GAO

United States General Accounting Office

Report to Congressional Committees

March 2000 MILITARY HOUSING

Continued Concerns 

in Implementing the 

Privatization Initiative

GAO/NSIAD-00-71

Page 1 GAO/NSIAD-00-71 Military Housing

Contents

Letter 3

Executive Summary 6

Chapter 1

Introduction

16

DOD’s Housing Problem 16

The Military Housing Privatization Initiative 17

Previous GAO Report on the Privatization Initiative 19

Objectives, Scope, and Methodology 19

Chapter 2

Privatization Progress 

Is Slow and 

Unanswered Questions 

Remain

22

Status of the Privatization Initiative 22

Implementation Has Been Slower Than Expected 25

DOD Has Curtailed Privatization Plans 27

Eliminating Inadequate Housing by Fiscal Year 2010 Is Questionable 28

More Progress Needed to Measure Initiative’s Overall Effectiveness 28

Conclusions 32

Recommendation 32

Agency Comments and Our Evaluation 32

Chapter 3

Life-Cycle Cost 

Analyses Lack 

Consistency and 

Reliability and Indicate 

Modest Potential 

Savings

34

The Services’ Life-Cycle Cost Analyses Lack Consistency and 

Reliability 34

Overall Projected Savings Are Modest 36

DOD Had Not Issued Final Guidance for Life-Cycle Cost Analyses 38

Conclusions 39

Recommendation 39

Agency Comments and Our Evaluation 40

Chapter 4

Continued Efforts 

Needed to Integrate 

Privatization With 

Other Housing Options

41

Required Integrated Housing Strategy Has Not Been Developed 41

Slow Progress in Improving Housing Requirements Determinations 42

Updated Market Analyses Not Available for Some Privatization 

Projects 44

Maximizing Use of Housing in Local Communities Is Least Costly but 

Difficult to Implement 45

Conclusions 47
Contents

Page 2 GAO/NSIAD-00-71 Military Housing

Recommendations 48

Agency Comments and Our Evaluation 48

Appendixes Appendix I: Summary of Authorities in the Military Housing 

Privatization Initiative 50

Appendix II: DOD’s Military Housing Privatization Program as of 

October 1999 52

Appendix III: Navy’s Limited Partnership Agreements for Housing at 

Corpus Christi and Kingsville, Texas and Everett, Washington 53

Appendix IV: Life-Cycle Cost Comparisons for Privatization Projects 

Awarded or Approved for Solicitation as of October 1999 60

Appendix V: Comments From the Department of Defense 62

Appendix VI: GAO Contacts and Staff Acknowledgments 66

Tables Table 1: Privatization Projects as of October 1999 23

Table 2: DOD Family Housing Improvement Fund 24

Table 3: Comparison of Life-Cycle Cost Estimates for 12 Projects 37

Table 4: Out-of-pocket Costs at Portland from January through 

September 1999 54

Table 5: Occupancy at Portland in August 1999 55

Table 6: Out-of-pocket Costs at Kingsville from January through 

September 1999 56

Table 7: Occupancy at Kingsville in August 1999 57

Table 8: Out-of-pocket Costs at Everett from January through 

September 1999 58

Table 9: Occupancy at Everett in August 1999 59

Abbreviations

DOD Department of Defense
United States General Accounting Office

Washington, D.C. 20548

Page 3 GAO/NSIAD-00-71 Military Housing

National Security and

International Affairs Division

B-284453 Letr

March 30, 2000

The Honorable Conrad Burns 

Chairman 

The Honorable Patty Murray 

Ranking Minority Member

Subcommittee on Military Construction

Committee on Appropriations

United States Senate

The Honorable David L. Hobson 

Chairman

The Honorable John W. Olver

Ranking Minority Member

Subcommittee on Military Construction

Committee on Appropriations

House of Representatives

This report discusses the Department of Defense’s Military Housing Privatization Initiative. As 

requested, we reviewed the implementation of the initiative to determine the status of current and 

planned family housing privatization projects, examine the accuracy of life-cycle cost analyses for 

proposed projects, and assess progress toward integrating the initiative with other military housing 

programs.

We are sending copies of this report to the Honorable William Cohen, Secretary of Defense; the 

Honorable Louis Caldera, Secretary of the Army; the Honorable Richard Danzig, Secretary of the 

Navy; General James L. Jones, the Commandant of the Marine Corps; the Honorable F. Whitten 

Peters, Secretary of the Air Force; and to interested congressional committees. Copies will also be 

made available to others upon request.
B-284453

Page 4 GAO/NSIAD-00-71 Military Housing

If you or your staff have any questions on this report, please call me on (202) 512-5140. Major 

contributors to this report are listed in appendix VI.

Carol R. Schuster

Associate Director, National Security

Preparedness Issues
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Page 6 GAO/NSIAD-00-71 Military Housing

Executive Summary

Purpose The Department of Defense (DOD) estimates that about 200,000 military 

family housing units are old, lack modern amenities, and require renovation 

or replacement. According to DOD, completing this work at current 

funding levels and using traditional military construction methods would 

take 30 years and cost about $16 billion. To improve housing more 

economically and faster than could be achieved if only traditional military 

construction funds were used, the Congress enacted legislation at DOD’s 

request authorizing a 5-year pilot program, termed the Military Housing 

Privatization Initiative, to allow private sector financing, ownership, 

operation, and maintenance of military housing. Under the program, 

starting in 1996, DOD can provide direct loans, loan guarantees, and other 

incentives to encourage private developers to construct and operate 

housing either on or off military installations. Servicemembers, in turn, use 

their housing allowance to pay rent and utilities to live in the privatized 

housing. Although there can be exceptions, DOD’s position is that the 

government’s estimated total costs for a privatization project should be 

equal to or less than the total costs for the same project financed by 

military construction funding. To estimate and compare these costs as part 

of a project’s approval process prior to solicitation, the services perform a 

life-cycle cost analysis. In response to a congressional mandate,1

 GAO 

addressed the following questions: (1) What is the status of the housing 

privatization initiative? (2) What is the accuracy of the services’ life-cycle 

cost analyses that compare the cost of proposed privatization projects to 

comparable projects financed through military construction funds? 

(3) What progress is DOD making in coordinating and integrating the 

initiative with other family housing programs? 

Results in Brief Although initial plans for housing privatization were aggressive, actual 

progress has been slow. Almost 4 years after the program was initiated, 

DOD has awarded only two privatization contracts to build or renovate 

3,083 military family housing units. Several more years will be required 

before all planned construction under these contracts is completed. The 

services plan to have 20 more projects, involving 27,911 units, awarded or 

approved for solicitation before the privatization authorities expire in 

February 2001. DOD explains that because this represents a new way of 

doing business, developing procedures and financial instruments and 

1

See Conference Report for Fiscal Year 1999 Appropriations for Military Construction, 

Family Housing, and Base Realignment and Closure (House Report 105-647, July 24, 1998).
Executive Summary

Page 7 GAO/NSIAD-00-71 Military Housing

awarding contracts have taken more time than expected. Because progress 

has been slow and because the services have curtailed plans for using the 

initiative, it appears questionable whether the services will meet a DOD 

goal to eliminate all inadequate family housing by fiscal year 2010. Also, 

because no projects under the program have been completed, there is little 

basis for evaluating the effectiveness of the program in eliminating 

inadequate housing more economically and faster than could be achieved 

through traditional military construction financing. Until experience is 

gained in the actual operation of several projects, key questions will remain 

unanswered, such as whether (1) the military will need the housing over 

the 50-year terms of most projects, (2) developers will operate and 

maintain privatized housing in accordance with contracts, and (3) actual 

privatization costs and savings will be in line with DOD estimates. Although 

a formal evaluation plan could help answer these questions and assess the 

overall merits of the initiative as it is implemented, DOD has not developed 

such a plan.

GAO’s review of the 2 privatization projects already awarded and 

12 additional projects approved for solicitation found that the services did 

not prepare a life-cycle cost analysis for 2 projects approved for solicitation 

and that the analyses for the remaining 12 projects were incomplete, 

inaccurate, or inconsistently prepared primarily because DOD had not 

issued standardized guidance for preparing the analyses. For example, 

seven did not include costs for project planning and design and three did 

not consider the value of government property to be conveyed to the 

developer as part of the agreement. After making adjustments to provide 

consistency, considering all project costs under both options, and 

correcting other errors, GAO found that over the life of the projects the 

privatization option, on average, would be about 11 percent less costly than 

comparable projects financed with military construction funds. Two 

privatization projects would cost more than comparable projects under the 

military construction option, but DOD stated that these projects were 

approved because they were still in the military’s best interest.

DOD has made progress in coordinating this initiative with other housing 

options, such as housing allowances and military construction, by 

increasing use of cross-organizational panels that review and coordinate 

housing policies and issues. However, it has not finalized an overall 

integrated housing strategy for addressing its housing needs in a manner 

that considers the interrelationships among these options, as directed by a 
Executive Summary

Page 8 GAO/NSIAD-00-71 Military Housing

congressional committee and as previously recommended by GAO.2 DOD’s 

January 2000 announcement of a new initiative to significantly increase 

housing allowances over the next 5 years makes a well-developed strategy 

that balances the various housing options even more important. For 

example, implementation of the new housing allowance initiative most 

likely will make more housing in local communities affordable to 

servicemembers, reduce the demand for on-base housing, and increase the 

cost of privatized housing relative to housing constructed with military 

construction funds since, under privatization, housing allowances are paid 

to the developers as rent. Also, the services have not improved their 

housing requirements determination processes to more accurately estimate 

how much housing the installations must supply and they have not always 

updated their housing requirements assessments prior to approving 

privatization projects. As a result, the services cannot be assured that they 

are constructing, replacing, or revitalizing housing only at installations 

where the need for additional housing is adequately documented. 

GAO is recommending that DOD develop an evaluation plan for the 

initiative, improve policy guidance, and require that housing requirements 

assessments be updated as part of the approval process for proposed 

privatization projects.

Background DOD spends about $8 billion annually to provide housing for families of 

active-duty military personnel. DOD’s policy is to rely on the housing in 

local communities near military installations as the primary source of 

family housing. About two-thirds of military families in the United States 

live in private housing and receive a cash allowance to help defray the cost 

of renting or purchasing a home. The other one-third lives in governmentowned or -leased housing. These families forfeit their housing allowance 

but pay no out-of-pocket costs for housing or utilities. Studies show that 

the cost to the government is significantly less when military families are 

paid a housing allowance and live in housing in the local communities as 

compared to providing government-owned housing. This is largely because 

housing allowances only cover an average of 81 percent of the costs of offbase housing and servicemembers must pay the rest out-of-pocket. 

However, in January 2000, DOD announced a new $3 billion initiative that 

would significantly increase servicemembers’ housing allowances over the 

2

House Report 105-647, July 24, 1998, and Military Housing: Privatization Off to a Slow Start 

and Continued Management Attention Needed (GAO/NSIAD-98-178, July 17, 1998).
Executive Summary

Page 9 GAO/NSIAD-00-71 Military Housing

next 5 years. If this initiative is implemented as planned, the inequity in 

housing costs between servicemembers who live on-base and off-base 

would be eliminated because out-of-pocket costs for the typical military 

family would be reduced to zero.

According to DOD, the quality of government-owned housing has declined 

for more than 30 years primarily due to a lack of priority. Because of 

concerns that poor quality housing could cause servicemembers to leave 

the military, DOD proposed a privatization initiative aimed at solving its 

housing problem more economically and faster than under traditional 

means by taking advantage of the private sector’s investment capital and 

housing construction expertise. The resulting legislation authorized the 

Military Housing Privatization Initiative, which permitted DOD to enter into 

a variety of arrangements with private sector entities to build and renovate 

military housing both on and off military bases. DOD’s goal was to 

encourage private sector investment to obtain at least $3 in military 

housing improvements for each dollar that the government invested. By 

reducing the amount of government funds initially required to revitalize 

housing, DOD planned to quicken the pace of housing revitalization. DOD’s 

Competitive Sourcing and Privatization Office provides oversight of this 

program, but primary responsibility for implementing it rests with the 

individual services.

Principal Findings

Privatization Progress Is 

Slow and Questions Remain 

Unanswered

DOD has made limited progress in implementing the privatization initiative. 

At the beginning of the program in 1996, DOD expected to award about 8 to 

10 projects for up to 2,000 family housing units within a year and increase 

this total to 8,000 in fiscal year 1997. In 1998, DOD said that the services 

were planning privatization projects totaling about 87,000 units at 49 

installations before the authorities expired in fiscal year 2001. However, as 

of January 2000, contracts for only 2 projects containing about 3,100 units 

had been awarded. According to DOD, progress has been slower than 

expected because the initiative represents a new way of doing business for 

both the military and the private sector. Many initial legal, financial, 

contractual, and budgetary issues had to be resolved to the satisfaction of 

parties representing the government, developers, and private lenders 

before the initiative could proceed.
Executive Summary

Page 10 GAO/NSIAD-00-71 Military Housing

In the Conference Report for the 1999 Military Construction Appropriations 

Act, the conferees cited concern over the slow pace of the initiative’s 

implementation and the high level of reliance that the services had begun to 

place on the initiative relative to other housing options.3

 The report noted 

that the initiative was a pilot project and not intended to become a 

substitute for the traditional housing construction program. In response to 

this report, and a subsequent House Committee on Appropriations, 

Subcommittee on Military Construction, letter to the Secretary of Defense 

that cited similar concerns, the services scaled back their privatization 

plans to the current program consisting of 22 projects to build or renovate 

30,994 units.

Because no projects under the initiative have been fully implemented, there 

is little basis to evaluate whether this program could ultimately achieve its 

goals of eliminating inadequate housing more economically and faster than 

could be achieved through traditional military construction financing. Also, 

despite the fact that this pilot program is 4 years old, DOD has not 

developed an overall evaluation plan to assess the program’s merits. 

