U.S. troops living in Europe will see a 31 percent increase in their cost-of-living allowance in their next paycheck, as the Defense Department tries to provide relief from the dollar’s slide against the euro and British pound.
For the November pay period, active-duty personnel will see “a substantial increase” in COLA, which was set Nov. 1, said Lt. Col. Stan Brown, deputy commander of the Heidelberg-based 266th Finance Command.
For example, a Germany-based sergeant, or enlisted pay grade E-5, with 10 years in and two dependents, will see his or her COLA increase to $785 from $600.
That 31 percent increase will be reflected across all ranks, Brown said.
Brown and other U.S. Army Europe finance officers are launching a media campaign to make sure soldiers understand how cost-of-living adjustments, or COLAS, help compensate troops for living in an ever more expensive Europe.
The COLA increase is rare good financial news for Americans trying to get by in Europe on dollars, and USAREUR is using military print medium and American Forces Network to explain how COLA is calculated and what soldiers can expect in the future, Brown said.
The military’s core message is that over the long-term, currency indices and COLA — extra money meant to maintain soldiers’ buying power commensurate with what they would have stateside — tend to track each other.
Yes, Brown said, in the short term, soldiers may see big fluctuations in the U.S. dollar’s buying power.
But over time, cost-of-living adjustments will offset those changes, Brown said: “Over time, the COLA has kept pace … the system is sound.”
For 2003, COLA changed 14 times because of currency changes, and nine times in 2004, said Maj. Susan Walton, 266th deputy director, finance operations.
How low is the dollar?
Three years ago, it took as little as 88 cents to buy one euro.
On Friday, it briefly took about $1.33 to buy one euro in some currency trading markets, a fifth straight day of record lows globally.
All in all, the dollar has lost about 38 percent of buying power for Americans in Europe in the last three years.
In real world terms, here’s what it’s come to: For the first time in its 49-year history, Oak Brook, Ill.-based McDonald’s Corp. reported generating more revenue from European operations this year than from domestic burger-and-fries sales largely because of the super-sized pound and euro.
How much of the pain of the dollar’s falling value can the Department of Defense alleviate for soldiers overseas when the dollar is so low?
A lot, once the COLA mechanism catches up, finance officials say.
With the COLA system, the difference between the dollar’s diminishing value and the soldier’s real income — that is, the soldier’s actual buying power — will even out over time, Brown said.
But there are a lot of moving parts, and they don’t move in perfect unison with currency markets.
It takes time for the DOD and the Defense Finance and Accounting Service to chart currency movements, set the COLA, then distribute that money via payrolls, Walton and Brown said.
The Per Diem, Travel and Transportation Allowance Committee, which calculates COLAs, can’t predict exactly how the dollar’s value will rise or fall — something that may vary greatly from the time the COLA amount is set and when DFAS actually distributes paychecks.
That means it will take a while for the COLA to catch up with the dollar’s movement in value against other currencies.
But it also means the COLA remains on the paycheck for a period after the dollar has rebounded, Walton said.
“When (the dollar value) is decreasing, there’s lot of mumbling,” she said.
“But when people are still getting the overhang, they’re very quiet.”
There are also other factors that determine each servicemembers’ COLA such as where he or she is based under the four different categories for bases: full support areas with post exchange and commissary; partial support; no support; and remote.
Those with no alternative to shopping on the economy receive larger COLAs when the dollar drops.
The DOD monitors prices off post through an annual retail prices schedule survey.
Prices are gathered by base support battalions and area support groups from Ramstein, Heidelberg, Gielenkirchen, Vilseck and Schweinfurt then sent to the Per Diem, Travel and Transportation Allowance Committee.
The committee also uses this data in setting overseas housing allowances, per diem rates and other allowances.
Is the COLA crucial?
Yes and no, said 2nd Lt. Brandon McCarter, battalion medical officer for the 1st Battalion, 35th Armored Regiment of the 1st Armored Division in Baumholder, Germany.
The group of lieutenants he hangs out with generally shop on post, McCarter said.
It’s not that shopping on the economy is too expensive.
Rather, it’s often inconvenient for a range of reasons from the lack of merchants accepting credit cards to remembering to use value-added tax forms, he said.
When he does shop on the economy, McCarter added, he doesn’t necessarily think in terms of dollars, but rather value in terms of German prices.
“So when I get those bills at the end of the month, there’s a little bit of shock. The COLA helps offset that.”
Where COLA and other adjustments do come in handy is for paying big living expenses including rent and utilities, said McCarter, who lives off base.
“It definitely helps out a lot,” he said, adding that without the COLA, he might have to curtail his overseas lifestyle, including travel.
