Report to Congressional Requesters

United States General Accounting Office

GAO

April 2001 DOD PERSONNEL

Improvements Made

to Housing Allowance

Rate-Setting Process

GAO-01-508
Page i GAO-01-508 Military Personnel

Letter 1

Appendix I Comments From the Department of Defense 16

Appendix II Housing Standards and Basic Allowance for Housing

Rates 18

Tables

Table 1: Allowance Program Housing Standards for Members with

Dependents 19

Table 2: Allowance Program Housing Standards for Members

Without Dependents 20

Contents
Page 1 GAO-01-508 Military Personnel

April 16, 2001

The Honorable John M. McHugh

Chairman

The Honorable Martin T. Meehan

Ranking Minority Member

Subcommittee on Military Personnel

Committee on Armed Services

House of Representatives

The Honorable Mike Thompson

House of Representatives

About two-thirds of the married and one-third of the single

servicemembers in the United States live in private housing in the

communities surrounding military installations. These members are given

a cash housing allowance, called the basic allowance for housing, to help

defray the cost of renting or buying housing. In fiscal year 2000, housing

allowances totaled about $6.0 billion and covered about 81 percent of the

typical member’s housing and utility costs, with the member paying the

remaining costs out-of-pocket. The National Defense Authorization Act for

Fiscal Year 19981

 required the Department of Defense (DOD) to make

changes in the allowance program intended to better match the allowance

rates with the actual costs of local housing in various geographic areas of

the country. DOD began these changes in January 1998 and planned to

implement them over a 6-year period ending in 2003. DOD officials knew

that the changes would cause some rates to rise and others to decline.

However, in January 2000, rate decreases outnumbered the increases and

were substantial in some cases. Compared to 1999 levels, rates declined by

over $200 a month for some servicemembers, and DOD decreased rates in

some areas in which housing costs were rapidly increasing.

In response to your concerns about DOD’s housing allowance rate-setting

process and the downward change in many January 2000 rates, we

determined (1) the reasons for the rate decreases, (2) DOD’s response to

the concerns about the decreases, and (3) actions that might be taken to

improve the rate-setting process.

 1

See Pub. L. 105-85, sec. 603, codified at 37 U.S.C. 403.

United States General Accounting Office

Washington, DC 20548
Page 2 GAO-01-508 Military Personnel

In January 2000, many housing allowance rates declined simply because

DOD changed the way it determines housing allowances. Previously, DOD

based allowances primarily on servicemembers’ expenditures for housing

in each geographic area. Under the new program, DOD bases allowances

on the local costs for the “housing standard” that DOD sets for each

servicemember’s rank (e.g. the “housing standard” for a private with

dependents is a two-bedroom apartment). This change increased

allowances in areas where members had been spending less for housing

than the local cost of the housing under DOD’s standards. Conversely, the

change decreased allowances in areas where members had been spending

more for housing than the local costs of the housing under DOD’s

standards. DOD had planned a phased transition of the new program to

moderate rate and budgetary impacts. However, to benefit members living

in high-cost areas, the Congress authorized additional funding to allow

DOD to accelerate implementation of market-based housing allowance

rates.2

 In other geographic areas, the accelerated implementation also

resulted in more widespread and dramatic rate decreases.

DOD responded quickly to concerns about the rates and began a review of

its rate-setting process in January 2000. DOD determined that although the

local housing cost data used to establish the rates was accurate, the ratesetting process included shortcomings which could, and did in at least one

geographic area, result in rates being set too low. For example, in the

Tacoma, Washington area, DOD concluded that the 2000 housing

allowance rates were set too low because some inappropriate rental

housing units were included in the samples used to determine local

housing costs. In view of its findings, DOD decided in March 2000 to revert

to the higher 1999 rates in all areas where rates had decreased. DOD also

implemented several changes, including increasing the participation of

local installation officials to improve the process used to determine rates

for 2001. DOD and service headquarters officials believe that the changes

have been successfully implemented and that the January 2001 rates are

fair and accurate in all areas of the country.

Further improvements to the rate setting process are possible. First,

concerns remain regarding the housing standards DOD uses to determine

allowance rates, including whether the standards associated with the

military ranks are appropriate and whether the standards should be the

same for members living in privately owned and government-owned

 2

See the National Defense Authorization Act for Fiscal Year 2000, Pub. L. 106-65, sec. 603.

