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Report to the Secretary of Defense:

United States General Accounting Office:

GAO:

May 2004:

Military Housing:

Further Improvements Needed in Requirements Determinations and Program 
Review:

GAO-04-556:

GAO Highlights:

Highlights of GAO-04-556, a report to the Secretary of Defense 

Why GAO Did This Study:

The Department of Defense (DOD) plans to spend about $9.8 billion in 
fiscal year 2004 to provide housing for about 711,000 families of 
active-duty military personnel in the United States. DODs policy for 
some time has been to rely on housing in the local communities and 
provide military-owned or privatized military housing when the 
communities cannot satisfy requirements. Historically, DOD has viewed 
private sector housing as more cost-effective. In January 2003, DOD 
approved a revised housing requirements determination process designed 
to provide a solid basis for justifying on-base family housing needs. 
GAO looked at whether (1) reliance on community housing remains cost-
effective, (2) the revised process has resulted in consistent and 
reliable needs assessments, and (3) DODs top-level review of military 
housing construction proposals could be improved.

What GAO Found:

DODs policy of relying primarily on local community housing to meet 
military family housing needs has been and continues to be cost-
effective for the federal government. GAOs analysis of DODs fiscal
year 2004 estimated housing costs showed that the annual costs to 
provide housing for a typical military family were about $13,600 for 
local community housing, $16,700 for privatized military housing, and 
$19,000 for military-owned housing.

Although DODs revised housing requirements determination process 
represents a significant step in the right direction, the process has 
not resulted in consistent and reliable estimates of military 
installation housing needs and does not require the services to 
maximize reliance on local community housingthe least costly housing 
option. Because DOD has not provided the services with timely detailed 
guidance addressing the particulars of performing housing requirements 
assessments, the services often used inconsistent methodologies, 
questionable assumptions, and outdated information in performing these 
assessments. Further, although the use of military-owned or privatized 
family housing is clearly justified when local community housing is not 
acceptable or available, or to meet military mission requirements, the 
process provides the services with several exceptions to community 
housing use that may allow the services to build or retain more 
military housing than necessary. It is also unclear whether 
servicemembers housing preferences have changed in view of recent 
changes, such as increases in housing allowances and the increase in 
the number and length of deployments.

DOD could improve the top-level review of proposed military housing 
construction projects. DOD has different top-level review and approval 
processes for service proposals for military housing construction and 
housing privatization projects with the process for privatization 
proposals including additional steps, for example, a top-level review 
of the adequacy of the associated housing requirements analyses.

Privatized Military Family Housing at Fort Hood, Texas, and Elmendorf 
Air Force Base, Alaska: 

[See PDF for image]

[End of figure]

What GAO Recommends:

GAO recommends that the Secretary of Defense (1) expedite efforts to 
provide more detailed guidance on the requirements determination 
process, (2) review the rationale for allowed exceptions to using 
community housing, (3) update information on servicemember housing 
preferences, and (4) apply a more consistent top-level review for 
housing construction and privatization proposals. DOD generally agreed 
with the recommendations.

www.gao.gov/cgi-bin/getrpt?GAO-04-556.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Barry W. Holman at (202) 
512-5581 or holmanb@gao.gov.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Community Housing Remains the Least Costly Option for Meeting Military 
Family Needs:

Family Housing Requirements Assessments Are Inconsistent and 
Questionable:

DOD's Revised Housing Requirements Determination Process Does Not 
Maximize Reliance on Community Housing:

Opportunities Exist to Improve the Top-Level Review of Proposed Housing 
Construction Projects:

Conclusions:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Appendix I: Scope and Methodology:

Appendix II Selected Information from Installation Housing Requirements 
Analyses:

Appendix III: Comments from the Department of Defense:

Tables:

Table 1: Prior Estimates of Annual Government Costs for Military-Owned 
and Community Housing Options:

Table 2: Estimated Annual Government Costs for Housing Options in 2004:

Table 3: Selected Information from Installation Housing Requirements 
Determination Analyses:

Abbreviation:

DOD: Department of Defense:

United States General Accounting Office:

Washington, DC 20548:

May 19, 2004:

The Honorable Donald H. Rumsfeld: 
Secretary of Defense:

Dear Mr. Secretary:

The Department of Defense (DOD) plans to spend about $9.8 billion in 
fiscal year 2004 under various programs to provide housing for about 
711,000 families of active-duty military personnel in the United 
States. DOD's policy is to rely on private sector housing in the local 
communities near military installations as the primary source of family 
housing. About two-thirds of all military families in the United States 
live in local community housing and receive a cash housing allowance to 
help defray the cost of renting or purchasing a home. Until 2001, the 
housing allowance covered an average of 81 percent of the typical 
housing costs, and servicemembers paid the rest out of pocket. An 
initiative started in 2001 has significantly increased housing 
allowances and is slated to cover 100 percent of typical housing costs 
by 2005. When local community housing is unavailable, unsuitable, or 
too expensive, DOD's policy is to provide families with military-owned 
or privatized housing.[Footnote 1] Privatized housing, authorized by 
legislation in 1996, is housing normally located on military 
installations that is owned, operated, and maintained by private 
developers.[Footnote 2] Families in privatized housing use their 
housing allowance to pay rent and typical utility costs while families 
in military housing receive no housing allowance but pay nothing for 
housing or utilities. In privatizing housing, DOD expects to leverage 
private sector funding to achieve greater gains in housing improvements 
than could otherwise be achieved through use of military construction 
appropriations. This report is being addressed to you to bring to your 
attention opportunities to strengthen program management.

Prior reports from us and others have noted that DOD did not have a 
consistent and reliable process to determine family housing 
requirements.[Footnote 3] These reports showed that significant 
uncertainty existed in both the number and location of housing units 
required in the future because DOD often underestimated the ability of 
local communities to meet housing needs and thus overestimated the need 
for military-owned or privatized housing. In January 2003, DOD approved 
a revised housing requirements determination process designed to 
provide a solid basis for justifying the number of family housing units 
actually needed on each installation, whether financed through use of 
military construction funding or through privatization. In implementing 
the revised process, DOD reaffirmed its policy of primary reliance on 
housing in local communities and stated that the construction, 
operation, and maintenance of military-owned housing would be 
considered only when local communities could not provide military 
families with housing.

In view of DOD's housing policies, the potential impacts from increased 
housing allowances, and the importance of having a consistent and 
reliable housing requirements determination process to avoid 
unnecessary housing investments, this report, undertaken pursuant to 
our basic legislative authorities, addresses whether (1) DOD's policy 
of primary reliance on local community housing remains cost-effective, 
(2) implementation of DOD's revised housing requirements determination 
process has resulted in consistent and reliable needs assessments, 
(3) DOD's revised housing requirements determination process maximizes 
reliance on local community housing, and (4) opportunities exist for 
DOD to improve its review of proposed military housing construction 
projects.

To address these objectives, we used DOD's budget and program 
information to determine and compare the government's costs to provide 
housing for a typical military family using each of the three housing 
options--local community housing with payment of a housing allowance; 
military owned, operated, and maintained housing; and privatized 
housing that is owned, operated, and maintained by private developers 
under the military housing privatization program. We primarily used 
cost data contained in DOD's fiscal year 2004 budget justification 
material submitted to the Congress in February 2003 and did not test 
the reliability of this data because it represented DOD's official 
information used to support the President's budget. We reviewed the 
housing requirements determination analyses for 12 installations to 
evaluate the basis for the estimates and assumptions used and assess 
consistency and compliance with DOD's guidance but did not otherwise 
attempt to independently determine housing requirements at the 12 
installations. We reviewed and discussed the details of the revised 
housing requirements determination process with DOD and service 
officials and specifically examined the basis for provisions in the 
process that allow exceptions to using local community housing. 
Finally, we documented differences in DOD's review and approval 
processes for service proposals for military housing construction and 
privatization projects and discussed with DOD officials the reasons for 
the differences and potential advantages from making the processes more 
consistent. We conducted our work from May 2003 through March 2004 in 
accordance with generally accepted government auditing standards. 
A more detailed description of our scope and methodology is included in 
appendix I.

Results in Brief:

DOD's policy of relying primarily on local community housing to meet 
military family housing needs has been and continues to be cost-
effective for the federal government. Previous studies by the 
Congressional Budget Office[Footnote 4] and DOD showed that compared to 
the cost of providing military-owned housing, the government's cost was 
significantly less when military families were paid housing allowances 
and lived in local community housing. Since these studies were 
performed in the mid-1990s, several factors have affected military 
housing costs, such as the initiative to increase the amount of the 
housing allowance paid to individual servicemembers to eliminate 
average out-of-pocket costs and the implementation of a new military 
family housing option--privatization of military-owned housing. 
Nevertheless, our analysis of fiscal year 2004 estimated housing costs 
showed that reliance on local community housing continues to be the 
government's least costly option for housing military families. 
Specifically, our analysis showed that the government's annual costs to 
provide housing for a typical military family were about $13,600 for 
local community housing, $16,700 for privatized military housing, and 
$19,000 for military-owned housing.[Footnote 5] The cost difference 
between local community housing and military privatized housing was 
primarily caused by additional federal impact aid paid to local school 
districts for children of families living in on-base privatized housing 
that is not subject to local property taxes.[Footnote 6] The cost 
difference between privatized and military-owned housing, according to 
DOD officials, primarily reflected the estimated difference in the 
costs of a housing unit constructed, operated, and maintained by the 
military and a unit constructed, operated, and maintained by private 
developers. Other factors possibly affecting cost differences include 
differences in construction specifications and the size of privatized, 
military-owned, and community housing units rented by military 
families.

Although DOD's revised housing requirements determination process 
represents a significant step in the right direction, the process has 
not resulted in consistent and reliable assessments of military 
installation housing needs and may result in over reliance on more 
costly military-owned family housing. Determining an installation's 
housing needs requires a complex analysis involving many subjective 
factors and assumptions, and DOD did not provide the services with 
timely detailed guidance addressing these matters or the level of 
oversight needed as the services began to use the process. Thus, it is 
not surprising that the services adopted different methods for 
determining installation housing needs as they began implementing the 
process. For example, the services independently decided how to address 
many subjective factors, estimates, assumptions, and methodologies, 
including methods and assumptions (1) to determine an installation's 
housing requirement considering base population, servicemember rank, 
family size, and associated bedroom needs; (2) to project changes in 
the supply and availability of local community housing; (3) to estimate 
how many military families are home owners and therefore will not need 
community rental housing; (4) to identify unsuitable community housing 
units that are excluded from consideration for military family use; and 
(5) to estimate the competition between civilian and military families 
in securing available community housing. Collectively, differences in 
these factors result in inconsistent installation housing requirements 
analyses and could result in generating higher or lower on-base housing 
needs and costs than warranted. Without consistent and reliable housing 
requirements assessments, DOD cannot know with assurance how many 
housing units it needs, where it needs them, whether its housing 
investment decisions are justified, and whether its overall housing 
costs are minimized.

