United States Government Accountability Office

Washington, DC 20548 

May 19, 2006 

The Honorable Kay Bailey Hutchison 

Chair 

Subcommittee on Military Construction and 

 Veterans’ Affairs, and Related Agencies 

Committee on Appropriations 

United States Senate 

Dear Senator Hutchison: 

Subject: Limitations in the Air Force’s Proposed Housing Plan for Spangdahlem 

Air Base, Germany 

The Air Force plans to construct 233 military housing units on Spangdahlem Air 

Base,1

 Germany at a cost of $131.3 million spread over fiscal years 2006-2008, and to 

fund 270 build-to-lease units nearby at an annual cost of $32,888 per unit over 20 

years. The Military Quality of Life and Veterans Affairs Appropriations Act for fiscal 

year 2006 directed the Secretary of the Air Force to submit to the Committees on 

Appropriations of both Houses of Congress a report containing a housing plan for 

Spangdahlem.

2

 The House Conference Report accompanying H.R. 2528 stipulated 

that the report must include a complete cost-benefit analysis of available housing 

options to include build-to-lease housing,3

 and that none of the funds appropriated for 

family housing at Spangdahlem—nearly $45.4 million—may be obligated until the 

Secretary of the Air Force certified to the Appropriations Committees that the report 

had been completed and received the Committees’ response or a 30-day period has 

elapsed after the Committees receive such report.4

 In response to the mandate, the 

Air Force issued a report in January 2006 that compared its proposed plan with four 

 1

Hereafter referred to simply as Spangdahlem. 

2

 Pub. L. No. 109-114, § 130 (2005). 

3

 According to Air Force officials, the primary benefits of using build to lease are that it provides 

housing quicker and requires less up-front appropriations from the United States than the traditional 

military construction method. Under a build-to-lease agreement, the United States contracts with a 

developer to construct housing for a specified number of units for use by military personnel under a 

fixed lease term, such as 10 years, with renewal options for additional periods of time. A developer 

builds the housing with no U.S. government funds and the only investment by the United States is a 

commitment to lease the housing from the developer once the housing is built. 

4

 H.R. Conf. Rep. No. 109-305, at 34 (2005). 

Page 1 GAO-06-736R Military Housing
Page 2 GAO-06-736R Military Housing

 

other housing options5

 that included a combination of traditional military 

construction, build-to-lease housing, and replacement of existing housing units to 

meet its housing requirements at Spangdahlem.6

 In the report, the Air Force 

recommended implementation of its proposed plan and release of the military 

construction appropriations for fiscal year 2006. The Air Force also concluded that, 

depending on the results of its efforts to explore cooperative ventures with the local 

German government and communities and the potential for a larger build-to-lease 

program, the scope of its military construction projects for future years may need to 

be adjusted. The Air Force also stated it would provide a status report regarding 

these adjustments to Congress within 365 days of the Appropriations Committees’ 

release of the fiscal year 2006 military construction appropriation. Specifically, the 

Air Force proposed to report on the results of the cooperative ventures, number of 

housing units procured in the fiscal year 2006 military construction project, and 

proposed adjustments in the scope of the fiscal years 2007 and 2008 military 

construction projects. In February 2006, the Appropriations Committees released 

nearly $45.4 million in fiscal year 2006 military construction budget authority for 79 

housing units at Spangdahlem. 

As you know, during our ongoing review of the Department of Defense’s (DOD) 

comprehensive overseas master plans,7

 we met with Air Force officials and visited 

family housing units at Spangdahlem and the base’s Bitburg Annex. We briefed your 

office on the results of our site visits on February 27, 2006. Subsequently, on March 

1, 2006, you requested that we review the assumptions and methodologies used in the 

Air Force’s report issued in January 2006. This report responds to your request. 

To meet our objective, we made extensive use of information gleaned from our site 

visits of Spangdahlem and the Bitburg Annex in December 2005. We also interviewed 

officials of the Office of the Secretary of Defense; U.S. European Command; U.S. Air 

Force Europe; Air Force Headquarters Civil Engineer Directorate; and Parsons 

Corporation—the contractor that conducted analyses for the Air Force’s report. We 

reviewed and evaluated the housing requirements and market analysis the Air Force 

used in preparing its housing report and interviewed Air Force officials regarding the 

data and assumptions they used in preparing their analysis. We analyzed the Air 

Force’s efforts in considering build-to-lease opportunities by interviewing Air Force 

officials and reviewing correspondence to and from the German government 

involving limitations and possible cost sharing for these initiatives. We also 

compared the assumptions, methods, and economic cost analyses used to develop 

the Air Force’s proposed plan and alternatives with the guidance contained in Office 

of Management and Budget (OMB), DOD, and Air Force instructions and manuals. 

5

 The Air Force’s proposed plan and four housing alternatives are described on pages 6 and 7 of this 

report. 

6

 Air Force, Report to the Committee on Appropriations of Both Houses of Congress on A Housing 

Plan for Spangdahlem Air Base, Germany (Washington, D.C.: Jan. 25, 2006). 

7

 Senate Report 108-82 on the Military Construction Appropriations Bill, 2004 directed GAO to monitor 

the infrastructure master plans developed and implemented for the overseas regional commands and 

to provide the congressional defense committees with annual assessment reports. 
Page 3 GAO-06-736R Military Housing

 

We also worked with Air Force officials to assess whether their economic cost 

analysis was based on this guidance. We determined that our data were sufficiently 

reliable for our purposes. 

We conducted our review from March through May 2006 in accordance with generally 

accepted government auditing standards. 

Results in Brief 

Although there is no basis to question whether the Air Force needs to upgrade its 

housing at Spangdahlem, key assumptions and methodology used in the Air Force 

report on housing plans for Spangdahlem, in some instances, were based on dated 

and incorrect information. As a result, there is uncertainty as to how many housing 

units are needed and which method—traditional military construction, build to lease, 

or other methods—is the most appropriate means to meet the housing requirement 

given costs and other considerations. The Air Force has recognized that there may be 

a need to adjust the scope of the military construction projects proposed for future 

years, and is in the process of updating its information and reassessing the mix of 

housing methods. Nevertheless, we identified the following weaknesses in its 2006 

report that the Air Force should address before it issues a status report to the 

Appropriations Committees. Specifically: 

• Air Force officials stated that they relied on a 2003 housing requirements and 

market analysis8

 as the foundation to determine the need for family housing in 

the Air Force’s 2006 Spangdahlem housing report. Although the 2003 analysis 

concluded that no additional family housing construction was needed, 

according to Air Force officials the analysis did not take into consideration the 

inadequate condition of some existing housing units and was based on 

outdated information, such as demographic data almost 2 decades old. 

Officials said that they also used other sources of information to develop the 

housing requirements identified in their 2006 report. While we reviewed these 

sources, we made no assessment of their suitability in determining the housing 

requirements. At the same time, we are concerned that the Air Force report 

may have overestimated the number of new housing units needed because it 

did not take into account other information indicating that a new highway had 

recently opened up access to more villages, increasing opportunities for offbase housing. Air Force officials said that this information will be contained in 

a new housing requirements and market analysis to be issued in July 2006, but 

they did not expect it to significantly change their housing requirements. 