Results in Brief
Page 3 GAO-01-508 Military Personnel

housing. DOD has initiated a study to look at the issues related to housing

standards and allowance rates. Second, DOD could better inform

installation officials how the final housing allowance rates for their areas

are determined each year, thereby increasing local confidence in the

process. Because DOD does not now routinely provide this information,

local managers lack assurance that the rates are well-supported and

calculated correctly. Further, when members question how their rates

were determined, installation officials cannot provide specific details,

such as the local housing and utility costs estimates used to determine the

rates and DOD’s adjustments, if any, to the cost data when determining the

final rates.

We are recommending that the Secretary of Defense provide housing

officials at each major installation detailed information showing the basis

for the annual allowance rates established for the installation. In its

comments on our draft report, DOD agreed with the recommendation.

The intent of the basic allowance for housing program is to provide

servicemembers with accurate and equitable housing compensation when

government housing is not provided. The Under Secretary of Defense for

Personnel and Readiness is responsible for administering the basic

allowance for housing program. Similar to other DOD compensation

programs, the housing allowance program is managed centrally with

allowance rates applying equally to servicemembers in all military

services.

The legislation establishing the program required that rates be based on

the cost of adequate housing for civilians with comparable incomes and

that the rates vary by a member’s rank or pay grade; dependency status,

that is, either with or without dependents; and geographic location.3

 To do

this, DOD established six housing standards, ranging from a one-bedroom

apartment to a four-bedroom, single-family detached house and applied a

standard to each military pay grade. Annually, from May through July,

DOD uses a contractor to determine the average costs, including utilities

and renter’s insurance, to rent adequate housing of each standard type in

about 350 geographic areas of the United States. After analyzing this

information, making adjustments to the data in some cases and deducting

the amount of the housing costs that the typical member is expected to

 3

See 37 U.S.C. 403.

Background
Page 4 GAO-01-508 Military Personnel

pay out-of-pocket, DOD sets the rates that become effective on January 1.

The appendix provides further details concerning the six housing

standards and the way rates are determined.

Just over half of the local housing allowance rates for members with

dependents that became effective on January 1, 2000, decreased from 1999

levels. The decreases caused many servicemembers and installation

officials to question the fairness and accuracy of the rate-setting process.

DOD officials did not anticipate the level of concern caused by the rate

decreases because the program includes a provision called rate protection.

Under rate protection, members already living in an area with declining

rates continue to receive the old allowance rate. The new lower rates

apply only to members that move into the affected areas and assuming

that the rates were accurately set, these members should be able to find

affordable housing based on the new rates. However, rate protection

permits servicemembers in the same pay grade at the same installation to

receive different allowances depending on when they moved to the

installation. In January 2000, the differences in allowances for similarlysituated servicemembers were significant at some installations, and many

members did not view this as fair.

Also, in January 2000, shortly after the lower allowances became effective,

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

to increase housing allowances across the board by eliminating the

average out-of-pocket costs over the next 5 years. Announcing an initiative

to increase housing allowances in the same month that DOD reduced

many allowances caused some members to raise additional questions

about consistency and fairness in the housing allowance program.

Although DOD’s rate-setting process included some shortcomings that

could result in some rates being set lower than warranted, the primary

reasons for the rate decreases in January 2000 were the change from an

allowance program based on expenditures for housing to a program based

on housing standards and the accelerated implementation of the new

program 3 years earlier than originally planned.

Accelerated

Implementation of the

New Allowance

Program Caused

Dramatic Rate

Decreases
Page 5 GAO-01-508 Military Personnel

Responding to the concerns about the 2000 rates, DOD began in January

2000 to review the allowance program and the reasons that many rates

declined. DOD concluded that most of the rate decreases effective in

January 2000 were not caused by a faulty rate development process, but

rather by implementation of the new program and the associated change

in the way housing allowances are determined. Under the prior allowance

program, DOD established allowances partially on the basis of members’

expenditures for housing. DOD conducted an annual member survey to

collect actual expenditures for housing and utilities. On the basis of the

data collected for each pay grade and in each geographic area, DOD

established a variable portion of the housing allowance. The variable

portion was added to a fixed amount for each pay grade to determine the

total housing allowance for each area of the country.

