Military people overseas will grumble from time to time that adjustments in cost-of-living allowances (COLAs) fail to keep pace with currency fluctuations, though statistical evidence disputes that notion. This summer, however, routine murmurs of discontent turned to howls of protest when COLA for U.S. service members in Japan fell sharply—even as the dollar continued to weaken against the yen.
“It makes no sense whatsoever and is a slap in the face to the hard-charging youngsters who work for us,” complained Vice Admiral Archie R. Clemins, commander of the Seventh Fleet, in a message to Pacific Fleet Headquarters.
“Timing could not be worse,” said Rear Admiral Byron E. Tobin Jr., Commander of U.S. Naval Forces in Japan, in a message to Defense Department’s Per Diem, Travel, and Transportation Allowance Committee in Alexandria, Virginia, which adjusts overseas COLA.
“At a time when the dollar is hovering near an all-time low, a decision is made to lower the exchange index,” Rear Admiral Tobin said. Yet the official explanation for doing so “is not credible in the eyes of our service members and families—particularly 2,800 families and 900 single Sailors in Yokosuka and Atsugi who live on the [local] economy.”
The dramatic COLA cut hit more than 26,000 personnel, mostly Airmen and Sailors. Navy complained the loudest, because a higher proportion of Sailors than Airman live off base. The COLA drop was so severe in Yokota, Yokosuka, and Camp Zama that Defense officials decided to phase in it over two months. The typical sailor—an E-5 with two or three dependents—saw monthly payments fall by $90 on 1 June and was set to see another $60 drop on 1 July.
COLAs in Japan had been rising steadily for months, driven by a falling dollar. The sudden drop was blamed primarily on a new “living pattern” survey that Defense conducts once every three years in overseas areas. The last survey for Japan, taken in January, showed service members shopping far more often in military stores—and far less often on the Japanese economy—than they did in 1992.
The reason, of course, is the dollar’s decline—from 124 yen in 1992 to 96 yen when the survey was taken. Still, that' shift in shopping habits also lowered the need for COLA, according to the rate-setting logic used by the per diem committee. In effect, said an official, military people in Japan had been receiving too much pay as the dollar fell, because “we kept jacking up COLAs to pay for purchases we thought were being made on the outside. . . .Basically, they were overpaid.”
Naval leaders were stunned both by the size of the COLA drop and the Catch-22 rationale behind it. “If I grasp the logic,” said Vice Admiral Clemins, “since the dollar is falling against the yen, sailors can not afford to do anything out in town, so they are spending more of their money on base, so obviously they don’t need much money, and we can cut their COLAs. Sooner or later, with that logic, COLA will go to zero, because sailors are not buying anything.”
Captain Dennis W. Irelin, commanding officer of the aircraft carrier USS Independence (CV-62), told Rear Admiral Tobin that his crew reacted to the COLA cut with “emotional disbelief,” and morale was rattled. “We are forcing our sailors to become recluses in a foreign land,” added Captain K. F. Heimgartner, commander of the carrier’s air wing. Rear Admiral Tobin urged Defense to roll back the rate change “until we can all be comfortable with the reasoning” behind it.
Frederick Pang, Assistant Secretary of Defense for Force Management Policy, learned of the two-part COLA cut only after part one took effect. Clearly irked, he suspended the 1 July reduction and ordered a review of how COLAs are calculated. Assistant Secretary Pang said the problem might be in conducting a living pattern survey only once every three years. Or, he said, “there might be cases where smoothing or averaging or other techniques are better than making a change all at once.”
His concern, he said, is that officials “can get fixated on formulas and say, ‘That’s the way it goes.’” He suggested someone should have stepped in and said that’s too big a swing. “The purpose of COLAs is to allow Americans overseas to do those things they do back here, to go to a movie once in a while or to eat downtown,” Assistant Secretary Pang said.
Per diem committee officials acknowledged another problem with the living pattern survey. Many U.S. ships were deployed last January, so the response rate among sailors was too low to be reliable. They had to extrapolate new rates using results from nearby Air Force installations. But before Assistant Secretary Pang intervened, officials had cautioned against ordering another survey this summer. Given the decline in the dollar since January—down 82 yen by June—a new survey might show service people relying even more heavily on military stores, thereby triggering even deeper cuts.
Assistant Secretary Pang seemed committed to making the COLA adjustment process understandable, and sympathetic to frustrated commanders such as Captain Heimgartner, who call the process “statistical gibberish.” “I can only presume,” said Vice Admiral Clemins with obvious sarcasm, “that when the yen hits 200 to the dollar, COLA for Japan- based sailors will be doubled in response.” Of course, he wasn’t counting on it.