In addition, DOD's revised housing requirements determination process 
provides the services several exceptions to the policy of maximizing 
reliance on local community housing near military installations that 
could result in further reliance on on-base housing than necessary. 
Although one exception--military mission requirements--appears clearly 
justified, the other exceptions do not and could result in the services 
identifying more on-base family housing requirements than actually 
needed. For example, regardless of the availability of local housing, 
the revised process allows installations to maintain an on-base 
military housing community that can accommodate up to 10 percent of the 
projected number of families at the installations. Applying this 
exception, the 12 installation analyses we reviewed determined that 
4,576 military family housing units were required regardless of the 
ability of local communities to meet these housing needs.[Footnote 7] 
The process also permits installations to provide additional on-base 
military housing in some cases for servicemembers with lower incomes, 
even though housing allowances for these servicemembers are expected to 
fully cover the actual cost of local housing by 2005. Application of 
the permitted exceptions could decrease reliance on community housing 
and increase family housing costs. Also, the services had no analytical 
support showing that there would be negative impacts if military 
families were housed in suitable, affordable housing in the local 
communities rather than on base where some preferred to live. DOD's 
1999 survey of active duty personnel showed that 72 percent of 
servicemembers preferred local community housing if costs were equal 
and that there was no clear link between housing and retention. 
However, we cannot be sure to what extent these survey results may 
change given other recent changes based on the increase in housing 
allowances and the increase in the number and length of troop 
deployments.

Opportunities exist for DOD to improve the top-level review of proposed 
military housing construction projects to provide additional assurances 
that the projects are justified and optimally integrated with the 
privatization program. DOD has different review and approval processes 
for service proposals for housing construction and housing 
privatization projects. The process for reviewing privatization 
proposals includes additional steps, such as a briefing from service 
officials describing each project and its justification and a top-level 
review of the adequacy of the associated housing requirements analysis. 
These extra steps provide additional assurances that proposed projects 
are adequately justified before approval. Also, DOD's top-level review 
of military housing construction proposals normally does not include an 
analysis of whether the planned improvements could be more economically 
achieved through housing privatization. Our review found that the Army, 
the Air Force, and the Marine Corps have recently used, or plan to use, 
military construction projects to build replacement military family 
housing at installations slated for privatization in the near future. 
The Army, for example, has an approved $41 million fiscal year 2004 
project at Fort Knox, Kentucky, to replace inadequate housing with 178 
new houses. The Army plans to convey the new housing units to a 
privatization developer when all Fort Knox family housing is privatized 
in 2006. Although military housing construction projects may be 
appropriate at installations scheduled for privatization, a top-level 
review of such proposals could provide additional assurances that the 
alternative used to achieve needed housing improvements is the more 
advantageous option for the government--a feature not always present in 
the current process.

We are recommending that DOD expedite efforts to provide the military 
services with more detailed guidance on implementing the revised 
housing requirements determination process to help ensure that housing 
investments, whether through military construction or privatization, 
are supported by consistent and reliable needs assessments. We are also 
recommending that DOD (1) review the rationale supporting each of the 
exceptions to using local community housing provided in the revised 
process in an effort to reduce or narrow the scope of the exceptions 
and minimize family housing costs, (2) survey servicemembers with 
dependents to update information on preferences for family housing, and 
(3) apply a more consistent top-level review and approval process for 
both military housing construction and privatization project proposals 
to help ensure that proposed housing construction projects are 
adequately justified and appropriate consideration has been given to 
privatization options and plans. In commenting on a draft of this 
report, DOD generally agreed with our recommendations and indicated 
that actions were under way or planned to deal with most of them.

Background:

DOD seeks to provide servicemembers and their families with access to 
adequate, affordable housing either by paying a cash allowance to help 
cover the costs of renting or purchasing a home or by assigning 
families to military-owned or leased housing. In fiscal year 2004, DOD 
plans to spend about $7.1 billion for housing allowances for about 
527,000 military families living in local community or military 
privatized housing and about $1.8 billion to operate and maintain about 
169,000 military-owned family housing units in the United States and 
lease about 15,000 units. The Congress also authorized DOD to spend 
about $908 million in fiscal year 2004 to construct and renovate 
military-owned family housing units.

Family Housing Initiatives:

Recognizing that housing is a major component of the military's 
compensation package and a key factor affecting quality of life, DOD 
has placed priority on improving the family housing program for several 
years. Partly due to initiatives to improve the program, DOD's family 
housing costs increased by about $2.4 billion, or 37 percent, between 
fiscal year 1998 and 2004. For example, DOD began a quality-of-life 
initiative in 2001 to increase housing allowances and eliminate average 
out-of-pocket costs paid by servicemembers for rent and utilities when 
living in community housing. Prior to this initiative, enlisted 
servicemembers with families living in community housing received, on 
average, an allowance of $681 per month and paid 19 percent more for 
housing costs out of pocket. In 2004, enlisted servicemembers will 
receive, on average, an allowance of $1,027 per month and pay 
3.5 percent more for housing costs out of pocket.[Footnote 8] 
Similarly, in 2004, officers will receive, on average, an allowance of 
$1,486 per month and pay 3.5 percent more for housing costs out 
of pocket. By 2005, DOD plans for the average housing allowance to 
fully cover the normal costs of housing and utilities with the typical 
servicemember paying no additional out-of-pocket costs.

DOD also started initiatives to improve the condition of military-owned 
housing. A DOD official testified in 1998 that the majority of 
military-owned housing units were old, had not been adequately 
maintained and modernized, and needed to be renovated or replaced. DOD 
established a goal to eliminate nearly all inadequate family housing by 
2007 using a three-prong approach consisting of increased housing 
allowances, privatization, and military construction. First, DOD 
expects the housing allowance initiative to reduce the requirement for 
military-owned housing because more community housing units should 
become affordable to military families. Second, widespread use of 
military housing privatization is expected to result in renovating and 
replacing inadequate housing units faster than use of traditional 
military construction funds. DOD's plans call for privatizing the 
majority--about 146,000 units--of the existing military-owned housing 
inventory by 2007. Third, DOD plans to use military construction funds 
to eliminate inadequate housing at installations where privatization is 
not considered to be a viable option. Also, compared to the past, DOD 
officials stated that they are providing on-base family housing units 
with more bedrooms to meet the needs of larger families.

Housing Requirements Determination Process:

DOD's policy is to rely primarily on local community housing and 
provide families with military-owned or privatized housing when local 
community housing is unavailable, unsuitable, or too expensive. To help 
implement this policy, the military services follow a housing 
requirements determination process that includes a periodic analysis at 
major installations to estimate housing needs. Each analysis estimates 
the number of military families at an installation and their housing 
needs, including bedroom requirements, considering family size and 
servicemember rank. The analysis compares the housing requirement with 
the availability of local community rental housing that meets the 
military's criteria for suitability and affordability.[Footnote 9] When 
the analyses predict that local communities cannot meet family housing 
needs, the services have a basis to justify military-owned or 
privatized housing. When the analyses predict that local communities 
could meet most or all housing needs, the services may have a basis to 
justify elimination of existing military-owned housing units that are 
no longer needed.

The housing determination process is complex and involves many 
subjective factors, assumptions, estimates, and projections. In the 
past, the services used different methods to determine housing 
requirements, and DOD was criticized by us and others for not having a 
consistent process that produced reliable results.[Footnote 10] To 
address this issue, the Deputy Secretary of Defense issued a memorandum 
on January 8, 2003, directing the services to begin using a new, 
revised process for determining family housing requirements.[Footnote 
11] This memorandum confirmed a revised process that the military 
services had already agreed to and put into use.

Family Housing Program Management:

Separate DOD organizations manage the two key components of the family 
housing program--housing allowances and military housing. Housing 
allowances are the responsibility of the Under Secretary of Defense for 
Personnel and Readiness and primarily are managed centrally at DOD 
headquarters by the organization responsible for all compensation 
issues, including basic pay and other types of allowances. Military-
owned and -leased housing and the military housing privatization 
program are the responsibility of the Under Secretary of Defense for 
Acquisition, Technology and Logistics. Although DOD headquarters 
establishes overall policy for military and privatized housing, primary 
management responsibility is delegated to the individual services, 
their major commands, and individual installations.

Prior GAO Reports on the Military Family Housing Program:

Since 1996, we have issued several reports on DOD's family housing 
program that addressed the overall program, housing allowances, 
military housing requirements, and the military housing privatization 
initiative.

* In September 1996, we reported that the family housing program 
allowed significant differences in the housing benefit provided to 
servicemembers of the same paygrade depending on whether they lived in 
military-owned or community housing because of the differences in out-
of-pocket costs paid for housing.[Footnote 12] DOD's initiative to 
reduce out-of-pocket costs to zero by 2005 will eliminate this 
inequity.

* In July 1998, we reported on several concerns related to the new 
military housing privatization program.[Footnote 13] These concerns 
included (1) whether privatization would result in significant cost 
savings and whether the long contract terms of many projects might 
result in building housing that will not be needed in the future; 
(2) whether controls were adequate to protect the government's 
interests in the event developers might not operate and maintain the 
housing as expected; and (3) whether DOD would face certain problems if 
privatized housing units were not fully used by military members and 
were subsequently rented to civilians, as the contracts permit.

* In March 2000, we reported that initial implementation progress for 
the privatization program was slow, the services' life-cycle cost 
analyses provided inaccurate cost comparisons because DOD had not 
issued standardized guidance for preparing the analyses, and DOD lacked 
a plan for evaluating the effectiveness of the program.[Footnote 14] As 
DOD subsequently quickened the pace of family housing privatization, it 
issued standard guidance for privatization life-cycle cost analyses and 
developed a program evaluation plan.

* In May 2001, we reported on the results of our analysis of selected 
results from a broad-based 1999 survey of active duty 
personnel.[Footnote 15] We noted that although increasing the housing 
allowance to eliminate out-of-pocket costs should help satisfy 
servicemember preferences and increase servicemember demand for 
community housing, DOD should not expect a substantial increase in 
retention to result solely from increasing housing allowances.