However, we believe that the Air Force may not fully know the amount or mix 

of housing needed until it recalculates its on-base housing requirements using 

this and other new information. 

8

 Parsons Corporation, Housing Requirements and Market Analysis 2003 – 2008: Spangdahlem Air 

Base Germany (Oct. 6, 2003). 
Page 4 GAO-06-736R Military Housing

 

• In the House Conference Report to H.R. 2528, the conferees urged the Air 

Force to consider all options to address the housing needs, and stated 

specifically that build-to-lease housing has the potential to provide quality 

housing quickly to the families at Spangdahlem, while also providing a more 

cost-effective and flexible option to the United States. Although the Air Force 

plans to use off-base, build-to-lease housing to meet over half of its 

requirements for new family housing in Spangdahlem, it did not recommend a 

larger number of build-to-lease units because it assumed that local conditions 

existed that limited support for such projects. For example, Air Force officials 

assumed, based upon limited discussions with state and local German 

officials, that local developers considered the projects too financially risky to 

undertake, without officially testing the market. As a result of its assumption, 

the Air Force may have underestimated the number of build-to-lease 

opportunities and overestimated the need for military construction funding or 

vice versa. Information the Air Force received from German officials after 

publishing its report suggests that some limitations may no longer exist, that 

additional build-to-lease opportunities may exist, and that military 

construction needed under the Air Force proposed plan could differ from that 

previously planned. For example, a concern that large, U.S.-style 

developments were not in keeping with the culture of the region is being 

addressed by designating small residential zones for appropriately 50-60 units 

near the air base that can be planned, developed, and offered as the U.S. need 

increases.9

 Accordingly, to determine local interest in build-to-lease 

developments, the Air Force plans to provide a requirements document for 364 

build-to-lease units to the German government by June 2006 and expects a 

final build-to-lease agreement to be complete in February 2007.10 Until the Air 

Force tests its original assumptions about build-to-lease developments and 

completes all assessments of available housing off base, Congress will not be 

in a position to know whether the Air Force’s planned allocation of new family 

housing units in Spangdahlem between build-to-lease and military 

construction units is fully justified or to what extent other amounts may be 

required depending on the availability of military construction funding. 

• We found that the Air Force did not follow OMB, DOD, and Air Force guidance 

on performing life-cycle cost analysis in two instances—when it used an 

incorrect discount rate to calculate the present value of the costs and benefits 

of the Air Force’s proposed plan and four housing alternatives, and when it 

incorrectly calculated the remaining worth of the housing units funded with 

military construction appropriations after 20 years. However, our 

recalculations based on OMB, DOD, and Air Force guidance did not result in a 

significant variance from the Air Force’s analysis, in that the estimated lifecycle costs of both analyses fell between the other alternatives. As a result, 

9

 According to DOD, the 50-60 unit limitation levied by the German government limits the ability for 

large-scale development and encourages multiple, small developers that will increase the complexity 

and risk of the build-to-lease projects. 

10 According to DOD, the German government real estate office (Bundesanstalt für 

Immobilienaufgaben) will conduct the acquisition process in this instance for the Air Force. 
Page 5 GAO-06-736R Military Housing

there is little, based on our recalculations of the life-cycle costs, to support a 

change in the Air Force’s selected proposal, especially given the risk 

assessment criteria the Air Force assigned to compare the housing options. 

Nevertheless, the Air Force should use the correct discount rate and remaining 

worth of the housing in its analysis of the housing options presented in its 

upcoming status report to the Appropriations Committees. 

We are making recommendations to the Secretary of the Air Force to ensure that the 

Air Force’s upcoming status report to the Appropriations Committees includes an 

analysis of available housing options that is based upon the most currently available 

data and sound assumptions and methodology, including (1) the new housing 

requirements and market analysis scheduled to be completed in July 2006 and (2) 

calculations of life-cycle costs in accordance with government guidance on the use of 

discount rates and how to calculate the remaining worth of housing. In written 

comments on a draft of this report, DOD concurred with our recommendations. We 

discuss DOD’s comments and our evaluation of them later in this report. 

Background 

Spangdahlem is an enduring installation designed to ensure a strong presence in the 

European theater and to facilitate close cooperation with North Atlantic Treaty 

Organization allies and currently has a total population of 12,014 servicemembers, 

civilians, contractors, and dependents. Historically, the air base has hosted a fighteraircraft mission; however, its mission was enhanced by the closure of Rhein-Main Air 

Base in December 2005 when a portion of its airlift mission was moved to 

Spangdahlem. Spangdahlem is currently comprised of a main base and four annexes, 

which are geographically separated from the main base by 7 to 15 miles.11 The Air 

Force plans to consolidate all activities, such as base support and family housing, at 

Spangdahlem and close the four annexes. According to Air Force officials, the plan 

would provide operational efficiencies and reduce the exposure of U.S. service 

members and their families traveling on roads between the annexes and 

Spangdahlem. According to Air Force officials, they recorded a total of 196 accidents 

on the road between the Bitburg Annex and Spangdahlem in 2004 and 2005.

Legislative Reporting Requirement

The Military Quality of Life and Veterans Affairs Appropriations Act for fiscal year 

2006 directed the Secretary of the Air Force to submit to the Committees on 

Appropriations of both Houses of Congress a report containing a housing plan for 

Spangdahlem.12 In the House Conference Report accompanying H.R. 2528,13 the 

conferees noted the current need for housing at Spangdahlem and provided funding 

for such purpose. The conferees urged the Air Force to consider all options to 

 

11 The annexes are Bitburg, Oberweis, Zemmer, and Sulm. 

12 Pub. L. No. 109-114, § 130 (2005). 

13 H.R. Conf. Rep. No. 109-305, at 34 (2005). 
Page 6 GAO-06-736R Military Housing

address the housing need at Spangdahlem and stated that build-to-lease housing has 

the potential to provide quality housing quickly to the families at Spangdahlem, while 

also providing a more cost-effective and flexible option to the United States. In the 

Statement of Managers accompanying the Conference Report for H.R. 2528, the 

conferees directed the Air Force to report the results of a complete cost-benefit 

analysis of all available housing options at Spangdahlem, including build to lease, and 

that the analysis should include but not be limited to the cost per housing unit of each 

option and evidence of efforts made to lower such cost. 

The Conference Report also stated that none of the funds appropriated for family 

housing at Spangdahlem—nearly $45.4 million—may be obligated until the Secretary 

of the Air Force certified to the Committees on Appropriations that the report had 

been completed and received the Committees’ response or a 30-day period has 

elapsed after the Committees receive such report. These military construction funds 

were released to the Air Force in February 2006. 

