Cost-of-Living Allowances for Federal Employees in Nonforeign Areas Should Be Based on Spendable Income

The purpose of a cost-of-living allowance is to enable a Federal employee in a nonforeign area to maintain purchasing power similar to that of a comparable Federal employee in Washington, D.C. In a May 1979 report to the President, the Office of Personnel Management (OPM) recognized the reasons for adopting spendable income as the base for cost-of-living allowances but did not propose this change. Instead, it favored eliminating the program. In June 1979, President Carter proposed locality pay rates as part of his pay reform proposal for all General Schedule employees. This proposal would have replaced the cost-of-living allowance program with locality pay rates, but the legislation expired without congressional action. President Reagan's pay reform proposal would empower the President to designate pay areas, establish locality rates of pay for General Schedule employees, and eliminate the nonforeign area cost-of-living allowance program.