* In August 2001, we reported that despite earlier recommendations, DOD 
had not implemented a standard process for determining military housing 
requirements.[Footnote 16] In that report, we pointed out that the 
initiative to increase housing allowances heightened the urgency for a 
consistent process, because the initiative could lessen the demand for 
military housing by making housing in local communities more 
affordable. In January 2003, DOD approved the revised family housing 
requirements determination process addressed in this report.

* In June 2002, we reported that by investing about $185 million in the 
first 10 family housing privatization projects, DOD should obtain 
housing improvements that would have required about $1.19 billion in 
military construction funds had only government funds been 
used.[Footnote 17] We also noted that privatization projects were 
supported by inconsistent and questionable needs assessments and that 
the overall requirement for military housing was not well-defined. 
Further, although DOD had included provisions in project contracts 
designed to protect the government's interests, our report identified 
several areas where DOD could further enhance protections to the 
government. DOD responded by outlining ongoing and planned management 
actions to address the concerns noted in the report.

Community Housing Remains the Least Costly Option for Meeting Military 
Family Needs:

Similar to information we previously reported, our analysis of fiscal 
year 2004 estimated housing costs showed that the government's most 
economical option for meeting military family housing needs continues 
to be reliance on local community housing with payment of housing 
allowances. Although costs and other factors have changed over the past 
10 years, the results of our analysis are consistent with similar 
analyses performed in the mid-1990s and show that DOD's policy of 
relying primarily on local community housing continues to be cost-
effective. We estimated that the cost difference to the government for 
each family that lives in local community housing, instead of 
military-owned housing, is about $5,400 less annually. The difference 
for each family that lives in local community housing, instead of 
military privatized housing, is about $3,100 less annually. The cost 
differences are primarily due to three reasons. First, the government 
pays significantly less federal impact aid for military dependents 
educated in local schools when they live in community housing, which is 
subject to local property taxes. Second, according to DOD officials, 
the private sector generally can build, operate, and maintain a family 
housing unit at less cost than the government. Third, according to DOD 
officials, other factors possibly affect cost differences such as 
differences in construction specifications and the size of privatized, 
military-owned, and community housing units rented by military 
families.

Previous Cost Comparisons of Housing Options:

In 1993, the Congressional Budget Office issued a report on military 
family housing that included an analysis comparing the average annual 
cost of a military-owned housing unit with the cost of a community 
housing unit obtained by a military family.[Footnote 18] The comparison 
showed that in the long run the government spent $5,500 more annually 
when military-owned housing was provided instead of paying an allowance 
for a family to live in community housing. In response to the report, 
DOD compared the same costs. Because of some differences in the 
assumptions and data used for some cost elements, such as long-term 
capital investment and federal impact aid costs, DOD's estimates 
differed somewhat. Nevertheless, DOD also estimated that the reduced 
costs to the government when families used community housing were 
significant--about $3,200 per family annually. Details from these 
analyses are shown in table 1.

Table 1: Prior Estimates of Annual Government Costs for Military-Owned 
and Community Housing Options:

Then-year dollars.

Category: Military-owned housing option; 
Operations and maintenance; 
1993 Congressional Budget Office study: Cost per family: $6,200; 
1994 DOD study: Cost per family: $6,505.

Category: Military-owned housing option; 
Capital investment; 
1993 Congressional Budget Office study: Cost per family: 4,900; 
1994 DOD study: Cost per family: 2,803.

Category: Military-owned housing option; 
Federal impact aid; 
1993 Congressional Budget Office study: Cost per family: 1,900; 
1994 DOD study: Cost per family: 1,478.

Category: Military-owned housing option; 
Total; 
1993 Congressional Budget Office study: Cost per family: $13,000; 
1994 DOD study: Cost per family: $10,786.

Category: Community housing option; 
Housing allowance; 
1993 Congressional Budget Office study: Cost per family: $7,500; 
1994 DOD study: Cost per family: $7,506.

Category: Community housing option; 
Federal impact aid; 
1993 Congressional Budget Office study: Cost per family: 0; 
1994 DOD study: Cost per family: 62.

Category: Community housing option; 
DOD housing referral services; 
1993 Congressional Budget Office study: Cost per family: 0; 
1994 DOD study: Cost per family: 37.

Category: Community housing option; 
Total; 
1993 Congressional Budget Office study: Cost per family: $7,500; 
1994 DOD study: Cost per family: $7,605.

Cost difference; 
1993 Congressional Budget Office study: Difference: $5,500; 
1994 DOD study: Difference: $3,181. 

Sources: Congressional Budget Office, Military Family Housing in the 
United States (Washington, D.C.: September 1993) and U.S. General 
Accounting Office, Military Family Housing: Opportunities Exist to 
Reduce Costs and Mitigate Inequities, GAO/NSIAD-96-203 (Washington, 
D.C.: Sept. 13, 1996).

[End of table]

The cost differences in these analyses were primarily caused by 
three factors. First, in the mid-1990s, prior to the initiative to 
eliminate out-of-pocket costs, military families living in community 
housing typically paid about 19 percent of their housing costs out of 
pocket because housing allowances covered about 81 percent of average 
housing costs. Thus, in comparison to military-owned housing where the 
government paid all housing and utility costs and families paid no out-
of-pocket costs, the government's annual cost for families living in 
community housing was smaller. Second, the federal impact aid paid by 
the Department of Education to local governments to help cover the cost 
of educating dependents of military families differed depending on 
where families lived. When military families lived in community 
housing, a relatively small amount of federal impact aid was paid for 
each student because the housing was subject to local property taxes, 
which can be used to help pay for schools. When families lived in 
military-owned housing, a significantly higher amount of federal impact 
aid was typically paid because the property was not subject to local 
property taxes. Third, the Congressional Budget Office concluded that 
the private sector can build, operate, and maintain housing more 
economically than DOD for reasons including DOD's higher project 
contracting and oversight costs, higher labor costs, and more detailed 
regulations and constraints on housing design and construction.

Relying on Community Housing Continues to Be the Least Costly Option 
for Meeting Military Family Housing Needs:

Because DOD had not updated its 1994 study of housing costs, we 
reviewed the current costs of each housing option to determine whether 
reliance on community housing continues to be the government's most 
economical option in view of family housing program changes since the 
mid-1990s. As shown in table 2, our review showed that, even though 
housing allowances have increased significantly and the new privatized 
housing option is less costly than the military-owned housing option, 
the community housing option continues to be the federal government's 
least costly option for meeting military family housing needs.[Footnote 
19] Compared to the cost of military-owned and privatized housing, the 
government will typically spend about $5,400 and $3,100 less, 
respectively, each year for each family that lives in community 
housing.

Table 2: Estimated Annual Government Costs for Housing Options in 2004:

Fiscal year 2004 dollars.

Category: Costs of military-owned housing option; 
Operations and maintenance; 
Cost per family: $9,006.

Category: Costs of military-owned housing option; 
Capital investment; 
Cost per family: $6,923.

Category: Costs of military-owned housing option; 
Federal impact aid; 
Cost per family: $3,106.

Category: Costs of military-owned housing option; 
Total; 
Cost per family: $19,035.

Category: Costs of military privatized housing option; 
Housing allowance; 
Cost per family: $13,433.

Category: Costs of military privatized housing option; 
Federal impact aid; 
Cost per family: $3,106.

Category: Costs of military privatized housing option; 
Other net privatization costs; 
Cost per family: $165.

Category: Costs of military privatized housing option; 
Total; 
Cost per family: $16,704.

Difference with military-owned housing option: $2,331.

Category: Costs of community housing option; 
Housing allowance; 
Cost per family: $13,433.

Category: Costs of community housing option; 
Federal impact aid; 
Cost per family: $149.

Category: Costs of community housing option; 
DOD housing referral services; 
Cost per family: $34.

Category: Costs of community housing option; 
Total: $13,616.

Difference with privatized housing option: $3,088.

Difference with military-owned housing option: $5,419. 

Source: GAO's analysis of DOD data except for federal impact aid.

Note: Federal impact aid estimates were obtained from the Congressional 
Research Service's report: Impact Aid for Public K-12 Education: 
General Overview and Current Status, RL31885 (Washington, D.C.: 
May 6, 2003).

[End of table]

According to DOD officials, the privatization option costs less than 
the military-owned housing option primarily because of the efficiencies 
gained from the use of private sector housing construction and 
management expertise and the use of local building specifications 
instead of sometimes more stringent military construction building 
specifications. The cost difference between the privatization option 
and the community housing option is primarily the result of differences 
in federal impact aid costs. According to DOD officials, because most 
privatized housing is on military-owned land, which is not subject to 
local taxes, federal impact aid is normally paid at the higher rate 
when dependents of servicemembers living in this housing are educated 
by local public schools. DOD officials also noted that because DOD's 
housing standards differ for servicemembers living in privatized and 
government-owned housing and for those living in community housing, 
cost differences might be affected by differences in the average size 
of privatized or military-owned housing units compared to the average 
size of community housing units rented by military families. 
Specifically, DOD considers family size when determining military 
housing requirements and assigning servicemembers to government 
housing, but ignores family size when determining housing allowances 
for servicemembers living in local communities. As a result, 
servicemembers in lower paygrades with larger families are entitled to 
a residence with more bedrooms in privatized or military-owned housing 
than they are able to afford in the local community on the basis of 
their housing allowance. However, detailed data is not available to 
determine whether the average size of privatized and military-owned 
housing units exceeds the average size of community housing units 
rented by military families.

Family Housing Requirements Assessments Are Inconsistent and 
Questionable:

Although DOD's revised housing requirements determination process 
represents a significant step in the right direction, the process has 
yet to achieve one of its key objectives--consistent and reliable 
assessments of military family housing needs. Determining an 
installation's housing needs requires a complex analysis involving many 
subjective factors and assumptions, and DOD did not provide the 
services with timely detailed guidance addressing these matters or the 
level of oversight needed as the services began to use the revised 
requirements process. In the absence of detailed guidance, we found 
that the services used inconsistent methods and sometimes questionable 
data sources and assumptions when determining family housing needs at 
various installations. Collectively, these factors could result in 
installation housing requirements analyses generating higher or lower 
on-base housing needs than warranted. Without consistent and reliable 
housing requirements assessments, DOD cannot know with assurance how 
many housing units it needs, where it needs them, whether its housing 
investment decisions are justified, and whether its overall housing 
costs are minimized.

DOD Has Not Issued Timely Detailed Guidance for Implementing the 
Revised Housing Requirements Determination Process:

The January 2003 memorandum that announced the revised housing 
requirements determination process directed the Deputy Under Secretary 
of Defense (Installations and Environment) to consult with the military 
services and prepare necessary guidance to implement the revised 
process. Determining an installation's housing requirement involves a 
complex analysis of military housing needs and the ability of local 
communities to meet those needs, and DOD officials understood that 
detailed guidance was needed to help ensure consistency and accuracy as 
the services implemented the revised process. However, DOD officials 
stated that developing detailed guidance has taken more time and 
coordination than expected and that final guidance might not be ready 
until 2005.