Air Force’s Proposed Plan and Alternatives 

The Air Force’s January 2006 report to both Appropriations Committees includes a 

proposed housing plan and four alternatives for Spangdahlem representing a 

combination of traditional military construction, replacement of existing housing 

units, and build to lease. This report also provides an overview on Spangdahlem’s 

mission, the Air Force housing strategy, and coordination efforts involving cost 

sharing with the German government. The Air Force’s proposed plan calls for 

military construction of 233 family housing units at Spangdahlem at a total cost of 

$131.3 million spread over fiscal years 2006-2008, using housing units at Bitburg 

Annex as temporary living quarters (but eventually closing them), and obtaining 270 

build-to-lease units at an annual cost of $32,888 per unit for 20 years in the 

communities surrounding Spangdahlem. The Air Force anticipates that it would take 

5 to 6 years from the start of the fiscal year 2006 military construction to fully 

implement the proposed plan. The report also offers four other alternative ways to 

meet the projected housing needs of servicemembers stationed at Spangdahlem. 

• Alternative 1 provides for military construction of 139 family housing units at 

Spangdahlem in fiscal years 2006-2007, using family housing units at Bitburg 

Annex as temporary living quarters (but eventually closing them), and 

obtaining 364 build-to-lease units. 

• Alternative 2 provides for no military construction at Spangdahlem and 

obtaining 503 build-to-lease units. 

• Alternative 3 provides for military construction of 164 family housing units at 

Spangdahlem over fiscal years 2006-2008, and replacing 339 housing units at 

Bitburg Annex. 
Page 7 GAO-06-736R Military Housing

• Alternative 4 provides for military construction of 503 family housing units at 

Spangdahlem and using family housing units at Bitburg Annex as temporary 

living quarters (but eventually closing them). 

Table 1 shows the quantities and sources of proposed housing units as well as the 

life-cycle costs as projected and reported by the Air Force for its proposed plan and 

four alternatives. All of the housing options include continued use of 134 units the 

Air Force considers adequate on Spangdahlem and 200 units currently leased in 

German communities near Spangdahlem. 

Table 1: Quantities and Sources of Housing Units and the Air Force’s Estimated Life-cycle Costs for Its 

Proposed Plan and Four Alternatives 

Sources 

Proposed 

plan Alternative 1 Alternative 2 Alternative 3 Alternative 4 

Fiscal year 2006 

 military construction 79 79 79 79 

Fiscal year 2007 

 military construction 60 60 60 60 

Fiscal year 2008 

 military construction 94 25 364 

Build to lease 270 364 503 

Replace existing Bitburg 

 Annex housinga 339 

Use existing 

 Spangdahlem housing 134 134 134 134 134 

Renew existing leases 200 200 200 200 200 

Total housing units 837 837 837 837 837 

Total life-cycle costsb$228,437 $253,560 $287,034 $154,276 $135,688 

Source: Air Force. 

a

This alternative also includes the costs to construct front gate improvements, a fire station, and demolition of 

715 existing, inadequate housing units located at Bitburg. 

b

Total life-cycle costs are in fiscal year 2005 dollars in thousands using the Air Force’s 3.5 percent nominal 

discount rate. 

In its January 2006 report to both Appropriations Committees, the Air Force 

recommended implementation of the proposed plan. In addition, the Air Force 

committed to executing the fiscal year 2006 military construction project for 79 

housing units and, since it considered traditional military construction appropriations 

as the most cost-effective solution, it also included military construction projects for 

fiscal years 2007 and 2008. Because more military construction over these proposed 

levels will require utilization of additional contiguous tracts of land from the German 

government, the Air Force also recommended pursuit of 270 build-to-lease units. In 

addition, the primary benefits of using build to lease, according to Air Force officials, 
Page 8 GAO-06-736R Military Housing

are that it provides service members housing faster and requires less up-front 

appropriations than traditional military construction. Given current budget 

limitations, these officials believe that housing options requiring less up-front funds 

may be more acceptable to DOD and Congress despite their greater life-cycle costs 

than options with lower life-cycle costs but greater up-front funding requirements, 

such as those that rely primarily on traditional military construction appropriations. 

At the same time, Air Force also reported it will continue to explore cooperative 

ventures with the German State of Rheinland-Pfalz and local communities, and a 

larger build-to-lease program to meet its housing requirements. Depending on the 

results of these efforts, the Air Force concluded that the scope of future years’ 

military construction projects may be adjusted. The Air Force also proposed to 

provide a status report and report these adjustments to Congress within 365 days of 

the Appropriations Committees’ release of the fiscal year 2006 military construction 

funds appropriated for Spangdahlem family housing. Specifically, the Air Force 

proposed to report on the (1) realized savings from cooperation with the State of 

Rheinland-Pfalz or the success of its proposed build-to-lease program, (2) number of 

housing units procured in the fiscal year 2006 military construction project, and (3) 

proposed adjustments in the scope of the fiscal years 2007 and 2008 military 

construction projects to meet its housing requirements. The Air Force concluded by 

stating that it was committed to reassessing its housing requirements and adjusting 

its strategy to provide the most cost-efficient housing investment solution at 

Spangdahlem. 

Air Force May Have 

Overestimated Requirements 

While the Air Force relied on a housing requirements and market analysis that 

concluded no additional family housing construction was needed at Spangdahlem to 

develop its 2006 housing report, it also used other sources of information for this 

analysis but overlooked other information that may also affect on-base housing 

requirements. We are concerned that the Air Force may have overestimated the 

number of new housing units needed on base in its 2006 report because it did not 

take into account information showing that a new highway had recently opened up, 

which has created access to more villages and subsequently more rental housing and 

potentially more build-to-lease locations. Air Force officials said that this 

information will be contained in a new housing requirements and market analysis to 

be issued in July 2006, but that they did not expect it to significantly change their 

housing requirements. However, we believe that the Air Force may not fully know 

the amount or mix of housing needed until it recalculates its on-base housing 

requirements using this new information. 

Air Force Selectively Relied on Housing 

Requirements and Market Analysis

Although Air Force officials say that they relied on its 2003 housing requirements and 

market analysis to estimate the total family housing requirement for Spangdahlem, 

they used other sources of information for their analysis. A key finding in the 
Page 9 GAO-06-736R Military Housing

housing requirements and market analysis, which concluded that no additional family 

housing construction was needed, does not support the Air Force’s current request 

for military construction. However, Air Force officials said the 2003 housing 

requirements and market analysis did not take into consideration the inadequate 

condition of some existing housing units in the Spangdahlem area. Thus, they believe 

the number of surplus family housing units identified in the 2003 analysis did not 

represent an accurate depiction of the amount of family housing available for military 

personnel and their dependents. Air Force officials also used data provided in 

another document completed in June 2005 called the housing community profile, 

which provided an assessment of housing conditions and improvements required to 

meet Air Force standards, to support the Air Force’s proposed housing plan and 

alternatives. 

Air Force officials recognized that, in some instances, the 2003-2008 analysis reflected 

dated information, and the Air Force used additional sources of information to 

develop its housing requirement. Although Air Force officials said they used the most 

current information available when they prepared the 2003 housing requirements and 

market analysis, in some cases they used information that was almost 20 years old. 

Specifically, in its assessment of the ability of the private sector to potentially house 

military families, the 2003 analysis used data collected by the German national census 

of 1987 as a reference for the amount of suitable rental housing in the community 

around Spangdahlem. The Air Force also relied on more current housing data, on-site 

surveys, and interviews with local experts in the real estate market and base 

personnel. While we reviewed these added sources, we did not make an assessment 

of their suitability in determining the housing requirement. 