Without an evaluation plan, DOD has no means to systematically compare 

the actual cost and implementation time frames of privatized projects to 

traditional military construction projects, assess the advantages and 

disadvantages of the various authorities, measure contractor performance, 

or assess servicemembers’ satisfaction with the privatized housing. Timely, 

complete, accurate, useful, and consistent performance data could help 

decision-makers evaluate the overall effectiveness of the initiative, 

determine whether the initiative is meeting program goals, and identify 

what modifications might be needed as the program is implemented over 

the next several years.

Life-Cycle Cost Analyses 

Are Incomplete, Inaccurate, 

and Overstate Savings

For the 2 privatization projects already awarded and the 12 projects 

approved for solicitation, GAO found that DOD did not prepare a life-cycle 

cost analysis for 2 projects and that the analyses for the remaining 

12 projects were inaccurate, inconsistently prepared, or lacked support for 

some assumptions used. For example, the Marine Corps’ life-cycle cost 

analysis for its proposed 712-unit privatization project at Camp Pendleton 

estimated that the government would save $28 million, or about 17 percent, 

compared to military construction over the 50-year term of the project. 

However, the analysis did not consider the value of 512 government 

3

House Report 105-647, July 24, 1998.
Executive Summary

Page 11 GAO/NSIAD-00-71 Military Housing

housing units that will be conveyed to the developer, the costs of project 

development and solicitation, and the costs of monitoring the privatization 

contract. GAO’s recalculation of costs after making adjustments showed 

that privatization would save the government considerably less−about 

$11 million, or 5 percent. 

In addition, the analyses for two projects approved for solicitation indicate 

that privatization costs will exceed the costs of comparable projects 

financed through the military construction program. Specifically, life-cycle 

cost estimates for planned projects at Robins Air Force Base, Georgia, and 

Stewart Army Subpost, New York, showed that privatization would cost 

more than military construction financing—9 percent and 15 percent, 

respectively. However, DOD officials stated that these privatization 

projects were still in the best interest of the military because the housing 

improvements could be completed faster and with substantially less initial 

government funds.

For the two projects without life-cycle cost analyses, DOD explained that 

the Army did not prepare a life-cycle cost analysis for a proposed project at 

Fort Hood because it had not settled on the scope of the project or selected 

a developer to help it plan the project. Also, the Marine Corps had not 

prepared an analysis for a planned project at Marine Corps Logistics Base, 

Albany, Georgia, because officials assumed that an analysis was not needed 

since the proposed project required no initial government funds. DOD 

officials stated that a life-cycle cost analysis is required regardless of the 

terms of individual projects and that an analysis should have been prepared 

for this project.

Although DOD agreed with a July 1998 GAO recommendation that DOD 

expedite efforts to develop a standard methodology to assist the services in 

performing these analyses, GAO found that DOD had not issued such 

guidance as of January 2000.4

 DOD had developed draft guidance for 

performing the analyses, but its use was not mandatory. Also, although the 

draft guidance generally identified the costs that should be considered in 

analyzing each alternative, it did not include details on how to estimate 

each type of cost or when it is appropriate to approve a proposed 

privatization project that costs more than a comparable military 

construction project.

4

Military Housing: Privatization Off to a Slow Start and Continued Management Attention 

Needed (GAO/NSIAD-98-178, July 17, 1998).
Executive Summary

Page 12 GAO/NSIAD-00-71 Military Housing

All of the life-cycle analyses prepared to date may understate privatization 

costs because DOD is in the process of increasing the housing allowances 

servicemembers use to pay for rent and utilities in privatized housing. If 

DOD fully implements the housing allowance initiative, privatization 

savings will be less than currently estimated.

Continued Efforts Needed 

to Integrate Privatization 

With Other Housing Options

To maximize the advantages from the initiative and minimize total housing 

costs, privatization needs to be part of an integrated strategy that includes 

coordinated decisions on the structure of housing allowances and housing 

construction, accurate determinations of housing needs, and maximum use 

of private sector housing in accordance with DOD housing policy. Yet, as of 

January 2000, DOD had not completed development of an integrated 

housing strategy showing how the various housing options will be used to 

meet DOD’s housing needs in an optimum manner. In the previously 

mentioned 1999 Appropriations Act Conference Report, DOD was directed 

to prepare a report on such a strategy by December 1, 1998. DOD officials 

stated that the delay was caused by a lack of staff and that the report 

should be issued soon.

DOD has taken steps to improve coordination on housing issues, including 

increased use of a policy board to review and coordinate issues, such as 

military housing, that cross functional and organizational lines and directly 

affect installations. Members of the board include officials from the 

separate DOD offices responsible for military housing construction and 

housing allowances. DOD also created a policy panel to focus solely on 

military housing issues by reviewing and coordinating housing matters at 

the staff working level.

DOD also has made little progress in improving its processes for 

determining how much housing the military must provide at installations 

versus how much local communities could be expected to supply, which is 

a critical element of an overall strategy. Prior GAO and DOD Inspector 

General work has highlighted long-standing problems in the processes the 

services use to determine their housing requirements that can result in 

overstating on-base housing needs.5

 Accurate assessments of requirements 

are important because it generally costs more to house servicemembers on 

5

Military Family Housing: Opportunities Exist to Reduce Costs and Mitigate Inequities

(GAO/NSIAD-96-203, Sept. 13, 1996) and DOD Family Housing Requirements Determination, 

DOD Inspector General Report No. 98-006, Oct. 8, 1997.
Executive Summary

Page 13 GAO/NSIAD-00-71 Military Housing

base than to pay housing allowances for servicemembers to secure housing 

in local communities. In December 1997, DOD convened a cross-service 

working group to develop recommendations for improving its processes 

for determining housing requirements. However, DOD decided that the task 

was too big for the group, and in January 1999, it contracted with the 

Center for Naval Analyses for a complete review of the processes being 

used. According to DOD, the results of this review, expected by summer 

2000, will be used to improve the processes.

DOD’s Housing Management Manual 4165.63M states a housing market 

analysis should be performed at installations where acquisition of housing 

is planned to help determine military housing needs and the ability of the 

local communities to meet these needs. Although housing market analyses 

had been prepared within the past 5 years at 9 of the 14 installations with a 

privatization project awarded or approved for solicitation, GAO found that 

no housing market analysis had been prepared within the past 5 years for 

the remaining 5 installations. Although these analyses are important to 

accurately estimate housing requirements, updated analyses have not been 

specifically required as part of the approval process for proposed 

privatization projects.

Recommendations GAO makes several recommendations concerning implementation of the 

privatization initiative, particularly in view of DOD’s new plans to increase 

housing allowances. GAO is recommending that the Secretary of Defense 

develop an evaluation plan for the initiative, improve agency guidance 

related to life-cycle cost analyses, clarify guidance for approving a 

privatization project when the project’s estimated total costs exceed the 

costs to implement the project with military construction funds, and 

require that housing requirements assessments be updated as part of the 

approval process for proposed privatization projects.

Agency Comments DOD agreed with GAO’s recommendations. DOD stated that a privatization 

evaluation plan is necessary and that such a plan should be ready for 

review by the services in late summer 2000. DOD also stated that it 

(1) intends to issue refined guidance for life-cycle cost analyses that will 

require the services to examine the costs of privatization and military 

construction alternatives in a uniform and comprehensive manner and 

(2) is establishing a senior-level, joint Housing Policy Panel to provide 

policy for determining housing requirements and to establish clear policy 
Executive Summary

Page 14 GAO/NSIAD-00-71 Military Housing

for satisfying those requirements. DOD disagreed that the life-cycle costs 

for future privatization projects would necessarily increase if basic housing 

allowances were increased as planned. To ensure that life-cycle costs do 

not increase, DOD said that it would use mechanisms, such as revenue 

sharing accounts, in its contracts to offset this increased cost. GAO 

believes that the actions planned by DOD will improve implementation of 

the privatization initiative. With respect to the effect of increased housing 

allowances on the life-cycle costs of future privatization projects, GAO 

notes that DOD cannot be ensured that contractors would accept new 

mechanisms that would limit government costs. If they do not, the costs of 

privatized housing would increase since rents are determined on the basis 

of the allowances.

DOD’s comments and GAO’s evaluation of them are discussed in the report 

where appropriate. These comments are provided in their entirety as 

appendix V.
Page 15 GAO/NSIAD-00-71 Military Housing
Page 16 GAO/NSIAD-00-71 Military Housing

Chapter 1

Introduction Chapte1r

The Department of Defense (DOD) spends about $8 billion annually to 

provide housing for families of active-duty military personnel. Seeking to 

provide military families with access to adequate, affordable housing, DOD 

either pays cash allowances for families to live in private sector housing or 

assigns families to government-owned or government-leased units. The 

housing benefit is a major component of the military’s compensation 

package.

DOD Housing Management Manual 4165.63M states that private sector 

housing in the communities near military installations will be relied on as 

the primary source of family housing. About 544,000, or two-thirds, of the 

military families live in private housing. These families receive assistance 

in locating private housing from housing referral offices at each major 

installation and are paid a cash housing allowance to help defray the cost of 

renting or purchasing housing in local communities. The housing 

allowance, which totaled about $4.5 billion in fiscal year 1999, covers about 

81 percent of the typical family’s total housing costs, including utilities. The 

families pay the remaining portion of their housing costs out of pocket.

About 265,000, or one-third, of the military families live in governmentowned or -leased housing. These families forfeit their housing allowances 

but pay no out-of-pocket costs for housing or utilities. In fiscal year 1999, 

DOD spent about $2.8 billion to operate and maintain government-owned 

and -leased family housing. In addition, about $740 million was authorized 

to construct and renovate government family housing units in fiscal 

year 1999.

DOD’s Housing 

Problem

According to DOD, access to affordable, quality housing is a key element 

affecting the quality of life of military members and their families. Because 

quality of life directly affects personnel retention and ultimately unit 

readiness, DOD states that adequate housing can enhance its efforts to 

maintain a ready, quality force. Yet, affordable housing is unavailable in the 

communities surrounding some military installations, and the poor quality 

of on-base housing is a long-noted problem. In March 1999, the Acting 

Deputy Under Secretary of Defense (Installations) testified before the 

Congress that about 200,000 of the military family housing units were old, 

below contemporary standards, and in need of extensive renovation or 
Chapter 1

Introduction

Page 17 GAO/NSIAD-00-71 Military Housing

replacement.1 He estimated that fixing this problem using only traditional 

military construction financing would take 30 years and cost as much as 

$16 billion. 

To address its housing problem, DOD has undertaken several initiatives. To 

make privately owned housing more affordable to military members, the 

Congress approved DOD’s request for a new housing allowance program 

that started in January 1998. The program was designed to better match the 

allowance amount with the cost of housing by determining allowances on 

the basis of costs for suitable civilian housing in each geographic area and 

tying allowance increases to growth in housing costs. In January 2000, the 

Secretary of Defense announced a major new quality-of-life initiative to 

increase housing allowances. According to DOD, it plans to ask the 

Congress to approve funding that would reduce average out-of-pocket 

housing costs from about 19 percent in calendar year 2000 to 15 percent in 

calendar year 2001, with continued reductions each year thereafter, 

eliminating such costs entirely by year 2005. DOD estimated that this 

initiative will cost more than $3 billion over the next 5 years and planned to 

allocate these funds from overall DOD budget increases that it will request 

over this period.

The Military Housing 

Privatization Initiative

In May 1995, DOD proposed an initiative to improve the quality of its 

military housing inventory. This initiative, known as the Military Housing 

Privatization Initiative, was designed to improve military housing more 

economically and at a faster rate than could be achieved through 

traditional military construction funding by allowing private sector 

financing, ownership, operation, and maintenance of military housing. 

DOD asked the Congress to provide new authorities that would allow DOD 

to (1) provide direct loans and loan guarantees to private entities to acquire 

or construct housing suitable for military use, (2) convey or lease existing 

property and facilities to private entities, and (3) pay differential rent 

amounts in addition to the rent payments military tenants make. The new 

authorities would also allow DOD to make investments, both limited 

partnership interests and stock and bond ownership, to acquire or 

construct housing suitable for military use and permit developers to build 

military housing using room patterns and floor areas comparable to 

1

Hearings before the Subcommittee on Military Installations and Facilities, House 

Committee on Armed Services, Mar. 9, 1999.
Chapter 1

Introduction

Page 18 GAO/NSIAD-00-71 Military Housing

housing in the local communities. The authorities could be used 

individually or in combination.

The Congress passed legislation containing 12 new authorities, and the 

initiative was signed into law on February 10, 1996.2

 However, the Congress 

limited the new authorities to a 5-year test period to allow DOD to assess 

their usefulness and effectiveness in improving the housing situation. 

Based on the results of the test, the Congress will consider whether the 

authorities should be extended or made permanent. (See app. I for a 

complete list and description of the authorities.)

The basic premise behind the initiative is for the military to use the private 

sector’s investment capital and housing construction expertise. DOD has 

noted that the private sector has a huge amount of housing investment 

capital. By providing incentives, such as loan guarantees or co-investments 

of land or cash, the military can encourage the private sector to use private 

investment funds to build or renovate military housing.

Use of private sector capital can reduce the government’s initial outlays for 

housing revitalization by spreading costs—specifically increased amounts 

for housing allowances—over a longer term. As tenants in privatized 

housing, military occupants receive a housing allowance and pay rent. 

DOD’s goal is to encourage private sector investment in order to obtain at 

least $3 in military housing development for each dollar that the 

government invests. By leveraging government funds by a minimum of 

3 to 1, DOD officials state that the military can revitalize three times as 

many housing units as it would with a military construction project for the 

same amount of money, thus allowing the housing problem to be solved 

three times faster.