Without detailed DOD guidance, each service independently decided how 
to implement the revised requirements determination process and what 
level of oversight would be provided to the process and to the housing 
requirements analyses. Thus, the services independently decided how to 
address many subjective factors, estimates, assumptions, and 
methodologies associated with each housing analysis, including methods 
and assumptions (1) to determine an installation's family housing 
requirement considering projected base population, servicemember rank, 
family size, and associated bedroom needs; (2) to project changes in 
the supply and availability of local community housing; (3) to estimate 
how many military families are home owners and therefore will not need 
community rental housing; (4) to identify unsuitable community housing 
units that are excluded from consideration for military family use; and 
(5) to estimate the competition between civilian and military families 
in securing available community housing. With the services 
independently deciding how to address these factors, it is not 
surprising that the services adopted different methods for determining 
installation housing needs as they began implementing the revised 
process.

Housing Requirements Analyses Use Inconsistent Methodologies, 
Questionable Assumptions, and Outdated Information:

As illustrated below, our review of the services' housing requirements 
analyses for 12 installations found areas of concern, including use of 
inconsistent methodologies, questionable assumptions, and outdated 
information. Most of the analyses appeared to underestimate the ability 
of local communities to meet military family housing needs and thus 
overestimate the need for more costly military-owned or privatized 
housing.

* Ten of the 12 analyses used outdated information from military 
housing expenditure surveys completed from 1994 to 1997 as the basis 
for estimating the number of military family home owners.[Footnote 20] 
Since 1997, however, several factors have changed to make home 
ownership more likely for military families, such as significantly 
increased housing allowances, decreased average out-of-pocket housing 
costs, and lower mortgage interest rates. Yet, the analyses assumed 
that the home ownership rates reported in 1997 would remain constant 
through the end of each study period--specifically until 2006 to 2008. 
At Shaw Air Force Base, for example, the housing requirements analysis 
used 1994 to 1997 data to estimate that 785 of the 3,151 military 
families at the installation in 2002 were home owners and that 
approximately the same number, 784, would be home owners in 2007. 
Because underestimating the number of military family home owners can 
result in overestimating the need for more costly military-owned or 
privatized housing, accurate estimates are important and the use of 
outdated information to make home owner estimates appears unreasonable.

* Eight of the 12 analyses eliminated suitable community rental housing 
units from potential use by military families simply because the units' 
rental costs were too low. These analyses assumed that servicemembers 
would spend at least a stated minimum amount--either their full housing 
allowance, an amount based on spending patterns identified from housing 
surveys completed in 1997, or an amount determined on another basis--on 
housing costs and would not rent suitable local housing that cost less 
than this amount. For example, the analysis for Fort Eustis eliminated 
from consideration over 3,800 suitable two-, three-, and four-bedroom 
community housing units because they rented for less than $600 a month-
-the approximate amount of the housing allowance for servicemembers in 
the lowest paygrades at this installation. Also, the analysis for Naval 
Station Everett eliminated from consideration over 12,500 suitable two-
, three-, and four-bedroom community housing units because they rented 
for less than $800 a month--the minimum rental cost considered 
appropriate, which was about 80 percent of the maximum allowable 
housing cost for servicemembers in the lowest paygrades at this 
installation. Similarly, the analysis for Luke Air Force Base 
eliminated from consideration over 23,000 suitable two-, three-, and 
four-bedroom community housing units because they rented for less than 
about $700 a month--the minimum rental cost considered appropriate in 
the housing analysis based on military family spending patterns 
identified in 1997 survey data. However, servicemembers are not 
required to spend their entire housing allowance on housing, and if 
they spend less, they can keep the difference. One of the reasons that 
DOD changed the basis for determining housing allowances in 1998 from 
servicemember housing expenditures to actual housing costs was that 
servicemembers, particularly in high-cost areas, often spent less than 
expected on housing. Further, because housing allowances are determined 
on the basis of the median rental cost in each geographic area, half of 
the rental units in the area will normally rent for less than the 
housing allowance amount plus the average out-of-pocket costs. For 
these reasons, the methodology used in the 8 analyses appears 
questionable and could result in underestimating the ability of the 
local communities to meet family housing needs and overestimating the 
need for more costly military-owned or privatized housing.

* Although DOD's guidance states that normally no more than 20 percent 
of a local community's total rental units would likely be unsuitable 
for military families, 3 of the 12 analyses estimated that more than 
20 percent were unsuitable.[Footnote 21] Specifically, after 
eliminating rental mobile homes, these analyses eliminated from 30 to 
50 percent of the local communities' remaining rental units from 
consideration for use by military families because the units were 
judged to be unsuitable. According to the analyses, the suitability 
estimates were primarily based on interviews with local civilian 
housing officials, census and similar data, opinions from installation 
officials on areas that should be excluded from consideration and 
drive-by observations. However, the analyses did not include detailed 
information to explain or support their estimates. To illustrate, the 
analysis for Fort Sam Houston estimated that 50 percent of the 
approximately 205,000 rental units in the local communities surrounding 
the installation were unsuitable for use by military families because 
of quality or safety concerns. Similarly, the analysis for Dyess Air 
Force Base estimated that over 41 percent of the 22,000 local community 
rental units were unsuitable for use by military families because of 
quality or safety concerns. Because it was beyond the scope of our 
review, we did not determine the validity of the suitability estimates. 
However, DOD headquarters officials stated that accurate estimates are 
critical to the results of the housing requirements process. They also 
stated they are suspect of unsuitable estimates that exceed 20 percent. 
If more rental units are declared unsuitable than is appropriate, 
housing analyses could underestimate the ability of communities to meet 
family housing needs and overestimate the need for more costly 
military-owned or privatized housing.

* In defining the local community housing market area surrounding each 
installation, 9 of the 12 analyses did not use the definition 
prescribed in the revised process. The revised process stated that the 
services should use the same housing market area to determine housing 
requirements as DOD uses to determine housing allowances.[Footnote 22] 
The analyses that did not follow this guidance defined the local 
housing market area in four different ways. For example, the housing 
analysis for Fort Sam Houston defined the market area as the 
communities within 20 miles of the installation and the analysis for 
Marine Corps Air Station Yuma defined the market area as the 
communities within a 1-hour commute of the installation. In neither 
case did the market area used match the area used to determine housing 
allowance rates. Differences in the way the local housing market is 
defined can cause over-or underestimates of a local community's ability 
to meet family housing needs.

* Six of the 12 analyses included an assessment of the housing 
requirements for single servicemembers who live off base. These 
analyses assumed that single servicemembers who live off base competed 
with married servicemembers and civilians for available community 
housing. The other six analyses assessed only family housing needs and 
thus assumed that single servicemembers did not compete with married 
servicemembers for community housing. The two approaches were 
inconsistent and resulted in different assessments of family housing 
needs. Also, the housing analysis for Naval Station Everett included 
single servicemembers but inappropriately assumed that single personnel 
in paygrade E4 lived off base and that 269 single servicemembers in 
paygrade E4 would require either a two-bedroom or a three-bedroom 
housing unit in 2008. However, the Navy requires single E4 personnel 
with less than 4 years of service to live in military barracks, and the 
housing allowance standard for single E4 personnel living off base is a 
one-bedroom unit, not a two-or a three-bedroom unit. The faulty 
assumptions reduced the number of community rental units considered 
available to military families at the installation and increased the 
estimated requirement for military-owned or privatized housing.

In combination, the use of inconsistent methodologies, questionable 
assumptions, and outdated information has resulted in inconsistent and 
questionable estimates of on-base military housing needs, which may 
result in under reliance on community housing. The results from our 
review also raise questions concerning the adequacy of the services' 
reviews of completed analyses for accuracy and compliance with 
criteria. Service officials stated that they provide guidance to and 
approve the assumptions used by the contractors selected to perform the 
analyses. Also, they stated that installation officials review the 
initial results of the analysis for their installation prior to the 
analysis being finalized. Nevertheless, the use of inconsistent and 
questionable data sources, assumptions, and methodologies continues to 
exist. See appendix II for additional details on all 12 housing 
requirements analyses.

DOD's Revised Housing Requirements Determination Process Does Not 
Maximize Reliance on Community Housing:

DOD's revised housing requirements determination process provides the 
services several exceptions to the policy of maximizing reliance on 
local community housing near military installations that could further 
detract from reliance on local housing. The basis for some of these 
exceptions was the consensus of DOD and service military housing 
officials rather than military mission requirements, results from 
analytical studies, or evidence that retention would be negatively 
affected if more families lived in local housing. Consequently, the 
basis for such judgments was not always clear and thus subject to 
question. If achievable, reducing or narrowing the scope of any of the 
exceptions could increase reliance on community housing and reduce 
family housing costs.

Instances When the Services Are Not Required to Use Available Community 
Housing:

The Deputy Secretary of Defense's memorandum that announced the revised 
housing requirements determination process emphasized DOD's long-
standing policy requiring primary reliance on the local communities 
surrounding installations for housing military families. The memorandum 
stated that because housing is not a core defense function and adequate 
capability exists in the private sector to perform this function, DOD 
will consider the construction, operation, and maintenance of military 
housing only when the private sector is not capable of meeting family 
housing needs.

However, even in view of these policy statements, the memorandum also 
included guidance that provided four instances when the services are 
not required to use available, suitable community housing. 
Specifically, the guidance stated that notwithstanding the overall 
policy to look first to local community housing, the services may 
retain or build military housing by applying the following exceptions 
to the use of local community housing at each installation.[Footnote 
23]

* Exception for key and essential personnel. The services may provide 
military family housing for servicemembers identified as key and 
essential personnel at each installation.

* Exception to establish a military housing community. The services may 
include up to 10 percent of the projected number of military families 
in each paygrade as a military housing requirement to establish a 
minimum military housing community at each installation.

* Exception to provide targeted economic relief. The services may 
include as a military housing requirement housing to accommodate 
families when the servicemembers' regular military compensation falls 
below 50 percent of the local median income in the community 
surrounding an installation.[Footnote 24]

* Exception for historic housing. The services may include as a 
military housing requirement any historic family housing units that an 
installation is obligated to retain in government ownership by 
agreement, regulation, or other requirement.