Updated Analysis Could Change Overall 

Military Family Housing Requirement

The Air Force plans to complete another housing requirements and market analysis 

for Spangdahlem in July 2006 using more current data, which could change—increase 

or decrease—the overall military family housing requirement.14 Our prior work, and 

that of the DOD inspector general, has emphasized the importance of determining the 

availability of off-base housing for military families in communities surrounding 

military installations to prevent overstated government housing requirements.15 The 

Air Force may have overestimated the number of new housing units needed in its 

plan because it did not take into account areas near Spangdahlem that may be able to 

support build-to-lease opportunities. In a letter to the German government dated 

March 2006, an Air Force official said the results of the new housing requirements 

and market analysis this summer would incorporate factors such as a new highway 

that has created access to more villages and subsequently more rentals and potential 

 

14 Housing requirements and market analyses are routinely updated every 4 years to determine whether 

housing requirements in an area have changed. The upcoming analysis at Spangdahlem will cover the 

2008-2013 time frame.

15 GAO, Military Housing: Management Improvements Needed As the Pace of Privatization 

Quickens, GAO-02-624 (Washington, D.C.: June 21, 2002). 
Page 10 GAO-06-736R Military Housing

construction locations for build-to-lease units. Air Force officials acknowledge that 

this updated analysis may reduce the overall family housing requirements at 

Spangdahlem by taking into account these newly accessible areas that may provide 

additional rental units and be able to support build-to-lease housing. Air Force 

officials said, however, that they did not expect this information to significantly 

change their housing requirements. Until the Air Force reevaluates its housing 

requirements based upon more current information in its new housing requirements 

and market analysis, it may not fully know the amount or mix of housing needed at 

Spangdahlem. 

Some Limitations in Build-to-Lease Housing 

May Have Been Overcome and Additional 

Opportunities May Now Exist 

Information the Air Force received after publishing its report suggests that some 

previous limitations in build-to-lease housing near Spangdahlem may have been 

overcome and, consequently, additional build-to-lease opportunities may exist. The 

Air Force considered build-to-lease housing as a significant source of off-base 

housing under its proposed plan and under two alternatives, but at the time the Air 

Force wrote its report, Air Force officials stated that they did not recommend 

pursuing larger numbers of build-to-lease housing units because of local conditions 

that limited support for such projects. The Air Force has received information since 

publishing its report suggesting that these limitations may no longer exist, that 

additional build-to-lease opportunities may exist, and that military construction 

needed under the Air Force proposed plan may be less than stated. To test its 

original assumptions about local interest in build-to-lease developments near 

Spangdahlem, the Air Force plans to provide a requirements document for 364 buildto-lease units to the German government by June 2006 and expects a final agreement 

to be complete in February 2007. 

Air Force Information Indicated

Limitations on Numbers of Build-to-Lease

At the time of the Air Force’s 2006 report, Air Force officials said that information 

indicated there were limitations to pursuing greater numbers of build-to-lease units 

than those proposed in the Air Force plan. Air Force officials cited meetings with 

representatives of the State of Rheinland-Pfalz and local communities where these 

representatives expressed various concerns. Air Force officials considered the 

primary challenge for a build-to-lease proposal at Spangdahlem to be the ability of 

local developers to acquire loans from banks to pay for construction of the housing 

units, because the projects were considered too financially risky to undertake. 

According to Air Force officials, the military services, by statute,16 are limited to 

leasing family housing units for a maximum of 10 years, which may not provide 

 

16 Section 2828 (d) (1) of Title 10, United States Code provides that “Leases of housing units in foreign 

countries under subsection (c) for assignment as family housing may be for any period not in excess of 

10 years, or 15 years in the case of leases in Korea, and the costs of such leases for any year may be 

paid out of annual appropriations for that year.” 
Page 11 GAO-06-736R Military Housing

sufficient time for developers to recoup their investment. Further, the State of 

Rheinland-Pfalz was reluctant to guarantee lease payments beyond 10 years because 

of concerns that the Air Force might close Spangdahlem at some time in the near 

future. Air Force officials stated that, at the Army’s Grafenwoehr Garrison in 

Germany, the Army addressed this limitation by obtaining local German government 

commitment to guarantee an additional 10-year lease period, thus providing a 20-year 

leasing agreement for the developers of build-to-lease housing projects. At 

Spangdahlem, the State of Rheinland-Pfalz has been reluctant to provide the same 

type of commitment for build-to-lease housing because Rheinland-Pfalz officials 

believe there is not a secondary market of German citizens in the area who could 

lease the large number of build-to-lease units that could be available at the end of the 

10-year lease period. 

Discussions in December 2005 between Air Force officials and representatives of the 

State of Rheinland-Pfalz and local communities also yielded concerns regarding a 

lack of public infrastructure to create more than 270 private units in a short period of 

time. In addition, local officials expressed concerns that large, U.S.-style 

developments were not in keeping with the culture of the region. In its report to 

Congress, the Air Force acknowledged the difficultly of this situation and stated that 

it does not want to pursue a large amount of build-to-lease units, because the result 

could be little or no family housing if the limitations they identified cause build-tolease plans to fail due to low investor confidence in the long-term future of the air 

base coupled with a questionable secondary market if the base was closed or its 

mission significantly reduced. This could force military families to live in inadequate 

existing housing and consequently require additional military construction funds at a 

later date. 

Some Build-to-Lease Limitations May 

No Longer Exist and Some Military 

Construction Funds May Not Be Necessary

Some limitations to build-to-lease developments may no longer exist or may have 

been mitigated by recent events. Air Force officials have stated that the release of 

fiscal year 2006 military construction funds for family housing units at Spangdahlem 

provided assurance to the German private market that the U.S. government was 

committed to maintaining a presence in the area and that the State of Rheinland-Pfalz 

is now more likely to provide lease guarantees. As a result, the Air Force has 

accelerated its efforts to pursue cooperative ventures with the State of RheinlandPfalz and local villages for a build-to-lease program. 

Recent correspondence between the Air Force and the German government suggests 

that additional build-to-lease opportunities may exist and that some military 

construction funds requested under the Air Force proposed plan may not be 

necessary. From January through March 2006, the Air Force and the German 

government discussed progress toward attaining additional built-to-lease units in the 

Spangdahlem area. A January 2006 letter to the Air Force from an official of the State 

of Rheinland-Phalz discussed overcoming their concern that U.S.-style developments 

were not in keeping with the culture of the region by designating small residential 
Page 12 GAO-06-736R Military Housing

zones for appropriately 50-60 units near the air base that can be planned, developed, 

and offered as the U.S. need increases. The letter also discussed overcoming the 

concerns of local developers that the projects were too financially risky by providing 

financial grants to assist developers by reducing their total cost liability. Another 

letter from the Air Force to the State of Rheinland-Phalz predicted that the results of 

a new housing requirement and market analysis will recognize access to more 

villages, rental units, and potential housing construction locations. This should 

reduce the overall military family housing requirement, which may reduce local 

concerns about the size and obtrusiveness of off-base build-to-lease efforts. 

