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RAF MILDENHALL, England — The cost-of-living allowance cut for U.K. troops announced Monday is a result of servicemembers being overpaid for their COLA in the past few months, a balancing of the system that Air Force officials said is a standard piece of the COLA supplement.

Before Monday’s adjustment, the COLA rate for the U.K. was last changed on Aug. 1. From August to Sept. 30, COLA payments were based on a set exchange rate of about $2.14 to the British pound, which is more than the military bank exchange rate ever reached between those dates.

In effect, troops were receiving more money than what the exchange rate warranted, according to Air Force Maj. Brian Kehl, chief of the Accounting and Finance Operations Branch for U.S. Air Forces in Europe.

The lowering of the rate Monday by the Defense Department’s Per Diem, Travel and Transportation Allowance Committee was part of balancing that overpayment, he said.

“The per diem committee in Washington, D.C., makes a conscious decision to overpay servicemembers half the year and underpay servicemembers half the year so that (troops) can have a stable budget,” he said. “(U.K.-based troops) were being paid at a $2.14 exchange rate since Aug. 1. It (the exchange rate) never got that high.”

Individual COLA allowances vary according to a member’s rank, years in service and number of dependents, among other factors.

The committee has the power to change COLA rates every two weeks. But instead of changing the COLA rates so frequently, averages are calculated in order to give troops a bit more budgetary predictability, said Air Force Master Sgt. Keibu Kamarakafego, USAFE’s manager of military pay and procedures.

“The over and underpayment method provides servicemembers with more predictable and budgeted paychecks over several pay periods,” Kamarakafego said Tuesday in an e-mail.

Real-time currency exchange rates can bounce multiple points in just one day, Kehl said.

The COLA system tracks the exchange rates from military banks versus its own allowance rate, and the COLA exchange rate is changed when the rate differences reach a certain point.

Because that rate difference threshold was reached in the U.K. in recent weeks, the COLA rate here was changed while the rest of the troops in Europe remained unaffected, Kehl said. Germany and Italy weren’t affected Monday because certain differences between military bank exchange rates and the set COLA rate have to be realized before a change goes into effect.

That change was realized in recent weeks with the dollar’s value against the pound, but not the euro.

Civilians in other parts of Europe fared better. They will see a 19 percent increase in their cost-of-living adjustment, known as the post allowance. Civilian supplements are set by the State Department.

The ability to change COLA’s rates every two weeks means the system can react quickly if the dollar severely crashes — say, a spike that sent the dollar from $2.09 per pound to $2.30 over two weeks, according to Kamarakafego.

“The ability to change would allow us to compensate very quickly,” Kehl said.

If the dollar’s downward trend continues, the next adjustment should raise COLA again, he said.

“If the dollar starts getting stronger, you’re going to go in the other direction eventually,” Kehl said.

Varying rates

According to data provided by the Air Force, the exchange rate used to calculate the U.K. COLA has been over or under the actual exchange rate all year and such variances are common occurrences.

From January to March, the COLA rate was based upon an exchange rate of about $2.06 to the pound, while the actual exchange rate never broke $2.04 for that period.

From March to May, the COLA rate sat at about $1.98, while the real-time exchange rate reached $2.06.

From May to June, the COLA exchange rate was between $2.08 and $2.09, while the actual exchange rate skittered between about $2.02 and $2.05.

From June to August, the COLA exchange rate was set at about $2.02, while actual exchange rates climbed as high as $2.11.

Then, from August to Sept. 30, the COLA exchange rate was at about $2.14, while the exchange rate never topped $2.09.

As of Oct. 1, COLA rates are being set at a rate of between $2.02 and $2.03 to the pound.

Source: U.S. Air Forces in Europe

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