Two Overseas Cost of Living Allowance Decreases For Troops
The Department of Defense ordered two Overseas Cost of Living Allowance (COLA) decreases, the first starting mid-May 2023. A second decrease is planned for November 15, 2023.
These Overseas COLA decreases were slowed by federal law to prevent negative financial consequences for those serving overseas, but the decreases are definitely happening now.
What is COLA?
There are many different types of COLA, all amount to more or less the same thing. A Cost of Living Allowance is basically (in this context) a government-paid allowance meant to offset the cost of living in certain areas. Some overseas bases are in high-cost areas; COLA is meant to prevent overseas duty from becoming a financial liability for those who serve.
Sometimes referred to as OCOLA, the Overseas Cost of Living Allowance for troops stationed in places like Germany, Japan, South Korea, and elsewhere is paid to help those serving overseas better afford groceries, clothes, and other everyday use expenses. OCOLA is not meant to offset housing costs such as rent and utilities.
Just under a quarter of a million troops draw OCOLA.
How COLA is Calculated
The Defense Travel Management Office official site notes that OCOLA is not paid in a fixed amount. It is always subject to change. Why? The exchange rate. COLA is paid in U.S. dollars and not in the currency of the host nation.
However, the service member may have to exchange dollars for the host nation’s currency to pay their bills. Basing COLA on the exchange rate makes sense; otherwise, troops might be financially affected when the rates are more competitive against the dollar.
According to the Defense Travel Management Office, “OCONUS COLA is not a fixed amount and should not be considered in household budgeting.” Your fixed expenses (car payments, rent) should be “based on what a Service member can afford without the allowance.”
Why did the COLA Rate decrease?
Overseas COLA rates began to fall in 2022 due to a combination of factors, including the exchange rate.
In decades past overseas COLA was adjusted more frequently, and these adjustments seemed to barely make headlines except as regional news.
But the language in the 2023 National Defense Authorization Act limits how often overseas COLA can be decreased; under current law, the DoD may adjust it once every six months unless those COLA reductions are part of a PCS move. But in late 2022, the Secretary of Defense paused Overseas COLA reductions to study them and decide what to do next.
An article published by Stars and Stripes notes that the DoD has identified the earliest COLA decreases as being in assignments in “Hawaii, Guam, Japan and several others in the Indo-Pacific region.”
The same Stars and Stripes article notes a DoD official speaking on condition of anonymity observing, “What we are seeing in the Indo-PACOM is a natural next step to making sure we are ensuring parody (sic) across all the theaters,”
The message is clear; to achieve any such parity, there are likely further tweaks to the Overseas Cost of Living Allowance ahead but the DoD seems committed to reducing the impact as much as possible.
The 2023 COLA reductions come in the wake of a 4.6 percent increase in basic pay and an 11.2 percent increase in Basic Allowance for Subsistence.
About the author
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter/editor for Air Force Television News and the Pentagon Channel. His freelance work includes contract work for Motorola, VALoans.com, and Credit Karma. He is co-founder of Dim Art House in Springfield, Illinois, and spends his non-writing time as an abstract painter, independent publisher, and occasional filmmaker.