The Air Force plans to test the local market interest in build-to-lease developments 

through the German government starting with the Air Force’s requirements document 

for 364 build-to-lease units in June 2006 and expects a final build-to-lease agreement 

to be complete in February 2007—an action that could provide a more complete 

picture of the potential use of build-to-lease units. Air Force officials said that if this 

effort is successful, the fiscal year 2008 military construction requirement for 94 

family housing units may no longer be required. However, the Air Force is not in a 

sound position to fully know the amount or mix of housing needed until it has 

received the results of the build-to-lease proposal and other new information. The 

Air Force proposes to report any adjustments in its upcoming status report to the 

Appropriations Committees. Until the Air Force tests its original assumptions about 

local interest in build-to-lease developments and completes all assessments of 

available housing off base, Congress will not be in a sound position to know whether 

the Air Force’s planned allocation of new family housing units in Spangdahlem 

between build-to-lease and military construction units is fully justified. 

Air Force Did Not Always Follow Guidance in 

Its Life-cycle Cost Analysis of Housing Options 

The economic analysis the Air Force used in estimating the life-cycle costs of its 

proposed plan and four alternatives presented in its Spangdahlem housing report did 

not follow applicable guidance from OMB, DOD, and Air Force in two instances. The 

Air Force varied from the guidance in (1) using a discount rate of 3.5 percent to 

calculate the present value of expected costs, and (2) calculating the remaining worth 

of the housing units funded with military construction appropriations at an estimated 

replacement value. On the basis of the applicable guidance, we adjusted the Air 

Force’s calculations by (1) using a discount rate of 5.2 percent to calculate the 

present value of expected costs, and (2) depreciating the housing units constructed 

with military construction appropriations to calculate the remaining worth of the 

housing at the end of the period of analysis. (We describe the details of the Air 

Force’s and our calculations in enclosure I of this report.) 
Page 13 GAO-06-736R Military Housing

However, as shown in table 2, our recalculations did not result in a significant 

variance from the Air Force’s analysis.17 Like the Air Force’s life-cycle cost estimate 

($228.4 million), our adjusted life-cycle cost ($225.6 million) of the Air Force’s 

proposed plan falls between the life-cycle costs of other four housing alternatives and 

the difference between the life-cycle cost estimates for the proposed plan was only 

-1.3 percent. As a result, there is little, based on our recalculations of the life-cycle 

costs for the current housing options, to support a change in the Air Force’s selected 

proposal, especially given the risk assessment criteria the Air Force assigned to 

compare the housing options. Nevertheless, the Air Force should use the correct 

discount rate and remaining worth of the housing in its analysis of the housing 

options presented in its upcoming status report to the Appropriations Committees. 

Table 2: Comparison of Air Force Reported Life-cycle Costs with GAO Adjusted Life-cycle Costs for the 

Proposed Plan and Four Alternatives 

Air Force lifecycle costs Adjusted lifecycle costs Difference Percentage 

difference 

Proposed plan $228,437 $225,557 -$2,880 -01.3% 

Alternative 1 253,560 237,614 -15,946 -06.3% 

Alternative 2 287,034 245,113 -41,921 -14.6% 

Alternative 3 154,276 150,910 -3,366 -2.2% 

Alternative 4 135,688 163,646 +27,958 +20.6% 

Source: Air Force and GAO. 

Notes: Fiscal year 2005 dollars in thousands. 

The life-cycle costs to retain 134 housing units at Spangdahlem and to continue to lease 200 units in 

the local community are common to all five options and, consequently, are not included. 

Air Force officials stated that the Air Force would not change its conclusions and 

recommendation supporting the proposed housing plan based on our recalculations, 

because the Air Force also relied on its established criteria to measure the benefits 

and risk of each housing option. The benefits criteria considered whether each 

option supported construction of government-owned housing; provided flexible 

funding and execution; consolidated operations at Spangdahlem and returned land 

and facilities to the German government; leveraged cost sharing with the German 

government; or capitalized on build-to-lease housing. The risk criteria considered 

whether each option kept military construction investment below, over, or at the 

current program level;18 included 270 or more units in a build-to-lease program; or 

 

17 More complete data on the potential for build-to-lease housing and the number of available rental 

units in the local communities near Spangdahlem, which will affect life-cycle costs, will not be 

available until the Air Force analyzes the results of its solicitation for proposals about build-to-lease 

housing and updates its housing requirements and market analysis later in 2006. 

18 The Air Force assigned a higher level of risk to options in which the U.S.-funded military 

construction exceeded the current program because an increase in up-front funding requirements was 

expected to be less acceptable to DOD and Congress than the current level. 
Page 14 GAO-06-736R Military Housing

provided no U.S. military construction investment resulting in a lack of private 

developer confidence in investing in build-to-lease housing for Spangdahlem. For 

example, as shown in table 3, the Air Force concluded that its proposed plan 

represented the best-case scenario in that the plan provides for a large number of 

benefits while the risks were low. On the other hand, according to the Air Force, 

alternative 4 provides for the worst-case scenario in that, while the alternative 

supports the goal of consolidating operations at Spangdahlem, the risk is considered 

high due to the overreliance on U.S. government funding for all housing construction. 

In addition, this alternative requires the German government to acquire land adjacent 

to Spangdahlem, which increases risks due to the potential difficulties and delays in 

acquiring the land from private owners.19 Based on the results of the benefits and risk 

analysis, Air Force officials believe our recalculations by themselves would not have 

caused the Air Force to change the overall conclusions and recommendation in its 

report to Congress. We have no basis to challenge the Air Force’s position regarding 

its risk assessment. 

Table 3: Air Force Reported Benefit and Risk for the Proposed Plan and Four Alternatives 

Benefit Risk 

Proposed plan High Low 

Alternative 1 High Moderate 

Alternative 2 High High 

Alternative 3 Low High 

Alternative 4 Moderate High 

Source: Air Force. 

Conclusions 

The Air Force 2006 report to the Appropriations Committees provided an assessment 

of housing options that was not always based on current information, and did not 

follow the government guidance on cost-benefit analysis methodology. Although we 

found no basis to question whether the Air Force needs to upgrade its housing at 

Spangdahlem, there is uncertainty over how many housing units are needed and 

which housing method—traditional military construction, build to lease, or other 

methods—is the most appropriate means to meet its housing requirements. 

Consequently, we believe, as the Air Force concluded in its 2006 report, that there 

may be a need to adjust the scope of the military construction projects proposed for 

the future. While the Air Force specified that the results of its efforts to explore 

cooperative ventures and develop a larger build-to-lease program are needed to make 

these adjustments in its upcoming status report to the Appropriations Committees, it 

did not identify other factors, such as its new Spangdahlem housing requirements and 

market analysis, it planned to consider in making these adjustments. Until the Air 

 

19 According to the Air Force, the acquisition of additional land will occur at no cost to the U.S. 

government and ownership will ultimately remain with the German government. 
Page 15 GAO-06-736R Military Housing

Force fully explores cooperative ventures and a larger build-to-lease program, as well 

as the results of its new housing requirements and market analysis—all of which the 

Air Force expects to be completed later in 2006 or early 2007—the Air Force and 

Congress will not be in a sound position to know the full potential for build-to-lease 

housing near Spangdahlem and the need for military construction in fiscal years 2007 

and 2008. Until then, there is a possibility of overestimating or underestimating the 

number of housing units needed to be built on base with military construction 

appropriations. 