In anticipation of the enactment of the new privatization authorities, DOD 

established the Housing Revitalization Support Office in September 1995 to 

facilitate implementation of the initiative. This office established the 

financial and legal framework for the new initiative and assisted the 

services in using the initiative. In August 1998, DOD shifted primary 

responsibility for implementing the initiative to the individual services. 

With this change, the office was eliminated, and housing privatization 

oversight responsibility was assigned to the newly created Competitive 

Sourcing and Privatization Office. As part of its oversight responsibilities, 

2

The National Defense Authorization Act for Fiscal Year 1996 (P. L. 104-106, section 2801).
Chapter 1

Introduction

Page 19 GAO/NSIAD-00-71 Military Housing

the new office establishes DOD policy for the initiative and monitors 

implementation of the program.

Previous GAO Report 

on the Privatization 

Initiative

Because it represented a new approach to improving military housing, we 

reviewed DOD’s implementation of the new initiative between June 1997 

and March 1998 and issued a report in July 1998.3

 The report, which 

included recommendations to DOD for improving the initiative, noted that 

implementation of the initiative was off to a slow start and, that in addition 

to potential benefits, the initiative raised several concerns, including 

whether privatization will result in significant cost savings and whether the 

military will need the housing over the long term—50 years—proposed for 

many projects. The report also noted that privatization is only one of 

several options, including housing allowances and military construction, 

available to address the housing problem and that DOD had not fully 

integrated these options into an overall housing strategy to meet its 

housing needs in an optimum manner.

Objectives, Scope, and 

Methodology

As mandated in the Conference Report for Fiscal Year 1999 Appropriations 

for Military Construction, Family Housing, and Base Realignment and 

Closure, we reviewed implementation of the Military Housing Privatization 

Initiative.4

 Specifically, we (1) determined the status of family housing 

privatization projects, (2) examined the accuracy of the services’ life-cycle 

cost analyses that compared the cost of proposed privatization projects to 

comparable projects financed through military construction funds, and 

(3) assessed how the initiative was being integrated with other family 

housing programs. We performed work at the Competitive Sourcing and 

Privatization Office and at the DOD offices responsible for housing 

management and housing allowances. We also performed work at the Air 

Force, the Army, the Navy, and the Marine Corps headquarters offices 

responsible for implementing the initiative. At each location, we 

interviewed responsible agency personnel and reviewed applicable 

policies, procedures, and documents.

3

Military Housing: Privatization Off to a Slow Start and Continued Management Attention 

Needed (GAO/NSIAD-98-178, July 17, 1998).

4

House Report 105-647, July 24, 1998.
Chapter 1

Introduction

Page 20 GAO/NSIAD-00-71 Military Housing

To determine the status of family housing privatization projects, we 

reviewed DOD’s and the services’ privatization project plans, compared the 

plans to actual progress, and explored reasons for differences. We 

identified the privatization authorities used or planned for each proposed 

project, reviewed funding for the projects and the initiative, estimated the 

leveraging of funds for approved projects, assessed DOD’s and the services’ 

plans for measuring the effectiveness of the initiative, and discussed 

concerns about the initiative with DOD and service officials. In addition, 

we visited Navy privatization projects at Corpus Christi and Kingsville, 

Texas, and Everett, Washington, that were originated under a previous 

authority to test the use of limited partnerships. (New privatization 

projects also are planned at these locations.) We also visited Fort Carson, 

Colorado; Lackland Air Force Base, Texas; and the Marine Corps Logistics 

Base, Albany, Georgia. At each installation, we reviewed housing 

conditions and occupancy statistics, assessed the status of privatization 

plans for projects that are underway or planned, and discussed with local 

service officials their views of the initiative.

To examine the accuracy of life-cycle cost analyses for proposed 

privatization projects, we reviewed DOD guidance for performing such 

analyses, and for each project approved for solicitation, we examined the 

project’s life-cycle cost analysis. In our review, we (1) assessed adherence 

to guidance, (2) reviewed the assumptions and data used and the 

documentation supporting each analysis, (3) checked the accuracy of the 

calculations, and (4) performed an alternative life-cycle cost analysis if the 

original analysis excluded some applicable costs, used incorrect 

assumptions or data, or contained other problems. When proposed projects 

included the conveyance of government property, we generally used the 

services’ estimates for the property’s value in our alternative analyses 

because it was beyond the scope of our review to perform independent 

property appraisals. In January 2000, as our report was being finalized for 

publication, the Secretary of Defense announced plans to significantly 

increase housing allowances over the next 5 years. We have noted 

throughout our report the potential effects of this new initiative on our 

findings and analyses if the initiative is fully implemented as planned.

To assess how the initiative was being integrated with other family housing 

programs, we reviewed DOD’s and the services’ housing policies, 

programs, initiatives, and plans. We also reviewed previous reports and 

studies related to military housing issues and discussed with DOD and 

service officials how they dealt with areas identified as needing 

improvement.
Chapter 1

Introduction

Page 21 GAO/NSIAD-00-71 Military Housing

We conducted our review from May 1999 through January 2000 in 

accordance with generally accepted government auditing standards.
Page 22 GAO/NSIAD-00-71 Military Housing

Chapter 2

Privatization Progress Is Slow and 

Unanswered Questions Remain Chapte2r

Although initial plans and goals were aggressive, DOD’s actual progress in 

using the privatization initiative to help eliminate the 200,000 inadequate 

family housing units has proceeded slowly. As of January 1, 2000, almost 

4 years after the authorities were signed into law, DOD had awarded only 

two privatization contracts to build or renovate 3,083 military family 

housing units, and several more years will be required before this work is 

completed and the units are occupied. Because progress has been slow and 

because the services have curtailed plans for using the initiative, it appears 

questionable whether the services will meet a DOD goal to eliminate all 

inadequate family housing by fiscal year 2010. Also, until experience is 

gained in the actual operation of several projects, several key questions will 

remain unanswered, such as whether the military will need the housing 

over the 50-year terms of most projects and whether developers will 

operate and maintain privatized housing in accordance with contracts. 

Although a formal evaluation plan could help answer these questions and 

assess the overall merits of the initiative as it is implemented, DOD has not 

developed such a plan.

Status of the 

Privatization Initiative

As of January 1, 2000, DOD had awarded contracts for two military housing 

privatization projects. The first, at Lackland Air Force Base, was awarded 

in August 1998, and it calls for the construction of 420 family housing units. 

Construction, which began in April 1999, is expected to be completed in 

February 2001, although the first 92 units were ready for occupancy in 

January 2000. The second, at Fort Carson, was awarded in September 1999, 

and it calls for constructing 840 family housing units and renovating 1,823 

units. The Fort Carson project was initially planned for award in February 

1998, but as a result of litigation, the Army canceled the planned award and 

decided to resolicit the project. Army officials estimate that 4 or 5 years 

will be required to complete the construction and renovation phases of the 

project. Under both contracts, the contractors will construct the units on 

the base and will operate and maintain the units for 50 years.

The services planned to have 20 additional projects awarded or approved 

for solicitation prior to the expiration of the authorities in February 2001. 

As shown in table 1, as of October 1999, 12 of these projects had been 

approved for solicitation, and 8 projects were in planning prior to starting 
Chapter 2

Privatization Progress Is Slow and 

Unanswered Questions Remain

Page 23 GAO/NSIAD-00-71 Military Housing

the solicitation process.1 Together, the total housing units (30,994) in these 

projects and the two projects already awarded represent about 

14.5 percent of the military’s total U.S. family housing units. Appendix II 

contains more details on the planned projects.

Table 1: Privatization Projects as of October 1999

a

Units for the Army, except for the awarded project at Fort Carson, are considered the maximum 

number—the final number of units could be less.

Source: Competitive Sourcing and Privatization Office, DOD.

Table 1 does not reflect two Navy projects (589 off-base units) approved 

under a prior legislative authority. The authority for these projects was not 

the legislation that established the privatization initiative, but was included 

in Public Law 103-337, enacted October 5, 1994. This law gave only the 

Navy authority to test the use of limited partnerships in order to meet the 

housing requirements of naval personnel and their dependents.2

Appendix III provides details on the Navy’s limited partnership agreements 

at Corpus Christi, Kingsville, and Everett. 

Privatization Funds Funding for the initiative is accomplished through two funds established by 

the 1996 authorizing legislation: the DOD Family Housing Improvement 

1

For a project to be approved for solicitation (the competitive process to select a contractor 

for the project), DOD must first notify the Congress of its intent of entering into a housing 

privatization contract for the project. Thirty days after the notice, DOD can begin the 

process of selecting a developer for the project.

Service

Awarded Approved for solicitation

In planning prior to 

solicitation Total

Number Units Number Units Number Units Number Units

 Armya 1 2,663 1 6,631 2 7,518 4 16,812

 Air Force 1 420 3 1,900 5 5,029 9 7,349

 Navy 0 0 5 5,123 0 0 5 5,123

 Marines 0 0 3 1,026 1 684 4 1,710

 Total 2 3,083 12 14,680 8 13,231 22 30,994

2

See section 2803 of Public Law 103-337. The authority to use limited partnerships is now 

available to all services under the 1996 law establishing the privatization initiative.
Chapter 2

Privatization Progress Is Slow and 

Unanswered Questions Remain

Page 24 GAO/NSIAD-00-71 Military Housing

Fund and the DOD Military Unaccompanied Housing Improvement Fund. 

The funds can receive sums by direct appropriations and transfers from 

approved military construction projects and from proceeds from the 

conveyance or lease of property or facilities. The funds are used to 

implement the initiative, including the planning, solicitation, award, and 

administration of privatization contracts.

As shown in table 2, from fiscal year 1996 through fiscal year 1999, 

$49.0 million was appropriated for the DOD Family Housing Improvement 

Fund and about $43.2 million was transferred into the fund from military 

construction appropriations. DOD used about $23.2 million to fund family 

housing projects and about $17.3 million to administer the initiative, 

including the costs of consultant support. Although the fund had a balance 

of about $51.7 million at the end of fiscal year 1999, officials in the 

Competitive Sourcing and Privatization Office stated that about 

$46.3 million was committed to funding future projects, leaving a fund 

balance of about $5.4 million.

Table 2: DOD Family Housing Improvement Fund

a

According to officials in the Competitive Sourcing and Privatization Office, $46.3 million is committed 

to future projects, leaving a balance of about $5.4 million.

Source: Competitive Sourcing and Privatization Office.

For fiscal year 2000, $2 million was appropriated to the fund for planning, 

administration, and oversight of the initiative. According to DOD, as 

additional privatization projects are awarded, military construction funds 

associated with the projects will be transferred into the fund and will be 

Fiscal year

1996 1997 1998 1999 Total

Additions to fund

 Appropriations $22.0 $25.0 $0.0 $2.0 $49.0

 Transfers from military construction 5.9 7.0 30.3 43.2

 Total additions $92.2

Expenditures from fund

 Funding for projects 10.3 5.9 7.0 0.0 $23.2

 Administration and consultants 3.0 4.9 7.3 2.1 17.3

 Total expenditures $40.5

Fund balance end of fiscal year 1999 $51.7a
Chapter 2

Privatization Progress Is Slow and 

Unanswered Questions Remain

Page 25 GAO/NSIAD-00-71 Military Housing

used to pay for the initial award costs. In fiscal year 1997, $5 million was 

appropriated for the DOD Military Unaccompanied Housing Improvement 

Fund. This amount was rescinded in fiscal year 1999 because the services 

had no plans for privatized unaccompanied housing projects, such as new 

or renovated barracks.

Use of the Privatization 

Authorities

Under the privatization legislation, the Congress provided DOD with 

12 authorities to allow and facilitate private sector financing, ownership, 

operation, and maintenance of military housing. The authorities can be 

used individually or in combination. For the 2 privatization projects 

awarded and the 12 projects approved for solicitation as of October 1999, 

the services plan to use some of the 12 authorities, such as conveyance of 

property, direct loans, and loan guarantees, frequently. The services plan 

limited use of other authorities, such as the assignment of members to 

housing units constructed under the initiative. Three authorities (build and 

lease, rental guarantees, and interim leases) will not be used on these 14 

projects. According to DOD officials, use of the build and lease and rental 

guarantee authorities usually involve government commitments to pay 

lease or rental costs over the entire term of the contracts. In accordance 

with the guidance for recording obligations under the initiative, DOD 

would have to set aside funds to cover the value of these commitments up 

front. Because the funds required to cover the commitments could 

approximate the amount of funds required under traditional military 

construction financing, use of these authorities might not result in DOD 

meeting its goal of obtaining at least $3 of housing improvements for each 

dollar the government invests. Thus, DOD is not likely to use these 

authorities as part of a privatization arrangement.

Implementation Has 

Been Slower Than 

Expected

DOD was initially optimistic about how quickly the new privatization 

authorities could help solve its housing problem of 200,000 inadequate 

housing units. In a May 1995 press release, DOD stated that if the Congress 

passed legislation authorizing the use of private sector financing and 

expertise to improve military housing, DOD could solve its housing 

problem in 10 years—by fiscal year 2006. During congressional hearings in 

March 1996, after the initiative was authorized, DOD officials stated that 

about 8 to 10 projects, with up to 2,000 family housing units, should be 
Chapter 2

Privatization Progress Is Slow and 

Unanswered Questions Remain

Page 26 GAO/NSIAD-00-71 Military Housing

awarded within the next year.3 During March 1997 and 1998 congressional 

hearings, DOD officials stated that the goal was to increase the number of 

units planned for construction and revitalization to 8,000 in fiscal year 1997 

and to 18,000 units in fiscal year 1998.4

DOD did not meet these goals, and in July 1997, it revised the target date 

when it issued planning guidance for fiscal years 1999 through 2003. The 

guidance directed the services to plan to revitalize, divest through 

privatization, or demolish inadequate family housing by or before fiscal 

year 2010—4 years later than the original target date. DOD also included 

housing privatization in its November 1997 Defense Reform Initiative 

Report as a specific initiative to help reduce excess infrastructure.