As discussed below, application of these exceptions individually or 
collectively could result in greater reliance on on-base family housing 
than is warranted in view of DOD's policy of reliance on local 
community housing. According to DOD and service officials, the 
exceptions were formulated during the years-long effort to develop a 
revised housing requirements determination process. The services 
believed that there were legitimate reasons for an installation to 
maintain some on-base military family housing regardless of the 
availability of community housing, for example, the mission-related 
need to house on-base personnel identified as key and essential. To 
recognize and address these reasons, DOD and service officials reached 
consensus that the four exceptions to the overall policy should be an 
essential part of the revised process.

Basis for Three of the Four Exceptions Appears Subject to Question:

Although the justification supporting the exception for key and 
essential personnel appears well-founded, the justifications 
supporting the other exceptions appear less certain and subject to 
question. Service officials stated that the key and essential personnel 
exception was provided because of mission requirements. Specifically, a 
relatively small number of servicemembers at each installation normally 
are designated as key and essential and are required to live on base 
regardless of the local communities' ability to meet military housing 
needs. At the 12 installations we reviewed, the estimated total number 
of military families ranged from 365 to 13,998 and averaged 3,781, and 
the number of designated key and essential personnel ranged from 5 to 
93 and averaged 24. However, as discussed below, the justifications for 
the other allowed exceptions to using available community housing 
appear less convincing and subject to question.

Basis for Military Housing Community Exception Appears Subject to 
Question:

Each of the 12 installation housing requirements determination analyses 
we reviewed applied the military community exception. Each analysis 
identified 10 percent of the projected number of military families at 
each installation as a military housing requirement and excluded this 
number of families from consideration for housing in the local 
communities surrounding the installation. In total, the 12 analyses 
determined that 4,576 military family housing units were required 
regardless of the ability of local communities to meet these housing 
needs.[Footnote 25] On an installation basis, with total estimated 
families ranging from 365 to 13,998, the identified military housing 
community requirement ranged from 37 to about 1,400 housing units.

DOD officials stated that the justification for the military housing 
community exception was not founded on mission requirements or the 
results from any economic or other analysis. Instead, the exception was 
provided on the basis of consensus of DOD and military service housing 
officials. Service officials stated that they believed an on-base 
military housing community was needed to recognize the value of the 
cohesive attributes of a military community to the morale of 
servicemembers. The officials said that some families wanted to live on 
base because they felt a greater sense of security, received more 
support from military family neighbors, and were closer to work and on-
base amenities, such as commissaries and recreation facilities.

While some families may prefer to live on base, DOD's position is that 
there is no mission requirement for families to live on base, except 
for the families of the servicemembers designated as key and essential. 
Also, the services had no analytical support showing that there would 
be negative impacts if military families were housed in suitable, 
affordable housing in the local communities rather than on base where 
some preferred to live. In a May 2001 report on DOD's 1999 survey of 
active duty personnel, we noted that the survey showed that 
(1) 72 percent of servicemembers preferred local community housing if 
costs were equal and (2) there was no clear link between housing and 
retention.[Footnote 26] We do not know whether these survey results 
have changed given the recent increased housing allowances and the 
recent increase in the number and length of troop deployments. 
Nevertheless, the services had no analytical support showing that the 
optimum on-base housing community should consist of 10 percent of 
military families--as opposed to 5 percent, 20 percent, 10 percent plus 
some addition for the other exception criteria, or some 
other percentage. Also, although the services note the value of a 
cohesive military housing community, an installation's military-owned 
housing inventory often is not sited in one on-base neighborhood but 
instead is sited in several dispersed locations, including, in some 
instances, off-base locations several miles from the installation.

Basis for Targeted Economic Relief Exception Appears Subject to 
Question:

At 5 of the 12 installations we reviewed, the application of the 
economic relief exception increased military housing requirements above 
the level established by the military housing community exception. 
Application of the economic relief exception at these installations 
increased military housing requirements by a total of 414 housing 
units. DOD seeks to provide servicemembers with access to adequate and 
affordable housing and, according to some service officials, the 
economic exception was provided on the basis of consensus of DOD and 
service housing officials to recognize the financial strain placed on 
married servicemembers in lower paygrades who live in high-cost 
communities. Service officials stated that because housing allowances 
vary by paygrade, servicemembers in lower paygrades receive lower 
allowances and might have more difficulty in renting affordable housing 
in high-cost areas. Further, servicemembers living in high-cost areas 
normally are faced with higher incidental costs other than housing.

However, the targeted economic relief exception does not appear to 
recognize that other measures are in place to help mitigate financial 
hardships facing military families living in high-cost areas. In 
particular, housing allowances for servicemembers in all paygrades are 
based on the actual median cost of local housing in each geographic 
area of the country. Thus, housing allowances in high-cost areas 
reflect the high cost of community housing in those areas. For example, 
the 2004 housing allowance in the San Francisco area is $2,153 a month 
for servicemembers with dependents in the lowest paygrades--paygrades 
E1 through E4. Also, DOD plans for the housing allowance to fully cover 
the average cost of housing and utilities by 2005, with the typical 
servicemember in all paygrades paying no out-of-pocket housing costs. 
Further, servicemembers living in 53 high-cost areas in the United 
States are paid a cost-of-living allowance to recognize the higher 
incidental costs of living in these areas.[Footnote 27] For example, 
the cost-of-living allowance in the San Francisco area for 
servicemembers with dependents in paygrades E1 and E4 is $210 and $230 
a month, respectively. Finally, because installation housing 
requirements determination analyses consider the availability and 
affordability of community housing for servicemembers in each paygrade, 
the analyses are designed to identify when military housing is 
justified because local housing is too expensive.

Basis for Historic Housing Exception Appears Subject to Question:

At 2 of the 12 installations we reviewed, the requirements analyses 
identified 595 historic housing units, applied the historic housing 
exception, and increased total military family housing requirements by 
186 units above the level established by applying the military housing 
community exception. According to service officials, the historic 
housing exception was provided on the basis of consensus of DOD and 
service housing officials to recognize that some housing units at some 
installations have been designated, or are considered, historic in 
nature and normally are required to be retained. However, historic 
designation of a housing unit does not mean that the unit must be used 
to house military families or that it should necessarily increase or 
reduce housing requirements beyond those identified for other purposes.

Opportunities Exist to Improve the Top-Level Review of Proposed Housing 
Construction Projects:

Opportunities exist for DOD to improve the top-level review given to 
service proposals for military housing construction projects. 
Currently, DOD's review and approval process for housing construction 
proposals lacks certain additional steps included in the review and 
approval of privatization project proposals, for example, a top-level 
assessment of each project's supporting housing requirements analysis. 
Adopting additional review steps for housing construction proposals 
could provide additional assurances that the proposals are adequately 
justified and that the more cost-effective option, military 
construction or privatization, is used to achieve needed housing 
improvements when local communities cannot meet needs.

DOD Uses Different Review Processes for Housing Construction and 
Privatization Projects:

DOD uses different top-level review and approval processes for proposed 
housing construction and privatization projects. DOD officials stated 
that the review process for housing construction proposals is rigorous, 
well-established, and similar to the process used for other types of 
projects financed with military construction funds. First, using the 
results from housing requirements analyses and assessments of the 
condition of existing on-base housing units, individual installations 
identify and justify needed housing construction projects. Project 
proposals are then submitted through the chain of command to service 
headquarters. During this process, service officials review the 
adequacy of project justifications, consider how the projects fit into 
the services' housing master plans, and prioritize projects in view of 
competing demands and budgetary limitations. Finally, the services 
submit their proposals to DOD headquarters for a top-level review and 
approval as part of the normal budget process prior to being submitted 
to the Congress. DOD housing officials stated that although they might 
raise questions concerning particular projects, they primarily rely on 
the services to ensure that the need for each project is well-supported 
and justified.

DOD headquarters uses a different review and approval process for 
privatization proposals. When the military housing privatization 
program began in 1996, DOD established a headquarters office to oversee 
and facilitate implementation of the program. In addition to creating 
the framework for the new program, the headquarters office established 
procedures for reviewing privatization proposals and criteria for 
approving proposals. Under these procedures, the service that proposes 
a project must provide DOD headquarters officials a detailed briefing 
that describes the project, its justification, and whether it meets 
specific financial criteria. Also, DOD headquarters officials stated 
that they review each proposal's supporting housing requirements 
analysis. In this review, DOD evaluates the estimates, assumptions, and 
methodology used in the analysis for reasonableness and compliance with 
guidance. If concerns are identified, DOD asks the service for 
additional information before the proposal is approved.

The additional top-level review steps for privatization proposals--and 
in particular the review given to the housing requirements analyses 
that support the proposals--provide additional assurances that each 
proposal is adequately justified before approval. In view of the 
concerns we identified in the services' installation housing 
requirements analyses, it appears that including additional top-level 
review steps for proposed housing construction projects could provide 
additional assurances that these projects are adequately justified 
before approval. Further, because the initial amount of government 
funds needed to construct a military-owned housing project often 
exceeds the initial amount of government funds needed to start an 
equivalent privatization project, it appears appropriate that the top-
level review provided to housing construction proposals be at least 
equivalent to the review provided to privatization proposals.[Footnote 
28]

Top-Level Review of Housing Construction Proposals Does Not Normally 
Consider Privatization Alternatives:

According to DOD officials, the top-level review of service proposals 
for housing construction projects does not normally include an analysis 
of whether the improvements planned from the projects could be achieved 
more economically through privatization. DOD officials stated that they 
assume that the services have considered privatization alternatives to 
achieving needed housing improvements and that the use of military 
construction funds is appropriate when the services propose this 
option. Service officials also stated that prior to submitting a 
housing proposal they consider both construction and privatization 
alternatives and chose the option that is more appropriate.

During our review, however, we identified some approved housing 
construction projects that were being used as an intermediate step to 
privatization without a clear analysis of the benefits of one 
alternative over the other. Specifically, the Army, the Air Force, and 
the Marine Corps have recently used, or plan to use, military housing 
construction projects to build replacement housing at installations 
where the services plan to privatize all housing in the near future. In 
some instances, the construction of the new military-owned houses 
apparently will be completed just in time to convey ownership of 
the units to a privatization developer who will begin collecting rent 
from military occupants of the units. Examples of cases we identified 
are shown below.

* The Army's fiscal year 2004 budget included $41 million for a 
military construction project at Fort Knox, Kentucky, to replace 
inadequate houses with 178 new houses. The new houses will be conveyed 
to a privatization developer when all family housing at Fort Knox is 
privatized--scheduled for 2006. Army officials stated that the 
rationale for the project was to replace inadequate houses with houses 
that meet current requirements as quickly as possible and that this 
could be achieved by using military construction funding. The officials 
also stated that the project should result in reducing the amount of 
government funds that will be needed to initiate the privatization 
project at Fort Knox.