According to DOD, the previous allowance program created some

problems, such as large differences in the average out-of-pocket housing

costs incurred by members of the same pay grade who lived in different

parts of the country. Also, depending on the kind, size, and quality of

housing that members were renting, the previous program could cause

allowances to be lower or higher than expected. For example, in high cost

areas, members often spent less than normally expected on housing by

obtaining smaller and less desirable housing. When reporting their housing

expenditures in the annual survey, this could result in keeping allowances

lower than would be expected based on the cost of local housing. In other

areas, where members chose to obtain larger and more expensive housing,

the opposite effect could occur, resulting in higher-than-expected

allowances.

The new housing allowance program was intended to address these

problems and improve equity by using as the basis for the allowances the

local costs of defined housing standards applied to each pay grade. The

goal was to set rates so that regardless of the assigned location within the

United States, a typical servicemember in a particular pay grade could

obtain the same type of housing and pay the same average amount out-ofpocket. Also, by using local housing costs as the basis for allowances

instead of member housing expenditures, the new program eliminated the

downward and upward allowance biases we noted.

The change to the new allowance program tended to increase allowances

in areas where the typical member had been spending less for housing

than the average local cost of the housing standard set for the member’s

rank. Conversely, the change tended to decrease allowances in areas

where the typical member had been spending more for housing than the

Change in Allowance

Programs
Page 6 GAO-01-508 Military Personnel

average local cost of the housing standard set for the member’s rank. To

illustrate, the DOD housing standard for a member with dependents in pay

grade E-5 is a two-bedroom townhouse or duplex. However, at a particular

installation, most E-5 members with dependents might have been renting

three-bedroom townhouses or single family homes and spending more for

housing than the average cost of a two-bedroom townhouse in the local

community. Under the prior allowance program, the allowance for these

members would have been based on their actual expenditures for the

larger housing units. Because the allowance for E-5 members under the

new program is based on the average local cost of the two-bedroom

townhouse, implementation of the program would result in decreased

allowances for these members. Although the members could choose to

continue to spend more for housing, they would have to spend a greater

amount out-of-pocket.

Facing the change to a completely new housing allowance program, DOD

anticipated that some difficulties would be experienced as the program

was implemented. To help mitigate potential problems, DOD originally

planned to phase implementation of the new allowance program over a 6-

year transition period, starting in 1998. According to DOD officials, the

transition period would allow more time for DOD to perfect the new ratesetting process as experience was gained each year, spread the budgetary

impact from the new program over a longer period, and moderate

expected increases and decreases in allowance rates resulting from the

new program.

During the transition years, in areas where the new rate process indicated

allowances should increase, DOD planned to limit the size of the actual

increase to the rates calculated under the previous allowance program

plus a percentage of the difference between those rates and rates

calculated under the new rate process. For 2000, the third year of

transition, the planned adjustment was 50 percent of the difference

between the old and new rates. Similarly, in areas where the new rate

process indicated that allowances should decrease, DOD planned to limit

the actual amount of the decrease.

In 1999, the Congress authorized DOD to speed up implementation of

market-based basic allowance for housing rates.4

 DOD officials stated that

 4

See the National Defense Authorization Act for Fiscal Year 2000, Pub. L. 106-65, sec. 603.

Faster Transition to New

Housing Allowance

Program
Page 7 GAO-01-508 Military Personnel

accelerated implementation benefited members living in areas where rates

were increasing because the amount of the increases would not be limited

by the transition plans. In areas where rates were decreasing, however, full

implementation also meant that the amount of the decreases would not be

limited. DOD did not believe that members in these areas would be

negatively impacted because under the program’ s rate protection

provision, the lower rates would apply only to members moving into the

affected areas. When the full transition to the new program was completed

in January 2000, allowance rates were fully based on the local cost of the

housing standards for the first time, resulting in greater rate increases and

decreases than would have occurred under the transition plan.

DOD began its review of the new allowance program in January 2000

shortly after the new rates became effective and members began to

question the rates. From the review, DOD concluded that the local housing

cost data collected and used to determine the January 2000 rates was

accurate, and that the change to the new program was the primary cause

for the rate decreases. However, DOD concluded that other aspects of the

rate-setting process included shortcomings that could, and did in at least

one location, result in rates being set too low. In March 2000, DOD took

steps to address these shortcomings and improve the rate-setting process

it used to determine the 2001 housing allowance rates.