According to DOD officials, privatization implementation has been slower 

than expected primarily because the initiative represents a new way of 

doing business for both the military and the private sector. Initially, DOD 

had to develop protocols for site visits and new tools and models to assess 

the financial feasibility of using the various authorities to help solve the 

housing problem at an installation. Then, as detailed work began on 

developing potential projects, according to officials, many legal issues 

relating to the applicability of the Federal Acquisition Regulation and the 

Federal Property Management Regulations had to be addressed. Also, new 

financial and contractual issues had to be resolved, such as establishing 

loan guarantee procedures to insure lenders against the risk of base 

closure, downsizing, and deployment; developing a process to provide 

direct loans to real estate developers; and creating documents for 

conveying existing DOD property to developers.

Another factor that slowed implementation was initial disagreement 

between DOD and the Office of Management and Budget on how projects 

that used the various authorities should be scored.5

 Discussions between 

the agencies continued for several months until a written agreement that 

provided detailed scoring guidance applicable to the first 20 privatization 

3

Hearings before the Subcommittee on Military Installations and Facilities, House National 

Security Committee, Mar. 7, 1996.

4

Hearings before the Subcommittee on Military Readiness, House National Security 

Committee, Mar. 12, 1997, and the Subcommittee on Military Construction, House 

Appropriations Committee, Mar.12, 1998.

5

Scoring refers to the process used to determine the amount that should be recognized and 

recorded as an obligation of DOD at the time a privatization contract is signed.
Chapter 2

Privatization Progress Is Slow and 

Unanswered Questions Remain

Page 27 GAO/NSIAD-00-71 Military Housing

projects was adopted on June 25, 1997. After these projects are completed, 

the agreement will be reviewed to determine if any changes are needed.

DOD Has Curtailed 

Privatization Plans

The services’ current privatization program of 22 projects is significantly 

smaller than previously planned. In 1998, the services planned privatization 

projects totaling about 87,000 units at 49 installations under the authorities. 

In the Conference Report for the 1999 Military Construction Appropriations 

Act discussed previously, the conferees cited concern over the slow pace of 

the initiative’s implementation and the high level of reliance that the 

services had begun to place on the initiative compared to other options, 

such as military construction. The Conference Report provided guidance to 

DOD, stating that the services needed to use all available options to 

address the family housing problem, including the traditional military 

construction program and adequate use of existing private sector housing. 

The guidance noted that the initiative was a pilot project and not intended 

to become a substitute for the traditional housing construction program. 

Because of the guidance and expressed concerns, DOD took two steps. 

First, in August 1998, DOD announced that to help streamline the initiative, 

primary responsibility for implementation would shift from DOD 

headquarters to the individual services. Second, in October 1998, DOD 

stated it would provide the Congress with quarterly status reports 

containing project updates. However, DOD did not reduce its planned 

reliance on privatization to address its housing needs. The first quarterly 

report, issued in February 1999 for the first quarter of fiscal year 1999, 

listed 48 planned privatization projects involving about 87,860 units—about 

the same size program as identified previously.

In a June 1999 letter to the Secretary of Defense, the Subcommittee on 

Military Construction, House Committee on Appropriations, again noted 

that the initiative was a pilot program and was not a replacement for 

traditional military construction. Noting that the Army’s and the Navy’s 

fiscal year 2000 military construction budget requests included no family 

housing projects in the continental United States, the Subcommittee 

expressed concern that the initiative had veered off course from the 

original intent of the legislation. In its response, DOD wrote that both 

privatization and military construction will be necessary to rectify 

inadequate military housing and that privatization will be pursued as a pilot 

program to better understand the circumstances in which it is most 

effective. The letter included a scaled-down list of planned projects that 

was later refined into the current program consisting of 22 projects to build 

or renovate 30,994 units.
Chapter 2

Privatization Progress Is Slow and 

Unanswered Questions Remain

Page 28 GAO/NSIAD-00-71 Military Housing

Eliminating Inadequate 

Housing by Fiscal Year 

2010 Is Questionable

Because privatization implementation has proceeded more slowly than 

expected and with scaled-back privatization plans, it appears questionable 

whether the services will meet DOD’s goal of eliminating all inadequate 

family housing by fiscal year 2010. Army officials estimated that with their 

reduced privatization plans and with current military construction funding 

levels, about 44,000 inadequate Army houses will remain in the United 

States after fiscal year 2010. Air Force and Marine Corps officials also 

stated that it is questionable whether they can eliminate inadequate 

housing by 2010. In estimating the funds needed to meet the 2010 goal, the 

Air Force, in its August 1999 Family Housing Master Plan, identified a 

$3.6 billion funding shortage. The Navy plans to meet the 2010 goal using 

current privatization plans and military construction funding. An official 

noted that the Navy had been investing in improved family housing for 

several years prior to the privatization initiative.

According to DOD, an analysis has shown that (1) if DOD were to rely 

solely on military construction funding at current levels and no 

privatization beyond the current plans, inadequate housing units would not 

be eliminated until 2091 and (2) if the services were permitted to use the 

privatization authorities beyond their expiration date at a level consistent 

with current plans, inadequate housing would not be eliminated until 2019. 

However, DOD officials stated that it is still possible to meet the 2010 goal. 

First, DOD officials stated that they plan to request the Congress to extend 

the authorities beyond their expiration date in February 2001. Second, if 

the authorities are extended, the services could expand privatization plans. 

Third, implementation of the new initiative to increase housing allowances 

could help by reducing the need for some on-base housing.

More Progress Needed 

to Measure Initiative’s 

Overall Effectiveness

An assessment of the status of the privatization initiative normally would 

include an assessment of how the initiative is doing in meeting its goals of 

eliminating inadequate housing more economically and faster than could 

be achieved through traditional military construction financing. However, 

no projects under the initiative have been fully implemented, occupied by 

military families, and operated over a period of time. As a result, at this 

time only limited information is available to assess the initiative’s overall 

effectiveness in achieving its goals. The only actual experience with 

completed privatization projects comes from the Navy’s projects 

completed under the prior authority, and this experience included some 

mixed results. Also, although the pilot initiative is almost 4 years old, DOD 
Chapter 2

Privatization Progress Is Slow and 

Unanswered Questions Remain

Page 29 GAO/NSIAD-00-71 Military Housing

has not established an evaluation plan that will help assess the merits of the 

initiative as it is implemented over the next few years. 

Limited Data Exists to 

Assess Achievement of 

Goals

DOD notes that privatization provides an advantage over traditional 

financing by requiring less initial government funding to get housing 

constructed or renovated because the private sector provides most of the 

required funds. DOD’s estimates for 12 proposed projects showed that for 

an average initial government cost of about $14 million, the military should 

obtain new or renovated housing that would have initially cost the 

government about $75 million if traditional military construction funds 

were used. As discussed in the next chapter, current estimates also predict 

that most proposed projects will result in long-term savings to the 

government, although the average amount is modest—about 11 percent. 

However, such estimates are difficult to make with precision because they 

include many assumptions and cost estimates over long time frames. In 

addition, increased housing allowances, as called for in the new initiative 

announced in January 2000, could increase privatization costs and reduce 

the estimated savings from privatization. Before actual privatization costs 

and savings are known, several projects will have to be constructed, 

occupied, and operated over a period of time.

In our prior report on the privatization initiative, we noted that in addition 

to questions about long-term savings, privatization raises other concerns 

and questions. For example, will developers operate and maintain 

privatized housing in accordance with the contracts and in a manner that 

meets servicemembers’ expectations? To increase profits, developers could 

limit maintenance and repairs and cut costs by hiring less qualified 

managers and staff and using inferior supplies. DOD plans to include 

maintenance standards, modernization schedules, required escrow 

accounts, and other safeguards in each privatization contract to help 

ensure adequate performance. However, enforcing the contracts could be 

difficult, time-consuming, and costly. Another question is whether the 

housing will be needed over the life of the projects—typically 50 years. 

DOD housing officials stated that accurate forecasts of housing needs 

beyond 3 to 5 years cannot be assured. Also, if privatized units are not 

rented by servicemembers, the contracts allow civilians to rent the units, 

creating concerns about the impact of civilians living on base. Until several 

privatization projects have been implemented and occupied and 

experience is gained in the operation of these projects, these concerns and 

questions will remain largely unanswered.
Chapter 2

Privatization Progress Is Slow and 

Unanswered Questions Remain

Page 30 GAO/NSIAD-00-71 Military Housing

Navy’s Privatization 

Experience Shows Mixed 

Results

The only actual operating experience in housing privatization comes from 

the Navy’s projects originated under the prior authority. These off-base 

projects in local communities at Corpus Christi and Kingsville, Texas, and 

Everett, Washington, have been considered successful in that they were 

implemented relatively quickly and should result in savings to the 

government. However, the projects also have included some mixed results. 

For example, although intended for enlisted families, many civilians, 

officers, and single servicemembers live in the Texas units, and the rental 

charges for all three sites have resulted in out-of-pocket costs for most 

enlisted paygrades that exceed the 19-percent national average, as shown 

by the following examples for August 1999.

At Corpus Christi, civilians and officers occupied 25 percent and 8 percent, 

respectively, of the units. An enlisted paygrade E-5 occupant of a threebedroom unit paid about $191, or 31 percent, more for monthly rent and 

utilities than covered by the member’s housing allowance.6

At Kingsville, only 11 of the 102 units were occupied by enlisted members 

with their families. The other units were occupied by single enlisted 

members, officers, and civilians. A paygrade E-5 occupant of a threebedroom unit paid about $185, or 33 percent, more for monthly rent and 

utilities than covered by the member’s housing allowance.

At Everett, 183 of the 185 units were occupied by enlisted members with 

their families. A paygrade E-5 occupant of a three-bedroom unit paid about 

$185, or 24 percent, more for monthly rent and utilities than covered by the 

member’s housing allowance.

To significantly reduce or eliminate the out-of-pocket costs at these sites, 

the Navy implemented a new program in October 1999. Using one of the 

authorities provided in the current privatization initiative, differential lease 

payments, the Navy modified the existing limited partnership agreements 

and began paying a portion of each member’s monthly rent directly to the 

developer. The idea is that the Navy will pay a portion of a member’s rent so 

that the member’s housing allowance is sufficient to pay the balance of the 

rental amount plus expected utilities. The Navy estimated that over the 

remaining term of the agreements at Corpus Christi, Kingsville, and Everett 

the differential lease payments will cost about $8.2 million. Local officials 

6

Paygrade E-5 is a petty officer second class in the Navy or a sergeant in the Army.
Chapter 2

Privatization Progress Is Slow and 

Unanswered Questions Remain

Page 31 GAO/NSIAD-00-71 Military Housing

at the sites stated that while the differential lease program will help military 

families living in the privatized units, other military families living in nearby 

civilian housing could experience some resentment because their out-ofpocket costs are not covered by the program. 

In regards to whether the developers were meeting expectations for 

managing the projects, Navy officials at the three sites stated that the 

developers were operating the units in a satisfactory manner. However, 

according to local Navy housing officials in August 1999, a survey of 

residents at the Corpus Christi units indicated that on-site maintenance fell 

short of an acceptable rating. At Everett, officials stated that, although the 

project was operating well and most residents were pleased to be living in 

the project, residents had complained that maintenance requests were 

responded to more slowly than expected and that the quality of 

maintenance work was lower than expected.

DOD Has Not Developed an 

Evaluation Plan for the 

Initiative 

Despite the fact that the initiative is 4 years old, DOD has not developed an 

evaluation plan to ensure consistent measurement of the progress and 

effectiveness of the initiative from project identification through the end of 

each privatization contract. As a result, it has no means to systematically 

compare the cost and implementation time frames of privatized projects to 

traditional military construction projects, assess the advantages and 

disadvantages of the various authorities, or measure servicemembers’ 

satisfaction with the privatized housing and contractor performance. 

Timely, complete, accurate, useful, and consistent performance data could 

help decision-makers evaluate the overall effectiveness of the initiative, 

determine whether the initiative is meeting program goals, address 

questions and concerns, and identify what modifications might be needed 

as the program is implemented over the next several years.

To date, DOD’s assessment of the initiative has focused on establishing the 

framework for implementing the program, measuring the number of 

projects and housing units planned or approved for privatization, and 

ensuring that approved projects leverage government funds in constructing 

or renovating military housing. The services, however, have individually 

begun developing approaches to measure performance of projects after 

construction is completed and military families have moved in. For 

example, the Army plans to collect and measure data on (1) contractor 

response times to maintenance requests, (2) time required for a contractor 

to prepare a vacated unit for the next occupant, (3) contractor completion 

of recurring maintenance needs against established schedules, 
Chapter 2

Privatization Progress Is Slow and 

Unanswered Questions Remain

Page 32 GAO/NSIAD-00-71 Military Housing

(4) contractor payment of mortgages and other financial requirements in 

accordance with schedules, and (5) satisfaction of military occupants with 

the housing. But, without an overall DOD evaluation plan as a guide, the 

services’ might not consistently collect the performance information 

needed for an overall assessment of the initiative. 

Conclusions Because no projects under the initiative have been fully implemented, there 

is little basis to evaluate whether the initiative will ultimately achieve its 

goals of eliminating inadequate housing more economically and faster than 

could be achieved through traditional military construction financing. Also, 

despite the fact that this pilot program is 4 years old, DOD has not 

developed an overall evaluation plan to assess the initiative’s merits. 