* The Marine Corps' fiscal year 2004 budget included about $68 million 
for two military construction projects at Camp Lejeune, North Carolina, 
to replace 519 inadequate family housing units. Also, the Marine Corps' 
fiscal year 2003 budget included about $44 million for another military 
construction project to replace 317 inadequate family housing units at 
the installation. Marine Corps officials stated that the new housing 
units will be conveyed to a privatization developer when all family 
housing at Camp Lejeune is privatized--scheduled for 2005 or 2006. The 
officials also stated that the rationale for the projects was to 
improve the quality of life for the occupants of this housing and 
reduce the large number of inadequate housing units at Camp Lejeune. 
The officials stated that by using military housing construction 
projects to reduce the work that would be required by a privatization 
developer, the initial amount of government funds required to start the 
privatization project might be reduced, making the privatization 
project financially more feasible for the Marine Corps.

* The Air Force's fiscal year 2004 budget included about $20 million 
for a military construction project to replace 120 inadequate houses 
with 112 new houses at Dover Air Force Base, Delaware. Also, the Air 
Force's fiscal year 2002 and 2003 budgets included military 
construction projects to replace inadequate housing at the 
installation--about $18 million for 120 units in fiscal year 2002 and 
about $20 million for 112 housing units in fiscal year 2003. Air Force 
officials stated that the new housing units will be conveyed to a 
privatization developer when all family housing at Dover Air Force Base 
is privatized--scheduled for 2005. The officials also stated that at 
the time the proposals for the construction projects were prepared, the 
Air Force did not consider that housing privatization was financially 
feasible at the installation. However, after re-evaluation, the Air 
Force concluded that the installation had privatization potential and 
added the installation to its privatization schedule. The officials 
stated that the Air Force also concluded that there would be less risk 
and greater value added by continuing the implementation of the 
military construction projects prior to privatization.

Service officials stated that they have used military housing 
construction projects at installations slated for future privatization 
when justified by various reasons, such as those illustrated in the 
examples. We are not saying that use of military construction was not 
justified in any of these cases but rather point to opportunities for 
DOD to provide a higher level assessment of justifications for such 
projects and their privatization potential before the projects are 
approved. It is also important to recognize that DOD has pursued 
housing privatization because it provides certain advantages over 
military construction. DOD officials note that by leveraging government 
funds and using private sector capital, the military can stretch its 
available funds so that significantly more housing can be improved in 
comparison with traditional military construction financing. DOD 
officials also note, and our analysis supports, that the privatization 
option is a more cost-effective option than the military-owned housing 
option when local communities cannot meet family housing needs. 
Finally, DOD officials note that in most cases privatization offers 
less risk to the government if units are not used by military families 
because the privatization developer--not the government--owns and is 
responsible for the units. For these reasons, it is important that 
DOD's top-level review of housing construction proposals ensures that 
the privatization option has been appropriately considered and that the 
alternative more advantageous to the government is used to accomplish 
needed improvements in every case.

Conclusions:

DOD's stated policy of primary reliance on local community housing for 
military families--if implemented to the maximum practical extent--
could help minimize housing costs because the use of local community 
housing remains the government's least costly option for meeting 
military family housing needs. Closely related to achieving maximum 
reliance on local community housing is the need for a process that 
consistently and reliably determines housing needs at each 
installation. DOD's revised housing requirements process represents a 
significant step in this direction. Yet, largely because DOD has not 
provided timely detailed guidance to the services on how to implement 
and oversee the revised requirements process, installation housing 
analyses are inconsistent and questionable. Faulty analyses could lead 
DOD to construct military-owned housing or enter into long-term 
contracts for privatized housing in areas where local communities might 
have provided housing at lower costs. Also, because DOD allows several 
exceptions to using community housing, the services might justify more 
costly military-owned or privatized housing in some cases when local 
community housing might meet the needs. If achievable, reducing or 
narrowing the scope of currently allowed exceptions to the use of 
community housing could increase reliance on such housing, reduce 
costs, and help ensure that military-owned or privatized housing 
is provided only when the local communities near military installations 
are not capable of fulfilling needs. In addition, considering the 
recent increases in housing allowances, increases in the number and 
length of troop deployments, and other changes, servicemember housing 
preferences also may have changed. Current family housing preference 
information is an important consideration as DOD addresses the housing 
needs of servicemembers with dependents. Further, in view of the high 
cost of providing military-owned housing and to help prevent housing 
investments that are not adequately justified, it is important that 
service proposals for military housing construction projects receive a 
top-level review consistent with the review provided to service 
proposals for privatization projects. Without such a top-level review 
of military housing construction proposals that also considers 
privatization options and plans, DOD has less assurance that the 
proposals are well-supported and that the more advantageous option, 
military construction or privatization, is used to achieve needed 
housing improvements when local communities cannot meet needs.

Recommendations for Executive Action:

We recommend that the Secretary of Defense direct the Under Secretary 
of Defense for Acquisition, Technology and Logistics to take the 
following four actions:

* Expedite efforts to provide the military services with more detailed 
guidance on implementing the revised housing requirements determination 
process to help ensure that housing investments, whether through 
military construction or privatization, are supported by consistent and 
reliable needs assessments. This guidance should include specifics on 
(1) the information sources, assumptions, and methodology to be used in 
each installation housing requirements determination analysis and 
(2) the appropriate service-level oversight of the requirements 
determination process to help ensure reliability and compliance with 
the guidance.

* Review the rationale supporting each of the exceptions to using local 
community housing provided in the revised housing requirements 
determination process in an effort to reduce or narrow the scope of the 
exceptions and help minimize family housing costs.

* Survey servicemembers with dependents to update information on the 
current preferences for family housing given recent changes, such as 
the increase in housing allowances and the increase in the number and 
length of troop deployments.

* Apply a more consistent top-level review and approval process for 
both military housing construction and privatization project proposals 
to help ensure that proposed housing construction projects are 
adequately justified and appropriate consideration has been given to 
privatization options and plans.

Agency Comments and Our Evaluation:

In commenting on a draft of this report, the Principal Assistant Deputy 
Under Secretary of Defense (Installations and Environment) fully agreed 
with two and partially agreed with two of our recommendations and 
indicated that actions were under way or planned to deal with most of 
them. DOD stated it will issue detailed guidance on implementing the 
revised housing requirements determination process in the DOD Housing 
Management Manual, scheduled for issuance in December 2004, and 
resurvey the housing preferences of servicemembers with dependents by 
the end of 2004.

DOD partially agreed with our recommendations to review the rationale 
supporting each of the exceptions to using local community housing 
provided in the revised housing requirements determination process and 
apply a more consistent top-level review and approval process for both 
military housing construction and privatization project proposals. 
While DOD indicated it would review the rationale supporting each of 
the exceptions to using local community housing, it is not clear to 
what extent DOD plans to assess their collective effect on relying on 
local community housing to minimize family housing costs. Also, 
regarding the recommendation that DOD apply a more consistent top-level 
review and approval process for both military housing construction and 
privatization project proposals, DOD indicated that it would apply a 
top-level review process to the decision on whether to privatize or use 
traditional military construction as part of its master planning 
process. It did not state to what extent it intended to add a top-level 
review of the housing requirements analyses supporting proposed housing 
construction projects to help ensure that proposed housing construction 
projects are adequately justified. In view of the concerns we 
identified in the services' installation housing requirements analyses, 
we continue to believe that DOD should perform a top-level review of 
the housing requirements analyses supporting each proposed housing 
construction project prior to approval.

DOD's comments are reprinted in their entirety in appendix III.

As you know, Section 720, Title 31, United States Code, requires the 
head of a federal agency to submit a written statement of the actions 
taken on our recommendations to the Senate Committee on Governmental 
Affairs and the House Committee on Government Reform not later than 60 
days after the date of this report. A written statement must also be 
sent to the House and Senate Committees on Appropriations with the 
agency's first request for appropriations made more than 60 days after 
the date of this report.

We are sending copies of this report to the appropriate congressional 
committees, and it will be available at no charge on GAO's Web site at 
http://www.gao.gov. If you or your staff have any questions on the 
matters discussed in this report, please contact me at (202) 512-8412 
or my Assistant Director, Mark Little, at (202) 512-4673. Gary 
Phillips, Sharon Reid, and Deborah Owalabi were major contributors to 
this report.

Sincerely yours,

Signed by: 

Barry W. Holman, Director, 
Defense Capabilities and Management:

[End of section]

Appendix I: Scope and Methodology:

To determine whether the Department of Defense's (DOD) policy of 
primary reliance on local community housing is cost-effective, we 
compared the government's costs to provide housing for a typical 
military family using each of the three available housing options. 
Specifically, we used DOD and service budget and program information to 
determine and compare the government's costs to house a typical 
military family in (1) local community housing with payment of a 
housing allowance; (2) military owned, operated, and maintained 
housing; and (3) housing owned, operated, and maintained by private 
developers under the military housing privatization program. We 
primarily used cost data contained in DOD's fiscal year 2004 budget 
justification material submitted to the Congress in February 2003 and 
did not test the reliability of this data because it represented DOD's 
official information used to support the President's budget. We 
considered the major types of costs in each housing option including 
housing allowances; military housing construction, operations, and 
maintenance costs; privatization project costs; housing referral 
services costs; and costs of federal impact aid paid by the Department 
of Education for dependents of military servicemembers attending local 
schools. The typical military family was a composite representing 
officer and enlisted servicemembers in all paygrades. In addition to 
our analysis, we reviewed estimates of military housing costs prepared 
in the mid-1990s by DOD and the Congressional Budget Office. Also, we 
shared the details of our analyses with DOD and service officials.

To determine whether DOD's revised housing requirements determination 
process has resulted in consistent and reliable estimates of 
installation housing needs, we selected and reviewed the housing 
requirements analyses for 12 installations--3 from each service. We 
selected analyses that (1) included statements that they had been 
prepared in accordance with the revised process and (2) were for 
installations where military housing construction projects and/or 
housing privatization projects were recently approved or planned. For 
each analysis, we evaluated the stated basis for the estimates and 
assumptions used and assessed consistency and compliance with the 
January 2003 memorandum that implemented the revised process. We did 
not otherwise attempt to independently determine housing requirements 
at the 12 installations. We shared the results of our analyses with DOD 
and service officials and incorporated their comments as appropriate. 
We also discussed with DOD and service officials the procedures they 
use to review the adequacy of completed installation housing 
requirements analyses.