Like DOD, we found that the contractor followed reasonable procedures

to ensure that the housing data collected was accurate. To help ensure

accuracy, the contractor, a recognized leader in the field of collecting costof-living data, used several data verification techniques and had an

independent housing expert review and critique its data collection

methods.

To compare the contractor’s local housing cost data with another source,

we performed a limited analysis. For 12 geographic areas representing a

cross section of urban and rural areas, we compared the contractor’s

monthly rental cost estimates with the Department of Housing and Urban

Development’s (HUD) fair market rent estimates for the same areas. The

two estimates are not directly comparable due to differences in

methodology and time frames. Nevertheless, we found that on average the

contractor’s rental cost estimates were 17 percent higher than HUD’s

estimates. This was expected because the contractor screens out many

rental units considered unacceptable for military members. The

contractor’s estimates were lower than HUD’s estimates only for one area,

DOD Responded

Quickly to Concerns

About the Rates

Contractor Developed

Accurate Housing Cost

Data
Page 8 GAO-01-508 Military Personnel

and the average difference in the estimates for this area was $27, or 4

percent. In this case, the contractor’s estimates were based on the area

immediately surrounding the military installation, which was mostly rural.

HUD’s estimates, however, were based on a much larger area that

included the installation but also included more urban and higher cost

areas.

We also considered a special situation at Travis Air Force Base, where the

January 2000 allowance rates declined even though the local housing

market was experiencing rapid rental rate inflation—about 15 percent

annually according to local officials. Rental cost data collected by Travis

officials indicated that local rental costs were 12 percent higher than

indicated by the contractor. This situation had led these officials to

question the accuracy of the local cost data collected by DOD’s contractor.

On the basis of our review, we believe that the rate problem at Travis was

not caused by inaccurate contractor-collected data but rather by a

combination of several factors, including the lag between the time that the

contractor collected rental cost data and the effective date of the rates; the

change to and full implementation of a standard-based allowance program;

and DOD-imposed rules affecting final allowance rates in some areas,

including Travis.

First, Travis collected rental costs 7 months after the contractor and used

a weighted average technique, which the contractor did not use. Using

non-weighted data, the difference between Travis’ and the contractor’s

costs was about 9 percent—an amount consistent with the stated rate of

inflation for the area. Under DOD’s rate-setting process for developing

allowance rates, the contractor collects rental cost data several months

before the resulting rates become effective. As a result, the rates can lag

behind actual rental costs in areas, such as Travis, that experience rapid

rental rate inflation.

The contractor’s rental cost data for Travis actually showed a 12-percent

increase in local rental costs during 1999-2000. However, as part of the

transition to the new allowance program, the 1999 rates were not based

solely on the local cost of housing but rather on an adjustment to the 1998

rates, which were still based on housing expenditures. With full

implementation of the new program in 2000, rates were based on the local

cost of the housing standards for the first time. As a result, if most

members in a particular pay grade had been spending more for housing

than the average cost of the housing standard for their pay grade, then

their rates declined.
Page 9 GAO-01-508 Military Personnel

Complicating the matter at Travis, DOD imposed rules on the final 2000

rates that resulted in Travis’ rates being about 5 percent lower than

indicated by the contractor’s housing cost data. The rules were designed

to moderate the effect of possible errors in data collection but worked to

the disadvantage of areas such as Travis.

Although the local housing cost data used to determine rates was accurate,

DOD concluded from its review that the rate-setting process had some

shortcomings. For example, DOD concluded that the process could result

in rental housing units selected for rate sampling that were not

appropriate for military families because the units were in poor condition

or located in undesirable neighborhoods. As a result, if the rental rates for

these units were lower than the average rental rate for adequate units,

then the final allowance rates for the area would be inaccurately set too

low.

DOD determined that some units selected for rate sampling in the Tacoma,

Washington, area were not appropriate and that the 2000 housing

allowance rates for the area would have been higher if only appropriate

units had been included in the rental rate samples. From our own

observations, some of the housing units included in the rental rate

sampling for the Tacoma area either were in disrepair or were in areas that

DOD officials consider inappropriate for military families. These

inappropriate housing units, however, were not typical of the units

included in the rental rate sampling for the Tacoma area. Almost all

housing units included in the samples were considered appropriate.