Without an evaluation plan, DOD has no means to systematically compare 

the actual cost and implementation time frames of privatized projects to 

traditional military construction projects, assess the advantages and 

disadvantages of the various authorities, measure contractor performance, 

or assess servicemembers’ satisfaction with the privatized housing.

Recommendation To help evaluate the overall effectiveness of the Military Housing 

Privatization Initiative, we recommend that the Secretary of Defense direct 

the Competitive Sourcing and Privatization Office to develop a 

privatization evaluation plan. The plan, which should be used by all 

services to ensure consistency, should include performance measures to 

help officials determine whether the initiative is meeting goals and whether 

modifications to the initiative are needed. The plan should also provide a 

means to evaluate the merits of the individual authorities, compare the 

actual and estimated costs of each project, assess key aspects of developer 

performance, collect statistics on the use of the housing, and assess 

servicemembers’ satisfaction with the housing.

Agency Comments and 

Our Evaluation

DOD agreed with our recommendation and stated that it had already taken 

steps to implement the recommendation. DOD stated that it had initiated a 

plan to establish peer review and audit mechanisms to evaluate 

privatization projects across the services to capture best practices. DOD 

also stated that the peer review process will be used to develop a formal 

evaluation plan and that the draft of this plan is scheduled for review by the 

services in late summer 2000. We believe that these steps can help measure 
Chapter 2

Privatization Progress Is Slow and 

Unanswered Questions Remain

Page 33 GAO/NSIAD-00-71 Military Housing

the overall effectiveness of the program as it is implemented over the next 

several years. 
Page 34 GAO/NSIAD-00-71 Military Housing

Chapter 3

Life-Cycle Cost Analyses Lack Consistency 

and Reliability and Indicate Modest Potential 

Savings Chapte3r

The life-cycle cost analyses prepared by the services to compare proposed 

privatization and military construction projects were inconsistent, 

inaccurate, and lacked support for some assumptions. For example, some 

analyses did not consider project planning costs, while other analyses 

excluded the value of government property transferred to the private 

contractor. In addition, these comparisons show that the estimated savings 

from privatization would be modest, averaging about 12 percent. After 

making appropriate adjustments to the analyses, we calculated 

privatization savings to be about 11 percent.

Although the amount of government funds needed to initiate housing 

projects under the privatization option can be substantially less than 

needed under the military construction option, this does not necessarily 

mean that the government’s long-term total costs for the projects also will 

be less under privatization because annual costs differ under each option. 

To estimate and compare the government’s long-term costs for proposed 

projects financed through privatization and military construction, the 

services prepare life-cycle cost analyses and use the results to help decide 

whether proposed privatization projects should be approved for 

solicitation. However, DOD has not issued formal guidance for the services 

to use in preparing the analyses, nor has it developed definitive guidance 

for when more costly privatization projects should be approved over 

military construction projects.

The Services’ LifeCycle Cost Analyses 

Lack Consistency and 

Reliability

In our comparison of DOD’s draft guidance for performing life-cycle cost 

analyses with the services’ analyses for the 2 privatization projects 

awarded or the 12 projects approved for solicitation, we found 

inconsistencies, inaccuracies, or a lack of support for some assumptions 

and estimates in every completed analysis. For example, (1) seven analyses 

did not consider costs for project planning and design, (2) three analyses 

did not consider the value of government property conveyed to the 

developers, (3) two analyses included the value of conveyed property but 

did not provide supporting documentation for the estimates used, (4) six 

analyses did not include costs for monitoring the privatization contract, 

(5) two analyses did not use the correct Office of Management and Budget 

discount rate to adjust for the time value of money, and (6) no analyses 

were performed for two projects. 

In its life-cycle cost analysis for the proposed privatization project at Camp 

Pendleton, for example, the Marine Corps compared estimates of the 

government’s long-term costs for the project financed through the initiative 
Chapter 3

Life-Cycle Cost Analyses Lack Consistency 

and Reliability and Indicate Modest Potential 

Savings

Page 35 GAO/NSIAD-00-71 Military Housing

and with military construction funds. Under the privatization option, the 

developer would build 200 housing units, renovate 512 government housing 

units, and operate and maintain these units for 50 years and the 

government would convey 512 existing government housing units to the 

developer, lease the land for the housing to the developer for 50 years at no 

cost, provide for a portion of the project financing through a direct loan, 

and pay housing allowances to the military occupants of the housing. 

Under the military construction option, the government would pay for the 

construction or renovation of the 712 units and operate and maintain the 

units for 50 years. The Marine Corps’ analysis showed that privatization 

would cost the government about $28 million, or about 17 percent, less 

than military construction. However, our review found that the Marine 

Corps did not estimate and consider (1) the value of the 512 units to be 

conveyed to the developer and (2) the costs of project development and 

monitoring the privatization contract. The Marine Corps also incorrectly 

used different discount rates for the two options to adjust for the time 

value of money. After adjusting for these problems and recalculating the 

government’s costs under the two options, we found that privatization was 

less costly—about $11 million, or about 5 percent, less than military 

construction—but considerably less than the Marine Corps’ estimated 

savings of $28 million.

Projects With No Life-Cycle 

Cost Analysis

The Army did not prepare a life-cycle cost analysis for the proposed 

privatization project at Fort Hood because it had adopted a new approach 

to developing privatization projects. Under this approach, rather than 

defining the scope of a proposed project and then selecting a developer to 

implement the project, the Army will first select a developer who will help 

define the scope and plan the project at the installation. Thus, although an 

installation has been approved to plan a privatization project, the Army is 

unable to perform a life-cycle cost analysis until a developer is selected and 

the project’s scope is defined.

According to a Marine Corps official, a life-cycle cost analysis was not 

prepared for the Marine Corps Logistics Base, Albany, Georgia, project 

because the proposed project required no initial government funds. The 

military would convey to a developer 419 older, government housing units 

and a vacant hospital facility located off base. In return, the developer 

would construct 114 housing units on base and operate and maintain the 

units for 50 years. Military members occupying the units would receive 

housing allowances and pay rent. According to the DOD draft guidance and 
Chapter 3

Life-Cycle Cost Analyses Lack Consistency 

and Reliability and Indicate Modest Potential 

Savings

Page 36 GAO/NSIAD-00-71 Military Housing

to officials in the DOD office responsible for the initiative, a life-cycle cost 

analysis should have been prepared for this project.

Overall Projected 

Savings Are Modest

Our review of the 12 life-cycle cost analyses for the 2 awarded projects and 

the 10 remaining projects approved for solicitation that had a life-cycle cost 

analysis prepared by the services indicates that the long-term savings to the 

government from privatization will be modest. The services estimated for 

these projects that privatization, on average, should cost the government 

about 12 percent less than military construction financing. After 

recalculating costs, making adjustments to the services’ estimates to 

provide consistency, considering all project costs under both options, and 

correcting other problems, we found that privatization, on average, should 

cost the government about 11 percent less than military construction 

financing (see table 3). For 10 projects, the estimated savings ranged from 

38 percent to 5 percent. For two projects, Robins Air Force Base and 

Stewart Army Subpost, we estimated that privatization would cost more 

than military construction—about 9 percent and about 15 percent more, 

respectively.1

 DOD officials stated that these projects were still in the best 

interest of the military because with privatization, the housing 

improvements could be completed faster and with substantially less initial 

government funds. Appendix IV provides more details comparing the 

results from the services’ life-cycle cost analyses with our estimates.

1

The Robins privatization proposal calls for an on-base elementary school operated by DOD 

to close when the project is awarded. In comparing the proposal’s life-cycle costs with the 

military construction option, the Air Force considered two alternatives. The first military 

construction alternative assumed that, similar to the privatization proposal, the on-base 

school would close. The estimated military construction life-cycle costs for this alternative 

are less than the estimated privatization life-cycle costs. The second military construction 

alternative assumed that the school would remain open over the life of the project. Because 

of the costs to operate the school, the estimated military construction life-cycle costs for 

this alternative are significantly higher than the estimated privatization life-cycle costs.
Chapter 3

Life-Cycle Cost Analyses Lack Consistency 

and Reliability and Indicate Modest Potential 

Savings

Page 37 GAO/NSIAD-00-71 Military Housing

Table 3: Comparison of Life-Cycle Cost Estimates for 12 Projects

Note: Includes the awarded projects at Fort Carson and Lackland and the 10 remaining projects 

approved for solicitation that had a life-cycle cost analysis prepared by the services.

Because life-cycle cost analyses use numerous assumptions and estimates, 

actual costs and savings from implemented privatization projects will vary 

from the results of the analyses. Budgetary consequences from approved 

projects cannot be known until the projects are constructed, occupied, and 

operated for several years. In particular, DOD’s newly announced initiative 

to significantly increase housing allowances could increase privatization 

life-cycle costs for awarded contracts and for future projects because 

servicemembers use their allowances to pay for rent and utilities in 

privatized housing. If the initiative is fully implemented, several of the 

currently planned privatization projects with estimated savings could 

possibly cost the government more than if the projects were paid for with 

military construction funds.

Nevertheless, privatization has a relatively modest effect on total 

government costs because it shifts funding requirements from the military 

housing construction, operations, and maintenance accounts to the 

military personnel accounts to pay for additional housing allowances. 

Service officials have recognized this and have stated that the long-term 

savings to the government from privatization may be modest. For example, 

the Army’s February 1999 housing budget submission for fiscal year 2000 

stated that analyses show privatizing Army family housing will not save 

money.

Dollars in millions

Estimated savings

Military

construction

option

Privatization

option Dollars Percentage

Services’ estimate

 Total cost $3,128 $2,755 $373 11.9

 Average project cost $261 $230 $31 11.9

Our estimate

 Total cost $3,297 $2,937 $360 10.9

 Average project cost $275 $245 $30 10.9
Chapter 3

Life-Cycle Cost Analyses Lack Consistency 

and Reliability and Indicate Modest Potential 

Savings

Page 38 GAO/NSIAD-00-71 Military Housing

DOD Had Not Issued 

Final Guidance for 

Life-Cycle Cost 

Analyses 

DOD had not issued final guidance for the services to use in their life-cycle 

cost analyses. Preparing accurate, reliable cost comparisons of projects 

financed by military construction funding or through privatization is 

difficult because the comparisons involve long-range projections and 

include many different costs, variables, and assumptions. For example, 

under military construction financing, the military pays the initial 

construction or renovation costs and then pays the annual costs to operate, 

maintain, and manage the units. The military does not pay monthly housing 

allowances to occupants since the servicemembers occupying the units 

forfeit their allowances when living in government-owned housing. In 

contrast, under most proposed privatization projects, the military initially 

uses some funds and/or conveys some existing military houses or property 

to secure a contract with a private developer. Since the housing is not 

government-owned, the military pays monthly housing allowances to the 

servicemembers occupying the housing and some housing management 

costs for servicemember referral services and for oversight of the 

contracts, which in many cases is for 50 years.

In our July 1998 report on the initiative, we noted that DOD had not 

provided guidance to the services for performing life-cycle cost analyses. 

Without such guidance, there is little assurance that the analyses will be 

prepared consistently and that the assumptions and estimates used will 

result in reliable cost comparisons. Although we recommended that DOD 

expedite efforts to develop a standardized methodology for performing 

these analyses and DOD agreed that this was necessary for consistent 

comparisons, DOD had only developed draft guidance by October 1999, 

and use of this guidance was not mandatory. DOD officials stated they 

planned to issue final guidance in February 2000.

DOD’s draft guidance generally identified the costs that should be 

considered in the analysis of each alternative. However, the guidance did 

not include details on how the estimates for each type of cost should be 

determined. For example, details were not provided on how the costs of 

the contribution of government housing units or other property should be 

determined. Because many proposed projects include the conveyance of 

government property to the developer and the valuation of these assets can 

be critical to the outcome of the overall analysis, detailed guidance in this 

area could help ensure more accurate and consistent analyses.
Chapter 3

Life-Cycle Cost Analyses Lack Consistency 

and Reliability and Indicate Modest Potential 

Savings

Page 39 GAO/NSIAD-00-71 Military Housing

DOD officials stated that for a proposed privatization project to be 

approved, the government’s estimated total costs in present value terms for 

the project normally should be equal to or less than the total costs for the 

same project financed by military construction funding.2

 The officials 

stated an exception to the guideline could be approved under some 

circumstances, such as when the total cost difference between the options 

was small but substantially less initial government funds were needed to 

construct the project under privatization. However, DOD had not 

developed definitive guidance for when an exception could be approved. 

As a result, DOD could not ensure that approval decisions for privatization 

projects with total costs exceeding military construction costs were made 

in a manner that consistently determined what was in the government’s 

best interest. 

Conclusions Overall long-term projected savings from privatization are modest, and if 

DOD fully implements the new housing allowance initiative, these savings 

could be even less. Also, because of the deficiencies in the services’ 

analyses and because DOD had not provided guidance on the 

circumstances that would justify approving privatization projects that 

would cost more than comparable military construction projects, DOD 

cannot ensure that approval decisions for proposed privatization projects 

are made in a manner that consistently determines what is in the 

government’s best interest. 

Recommendation To increase the reliability and consistency of life-cycle cost analyses and to 

provide specific criteria for approving privatization projects, we 

recommend that the Secretary of Defense (1) refine the draft guidance on 

preparing life-cycle cost analyses to clearly specify what costs should be 

included in the analyses and to better explain how the services should 

estimate each type of cost and (2) develop definitive guidance for 

approving a privatization project when the project’s estimated total costs 

exceed the costs to implement the project with military construction funds.

2

To consider the time value of money, DOD’s life-cycle cost analyses estimate all costs in 

present value terms which estimate future costs in current dollars.
Chapter 3

Life-Cycle Cost Analyses Lack Consistency 

and Reliability and Indicate Modest Potential 

Savings

Page 40 GAO/NSIAD-00-71 Military Housing

Agency Comments and 

Our Evaluation

DOD agreed with our recommendation, stating that it should refine the 

guidance for life-cycle cost analyses. DOD stated that it intends to issue 

refined guidance, incorporating our recommendations, that will require the 

services to examine the privatization and military construction alternatives 

and their associated costs in a uniform and comprehensive manner. DOD 

expects to have the revised guidance completed and ready for coordination 

with the services in late spring 2000. We believe these are positive steps to 

help ensure that approval decisions for proposed privatization projects are 

made in a manner that consistently determines what is in the government’s 

best interest. 

DOD commented that we inaccurately assumed that, if DOD’s proposed 

initiative to increase housing allowances by about 19 percent over a 5-year 

period is fully implemented, privatization savings will be less than currently 

estimated. According to DOD, for projects not yet awarded, it would add 

mechanisms, such as reinvestment requirements, revenue-sharing accounts 

or increased land rent, to ensure that life-cycle costs are not increased 

when allowances are increased. While this may be true for future projects, 

it should be noted that, for the projects already awarded, any increase in 

housing allowances will increase costs since rents are determined on the 

basis of the allowances. In addition, for new projects, DOD cannot be 

assured that contractors would accept new mechanisms that would limit 

government costs. If they do not, the costs of privatized housing would 

increase. We have modified our report to show the uncertainty of the 

impact of the allowance initiative on the cost of privatized projects. Aside 

from the relative costs of privatization and military construction, the real 

significance of the housing allowance initiative is that it should make more 

housing affordable to military families in some local communities, thereby 

reducing the need for government-supplied housing, regardless of the 

source of funding.
Page 41 GAO/NSIAD-00-71 Military Housing

Chapter 4

Continued Efforts Needed to Integrate 

Privatization With Other Housing Options Chapte4r

The privatization initiative is only one of several options, including housing 

allowances and traditional military construction, available to meet the 

housing needs of servicemembers and their families. To be most effective, 

the initiative needs to be integrated with the other elements of an overall 

housing strategy. Although DOD has made progress in coordinating the 

initiative with other housing options, it has not developed a plan showing 

how the various options will be used to meet DOD’s housing needs in an 

optimum manner. Development of a coordinated housing strategy is even 

more important in view of the potential impacts from DOD’s new initiative 

to increase housing allowances. Also, the services have not improved their 

housing requirements determination processes to more accurately estimate 

how much housing the installations must supply, and they have not always 

updated their housing requirements assessments prior to approving 

privatization projects. As a result, the services cannot be assured that they 

are constructing, replacing, or revitalizing housing only at installations 

where the need for additional housing is adequately documented.

Required Integrated 

Housing Strategy Has 

Not Been Developed

In the July 1998 Conference Report discussed previously, the conferees 

expressed concern that DOD was not fully coordinating the various options 

for addressing housing needs. As a result, the conferees directed DOD to 

report to the House and Senate Committees on Appropriations by 

December 1, 1998, on an integrated family housing strategy, including a 

detailed plan for integrating the DOD offices that have responsibilities for 

the military’s family housing program. The conferees’ direction also stated 

that this strategy should focus on the maximum use of existing civilian 

housing, the use of enhanced housing referral services, coordination of 

housing allowances, and the appropriate use of privatization and 

traditional construction options. 

At the time of our review in January 2000, DOD had not completed the 

requested report. DOD officials stated that the delay was caused by a lack 

of staff and that the report should be issued soon. However, DOD officials 

stated that DOD has improved the mechanisms that are used to ensure that 

housing decisions are well-coordinated. For example, DOD has increased 

use of the Installations Policy Board, which reviews and coordinates 

policies and issues affecting DOD installations, such as military housing. 

The membership of this board includes management officials from the 

DOD offices responsible for housing and for housing allowances. In 

addition, DOD formed the Military Family Housing Policy Panel, which 

meets regularly to review and coordinate military housing matters at the 

staff working level. Officials in each of the services stated that coordination 
Chapter 4

Continued Efforts Needed to Integrate 

Privatization With Other Housing Options

Page 42 GAO/NSIAD-00-71 Military Housing

has improved among the various offices responsible for housing, housing 

allowances, and member quality-of-life issues. 

Because of the interdependency of military family housing, privatization, 

and housing allowances, the continued coordination of these options is 

important. DOD and the Congress have made efforts to reduce average outof-pocket costs for members and their families, and in January 2000, DOD 

announced plans to eliminate out-of-pocket costs through significant 

allowance increases over the next 5 years. Increases in housing allowances 

make civilian housing more affordable, and therefore, may reduce the 

demand for on-base housing. Also, the rental fees for most privatized 

housing are established on the basis of the servicemembers’ housing 

allowances. Thus, significant increases in housing allowances could result 

in significant increases in rental payments to a developer, creating the 

potential for larger than expected profits. Conversely, any significant 

decreases in housing allowances—although unlikely with implementation 

of DOD’s new initiative to significantly increase allowances—could have 

the effect of developers’ cutting corners on operations and maintenance of 

privatized housing to save money. These relationships make coordination 

essential for an effective housing program.

Marine Corps officials provided an example of the challenges posed in 

coordinating the various housing programs. They explained that prior to 

the public release of the military housing allowance rates for 1999, they had 

no knowledge that the rates would be decreasing at the Marine Corps 

installation at Twenty-nine Palms, California, where a major privatization 

project was planned. When the new rates were announced, the Marine 

Corps decided to cancel the project because the decreased rates made the 

project financially infeasible.

Slow Progress in 

Improving Housing 

Requirements 

Determinations

Fundamental to an integrated housing plan is a process that accurately 

determines the services’ housing needs and the local communities’ ability 

to meet those needs at each installation. Accurate requirements analyses 

can help ensure that government housing, whether privatized or not, is 

provided only at installations where the local communities cannot meet the 

military’s family housing needs, as specified by DOD policy. However, our 

prior work and the work of others have found significant, long-standing 

problems in the processes the services use to determine military housing 

requirements. DOD has taken steps to address these problems, but 

progress in implementing improvements has been slow.
Chapter 4

Continued Efforts Needed to Integrate 

Privatization With Other Housing Options

Page 43 GAO/NSIAD-00-71 Military Housing

To illustrate, a 1992 report by the DOD Inspector General stated that the 

Navy and the Air Force had overstated family housing requirements and 

understated the amount of private sector housing available to satisfy 

requirements for several proposed housing projects. A 1994 report by the 

Naval Audit Service stated that the Navy had overstated housing 

requirements at eight installations because the requirements determination 

process was based on flawed procedures, poor implementation of those 

procedures, and inaccurate data. In our 1996 report on military family 

housing, we noted that DOD and the services relied on housing 

requirements analyses that (1) often underestimated the private sector’s 

ability to meet family housing needs and (2) used methodologies that 

tended to result in a self-perpetuating requirement for government 

housing.1

 In response to our recommendation that DOD improve the 

requirements process, DOD stated that it intended to revisit procedures for 

determining housing requirements. 

More recently, an October 1997 DOD Inspector General report stated that 

“DOD and Congress do not have sufficient assurance that current family 

housing construction budget submissions address the actual family 

housing requirements of the Services in a consistent and valid manner.”2

The Inspector General recommended development of a DOD standard 

process and standard procedures to determine family housing 

requirements. In response, DOD convened a working group, including 

representatives from each service, in December 1997 to address the 

problems and develop recommendations for improving the housing 

requirements determination process. According to a DOD official with 

responsibility for overseeing the DOD housing policy, the working group 

made progress, but at a slow pace. Deciding that the job was too big for the 

working group, in January 1999, DOD contracted with the Center for Naval 

Analyses to review the current housing requirements models and private 

sector methods and to recommend a model that would be better than the 

current models and would be more consistent across the services. This 

review is scheduled to be completed in calendar year 2000. DOD officials 

stated that they plan to issue revised policies for determining housing 

requirements during calendar year 2000 after they examine the review’s 

results.

1

Military Family Housing: Opportunities Exist to Reduce Costs and Mitigate Inequities

(GAO/NSIAD-96-203, Sept. 13, 1996).

2

DOD Family Housing Requirements Determination, DOD Inspector General Report No. 

98-006, Oct. 8, 1997.
Chapter 4

Continued Efforts Needed to Integrate 

Privatization With Other Housing Options

Page 44 GAO/NSIAD-00-71 Military Housing

Updated Market 

Analyses Not Available 

for Some Privatization 

Projects

The DOD Housing Management Manual 4165.63M states a housing market 

analysis should be performed at installations where acquisition of housing 

is programmed to help determine military housing needs and the ability of 

the local communities to meet these needs. The housing market analysis 

should consider housing demand for both military and civilian populations, 

including the affordability of local housing as well as economic and 

demographic trends in the market area. Although these analyses are 

important to accurately estimate and document housing requirements, they 

have not been specifically required to be updated as part of the approval 

process for proposed privatization projects. For 5 of the 14 installations 

with a privatization project awarded or approved for solicitation, we found 

that no housing market analysis had been prepared within the past 5 years.

The Army, for example, had not performed market analyses at Fort Carson 

and Fort Hood within the past 5 years. Army officials stated that family 

housing requirements at these installations had been estimated using an 

econometric model and that the requirements had been verified by the 

Army Audit Agency. The officials agreed that housing market analyses 

provide more detailed information on local housing conditions and stated 

that such analyses will be performed at Fort Hood and other Army 

installations with planned privatization projects. Also, the Navy’s last 

housing market analysis for Corpus Christi and the Marine Corps’ last 

market analysis for Camp Pendleton were both dated in 1994. Navy and 

Marine Corps officials stated that updated market analyses for these 

locations were delayed pending completion of DOD’s efforts to improve the 

housing requirements determination process.

The Marine Corps also had not performed a housing market analysis for its 

planned privatization project at Stewart, New York, or at the recently 

withdrawn project at Chicopee, Massachusetts. At each location, the basis 

of the housing requirement was an informal survey of all servicemembers 

stationed or assigned within a 1-hour commute of each location. In June 

1999, DOD had notified the Congress of its intent to begin the solicitation 

process for privatizing housing units at these locations. However, in 

October 1999, the Marine Corps placed the Chicopee project on hold 

pending a reexamination of long-term projections of Marines in the 

Chicopee region. By the end of October, the project was officially 

withdrawn from consideration for privatization because of the uncertainty 

over the housing requirement.
Chapter 4

Continued Efforts Needed to Integrate 

Privatization With Other Housing Options

Page 45 GAO/NSIAD-00-71 Military Housing

At some proposed privatization locations where housing market analyses 

had been performed within the past 5 years, the analyses included 

information that raised questions concerning the need for on-base family 

housing. For example, the November 1996 market analysis for the Marine 

Corps Logistics Base, Albany, Georgia, showed that the local community 

had 2,149 suitable rental units that were vacant. However, the analysis 

assumed that only two of these vacant units were available to Marine 

families because the methodology used to determine requirements 

assumed that only a small portion of available civilian housing would be 

available to military families. Specifically, because the total Marine family 

housing requirement represented only 0.1 percent of the total suitable 

rental units in the local community, the market analysis assumed that only 

0.1 percent of the suitable rental vacancies would be available to Marine 

families.

Maximizing Use of 

Housing in Local 

Communities Is Least 

Costly but Difficult to 

Implement

Implementation of DOD’s policy of relying first on existing housing in the 

local communities to meet military family housing needs is important to 

contain costs. According to our estimates in 1996, total annual costs to the 

government were about $5,000 less for a military family that lived in local 

community housing instead of government-owned housing because the 

family typically paid about 19 percent of its housing costs out of pocket and 

the government paid less in education impact aid because private housing 

is subject to local taxes.3

 The estimates also showed that housing 

constructed, operated, and maintained by the private sector generally costs 

less than housing constructed, operated, and maintained by the military. 

Although the government’s cost for families living in private housing would 

increase if out-of-pocket costs were eliminated, as envisioned in DOD’s 

announced initiative to increase housing allowances, the cost would still be 

less than providing government-owned housing.

3

Education impact aid is paid to local governments to help cover the cost of educating 

dependents of military members. The impact aid for each dependent is significantly higher 

for students that live with their families in government housing because such housing is not 

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.
Chapter 4

Continued Efforts Needed to Integrate 

Privatization With Other Housing Options

Page 46 GAO/NSIAD-00-71 Military Housing

Most military families in the United States receive a housing allowance and 

live off base, consistent with DOD policy. A recent Rand study stated that 

most members would prefer to live off base in the civilian communities if 

out-of-pocket costs were not too great.4

 However, military members 

frequently have incurred significant out-of-pocket costs to live off base or 

accepted housing that the military does not consider suitable. As a result, 

many members have sought to live in government housing where all costs 

are covered. Other factors, such as being close to work, on-base amenities, 

or a preference to live close to other military families, may have 

contributed to some members seeking on-base housing; but the primary 

reason, according to the Rand study, is the economic benefit. It is for this 

reason that many installations have had high demand, including a waiting 

list, for on-base housing, even though much of the housing was considered 

inadequate.