To determine whether DOD's revised housing requirements determination 
process maximizes reliance on local community housing, we interviewed 
DOD and service headquarters housing officials, reviewed applicable DOD 
and military service policies and procedures, reviewed family housing 
improvement plans and initiatives, and visited four military 
installations in Virginia--Fort Eustis, Langley Air Force Base, Naval 
Station Norfolk, and Marine Corps Base Quantico--to view family housing 
conditions and discuss housing options and associated costs. In 
reviewing the details of the revised process, we specifically assessed 
the basis for the provisions in the process that allow exceptions to 
using local community housing. This assessment included a review of the 
support for each exception, discussions with DOD and service personnel 
on the need for each exception, and consideration of the impact of the 
exceptions at 12 installations where we reviewed housing requirements 
analyses.

To determine whether opportunities exist for DOD to improve its review 
of proposed military housing construction projects, we documented and 
compared DOD's review and approval processes for service proposals for 
military housing construction projects and military housing 
privatization projects. We discussed differences in the processes with 
DOD officials to determine the reasons for differences and the 
potential advantages of making the review and approval processes more 
consistent. We also reviewed the services' military construction 
budgets for fiscal years 2002, 2003, and 2004 to identify installations 
with approved military housing construction projects. We compared the 
installations identified with the list of installations that the 
services plan to privatize to identify installations with approved 
military housing construction projects that were also slated for future 
privatization. We discussed these installations with service officials 
to determine reasons for the construction projects in view of 
privatization plans.

We conducted our work from May 2003 through March 2004 in accordance 
with generally accepted government auditing standards.

[End of section]

Appendix II: Selected Information from Installation Housing 
Requirements Analyses:

Table 3 shows selected information from the services' housing 
requirements determination analyses for the installations we reviewed. 
The information shows inconsistencies in how the analyses were 
prepared, ranges of estimates used, and projected results from the 
analyses.

Table 3: Selected Information from Installation Housing Requirements 
Determination Analyses:

Installation: Shaw Air Force Base, South Carolina; 
Used DOD's prescribed definition of local housing market? No; 
Considered single servicemembers' housing needs? Yes; 
Used survey data from 1997 to estimate home owners? Yes; 
Excluded rental housing costing less than housing allowance 
or amount based on spending patterns from 1997 survey? No; 
Percentage of local community rental housing considered unsuitable, 
after eliminating mobile homes: 17.1; 
Projected total number of military families: 3,152; 
Projected minimum on-base housing requirement allowed by DOD's revised 
requirements determination process: 326; 
Projected total on-base housing requirement: 1,491.

Installation: Luke Air Force Base, Arizona; 
Used DOD's prescribed definition of local housing market? No; 
Considered single servicemembers' housing needs? Yes; 
Used survey data from 1997 to estimate home owners? Yes; 
Excluded rental housing costing less than housing allowance 
or amount based on spending patterns from 1997 survey? Yes; 
Percentage of local community rental housing considered unsuitable, 
after eliminating mobile homes: (see note); 
Projected total number of military families: 2,658; 
Projected minimum on-base housing requirement allowed by DOD's revised 
requirements determination process: 287; 
Projected total on-base housing requirement: 426.

Installation: Dyess Air Force Base, Texas; 
Used DOD's prescribed definition of local housing market? No; 
Considered single servicemembers' housing needs? Yes; 
Used survey data from 1997 to estimate home owners? Yes; 
Excluded rental housing costing less than housing allowance 
or amount based on spending patterns from 1997 survey? Yes; 
Percentage of local community rental housing considered unsuitable, 
after eliminating mobile homes: 41.2; 
Projected total number of military families: 2,920; 
Projected minimum on-base housing requirement allowed by DOD's revised 
requirements determination process: 299; 
Projected total on-base housing requirement: 1,261.

Installation: Fort Eustis, Virginia; 
Used DOD's prescribed definition of local housing market? No; 
Considered single servicemembers' housing needs? No; 
Used survey data from 1997 to estimate home owners? No; 
Excluded rental housing costing less than housing allowance 
or amount based on spending patterns from 1997 survey? Yes; 
Percentage of local community rental housing considered unsuitable, 
after eliminating mobile homes: 18.1; 
Projected total number of military families: 2,690; 
Projected minimum on-base housing requirement allowed by DOD's revised 
requirements determination process: 300; 
Projected total on-base housing requirement: 874.

Installation: Fort Knox, Kentucky; 
Used DOD's prescribed definition of local housing market? No; 
Considered single servicemembers' housing needs? No; 
Used survey data from 1997 to estimate home owners? Yes; 
Excluded rental housing costing less than housing allowance 
or amount based on spending patterns from 1997 survey? Yes; 
Percentage of local community rental housing considered unsuitable, 
after eliminating mobile homes: 10.0; 
Projected total number of military families: 3,833; 
Projected minimum on-base housing requirement allowed by DOD's revised 
requirements determination process: 667; 
Projected total on-base housing requirement: 1,192.

Installation: Fort Sam Houston, Texas; 
Used DOD's prescribed definition of local housing market? No; 
Considered single servicemembers' housing needs? No; 
Used survey data from 1997 to estimate home owners? Yes; 
Excluded rental housing costing less than housing allowance 
or amount based on spending patterns from 1997 survey? Yes; 
Percentage of local community rental housing considered unsuitable, 
after eliminating mobile homes: 50.0; 
Projected total number of military families: 4,625; 
Projected minimum on-base housing requirement allowed by DOD's revised 
requirements determination process: 621; 
Projected total on-base housing requirement: 1,334.

Installation: Naval Station Everett, Washington; 
Used DOD's prescribed definition of local housing market? Yes; 
Considered single servicemembers' housing needs? Yes; 
Used survey data from 1997 to estimate home owners? Yes; 
Excluded rental housing costing less than housing allowance 
or amount based on spending patterns from 1997 survey? Yes; 
Percentage of local community rental housing considered unsuitable, 
after eliminating mobile homes: 12.3; 
Projected total number of military families: 2,557; 
Projected minimum on-base housing requirement allowed by DOD's revised 
requirements determination process: 322; 
Projected total on-base housing requirement: 434.

Installation: Naval Weapons Station Earle, New Jersey; 
Used DOD's prescribed definition of local housing market? Yes; 
Considered single servicemembers' housing needs? Yes; 
Used survey data from 1997 to estimate home owners? Yes; 
Excluded rental housing costing less than housing allowance 
or amount based on spending patterns from 1997 survey? Yes; 
Percentage of local community rental housing considered unsuitable, 
after eliminating mobile homes: 14.0; 
Projected total number of military families: 365; 
Projected minimum on-base housing requirement allowed by DOD's revised 
requirements determination process: 41; 
Projected total on-base housing requirement: 85.

Installation: Naval Submarine Base New London, Connecticut; 
Used DOD's prescribed definition of local housing market? Yes; 
Considered single servicemembers' housing needs? Yes; 
Used survey data from 1997 to estimate home owners? Yes; 
Excluded rental housing costing less than housing allowance 
or amount based on spending patterns from 1997 survey? Yes; 
Percentage of local community rental housing considered unsuitable, 
after eliminating mobile homes: 30.0; 
Projected total number of military families: 3,227; 
Projected minimum on-base housing requirement allowed by DOD's revised 
requirements determination process: 447; 
Projected total on-base housing requirement: 2,099.

Installation: Marine Corps Air Station Yuma, Arizona; 
Used DOD's prescribed definition of local housing market? No; 
Considered single servicemembers' housing needs? No; 
Used survey data from 1997 to estimate home owners? Yes; 
Excluded rental housing costing less than housing allowance 
or amount based on spending patterns from 1997 survey? Not shown in 
analysis; 
Percentage of local community rental housing considered unsuitable, 
after eliminating mobile homes: 16.2; 
Projected total number of military families: 2,147; 
Projected minimum on-base housing requirement allowed by DOD's revised 
requirements determination process: 217; 
Projected total on-base housing requirement: 842.

Installation: Marine Corps Base Camp Lejeune, North Carolina; 
Used DOD's prescribed definition of local housing market? No; 
Considered single servicemembers' housing needs? No; 
Used survey data from 1997 to estimate home owners? No; 
Excluded rental housing costing less than housing allowance 
or amount based on spending patterns from 1997 survey? Not shown in 
analysis; 
Percentage of local community rental housing considered unsuitable, 
after eliminating mobile homes: 10.3; 
Projected total number of military families: 13,998; 
Projected minimum on-base housing requirement allowed by DOD's revised 
requirements determination process: 1,407; 
Projected total on-base housing requirement: 6,373.

Installation: Marine Corps Air Ground Combat Center Twentynine Palms, 
California; 
Used DOD's prescribed definition of local housing market? No; 
Considered single servicemembers' housing needs? No; 
Used survey data from 1997 to estimate home owners? Yes; 
Excluded rental housing costing less than housing allowance 
or amount based on spending patterns from 1997 survey? Not shown in 
analysis; 
Percentage of local community rental housing considered unsuitable, 
after eliminating mobile homes: 11.7; 
Projected total number of military families: 3,201; 
Projected minimum on-base housing requirement allowed by DOD's revised 
requirements determination process: 331; 
Projected total on-base housing requirement: 1,989.

Source: DOD information with GAO analysis. 

Note: The analysis stated that 21.3 percent of local community rental 
housing was unsuitable, including rental mobile homes. However, the 
analysis did not state the unsuitable percentage after eliminating 
rental mobile homes.

[End of table]

[End of section]

Appendix III: Comments from the Department of Defense:

OFFICE OF THE UNDER SECRETARY OF DEFENSE:

3000 DEFENSE PENTAGON 
WASHINGTON, DC 20301-3000:

ACQUISITION, TECHNOLOGY AND LOGISTICS:

MAY 05 2004:

Mr. Barry W. Holman:

Director, Defense Capabilities and Management United States General 
Accounting Office Washington, DC 20548:

This is the Department of Defense (DoD) response to the GAO draft 
report, "MILITARY HOUSING: Further Improvements Needed in Requirements 
Determinations and Program Review," March 31, 2004 (GAO Code 350376/ 
GAO-04-556).

Enclosed are the Department's specific responses to the recommendations 
of the draft GAO report. Thank you for the opportunity to provide 
comments. My point of contact for this action is Bob Helwig. He can be 
reached at (703) 602-9867.

