reflected in the relative 
insurance rates, OPM captured this in the living-cost index. Also, the 
insurance we priced included comprehensive coverage that covers 
windshield and other automobile glass loss or damage. In the Alaska 
areas, we also added the cost of the deductible to the annual private 
transportation costs on the assumption that windshields are replaced 
frequently.
    The commenter also noted that studded tires are a necessity in 
Anchorage and that most car owners have engine block heaters. We 
surveyed the prices of studded snow tires in Alaska (see section 5.2.5 
of the report) and included the cost of engine block heaters in our 
survey of new vehicle prices in Alaska (see section 5.2.1 of the 
report). The commenter also believes that a 98-percent fuel performance 
factor is not sufficient for estimating auto fuel consumption in 
Anchorage's cold climate. We applied a 98-percent factor in Anchorage 
only for the effect of gradient on gas mileage (see section 5.2.3.3 of 
the report). As table 5-1 of the report shows, the total fuel-
performance adjustment for Anchorage was 83 percent.
    The commenter also believes the resale value of a vehicle in 
Anchorage is lower than the Kelly Blue Book value. Research conducted 
for OPM in the past did not indicate that used cars in Anchorage were 
worth more or less than used cars in the Washington, DC, area. (See 
section 5.2.7 of the report.) However, the report shows higher 
depreciation rates in most allowance areas because new car prices were 
usually higher in the COLA areas than in the Washington, DC, area.
    Consumer goods. The commenter noted that many consumer goods must 
be shipped to Anchorage at high cost or are unavailable in Anchorage. 
In regard to shipping, we surveyed catalog prices for a number of items 
and included any additional costs of shipping and excise taxes in the 
price where applicable. The extent to which fewer goods or services 
leads to higher costs was reflected in the item prices we collected. 
Pursuant to the Caraballo settlement, OPM will add in future surveys an 
adjustment factor to the price index in consideration of living-costs 
associated with the unavailability of goods and services in an 
allowance area.
    The commenter noted high prices for parkas, boots, and a dry suit 
needed for river recreation. In Alaska and the DC area, we surveyed the 
price of a man's parka, a woman's coat, and men's and women's boots for 
our price comparisons. We did not survey dry suits because we believe 
they are less commonly purchased, particularly in the DC area.
    Communication costs. The commenter noted that long distance 
telephone rates were much higher in Anchorage. We surveyed long 
distance charges in the allowance areas. (See section 4.2.4.1 of the 
report.) The commenter also asked whether the survey looked at costs 
associated with changing email addresses. We did not survey this cost 
because we believe it is not practical to cover these kinds of less 
common expenses.
    Guam commissary/exchange rate. We received two verbal comments on 
the Guam commissary/exchange COLA rate. The commenters believe that 
since OPM was increasing the local retail rate by 2.5 percentage 
points, OPM also should increase the commissary/exchange rate by 2.5 
percentage points. OPM did not increase the commissary/exchange COLA 
rate because the results of the 1998 survey indicated that no increase 
was warranted. However, as noted above, OPM subsequently increased the 
Guam commissary/exchange COLA rate pursuant to the Caraballo 
settlement.

Corrections to the 1998 Survey Report

    We discovered two errors in the 1998 survey report, which we 
discuss below. These errors did not affect the COLA rate for any 
allowance area.
    In section 6 of the report, we erroneously republished Table 6-2 
from the 1997 survey report. The correct Table 6-2 follows. We used the 
correct values in deriving the index, except that we erroneously 
assigned the St. Croix value in the first column to St. Thomas. 
Correcting this error resulted in a change in the final index (Appendix 
22) for the Virgin Islands from 116.30 to 116.33.

                        Table 6-2.--Summary of Private Education Use Factors and Indexes
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                                                       Employees w/children                              Price
                                                        in private schools        Use        Price     index w/
                      Location                       ------------------------   factor       index        use
                                                      Local area    DC area                             factor
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Anchorage...........................................       10.34       13.23      0.7816       45.23       35.35
Fairbanks...........................................        8.56       13.23      0.6470       31.54       20.41
Juneau..............................................       12.43       13.23      0.9395       41.70       39.18
Nome................................................        8.08       13.23      0.6107       28.55       17.44

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Honolulu............................................       26.86       13.23      2.0302       87.25      177.14
Hilo*...............................................       18.94       13.23      1.4316      121.25      173.58
Kona*...............................................       18.94       13.23      1.4316       94.45      135.21
Kauai...............................................       22.46       13.23      1.6977       77.92      132.28
Maui................................................       20.39       13.23      1.5412       47.62       73.39
Guam................................................       42.26       13.23      3.1943       75.80      242.12
Puerto Rico.........................................       54.33       13.23      4.1066       51.46      211.32
St. Croix...........................................       57.27       13.23      4.3288       56.78      245.79
St. Thomas..........................................       51.90       13.23      3.9229       63.30     248.32
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* Use data available only for Hawaii County.

    In appendix 14, we erroneously listed ``0'' as the value for 
Chevrolet Blazer tires in Honolulu. The correct value is 129. This 
correction changed the final index for Honolulu in Appendix 22 from 
124.51 to 124.61.

Regulatory Flexibility Act

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

Executive Order 12866, Regulatory Review

    This rule has been reviewed by the Office of Management and Budget 
in accordance with Executive Order 12866.

List of Subjects in 5 CFR Part 591

    Government employees, Travel and transportation expenses, Wages.

Office of Personnel Management.
Kay Coles James,
Director.

PART 591--ALLOWANCES AND DIFFERENTIALS

    Accordingly, under the authority of 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), OPM is adopting the interim rules for 5 CFR part 591 published on 
July 17, 2000, at 65 FR 44100, and on October 3, 2000, at 65 FR 58901, 
as final without change.
[FR Doc. 01-28056 Filed 11-8-01; 8:45 am]
BILLING CODE 6325-39-P