Recognizing the economic benefit that members receive when living on 

base, the services have generally viewed any decrease in the number of onbase housing units as a cut in military benefits since the result would be 

more members paying out-of-pocket costs. Thus, counter to the DOD 

policy of relying on local communities as the primary source of housing, 

the services have often resisted reducing on-base inventory, even when 

adequate civilian housing was available. At some locations, rather than 

divest of inadequate on-base housing by increasing reliance on civilian 

housing, the services planned to maintain current on-base housing 

inventories by revitalizing or replacing inadequate housing through military 

construction funding or through privatization implemented with no out-ofpocket costs.5

If fully implemented over the next 5 years, DOD’s new initiative to 

eliminate out-of-pocket costs will respond to this issue and should make 

private housing more affordable. However, perhaps best illustrating the 

present situation is the Air Force’s recent effort to develop a family housing 

master plan. Published in August 1999, prior to the announcement of DOD’s 

new initiative, the master plan provides a road map for how the Air Force 

plans to address its housing needs through military construction, 

privatization, and operation and maintenance funding. The plan clearly 

4

An Evaluation of Housing Options for Military Families (RAND, 1999).

5

DOD policy issued in September 1998 stated that privatization projects should be designed 

so that the members’ housing allowances will fully cover the costs of rent and utilities, thus 

resulting in no out-of-pocket costs for members living in privatized housing.
Chapter 4

Continued Efforts Needed to Integrate 

Privatization With Other Housing Options

Page 47 GAO/NSIAD-00-71 Military Housing

recognizes the conflict between maximum reliance on civilian housing and 

the desire to limit the number of members paying out-of-pocket costs for 

housing.

Air Force guidance for preparing the master plan stated that on-base 

housing requirements will be determined by using “the Air Force 

interpretation” of DOD’s housing policy of relying on local communities for 

housing. The Air Force interpretation is to maximize reliance on local 

community housing “consistent with the needs of the mission and military 

families.” According to the Air Force, mission and family needs include 

keeping a viable on-base housing community and considering the military 

family demand for on-base housing when assessing housing needs. With 

this view, even at installations where the local communities could house 

more military families, the Air Force plans to retain on-base housing 

inventories, providing there is a high demand for the units—defined as 

occupancy of 98 percent or greater over the previous 3 years. The master 

plan states that “the Air Force does not intend to solve it’s housing problem 

‘on the backs of the troops’. As long as there is an economic disparity 

between on- and off-base [housing costs], the Air Force will retain and 

maintain on-base housing where troops are ‘voting’ with their ‘demand’”. 

Air Force housing officials stated that the analyses performed in 

completing the master plan showed that many Air Force installations could 

rely more on local community housing. However, because the demand for 

on-base housing was also high at most of these installations, the Air Force 

did not consider all of these installations to have surplus on-base housing. 

DOD housing officials agreed that the Air Force’s interpretation of DOD’s 

guidance on reliance on community housing appeared different and stated 

this interpretation would be examined in the requirements determination 

review being performed by the Center for Naval Analyses.

Conclusions DOD has yet to develop an approach to solve its housing problem in a 

manner that optimally integrates housing allowances, traditional military 

construction, and privatization. An integrated strategy that recognizes the 

interdependency of these elements has become even more essential 

because of the potential significant impacts of DOD’s new housing 

allowance initiative on privatization, military construction, and the need for 

on-base housing. DOD officials state that such a plan is under development 

and will be completed this year. However, additional steps are needed to 

better ensure that privatization, or military construction, is used to 

construct or revitalize housing only at installations where the need is 
Chapter 4

Continued Efforts Needed to Integrate 

Privatization With Other Housing Options

Page 48 GAO/NSIAD-00-71 Military Housing

adequately documented. One step is for DOD to follow through with plans 

to issue revised policies during calendar year 2000 to improve the methods 

used to estimate housing needs and the ability of local communities to 

meet these needs. Further steps include requiring updated housing 

requirements assessments as part of the approval process for proposed 

privatization projects and addressing questions regarding the services’ 

application of DOD’s policy of relying on private sector housing.

Recommendations As part of the development of the DOD integrated housing strategy and in 

view of the potential impacts from the new housing allowance initiative, we 

recommend that the Secretary of Defense (1) require that housing 

requirements assessments be updated as part of the approval process for 

proposed privatization projects and (2) clarify DOD’s policy that requires 

primary reliance on private sector housing to specifically delineate the 

circumstances under which privatization or military construction projects 

are permissible when alternative housing is available in local communities.

Agency Comments and 

Our Evaluation

DOD agreed with our recommendations, acknowledging the need for 

greater consistency among the services in validating housing requirements. 

DOD stated that it is working to achieve coordination and consistency in its 

housing programs through use of ongoing studies and several senior-level 

working groups. Also, understanding that the allowance initiative will 

affect military housing requirements, DOD stated that it is establishing a 

senior-level, joint Housing Policy Panel to provide policy for determining 

housing requirements and to establish clear policy for meeting those 

requirements. We believe that these steps can improve DOD’s internal 

coordination on housing matters and enhance DOD’s efforts to effectively 

integrate housing options. Establishing clear policy on use of private sector 

housing and on circumstances that justify use of military housing is 

important to minimizing government housing costs whether privatized or 

not.
Page 49 GAO/NSIAD-00-71 Military Housing
Page 50 GAO/NSIAD-00-71 Military Housing

Appendix I

Summary of Authorities in the Military Apendxies

Housing Privatization Initiative ApendxiI

1. Direct loans: The Department of Defense (DOD) may make direct loans 

to persons in the private sector to provide funds for the acquisition or 

construction of housing units suitable for use as military family or 

unaccompanied housing. (10 U.S.C. 2873(a),(1))

2. Loan guarantees: DOD may guarantee a loan to any person in the 

private sector if the proceeds of the loan are used to acquire or 

construct housing units suitable for use as military family or 

unaccompanied housing. (10 U.S.C. 2873(b))

3. Build and lease: DOD may enter into contracts for the lease of military 

family or unaccompanied housing units to be constructed under the 

initiative. (10 U.S.C. 2874)

4. Investments in nongovernmental entities: DOD may make investments 

in nongovernmental entities carrying out projects for the acquisition or 

construction of housing units suitable for use as military family or 

unaccompanied housing. An investment under this section may include 

a limited partnership interest, a purchase of stock or other equity 

instruments, a purchase of bonds or other debt instruments, or any 

combination of such forms of investment. (10 U.S.C. 2875(a),(b))

5. Rental guarantees: DOD may enter into agreements with private 

persons that acquire or construct military family or unaccompanied 

housing units under the initiative to guarantee specified occupancy 

levels or to guarantee specific rental income levels. (10 U.S.C. 2876)

6. Differential lease payments: Pursuant to an agreement to lease military 

family or unaccompanied housing to servicemembers, DOD may pay 

the lessor an amount in addition to the rental payments made by 

military occupants to encourage the lessor to make the housing 

available to military members. (10 U.S.C. 2877)

7. Conveyance or lease of existing property and facilities: DOD may 

convey or lease property or facilities, including ancillary supporting 

facilities, to private persons for purposes of using the proceeds to carry 

out activities under the initiative. (10 U.S.C. 2878)

8. Interim leases: Pending completion of a project under the initiative, 

DOD may provide for the interim lease of completed units. The term of 

the lease may not extend beyond the project’s completion date. 

(10 U.S.C. 2879)
Appendix I

Summary of Authorities in the Military 

Housing Privatization Initiative

Page 51 GAO/NSIAD-00-71 Military Housing

9. Conformity with similar local housing units: DOD will ensure that the 

room patterns and floor areas of military family and unaccompanied 

housing units acquired or constructed under the initiative are generally 

comparable to the room patterns and floor areas of similar housing 

units in the locality concerned. Space limitations by paygrade on 

military family housing units provided in other legislation will not apply 

to housing acquired under the initiative. (10 U.S.C. 2880(a),(b))

10. Ancillary supporting facilities: Any project for the acquisition or 

construction of military family or unaccompanied housing units under 

the initiative may include the acquisition or construction of ancillary 

supporting facilities for the housing. (10 U.S.C. 2881))

11. Assignment of members of the armed forces to housing units: DOD may 

assign servicemembers to housing units acquired or constructed under 

the initiative. (10 U.S.C. 2882)

12. Lease payments through pay allotments: DOD may require 

servicemembers who lease housing acquired or constructed under the 

initiative to make lease payments by allotment from their pay. 

(10 U.S.C. 2882©)
Page 52 GAO/NSIAD-00-71 Military Housing

Appendix II

DOD’s Military Housing Privatization Program 

as of October 1999 ApendxiI

a

Total estimated units at project award.

b

Army officials estimated that 4 to 5 years will be required before planned construction and renovation 

is completed.

c

Maximum possible units—actual number not yet determined. 

d

Construction is scheduled to be completed in February 2001. 

Source: Competitive Sourcing and Privatization Office, DOD.

Service Project

Number of

unitsa Current status Estimated contract award date

Army Fort Carsonb 2,663 Awarded September 1999

Fort Hood 6,631c Approved for solicitation September 2000

Fort Meade 3,170c In planning April 2001

Fort Lewis 4,348c In planning December 2000

Air Force Lacklandd 420 Awarded August 1998

Dyess 402 Approved for solicitation July 2000

Elmendorf 828 Approved for solicitation March 2000

Robins 670 Approved for solicitation April 2000

Kirtland 1,890 In planning November 2000

Patrick 960 In planning July 2000

Dover 450 In planning January 2001

McGuire/Ft Dix 999 In planning February 2001

Tinker 730 In planning December 2000

Navy Everett II 300 Approved for solicitation March 2000

Kingsville II 150 Approved for solicitation February 2000

San Diego 3,248 Approved for solicitation August 2000

South Texas 812 Approved for solicitation September 2000

New Orleans 613 Approved for solicitation October 2000

Marines Pendleton 712 Approved for solicitation April 2000

Albany 114 Approved for solicitation February 2000

Stewart 200 Approved for solicitation January 2001

Beaufort/Parris Island 684 In planning February 2001

Total units 30,994
Page 53 GAO/NSIAD-00-71 Military Housing

Appendix III

Navy’s Limited Partnership Agreements for 

Housing at Corpus Christi and Kingsville, 

Texas and Everett, Washington ApendxiI

Public Law 103-337, enacted October 5, 1994, included provisions that gave 

the Navy authority to test the use of limited partnerships with the private 

sector to develop family housing for Navy servicemembers and their 

families. The Navy initiated two limited partnership agreements using this 

earlier authority to help meet family housing shortages for enlisted 

servicemembers in the Corpus Christi and Kingsville, Texas and the 

Everett, Washington, areas. 

Housing at Corpus 

Christi and Kingsville, 

Texas

In South Texas, the Navy entered into a limited partnership agreement in 

July 1996 with a private developer to build and operate 404 family housing 

units at two locations. The units, all completed and ready for occupancy by 

November 1997, were built off base using commercial building standards 

and practices. The Navy contributed $9.5 million to the project, and the 

developer financed the balance of the project’s $32 million total cost. In 

return for its contribution, occupancy preferences were given to Navy 

families, and rents were targeted to be affordable on the basis of enlisted 

paygrade E-5 housing allowances. When a vacancy occurs, the developer 

gives the Navy 45 days to find a military tenant. If a Navy family does not 

rent the vacant unit, the developer can offer the unit to civilians. Each 

tenant, military or civilian, was initially responsible for paying utilities. 

The limited partnership agreement lasts 10 years, with a 5-year option 

period. At the end of the partnership, the units will be sold. The agreement 

calls for the developer to repay the Navy its initial equity contribution, plus 

one-third of the net sale proceeds.

The units include two-, three-, and four-bedroom townhouse units. Each 

unit includes a range, a refrigerator, a dishwasher, a microwave oven, 

washer and dryer connections, and a carport. The two-bedroom unit has 

about 1,030 gross square feet and two baths, the three-bedroom unit has 

about 1,207 gross square feet and two baths, and the four-bedroom unit has 

about 1,355 gross square feet and two baths.

To serve the Corpus Christi Naval Air Station and the Ingleside Naval 

Station, 302 units were constructed near Portland, a community about 

22 miles from the Naval Air Station and about 16 miles from the Naval 

Station. The partnership agreement established the initial rental rates for 

the units and stated that the rates could be adjusted annually on the basis 

of the percentage change in a specified housing cost index. The 1999 

monthly rents at Portland for a two-bedroom, three-bedroom, and fourbedroom unit are $625, $690, and $835, respectively. Local Navy housing 
Appendix III

Navy’s Limited Partnership Agreements for 

Housing at Corpus Christi and Kingsville, 

Texas and Everett, Washington

Page 54 GAO/NSIAD-00-71 Military Housing

officials estimated that average monthly utilities for a two-, three- and fourbedroom unit were $107, $127, and $142, respectively. Thus, total estimated 

monthly costs were $732, $817, and $977 for a two-bedroom, threebedroom, and four-bedroom unit, respectively.

The 1999 monthly housing allowance for a paygrade E-5 member at Corpus 

Christi was $626. Thus, a paygrade E-5 servicemember that rented a twobedroom unit at Portland paid $106, or about 17 percent, more than the 

member’s housing allowance. In comparison, a paygrade E-4 member 

renting a two-bedroom unit paid $177, or about 32 percent, more than the 

allowance for an E-4 member, and a paygrade E-6 member paid $34, or 

about 5 percent, more than the allowance for an E-6 member. On average, 

throughout the United States, military members living in civilian housing 

pay about 19 percent more for their housing than their allowances.

Table 4 provides more details on out-of-pocket costs at Portland from 

January through September 1999.

Table 4: Out-of-pocket Costs at Portland from January through September 1999

a

Out-of-pocket costs represent the difference between rent plus estimated utilities and the member’s 

housing allowance.

Source: Service housing officials at Corpus Christi Naval Air Station.