• DOD identified several reasons that resulted in the inappropriate rental

properties being included in rate samples:

• The process called for the contractor to identify appropriate

neighborhoods for rental rate sampling by screening postal zip codes in

each geographic area to identify those with average civilian income levels

comparable to the average military incomes associated with each housing

standard. However, screening by zip code to identify acceptable sampling

areas was imprecise and failed to exclude areas containing neighborhoods

with unacceptable housing.

• The process called for the contractor to use newspaper advertisements to

select specific rental housing units from the identified zip codes for rate

sampling. The process did not require the contractor to obtain the detailed

knowledge and use the expertise of installation housing managers to help

identify neighborhoods appropriate for rental rate sampling.

Problems in the Ratesetting Process
Page 10 GAO-01-508 Military Personnel

• The process did not require the contractor to visit installations and

directly observe rental properties selected for rate sampling to help ensure

that properties were appropriate for military members and their families.

DOD also concluded from its review that the process used to estimate the

utility cost portion of the housing allowance could be improved. In

developing the 2000 rates, DOD obtained average utility consumption data

for each of the housing standards on a county-by-county basis. With this

data, DOD estimated utility costs for all military installations located in

each county. However, because many counties are quite large and utility

consumption can vary substantially within the various areas of such

counties, DOD concluded that the utility cost estimates for some

installations could be inaccurate.

Because of the shortcomings in the rate-setting process and the

inconsistency between declining rates and DOD’s new initiative to

increase housing allowances, DOD decided in March 2000 to revert to the

higher 1999 rates in all areas where rates had decreased. According to

headquarters officials in each service, the reversion to the old rates

reduced many of the concerns expressed by servicemembers regarding the

January 2000 housing allowance rates.

• DOD also implemented several changes to improve the process that would

be used to determine the 2001 rates. Specifically, DOD

• improved the precision in the contractor’s income-level screening of areas

for rate sampling by changing the basis used from zip codes to census

tracks, which normally include much smaller areas,

• increased the participation of local installation officials in the rate-setting

process by requesting each installation to identify specific neighborhoods

that the contractor should use to select rental units for rate sampling,

• required the contractor to visit 50 installations during the rental rate

sampling process to directly observe and photograph typical units

included in the rate samples, and

• changed the methodology for estimating utility costs by using detailed

climate information from the National Oceanographic Data Center as the

basis for estimating utility costs.

DOD and service headquarters officials stated that the changes were

successfully implemented and resulted in an accurate determination of

2001 housing allowance rates. However, under the improved process, the

2001 rates for many members should have decreased from the levels in

place after the March 2000 rate reversion. DOD recognized that if the

DOD Actions to Improve

the Rate-Setting Process
Page 11 GAO-01-508 Military Personnel

January 2001 rates were allowed to decrease, many of the same concerns

expressed about the January 2000 rate decreases would surface again—

such as the fairness of two members in the same pay grade at the same

location receiving different housing allowances and the inconsistency of

declining rates when DOD has an initiative to increase rates.

In view of these concerns, in December 2000, before the 2001 rates

became effective, the Secretary of Defense approved a new policy to

provide geographic rate protection. Under this policy, DOD will not allow

any rates to decrease below current levels during the time that DOD is

implementing its initiative to eliminate average out-of-pocket housing

costs. DOD estimated that the decision to prevent any housing allowance

rates from declining in 2001 would cost about $50 million and directed the

services to realign funds for 2001 to pay for the higher costs.

DOD officials also stated that they had decided to address the issue of

rates lagging behind housing costs in areas experiencing rapid rental rate

inflation. Local rental housing cost data will continue to be collected from

May through July. In late November, before rates are finalized, DOD plans

to have its contractor perform a limited telephone survey to update rental

rates in those areas known to be experiencing rapidly increasing housing

costs. If the survey shows that costs have increased substantially since the

earlier data was collected, DOD plans to adjust the final rates.

Further, DOD officials noted that some areas of the country have recently

experienced rapidly increasing utility costs. As a result, the officials stated

that they plan to consider adjusting the utility cost estimates before

establishing the final rates each year in January. DOD may adjust the final

rates if it knows that local utility costs have increased significantly since

the utility cost estimates were made from May through July, or will

increase significantly in the near future.

DOD officials stated that details for implementing these new procedures

should be finalized before the 2002 rates become effective.