While Air Force did not fully follow OMB, DOD, and Air Force guidance on 

performing life-cycle cost analysis, our recalculations based on the guidance did not 

result in a significant variance from the Air Force’s analysis, in that the estimated lifecycle costs of both analyses fell between the other alternatives. As a result, there is 

little based on our recalculations of the existing life-cycle costs using current 

information to support a change in the Air Force’s selected proposal in its 2006 report 

or the Air Force’s reliance on its established criteria to measure the benefits and risk 

of each housing option. Nevertheless, since there may be a need to adjust the scope 

of the military construction projects proposed for fiscal years 2007 and 2008 and the 

other housing methods presented in its upcoming status report, the Air Force cannot 

accurately calculate and objectively assess the costs and benefits of different housing 

options unless it follows OMB guidance on the use of discount rates and with DOD 

and Air Force guidance on the use of depreciation to calculate the remaining worth of 

housing. 

Recommendations for Executive Action 

We recommend that the Secretary of the Air Force take the following two actions and 

reflect the results of these actions in its upcoming status report to the Appropriations 

Committees. 

• Because of the uncertainty associated with which factors the Air Force plans 

to consider when it adjusts the scope of the military construction projects 

proposed for fiscal years 2007-2008, the Secretary should include, at a 

minimum, the results of its new housing requirements and market analysis for 

Spangdahlem (scheduled to be completed in July 2006) in making the required 

adjustments. 

• To ensure that the status report is based upon sound economic assumptions 

and methods, the Secretary should calculate life-cycle costs in accordance 

with OMB guidance on the use of discount rates and in accordance with DOD 

and Air Force guidance on the use of depreciation to calculate the remaining 

worth of housing. 

Agency Comments and Our Evaluation 

In written comments on a draft of this report, the Assistant Deputy Under Secretary 

of Defense (Environmental, Safety, and Occupational Health) agreed with our 
Page 16 GAO-06-736R Military Housing

recommendations. However, the Assistant Deputy Under Secretary commented that 

DOD expects the implementation of our recommendations would have minimal effect 

on the outcome of the Air Force’s analysis and would not significantly change the 

recommended course of action. We are reluctant to agree with this expectation since 

many of the key data needed to base such a conclusion will not be known until later 

this year. For example, the results of the new Spangdahlem housing requirements 

and market analysis due to be completed this summer would incorporate factors 

such as a new highway that has created access to more villages and subsequently 

more rentals and potential construction locations for build-to-lease units. This 

updated analysis has the potential to reduce the overall family housing requirements 

at Spangdahlem by taking into account these newly accessible areas that may provide 

additional rental units and be able to support build-to-lease housing. We believe that 

until the Air Force has sufficient time to assess the results of its efforts to further 

explore cooperative ventures and develop a larger build-to-lease program, as well as 

the results of its new housing requirements and market analysis, DOD will not be in a 

sound position to know the full potential for build-to-lease housing and more rental 

housing near Spangdahlem, and the need for military construction funding in fiscal 

years 2007 and 2008. As a result, we continue to believe, as the Air Force concluded 

in its 2006 report, that there may be a need to adjust the scope of the proposed 

military construction projects because of the uncertainty over how many housing 

units are needed and which housing method—traditional military construction, build 

to lease, or other methods—is the most appropriate means to meet its housing 

requirements. 

In addition, the Assistant Deputy Under Secretary’s comments outlined what DOD 

believed were three deficiencies of our draft report. However, in its comments DOD 

misquoted our draft report and made incorrect conclusions as discussed below: 

First, DOD stated that our report “supports the Air Force’s selected proposal, 

especially given the risk assessment criteria the Air Force assigned to compare the 

housing options.” In addition, DOD concluded that this quote should have been the 

primary focus of our audit and reflected in the results and conclusions sections of our 

report. However, we actually reported that “As a result, there is little, based on our 

recalculations of the life-cycle costs for the current housing options, to support a 

change in the Air Force’s selected proposal, especially given the risk assessment 

criteria the Air Force assigned to compare the housing options.” By misquoting our 

report, DOD failed to recognize that our statement referred to our recalculations of 

the life-cycle costs using then currently available information for the housing options 

identified in the Air Force’s January 2006 report. As discussed above, there may be a 

need for the Air Force to adjust the housing options in its upcoming status report 

based on the results of its efforts to further explore cooperative ventures and develop 

a larger build-to-lease program, as well as the results of its new Spangdahlem housing 

requirements and market analysis. While we appreciate DOD’s view that our 

recalculations of the life-cycle costs should be the primary focus of our report, we 

believe that DOD should recognize that we completed this review in response to a 

request from the Chair of the Senate Subcommittee on Military Construction and 

Veterans’ Affairs, and Related Agencies, who asked that we review all the key 

assumptions and methodologies the Air Force used to develop its January 2006 
Page 17 GAO-06-736R Military Housing

report, and that the life-cycle costs analysis was only one aspect of our review, not 

the primary focus. Accordingly, we have made no change to our report. 

Second, DOD commented that our draft report stated the 2003 housing requirements 

and market analysis did not take into consideration the inadequate condition of some 

existing housing units and that we reported the Air Force substituted other sources of 

information for its 2003 housing requirements and market analysis. Actually, our 

draft report stated that “Although the 2003 analysis concluded that no additional 

family housing construction was needed, according to Air Force officials, the analysis 

did not take into consideration the inadequate condition of some existing housing 

units and was based on outdated information, such as demographic data almost 2 

decades old. Therefore, officials say, they substituted other sources of information to 

develop the housing requirements used in their 2006 report.” By using the term 

“substituted” in this case and other instances in our draft report, we were attempting 

to reconcile the differences between the Air Force 2003 market analysis’ conclusion 

that no additional family housing construction was needed and its 2006 report’s 

conclusion that additional housing construction was needed at Spangdahlem. We 

were also trying to explain that the Air Force used other sources of information along 

with the 2003 market analysis to determine the housing requirements identified in its 

2006 report. Because we continue to believe that it is important to reconcile the 

differences between the conclusions of the 2003 market analysis and 2006 report, we 

did not change our report in this respect. However, we revised our report to 

eliminate the use of “substituted” as DOD suggested. Further, our draft report did not 

state that the 2005 housing community profile was done to complete the Air Force’s 

January 2006 report as DOD stated in its written comments. Accordingly, we made 

no change to our report in that regard. 