Because of concern over the amount of out-of-pocket costs members were 

paying at the privatized units, the Navy implemented a new program in 

October 1999 to significantly reduce or eliminate these costs. Using one of 

the authorities provided in the current privatization legislation, differential 

lease payments, the Navy modified the existing limited partnership 

agreement and began paying a portion of each member’s monthly rent 

directly to the developer. The idea is that the Navy will pay a portion of a 

member’s rent so that the member’s housing allowance is sufficient to pay 

Out-of-pocket costsa

Paygrade E-4 Paygrade E-5 Paygrade E-6

Unit type

Rent plus

estimated

utilities Amount Percent Amount Percent Amount Percent

2 bedroom $732 $177 32 $106 17 $34 5

3 bedroom $817 $262 47 $191 31 $119 17

4 bedroom $977 $422 76 $351 56 $279 40
Appendix III

Navy’s Limited Partnership Agreements for 

Housing at Corpus Christi and Kingsville, 

Texas and Everett, Washington

Page 55 GAO/NSIAD-00-71 Military Housing

the balance of the rental amount plus expected utilities. With the 

differential lease payments, most members will have no out-of-pocket 

housing costs—similar to living in government housing. The Navy 

estimated that over the remaining term of the partnership agreements at 

Portland and Kingsville, Texas, the differential lease payments will cost 

about $6.1 million. 

At the time of our visit in August 1999, all of the units were occupied. Of the 

302 units, 222 units were occupied by the military, 76 units were occupied 

by civilians, and 4 units were occupied by property management. (See 

table 5.) Under terms of the agreement, property management officials 

stated that civilian occupants are not required to vacate the units at the end 

of their leases, even if military families are on a waiting list for the units.

Table 5: Occupancy at Portland in August 1999

Source: Service housing officials at Corpus Christi Naval Air Station.

To serve the Kingsville Naval Air Station, 102 two- and three- bedroom units 

were constructed on private property in Kingsville, a community located 

about 40 miles from Corpus Christi. The 1999 monthly rent at Kingsville 

was $521 for a two-bedroom unit and $625 for a three-bedroom unit. Local 

Navy housing officials estimated that average monthly utilities for a twoand three-bedroom was $78 and $114, respectively. Thus, total estimated 

monthly costs were $599 for a two- and $739 for a three-bedroom unit, 

respectively.

The 1999 monthly housing allowance for a paygrade E-5 servicemember at 

Kingsville was $554. Thus, a paygrade E-5 servicemember that rented a 

two-bedroom unit at Kingsville paid $45, or about 8 percent, more than the 

member’s housing allowance. In comparison, a paygrade E-4 member 

renting a two-bedroom unit paid $108, or about 22 percent, more than the 

Occupant category Number of units Percent

 Enlisted E-5 and below 107 36

 Enlisted E-6 and above 90 30

 Officer 25 8

 Civilian 76 25

 Property Management 4 1

 Total 302 100
Appendix III

Navy’s Limited Partnership Agreements for 

Housing at Corpus Christi and Kingsville, 

Texas and Everett, Washington

Page 56 GAO/NSIAD-00-71 Military Housing

allowance for an E-4 member; and a paygrade E-6 member paid $(23), or 

about (4) percent, less than the allowance for an E-6 member. Table 6 

provides more details on out-of-pocket costs at Kingsville prior to the 

October 1999 implementation of differential lease payments.

Table 6: Out-of-pocket Costs at Kingsville from January through September 1999

a

Out-of-pocket costs represent the difference between rent plus estimated utilities and the member’s 

housing allowance.

Source: Service housing officials at Kingsville Naval Air Station.

At the time of our visit to the Kingsville units in August 1999, all of the units 

were occupied. However, of the 102 units, only 30 units were occupied by 

military members with families. Forty units were occupied by single 

servicemembers, 30 units were occupied by civilians, and 2 units were 

occupied by property management personnel. Also, the majority of the 

units—55−were occupied by military officers rather than enlisted 

personnel. Navy officials stated that the project was not serving junior 

enlisted members and their families to the extent envisioned when the 

project was developed. Many of the units were occupied by single, juniorlevel officers, many of whom shared the units with another single, juniorlevel officers. The partnership agreement did not provide for specific rental 

preferences for enlisted servicemembers with families, and local housing 

officials stated that they had not attempted to secure vacancies for enlisted 

members.

Table 7 provides more details on occupancy at Kingsville in August 1999.

Out-of-pocket costsa

Paygrade E-4 Paygrade E-5 Paygrade E-6

Unit type

Rent plus

estimated

utilities Amount Percent Amount Percent Amount Percent

2 bedroom $599 $108 22 $45 8 $(23) (4)

3 bedroom $739 $248 51 $185 33 $117 19
Appendix III

Navy’s Limited Partnership Agreements for 

Housing at Corpus Christi and Kingsville, 

Texas and Everett, Washington

Page 57 GAO/NSIAD-00-71 Military Housing

Table 7: Occupancy at Kingsville in August 1999

Source: Service housing officials at Kingsville Naval Air Station.

Housing at Everett, 

Washington

In March 1997, the Navy entered into a 10-year limited partnership with a 

private developer to build and operate 185 family housing units in the 

Everett, Washington, area. The housing was intended primarily to serve 

servicemembers assigned to the Everett Naval Station, located about 

18 miles away. The Navy contributed $5.9 million to the project, and the 

developer financed the balance of the project’s $19 million total cost.

Beginning in the 6th year, 20 percent of the units will be sold annually. Navy 

families occupying the units will be given an opportunity to purchase the 

units. The Navy will share in the net proceeds from the sales, and by the 

end of the agreement, the Navy will have been repaid its initial equity 

contribution plus one-third of any additional net sale proceeds. In return 

for its contribution, occupancy preferences were given to Navy families, 

and rents were targeted to be affordable on the basis of enlisted paygrade 

E-5 housing allowances. When a vacancy occurs, the developer gives the 

Navy 30 days to find a military tenant. If a Navy family does not rent the 

vacant unit, the developer can offer the unit to civilians. Each tenant, 

military or civilian, is responsible for paying utilities.

The Everett units were constructed off base using commercial building 

standards and local practices. Each townhouse unit includes a range, a 

refrigerator, a dishwasher, a washer, a dryer, and a two-car garage. 

Excluding the garage, the two-bedroom unit has about 1,160 gross square 

feet and two baths, the three-bedroom unit has about 1,212 gross square 

feet and two and a half baths, and the four-bedroom unit has about 

1,556 gross square feet and two and a half baths.

Category of occupant Number of units Percent

 Enlisted family 11 11

 Enlisted single 4 4

 Officer family 19 19

 Officer single 36 35

 Civilian 30 29

 Property Management 2 2

 Total 102 100
Appendix III

Navy’s Limited Partnership Agreements for 

Housing at Corpus Christi and Kingsville, 

Texas and Everett, Washington

Page 58 GAO/NSIAD-00-71 Military Housing

The partnership agreement established the initial rental rates for the units 

and stated that the rates would be adjusted annually on the basis of the 

percentage change in a specified housing cost index. The 1999 monthly 

rents for a two-bedroom, three-bedroom, and four-bedroom unit were $790, 

$817, and $926, respectively. Local Navy housing officials estimated that 

average monthly utilities for a two-, three-, and four-bedroom unit were 

$145, $128, and $156, respectively. Thus, total estimated monthly costs 

were $935, $945, and $1,082 for a two-bedroom, three-bedroom, and fourbedroom unit, respectively.

The 1999 monthly housing allowance for a paygrade E-5 servicemember at 

Everett was $760. Thus, a paygrade E-5 servicemember that rents a twobedroom unit paid $175, or about 23 percent, more than the member’s 

housing allowance. In comparison, a paygrade E-4 servicemember renting a 

two-bedroom unit paid $274, or about 42 percent, more than the allowance 

for an E-4 servicemember; and a paygrade E-6 servicemember paid $99, or 

about 12 percent, more than the allowance for an E-6 member. However, 

similar to the situation at Corpus Christi and Kingsville, the Navy modified 

the partnership agreement at Everett in October 1999 to provide for 

differential lease payments. This modification is expected to eliminate 

most or all out-of-pocket costs for military occupants of these units. The 

Navy estimated that over the remaining term of the partnership agreement 

at Everett, the differential lease payments will cost $2.1 million.

Table 8 provides more details about out-of-pocket costs at Everett prior to 

the October 1999 implementation of differential lease payments.

Table 8: Out-of-pocket Costs at Everett from January through September 1999

a

Out-of-pocket costs represent the difference between rent plus estimated utilities and the member’s 

housing allowance.

Source: Service housing officials at Everett Naval Station.

Out-of-pocket costsa

Paygrade E-4 Paygrade E-5 Paygrade E-6

Unit type

Rent plus estimated

utilities Amount Percent Amount Percent Amount Percent

2 bedroom $935 $274 42 $175 23 $99 12

3 bedroom $945 $284 43 $185 24 $109 13

4 bedroom $1,082 $421 64 $322 42 $246 30
Appendix III

Navy’s Limited Partnership Agreements for 

Housing at Corpus Christi and Kingsville, 

Texas and Everett, Washington

Page 59 GAO/NSIAD-00-71 Military Housing

At the time of our visit to Everett in August 1999, 183 units were occupied 

by enlisted members and their families, 1 unit was occupied by the on-site 

project manager, and 1 unit was vacant. (See table 9.)

Table 9: Occupancy at Everett in August 1999

Source: Service housing officials at Everett Naval Station.

Local Navy housing officials stated that management attention helps 

ensure that junior enlisted servicemembers receive preference in renting 

units at the Everett project. The local housing office maintains separate 

waiting lists for paygrades E-6 and below and paygrades E-7 and above. 

When notified of a vacancy, the housing office takes a proactive role in 

getting an enlisted servicemember to fill the vacancy.

Category of occupant Number of units Percent

 Enlisted paygrade E-5 and below 103 55

 Enlisted paygrade E-6 and above 80 43

 Officer 0 0

 Civilian 0 0

 Property Management 1 1

 Vacant 1 1

 Total 185 100
Page 60 GAO/NSIAD-00-71 Military Housing

Appendix IV

Life-Cycle Cost Comparisons for Privatization 

Projects Awarded or Approved for Solicitation 

as of October 1999 ApendxiIV

This table compares the government’s long-term costs for proposed 

projects financed through privatization and military construction.1

 We 

completed our analyses prior to DOD’s January 2000 announcement of an 

initiative to significantly increase housing allowances over the next 5 years. 

If the initiative is implemented as planned, the increased allowances could 

increase privatization costs for these projects.

.

a

Because the services’ cost estimates for these projects have been revised, the results of the analyses 

differ from the results shown in our prior report.

b

Totals reflect annual costs for 10 years, the proposed term of the privatization agreement.

c

Totals reflect annual costs for 15 years, the proposed term of the privatization agreement.

1

The services did not prepare a life-cycle cost analysis for two projects approved for 

solicitation—Fort Hood and Marine Corps Logistics Base, Albany.

Dollars in millions

Present value of estimated total costs

Service estimate Our estimate

Service Installation

Military

construction Privatization Difference Percent

Military

construction Privatization Difference Percent

Army Fort Carsona $693 $641 $52 7.5 $734 $685 $49 6.7

Navy Kingsville IIb $24 $18 $6 25.0 $24 $15 $9 37.5

Navy Everett IIc $82 $47 $35 42.7 $82 $52 $30 36.6

Navy South 

Texasd $245 $175 $70 28.6 $241 $176 $65 27.0

Navy San Diegod $1,093 $972 $121 11.1 $1,077 $958 $119 11.0

Navy New 

Orleansd $173 $153 $20 11.6 $168 $149 $19 11.3

Air Force Lacklanda $119 $107 $12 10.1 $141 $124 $17 12.1

Air Force Elmendorf $319 $287 $32 10.0 $360 $332 $28 7.8

Air Force Robinse $109 $114 $(5)f (4.6) $112 $122 $(10)f (8.9)

Air Force Dyess $75 $68 $7 9.3 $99 $70 $29 29.3

Marines Pendleton $166 $138 $28 16.9 $219 $208 $11 5.0

Marines Stewart $30 $35 $(5)f (16.7) $40 $46 $(6)f (15.0)

Total $3,128 $2,755 $373 11.9 $3,297 $2,937 $360 10.9

Average $261 $230 $31 11.9 $275 $245 $30 10.9
Appendix IV

Life-Cycle Cost Comparisons for 

Privatization Projects Awarded or Approved 

for Solicitation as of October 1999

Page 61 GAO/NSIAD-00-71 Military Housing

d

According to the Navy, in this proposed privatization project, the Navy intends to provide to the 

developer only a restricted leasehold right to existing military housing units with full reversion to the 

Navy at the end of the privatization term. Also, the Navy states that the restricted leasehold right will 

not be provided to an independent private developer, but to a public-private partnership that includes 

the Navy. Because ownership of the units does not transfer to the developer and because the Navy 

continues to have some control over the units, the Navy does not place a separate value on this 

property as part of the cost of privatization in the life-cycle cost analysis. Instead, the Navy considers 

the value of the property to be equal to the rental fees that can be generated from the units that are 

occupied by Navy servicemembers and their families over the term of the project.

e

See footnote 1 on page 35.

f

Military construction alternative costs less than privatization alternative.
Page 62 GAO/NSIAD-00-71 Military Housing

Appendix V

Comments From the Department of Defense ApendxiV
Appendix V

Comments From the Department of Defense

Page 63 GAO/NSIAD-00-71 Military Housing
Appendix V

Comments From the Department of Defense

Page 64 GAO/NSIAD-00-71 Military Housing

See footnote 1 on p. 35.
Appendix V

Comments From the Department of Defense

Page 65 GAO/NSIAD-00-71 Military Housing
Page 66 GAO/NSIAD-00-71 Military Housing

Appendix VI

GAO Contacts and Staff Acknowledgments ApendxiVI

GAO Contacts Carol Schuster (202) 512-5140

William Solis (202) 512-8365

Acknowledgments In addition to those named above, Gary Phillips, James Ellis, and Charles 

Perdue made key contributions to this report.

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