Sincerely,

Signed by: 

Philip W. Grone 
Principal Assistant Deputy Under Secretary of Defense 
(Installations and Environment):

Enclosure: As stated:

GAO CODE 350376/GAO-04-556:

"MILITARY HOUSING: FURTHER IMPROVEMENTS NEEDED IN REQUIREMENTS 
DETERMINATIONS AND PROGRAM REVIEW":

DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:

RECOMMENDATION 1: The GAO recommended that the Secretary of Defense 
direct the Under Secretary of Defense for Acquisition, Technology and 
Logistics to expedite efforts to provide the Military Services with 
more detailed guidance on implementing the revised housing requirements 
determination process to help ensure that housing investments, whether 
through military construction or privatization, are supported by 
consistent and reliable needs assessments. This guidance should include 
specifics on (1) the information sources, assumptions, and methodology 
to be used in each installation housing requirements determination 
analysis and (2) the appropriate Service-level oversight of the 
requirements determination process to help ensure reliability and 
compliance with the guidance. (Page 32/Draft Report):

DoD RESPONSE: Concur. We will issue detailed guidance in the DoD 
Housing Management Manual, scheduled for issuance in December 2004. The 
guidance will include the recommended specifics. The Department issued 
broad housing requirement guidance on January 8, 2003. We deliberately 
delayed issuance of detailed, specific guidance to capture lessons 
learned from initial application of the new procedures. The resulting 
detailed manual will then reflect practical, as well as theoretical, 
guidance.

RECOMMENDATION 2: The GAO recommended that the Secretary of Defense 
direct the Under Secretary of Defense for Acquisition, Technology and 
Logistics to review the rationale supporting each of the exceptions to 
using local community housing provided in the revised housing 
requirements determination process in an effort to reduce or narrow the 
scope of the exceptions and help minimize family housing costs. (Page 
32/Draft Report):

DoD RESPONSE: Partially concur. We will review the rationale supporting 
each of the exceptions. However, we believe the existing exceptions are 
sufficiently narrow and well-founded to support sound determinations of 
our housing requirements. The exceptions allow the department to 
balance the critical values such as housing key and essential personnel 
and historic preservation with the need to minimize family housing 
costs.

RECOMMENDATION 3: The GAO recommended that the Secretary of Defense 
direct the Under Secretary of Defense for Acquisition, Technology and 
Logistics to survey service members with dependents to update 
information on the current preferences for family housing given recent 
changes, such as the increase in housing allowances and the increase in 
the number and length of troop deployments. (Page 32/Draft Report):

DoD RESPONSE: Concur. We will re-survey their housing preferences by 
the end of 2004.

RECOMMENDATION 4: The GAO recommended that the Secretary of Defense 
direct the Under Secretary of Defense for Acquisition, Technology and 
Logistics to apply a more consistent top-level review and approval 
process for both military housing construction and privatization 
project proposals to help ensure that proposed housing construction 
projects are adequately justified and appropriate consideration has 
been given to privatization options and plans. (Page 32/Draft Report):

DoD RESPONSE: Partially Concur. We will apply a top-level review and 
approval process to the decision on whether to privatize or use 
traditional military construction as part of our family housing 
masterplan process. Implementation of the new housing requirements 
determination process in 2003 delayed the Service's masterplans while 
accurate requirements were being calculated. This new review will 
require the military services to explain why privatization is not 
viable when choosing to use military construction. Military 
construction projects approved in the masterplans will then be budgeted 
using existing procedures as directed by the DoD Comptroller. We expect 
new masterplans in May 2004.

[End of section]

FOOTNOTES

[1] DOD considers local community housing to be unsuitable if it is 
structurally unsound; is not well maintained; poses a health, safety, 
or fire hazard; does not possess amenities or a size consistent with 
housing in the local area, or is located outside of the market area 
used to determine local housing allowance rates. The military services 
normally consider local community housing to be too expensive if it 
costs more than the servicemember's housing allowance plus average out-
of-pocket costs.

[2] Section 2801, National Defense Authorization Act for Fiscal Year 
1996 (Pub. L. No. 104-106, Feb. 10, 1996).

[3] U.S. General Accounting Office, Military Housing: Management 
Improvements Needed As the Pace of Privatization Quickens, GAO-02-624 
(Washington, D.C.: June 21, 2002); U.S. General Accounting Office, 
Military Housing: DOD Needs to Address Long-Standing Requirements 
Determination Problems, GAO-01-889 (Washington, D.C.: Aug. 3, 2001); 
and DOD Family Housing Requirements Determination (Inspector General 
Report No. 98-006, Oct. 8, 1997).

[4] Congressional Budget Office, Military Family Housing in the United 
States (Washington, D.C.: September 1993).

[5] In determining the costs for the privatization option, we used the 
budgetary scored costs of privatization projects as determined by the 
Office of Management and Budget. Each privatization contract that DOD 
enters into must be scored for budget purposes. Scoring seeks to 
determine the cost that should be recognized and recorded as an 
obligation of DOD at the time the contract is signed. However, there 
are differences between the Office of Management and Budget and the 
Congressional Budget Office over budgetary scoring for DOD's military 
housing privatization program. In the view of the Congressional Budget 
Office, privatization projects should be scored at a higher amount.

[6] Federal impact aid is paid to local governments to help cover the 
cost of educating dependents of military servicemembers. The impact aid 
for each dependent is significantly higher for students who live with 
their families in military-owned or privatized housing located on 
military installations because such housing is not normally subject to 
local property taxes. When military families live in housing in the 
local communities, a much smaller amount is paid for each student 
because the housing is subject to local property taxes.

[7] The total on-base military community housing requirement is 
overstated by 31 housing units because one analysis made a 
computational error.

[8] The amounts shown reflect the average housing allowance for 
servicemembers with dependents in all enlisted paygrades in all areas 
of the country. Actual housing allowance amounts vary based on the 
local cost of housing in about 350 geographic areas in the United 
States. Also, housing allowances increase by paygrade except for junior 
enlisted servicemembers in paygrades E1 through E4. Servicemembers with 
dependents in paygrades E1 through E4 in the same geographic area 
receive the same housing allowance amount. Housing allowances do not 
vary by family size.

[9] The analyses assume that military families will rent housing when 
living in local communities. However, to recognize that some families 
purchase homes, installation housing analyses normally estimate the 
number of military family home owners, assume that the home owners are 
adequately housed, and exclude the home owners from the installations' 
rental housing requirements.

[10] See GAO-02-624, GAO-01-889, and Inspector General Report No. 98-
006.

[11] See Memorandum for Secretaries of the Military Departments 
Directors of the Defense Agencies, Subject: Housing Requirements 
Determination Process Policy Guidance, the Deputy Secretary of Defense 
(Washington, D.C.: Jan. 8, 2003).

[12] U.S. General Accounting Office, Military Family Housing: 
Opportunities Exist to Reduce Costs and Mitigate Inequities, GAO/NSIAD-
96-203 (Washington, D.C.: Sept. 13, 1996).

[13] U.S. General Accounting Office, Military Housing: Privatization 
Off to a Slow Start and Continued Management Attention Needed, GAO/
NSIAD-98-178 (Washington, D.C.: July 17, 1998).

[14] U.S. General Accounting Office, Military Housing: Continued 
Concerns in Implementing the Privatization Initiative, GAO/NSIAD-00-71 
(Washington, D.C.: Mar. 30, 2000).

[15] U.S. General Accounting Office, Military Personnel: Higher 
Allowances Should Increase Use of Civilian Housing, but Not Retention, 
GAO-01-684 (Washington, D.C.: May 31, 2001).

[16] See GAO-01-889.

[17] See GAO-02-624.

[18] See Military Family Housing in the United States.

[19] See note 5.

[20] Prior to 1998, DOD conducted an annual survey to collect housing 
expenditure information because housing allowances were partially 
established on the basis of the amounts servicemembers actually spent 
for housing and utilities. Beginning in 1998, the basis for housing 
allowances changed to the actual median costs of local housing in 
various geographic areas of the country. DOD conducted the last housing 
expenditure survey in 1997.

[21] Memorandum for Assistant Secretaries of the Army (Installations 
and Environment), Navy (Installations and Environment) and Air Force 
(Installations, Environment and Logistics), Subject: Standardization 
of Housing Requirements Determination for Housing Privatization 
Projects in Hawaii, Principal Assistant Deputy Under Secretary of 
Defense (Installations and Environment) (Washington, D.C.: Mar. 27, 
2003). The memorandum discussed results from the services' joint effort 
to apply the revised process in Hawaii. On the basis of an analysis of 
the results of this effort and in an effort to apply lessons learned, 
the memorandum noted that future housing requirements assessments 
should normally exclude no more than 20 percent of a local community's 
total rental units due to unsuitability criteria. DOD officials stated 
that the 20 percent criterion is used after rental mobile homes in 
local market area have been excluded from consideration.

[22] DOD determines housing allowances based on the local cost of 
housing in about 350 geographic areas in the United States. Each 
geographic area, termed a military housing area, is defined by a set of 
zip codes surrounding an installation or a metropolitan area that 
includes housing markets generally within 20 miles or an hour's drive 
in rush hour traffic.

[23] The guidance stated that the exceptions may not be used 
cumulatively. The services may use the exception that produces the 
greatest military housing requirement for each paygrade, but they may 
not combine exceptions within paygrades to create a larger military 
housing requirement.

[24] Regular military compensation is considered the military 
equivalent of civilian salaries and includes servicemembers' basic pay, 
allowances for housing and subsistence, and the tax advantage of the 
tax-free housing and subsistence allowances.

[25] See note 7.

[26] See GAO-01-684.

[27] According to DOD, cost-of-living allowances affect nearly 85,000 
servicemembers in 53 military housing areas and 23 other counties in 
the continental United States. The cost-of-living allowance compensates 
for a portion of excess costs for non-housing expenses incurred in 
areas that exceed costs in an average U. S. military location by more 
than 8 percent. Servicemembers must absorb the first 8 percent of 
expenses above the national average.

[28] As we reported in 2002, the initial amount of government funds 
needed in DOD's first 10 privatization projects averaged about 
$18.5 million. Had military construction projects been used to achieve 
the same housing improvements, the initial amount of government funds 
for the projects would have averaged about $119 million. See U.S. 
General Accounting Office, Military Housing: Management Improvements 
Needed As the Pace of Privatization Quickens, GAO-02-624 (Washington, 
D.C.: June 21, 2002).

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The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to:

U.S. General Accounting Office

441 G Street NW,

Room LM Washington,

D.C. 20548:

To order by Phone: 	

	Voice: (202) 512-6000:

	TDD: (202) 512-2537:

	Fax: (202) 512-6061:

To Report Fraud, Waste, and Abuse in Federal Programs:

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470:

Public Affairs:

Jeff Nelligan, managing director, NelliganJ@gao.gov (202) 512-4800 U.S.

General Accounting Office, 441 G Street NW, Room 7149 Washington, D.C.

20548: