Washington, DC
U.S. Office of Personnel Management
Compensation and Leave Claim Decision
Under section 3702 of title 31, United States Code
Stuttgart, Germany
Damon B. Ford
Compensation and Leave Claims
Program Manager
Agency Compliance and Evaluation
Merit System Accountability and Compliance
07/19/2017
Date
The claimant is a Federal civilian employee of the Department of the Army (DA) in Stuttgart, Germany. He requests the U.S. Office of Personnel Management (OPM) reconsider the Agency’s denial of his request to adjust the amount of living quarters allowance (LQA) he was granted for his personally owned quarters (POQ). We received the claim on August 2, 2016, the agency administrative report (AAR) on September 8, 2016, and the claimant’s comments on the AAR on September 14, 2016. For the reasons discussed herein, the claim is denied.
The claimant was granted LQA upon appointment to the Federal service on April 21, 2014, with DA in Stuttgart, Germany. He and his family resided in rental quarters near his post of assignment until July 31, 2015. When he accepted a one-year unaccompanied tour to Botswana, the claimant moved his family from the rental quarters to POQ near Kaiserslautern in preparation for his temporary assignment effective September 20, 2015. The POQ had been purchased through a “transfer of interest in ownership” agreement between his spouse[1] and her father. The agreement, effective November 1, 2004, was to pay € (Euro) 150,000 and permit her father to reside for free in the house throughout his lifetime. The claimant and his wife subsequently re-financed the remaining balance of the loan for €87,000 on March 22, 2015. When the claimant returned from Botswana on October 2, 2016, he resided in the POQ while commuting to his DA post.
The Department of State Standardized Regulations (DSSR) set forth the basic criteria for the granting and payment of LQA. Within the scope of these regulations, the head of an agency may issue further implementing instructions for the guidance of the agency with regard to the granting of and accounting for these payments. Thus, Department of Defense Instruction (DoDI) 1400.25-V1250 implements the provisions of the DSSR, but may not exceed their scope; i.e., extend benefits that are not otherwise permitted by the DSSR.
Section 136(a) of the DSSR provides for LQA to eligible employees to assist in defraying the costs of official residence expenses in the overseas area, stating:
When quarters occupied by an employee are owned by the employee or the spouse, or both, or by the employee or the domestic partner, or both, an amount up to 10 percent of original purchase price (converted to U.S. dollars at original exchange rate) of such quarters shall be considered the annual rate of his/her estimated expenses for rent.
There is no dispute the claimant is eligible for LQA under DSSR section 031.12, where LQA may be granted to employees recruited outside the United States by the employing agency. The dispute lies in that claimant requests the Agency determine his LQA for POQ by calculating 10 percent of the original purchase price described in DSSR section 136(a) using the €150,000 agreed to in the “transfer of interest in ownership” instead of the €87,000 determined by the Agency. According to the claimant, had the Agency set his LQA for POQ as described, he would be specifically owed $1,078.74 as a result of underpayment (i.e., the difference between $1,951.74 he believes he is entitled to and the $873.00 he was paid) for the period from August 1, 2015, to September 19, 2015. In addition, he requests this POQ calculation re-commence on October 2, 2016, the date he returned from Botswana.
However, the Agency’s February 22, 2016, response to the claimant’s LQA request explains:
The core of our dispute is the circumstance that you ask for LQA under the provisions of the DSSR § 136 (10% of the purchase price converted to US-Dollars using the exchange rate in force at the time of purchase for 10 years). Our position is that the POQ was acquired by your spouse in November 2004 and has not been used by your family as a residence until August 2015 when you accepted your temporary assignment in Botswana, but rather was rented out to another party. In addition, a portion of the quarters are still rented to a third party and another used by your father-in-law free of charge, as per notary contract. Following the provisions of the DSSR § 132.5, only actual costs may be reimbursed under the grant of LQA.
The Agency further explains the circumstances of the claim in its AAR to OPM:
…what is at issue is the circumstance that we take the position that Mr. West may not receive 10 percent of the purchase price of $142,477.20 (€150,000.00) for the duration of 10 years. In other words, we do not object to the 10-year period prescribed by the DSSR; however, we do object to the amount payable for that period. While Mr. West acknowledges that the rent amounts received for subletting portions of the quarters to a third party, commencing on 01 August 2015, in the monthly amount of €300.00 over the course of 10 years (€36,000.00 total) is appropriate, he believes that this amount should be taken off the €150,000 and not off €87,000.
However, Mr. West fails to acknowledge that the agency may only reimburse eligible employees for actual costs of quarters. In an effort to determine what the actual costs that he may still have, given the circumstance that Mrs. West took ownership of the quarters on 01 November 2004 and that it has been rented out, seemingly continuously since that time until at least until March 2015, per his own statement… Mr. West provided information with respect to the re-financing of the loan that was taken out in late 2004 to pay for the quarters. Mrs. West employed the tool of a “Bausparvertrag” with a bank that provided the funds against the payment of the purchase price with a monthly obligation to pay €400.00 against the loan. This contract had a10-year duration and upon expiration, the outstanding amount was refinanced, which is the amount that Mr. West states is still owed towards the loan. This is where we get the €87,000 from which appears to be inexplicable to Mr. West.
The claimant disagrees with the Agency’s rationale, stating in his AAR comments to OPM:
Conjectures about paying off loans and “actual costs remaining” for POQs in relation to determining the annual cost of rent for a POQ by any method other than the method specified in DSSR Section 136 a. are unfounded. There are a multitude of complicated variables related to loans for personally owned quarters: loan amount, down payment, length of loan in years, loan payment schedule, fees, taxes, insurances, interest rates, type of interest rates, accelerated loan payments, home equity, refinancing of remaining balances, and others. The DSSR makes no mention of these variables for a POQ. Purchase price and loan amount are not necessarily the same. Consider the case of a POQ purchased in full without a loan before occupancy by the employee. By the logic of “actual costs remaining,” that employee would not be entitled to LQA because no costs remain – the quarters are paid in full. A lack of entitlement to LQA in this case would be false. The method of calculating annual cost of rent for a POQ based on original purchase price is simple (perhaps confusingly simple) and stands on its own. Attempting to modify the method with loan variables is problematic and unsupported by the DSSR.
The claimant contends the Agency failed to authorize the maximum amount allowable for POQ under DSSR section 136(a). However, in its description of calculating LQA when employees occupy quarters owned by the employee or spouse, DSSR section 136(a) establishes that “an amount up to 10 percent of original purchase price” is considered the annual rate of rent expenses. The language of DSSR section 136(a), by stating the amount as “up to 10 percent,” clearly limits the POQ grant by establishing 10 percent of original purchase price as the maximum allowable but does not automatically provide for the grant of the maximum amount to eligible employees.
The Agency instead established €87,000, i.e., the amount re-financed by the claimant and his spouse, as the amount allowable for POQ grant. The claimant asserts the method of calculating annual costs of rent for a POQ is “simple,” “stands on its own,” and is based on the original purchase price of the home. However, following that approach of using the original purchase price as he suggests is problematic as the original purchase price may produce varying results, e.g., the original purchase price paid by his spouse’s father and/or previous owners. The Agency is thus required to determine the original purchase price based on individual circumstances. In this case, the record shows the POQ was acquired by the claimant’s eventual spouse effective November 1, 2004, through a “transfer of interest in ownership” agreement between a father and daughter, to whom the claimant was not married at the time but had entered into a loan agreement with in preparation of the ownership transfer. The claimant assumed the debt connected to the property at that time. Since DSSR section 136(a) provides assistance in defraying the cost of official residence expenses when “quarters occupied by an employee are owned by the employee or the spouse, or both,” the claimant did not obtain eligibility for POQ to that property until his March 26, 2005, marriage to the property owner. The claimant’s circumstances concerning a “transfer of interest in ownership” agreement occurring over 10 years ago between a father and daughter, to whom he was not married to at the time, are not addressed by DSSR section 136(a), and the Agency may properly exercise its discretion in determining the grant of POQ. When the Agency’s factual determination is reasonable, we will not substitute our judgment for that of the Agency. See e.g., Jimmie D. Brewer, B-205452, March 15, 1982.
Section 131.1 of the DSSR defines LQA as “…a quarters allowance granted to an employee for the annual cost of suitable, adequate, living quarters for the employee and his/her family.” Further, DSSR section 131.2 defines rent as “…the annual cost of suitable, adequate living quarters for an employee and his/her family.” The DSSR’s meaning can be established through its plain language of the “annual cost of suitable, adequate living quarters” provided for by sections 131.1 and 131.2. By restricting POQ grants to the actual, tangible costs of rent annually, the DSSR did not intend to provide LQA to Federal employees in excess of the annual cost of rent, which would clearly occur in this instance if the Agency determined the “amount up to 10 percent of original purchase price” using the €150,000 set from the decade-old “transfer of interest in ownership” agreement. Instead, the Agency’s February 22, 2016, decision established the claimant’s LQA for POQ based on €87,000 as the allowable amount to provide for the “annual cost of suitable, adequate living quarters.” In this case, the Agency’s determination in regard to the claimant’s LQA for POQ was not unreasonable, arbitrary, or capricious. Therefore, the claimant’s request to base his LQA calculation on €150,000 as the “original purchase price” is denied.
The claimant also disagrees with the Agency’s calculation of his LQA for POQ resulting from the rent he receives from a third party. The Agency explains in its AAR to OPM:
…Mr. West rents out a portion of the property to a paying new third party for a monthly rent of €300.00, when computed against 10-years, totaling €36,000, we deducted this rental income from €87,000, which leaves us with €51,000, or, when converted to U.S. Dollars at the rate in force on 1 November 2004, with $63,739.80, as the basis on which the actual LQA for his POQ may be computed.
The claimant, however, contends in his AAR comments to OPM:
Using “10-year’s rent [for sublease] amount of 36,000 euro” is incorrect. DSSR Section 135.1 explains that LQA calculations use annual rates. Therefore, the sublease annual amount of 3,600 euro should be deducted from the 15,000 euro per year annual cost of rent for POQ.
It is unclear if the claimant disagrees with the basis of the Agency’s calculation of €87,000 instead of €150,000 (note that €15,000 was derived from dividing the €150,000 he requested the Agency apply to establish the annual rental portion of the allowance by 10 [years]); or if he disagrees with the Agency’s computing of rental income as a 10-year amount of €36,000 instead of an annual amount of €3,600. As previously explained, the Agency established €87,000, not €150,000, as the amount allowable for POQ grant. Moreover, we note the Agency’s adjusting his LQA for rental income as an annual rate versus a 10-year rate would yield the same amount in estimated monthly rent expenses, as follows:
As a 10-year calculation: €87,000 – €36,000 (10 years of rental income) = €51,000
€51,000 x 1.2498 (exchange rate) = $63,739.80
$63,739.80 10 (years) = $6,373.98
$6,373.98 ÷ 12 (months) = $531.17 monthly rent expenses
As an annual calculation: €8,700 – €3,600 (annual rental income) = €5,100
€5,100 x 1.2498 (exchange rate) = $6,373.98
$6,373.98 ÷ 12 (months) = $531.17 monthly rent expenses
In addition, the claimant appears to disagree with the single exchange rate applied by the Agency, stating in his AAR comments to OPM:
Using a single exchange rate calculation may be flawed. The original purchase price uses the original exchange rate (in my case, the one in effect on the 1 November 2004 date of the purchase agreement) from Block 15 of the LQA worksheet. The sublease amount would use the other exchange rate in Block 15 for annual expenses beginning at the start of an employee’s occupancy (in my case, on 1 August 2015).
In contrast to the claimant’s assertions that different exchange rates are to be applied, DoDI 1400.25-V1250 provides the following instruction:
The annual rate payable for [POQ] is based on the purchase price or appraised value of the property, converted to U.S. dollars at the exchange rate in effect at the time of purchase.
Implicit in the provisions of DSSR section 136(a) (i.e., of “converted to U.S. dollars at original exchange rate”) and DoDI 1400.25-V1250 is the understanding that only the original exchange rate is applied as exclusively permitted by the governing regulations. The record includes a November 23, 2015, email to the claimant from an Agency official, advising that 1.2498 was the exchange rate in effect on the date the notary contract was executed to acquire the property by a “transfer of interest in ownership” agreement. Thus, only that exchange rate is applicable and no provision in regulations provides for using anything other than the single exchange rate to determine POQ and adjustments.
The claimant raises concerns about the fairness and objectivity of the Agency’s LQA determination. The claims jurisdiction authority of OPM under 31 U.S.C. 3702(a)(2) is limited to consideration of whether the applicable statutes and regulations have been properly interpreted and applied in determining if monies are owed for the stated compensation or leave claim. Therefore, the claimant’s assertion concerning the impartiality of Agency officials has no applicability to our claim settlement determination.
This settlement is final. No further administrative review is available within OPM. Nothing in this settlement limits the claimant’s right to bring an action in an appropriate United States court.