Third, DOD expressed concern that our draft report stated that the Air Force had 

“limited discussions with state and local German officials” and DOD noted instead 

that there had been numerous discussions. DOD also noted that the Air Force cannot 

issue a request for proposals to test the level of interest by local developers in buildto-lease projects and that German government will conduct the acquisition process in 

this instance for the Air Force. With respect to DOD’s first concern, we actually 

reported that “Air Force officials assumed, based upon limited discussions with state 

and local German officials, that local developers considered the projects too 

financially risky to undertake, without officially testing the market [through] a 

request for proposals.” Our use of “limited” in this instance was based primarily on 

both: (1) the Air Force 2006 report’s description of only one meeting with state 

government of Rheinland-Pfalz representatives where Air Force and German officials 

discussed options involving the German government cooperation including costsharing, road repair, and loan guarantees; and (2) that the Air Force had not yet 

tested the local market by having the German government issue a request for 

proposals. We continue to believe our use of limited in this instance is proper. In 

addition, the statement in our report that the Air Force planned to issue a request for 

proposal was based on the documentation Air Force officials provided to us, which 

states that the “USAFE [U.S. Air Force Europe] plans to test the market through a 

Request for Proposal (RFP) for 364 units.” This documentation did not state, nor did 

Air Force officials mention, that the German government would actually issue the 
Page 18 GAO-06-736R Military Housing

request for proposals. Nevertheless, as DOD suggested, we revised this report to 

reflect that the German government would conduct the acquisition process in this 

instance for the Air Force. 

The Assistant Deputy Under Secretary’s comments are reprinted in their entirety in 

enclosure II. DOD also provided technical clarifications, which we incorporated as 

appropriate. 

_ _ _ _ _ 

We are sending copies of this report to other interested congressional committees; 

the Secretaries of Defense and the Air Force; and the Director, OMB. We will also 

make copies available to others upon request. In addition, the report will be available 

at no charge on GAO’s Web site at http://www.gao.gov. The GAO staff members who 

made key contributions to this report are listed in enclosure III. 

If you or your staff have any questions about this report, please call me at (202) 512-

5581 or email at holmanb@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. 

Sincerely yours, 

Barry W. Holman, Director 

Defense Capabilities and Management 
Enclosure I Enclosure I 

Page 19 GAO-06-736R Military Housing

Description of Both Air Force’s 

and Our Calculations of Life-cycle Costs 

The economic analysis the Air Force used in estimating the life-cycle costs presented 

in its Spangdahlem housing report varied from applicable Office of Management and 

Budget (OMB), Department of Defense (DOD), and Air Force guidance in (1) using a 

discount rate of 3.5 percent to calculate the present value of expected costs, and (2) 

calculating the remaining worth of the housing units funded with military 

construction appropriations at an estimated replacement value at the end of the 

period of analysis—in this case 20 years. Using Air Force data, we recomputed the 

life-cycle costs based on the applicable guidance by (1) using the correct discount 

rate of 5.2 percent, and (2) depreciating the housing units constructed with military 

construction appropriations to calculate the remaining worth of the housing. 

Air Force’s Economic Analysis and Key Assumptions

The Air Force used a variety of data sources and analytical steps to estimate the lifecycle costs of its proposed plan and the four other housing alternatives for 

Spangdahlem. 

• First, the construction costs of the family housing units were derived from the 

cost estimates contained on DD form 1391 for projects where they existed,1

and from DOD’s family housing cost model, which contains estimates of 

construction costs. To compute the present value of these construction costs 

in fiscal year 2005 dollars, the Air Force used a 3.5 percent nominal discount 

rate. Air Force officials said the 3.5 percent discount rate was selected 

automatically from a Web-based program model that is available for public use 

in making net present value calculations. 

• Second, to follow DOD guidance on economic analysis,2

 the Air Force offset 

the costs of the military construction projects by their remaining worth, which 

the guidance and the Air Force’s report call residual value, of the family 

housing units at the end of the period of analysis. The guidance specifically 

states that residual value should be calculated for alternatives that have assets 

(buildings, equipment, structures, etc.) that will still have a useful value at the 

end of the period of analysis. It is important to note here that the term 

“residual value” used in the Air Force’s analysis should not be confused with 

the residual value terminology also commonly used overseas to describe an 

amount a host nation would pay the United States for improvements made to 

property when it is returned to the host nation. In no instances do Air Force 

officials believe the United States would receive the amount of residual value 

 

1

 DD form 1391 is used by DOD to submit requirements and justifications in support of funding 

requests for military construction to Congress. 

2

DOD Instruction 7041.3, Economic Analysis for Decision Making (Washington, D.C.: Nov. 7, 1995).
Enclosure I Enclosure I

Page 20 GAO-06-736R Military Housing

 

used in its economic cost analysis if the housing were to be returned to 

Germany sometime in the future. Although Air Force guidance further states 

that residual value amounts are normally calculated using a straight line 

depreciation method3

 of the started value over the project’s economic life,4 the 

Air Force did not depreciate the value of housing in its economic cost analysis. 

Instead, Air Force officials assumed that the Air Force would fully fund the 

sustainment of the housing necessary to cover expenses of all recurring 

maintenance costs as well as major repairs (e.g., replacing the roof or 

repairing the air conditioning) and, consequently, they concluded these units 

would not depreciate in value. However, it is important to note that 

historically the Air Force has not fully funded sustainment of its facilities. For 

example, we have reported that hundreds of millions of dollars designated for 

sustainment continues to be redesignated by the services to pay for base 

operations support services and other programs and priorities, and that 

amounts spent on facilities sustainment have fallen short of what is needed to 

halt the deterioration of facilities.5

 

• Third, on the basis of historical data on actual operation and maintenance 

costs for family housing, the Air Force estimated that it would incur $4,900 in 

annual operation and maintenance costs. To compute the present value of 

these construction costs in fiscal year 2005 dollars, the Air Force used the 

Web-based program model to inflate the $4,900 estimate 2.5 percent per year 

and adjusted for the time value of money by 3.5 percent. 

• Fourth, using historical cost data for build-to-lease agreements, the Air Force 

estimated that the annual cost of the build-to-lease housing was $32,888 per 

unit. To compute the present value of these costs in fiscal year 2005 dollars, 

the Air Force used the Web-based program model to inflate the $32,888 

estimate 2.5 percent per year and adjusted this figure for the time value of 

money by 3.5 percent. 

As shown in table 4, the estimated life-cycle cost ($228.4 million) of the Air Force’s 

proposed plan falls between the life-cycle costs of other four housing alternatives, 

which range from $135.7 million to $287 million. 

3

 Straight line depreciation is a method of calculating the depreciation of an asset which assumes the 

asset will lose an equal amount of value each year. The annual depreciation is calculated by 

subtracting the salvage value of the asset from the purchase price, and then dividing this number by 

the estimated useful life of the asset. 

4

Air Force Manual 32-1089, Air Force Military Construction and Family Housing Economic 

Analysis Guide (Washington, D.C.: Aug. 1, 1996).

5

 GAO, Defense Infrastructure: Issues Need to Be Addressed in Managing and Funding Base 

Operations and Facilities Support, GAO-05-556 (Washington, D.C.: June 15, 2005), and Defense 

Infrastructure: Changes in Funding Priorities and Strategic Planning Needed to Improve the 

Condition of Military Facilities, GAO-03-274 (Washington, D.C.: Feb. 19, 2003). 
Enclosure I Enclosure I 

Page 21 GAO-06-736R Military Housing

Table 4: Air Force Life-cycle Costs for Its Proposed Plan and Four Alternatives 

Fiscal year 2005 dollars in thousands 

Proposed plan Alternative 1 Alternative 2 Alternative 3 Alternative 4 

Military construction: 

 New family housing 

 at Spangdahlem $126,205a$80,769 $96,097 $210,146 

 Demolition at 

 Spangdahlem $2,755 

 Replace Bitburg 

 Annex housingb 128,140 

Subtotal (total military 

construction) 

$126,205 $80,769 $2,755 $224,237 $210,146 

Less residual value (69,982) (44,634) (112,316) (116,813) 

Subtotal (military 

 construction less 

 residual value) $56,223 $36,135 $2,755 $111,921 $93,333 

Operation and 

 maintenance 19,620 11,704 42,355 42,355 

Build to lease 152,595 205,721 284,279 

Total life-cycle costs $228,437 $253,560 $287,034 $154,276 $135,688 

Source: Air Force. 

Notes: Totals may not add due to rounding. 

The life-cycle costs to retain 134 housing units at Spangdahlem and to continue to rent 200 units in the 

local community are common to all five options and, consequently, are not included in this table. 

a

$131.3 million in original military construction costs for fiscal years 2006-2008 presented in fiscal year 

2005 dollars. 

b

This alternative also includes the costs to construct front gate improvements, a fire station, and 

demolition of 715 existing, inadequate housing units located at Bitburg. 

Although military construction and build-to-lease programs are typically analyzed on 

a 40-year basis, the Air Force used a 20-year time frame to generate the life-cycle 

costs of each of the housing options shown in table 4. According to Air Force 

guidance, the time frame for the economic cost-analysis period used to compare 

various alternatives is normally the construction period plus the shortest of the 

known economic life of the different alternatives.6

 In this instance, according to Air 

Force officials, the initial lease period for housing units is not to exceed 10 years with 

a 10-year renewal option.7

 Air Force officials also said to go beyond 20 years in its 

analysis would create several challenges because of the lack of information on the 

costs of build-to-lease units since the lease would have to be renegotiated and 

housing built with military construction appropriations would have to be renovated, 

 

6

 Air Force Manual 32-1089. 

7

 10 U.S.C. 2828 § (d) (1). 
Enclosure I Enclosure I

Page 22 GAO-06-736R Military Housing

which would require adjustments in its cost estimates for the different housing 

options. Consequently, the Air Force chose to use a 20-year time frame in its 

economic costs analysis, as we did when we adjusted the Air Force’s life-cycle costs 

analysis. 

Our Adjusted Life-cycle Cost Analysis

We recalculated the life-cycle costs of the Air Force’s proposed plan and the four 

alternatives after making two adjustments to better follow OMB, DOD, and Air Force 

guidance. (See our adjusted life-cycle costs in table 5.) First, we used a 5.2 percent 

discount rate to calculate the present value of the expected military construction 

costs, annual operation and maintenance costs, and annual build-to-lease housing 

costs. OMB guidance on economic cost analysis, such as those performed by the Air 

Force, provides specific guidance on the discount rates to be used in evaluating 

federal programs whose benefits and costs are distributed over time.8

 DOD’s 

instruction on economic analysis decision making states that the estimate of the 

discount rate for use in economic analysis shall be issued annually in accordance 

with OMB guidance and the data shall be based on estimates of real and nominal 

borrowing rates provided by OMB.9

 Air Force guidance on military construction and 

family housing economic analysis also requires an economic analysis to use discount 

rates provided by OMB.10 For fiscal year 2005—the base year of the Air Force study—

OMB guidance requires that 5.2 percent be used for a 20-year period by federal 

agencies as the nominal discount rate for their economic cost analyses.11 Second, to 

follow Air Force guidance, we depreciated the housing units constructed with 

military construction appropriations using a straight line method to calculate the 

residual value of the housing at the end of the period of analysis. Air Force guidance 

states that residual value is normally calculated using a straight line depreciation 

method. 

 

8

 OMB Circular A-94, Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs, 

(Washington, D.C.: Oct. 29, 1992). The circular states that the standard criterion for deciding whether 

a government program can be justified on economic principles is the net present value, which is 

calculated by assigning monetary values to benefits and costs, discounting future benefits and costs 

using an appropriate discount rate, and subtracting the sum total of discounted costs from the sum 

total of discounted benefits. 

9

 DOD Instruction 7041.3. 

10 Air Force Manual 32-1089. 

11 OMB Circular No. A-94, App. C, Discount Rates for Cost-Effectiveness, Lease Purchase, and Related 

Analyses (Washington, D.C.: Jan. 5, 2006). The 5.2 percent rate is available in a table of past years 

discount rates from Appendix C of Circular No. A-94. 
Enclosure I Enclosure I 

Page 23 GAO-06-736R Military Housing

Table 5: Adjusted Life-cycle Costs for the Air Force’s Proposed Plan and Four Alternatives 

Fiscal year 2005 dollars in thousands 

Proposed plan Alternative 1 Alternative 2 Alternative 3 Alternative 4 

Military construction: 

 New family housing 

 at Spangdahlem $118,620a$77,124 $91,123 $195,280 

 Demolition at 

 Spangdahlem $2,662 

 Replace Bitburg 

 Annex housingb 89,554 

Subtotal (total military 

construction) $118,620 $77,124 $2,662 $180,677 $195,280 

Less residual value (39,979) (24,943) (65,890) (67,757) 

Subtotal (military 

 construction less 

 residual value) $78,641 $52,181 $2,662 $114,787 $127,523 

Operations and 

 maintenance 16,773 9,982 36,123 36,123 

Build to lease 130,143 175,451 242,451 

Total life-cycle costs $225,557 $237,614 $245,113 $150,910 $163,646 

Source: Based on Air Force data. 

Notes: The life-cycle costs to retain 134 housing units at Spangdahlem and to continue to rent 200 units in the 

local community are common to all five options and, consequently, are not included in this table. 

a

$131.3 million in original military construction costs for fiscal years 2006-2008 presented in fiscal year 

2005 dollars. 

b

This alternative also includes the costs to construct front gate improvements, a fire station, and 

demolition of 715 existing, inadequate housing units located at Bitburg. 
Enclosure II Enclosure II

Page 24 GAO-06-736R Military Housing

Comments from the Department of Defense 
Enclosure II Enclosure II 

Page 25 GAO-06-736R Military Housing
Enclosure II Enclosure II

Page 26 GAO-06-736R Military Housing
Enclosure III Enclosure III 

Page 27 GAO-06-736R Military Housing

GAO Contact and Staff Acknowledgements 

GAO Contact 

Barry W. Holman, (202) 512-5581 (holmanb@gao.gov) 

Acknowledgements 

In addition to the person named above, Nelsie Alcoser, Susan Ditto, Mark Little, 

Charles Perdue, Gary Phillips, and Roger Tomlinson also made major contributions to 

this report. 

(350835) 
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
GAO’s Mission The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To

have GAO e-mail you a list of newly posted products every afternoon, go 

to www.gao.gov and select “Subscribe to Updates.” 

The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

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

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Mail or Phone 

To Report Fraud,

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

PRINTED ON RECYCLED PAPER