DOD responded quickly to the concerns about the January 2000 housing

allowance rates and made many changes to improve the rate-setting

process. However, further improvements are possible. First, questions

remain concerning the appropriateness of the housing standards DOD

uses to determine the rates for each military pay grade. Second, the basis

for the rates established for each geographic area is not clear to many

installation housing managers and servicemembers.

Further

Improvements Are

Possible in the RateSetting Process
Page 12 GAO-01-508 Military Personnel

Service headquarters officials stated that some members believe that the

standards have not been properly associated with military pay grades. The

officials noted that when DOD determined standards on the basis of

housing occupied by civilians with comparable incomes, DOD did not

consider as part of military income the special pay and bonuses received

by many members. As a result, the rates established on the basis of the

standards make appropriate housing unaffordable for members in some

military pay grades. Some officials stated that the minimum standard for

members with dependents in the lowest pay grades should be a twobedroom townhouse instead of a two-bedroom apartment and that the

standard for members with dependents in pay grade E-7 should be a

single-family detached house instead of a townhouse.

According to DOD and service officials, differences in housing standards

depending on whether a member lives on base in government housing or

off base in private housing also have caused member concerns. The key

difference is in out-of-pocket housing costs—members living in

government housing do not pay out-of-pocket housing costs, but members

living in private housing are expected to pay some out-of-pocket costs.

DOD is addressing this issue through its initiative to eliminate average outof-pocket housing costs over the next few years. However, another

difference is that a member’s family size is considered only when the

member lives on base. For example, if living on base, a junior enlisted

member in pay grade E-3 with three dependents would normally be

assigned to a 3-bedroom townhouse or single-family detached house.

However, if living in civilian housing off base, the housing standard used

to determine the allowance rate for this member is a two-bedroom

apartment. According to DOD officials, this disparity is another cause for

many of the complaints concerning housing allowance rates.

DOD is studying the issues related to housing standards and allowance

rates. According to DOD officials, the study will require 2 or 3 years before

any recommendations for change would be proposed.

DOD normally publishes new housing allowance rates for all areas in

December, shortly before the new rates become effective on January 1.

Basically, this is the only rate information available to local officials

because DOD does not routinely provide installation officials with details

on how the housing allowance rates for their areas are established each

year. Officials at the three installations we visited—Travis Air Force Base

and McChord Air Force Base and Fort Lewis in Washington—stated that

the detailed basis for the rates at their installations was not clear. They

Concerns Over Housing

Standards

Basis for Rates Is Not

Clear to Installation

Housing Managers
Page 13 GAO-01-508 Military Personnel

stated that as a result, they lacked assurance that the rates were wellsupported and calculated correctly. Further, when members raised

questions about how their rates were determined, installation officials

stated that they could only provide a general overview of the rate-setting

process but not specific details, such as the number of rental rate samples

taken, the local rental cost estimates used for each housing standard, the

estimates used for utility costs and renter’s insurance, and the reasons for

any DOD adjustments to the data when determining the final rates.

Service headquarters officials agreed that installation housing managers

need better documentation and explanation of the basis for the rates

established for their installations. They stated that improved

understanding of the data supporting the rates would increase local

confidence in the rate-setting process.

DOD responded quickly to the concerns about the January 2000 housing

allowance rates and took steps to address the concerns and improve the

process used to determine allowance rates for 2001. However, because

DOD does not routinely provide detailed feedback to installation officials

explaining the basis for the rates for their areas, these officials lack

confidence that the process is accurate and cannot adequately respond to

members’ questions about how their allowance rates were determined.

Without a clear understanding of the basis for their allowance rates,

servicemembers can also lose trust in the rate development process.

To ensure that the process for developing allowance rates is open and

understandable at the installation level, we recommend that the Secretary

of Defense direct the Under Secretary of Defense for Personnel and

Readiness to provide housing officials at each major installation detailed

information showing the basis for their established annual housing

allowance rates. The information should include the number of rental rate

samples taken, the average local rental cost used for each housing

standard, the estimates used for utility costs and renter’s insurance, and an

explanation of any adjustments made to the final rates.

In written comments on a draft of this report, DOD agreed with the

contents of the report and concurred with the recommendation. DOD

stated that installation commanders need to be provided with additional

information on the results of the rate-setting process and the basis for the

allowance rates. DOD stated that it currently provides the military services

Conclusions

Recommendation

Agency Comments

And Our Evaluation
Page 14 GAO-01-508 Military Personnel

with details on the rates established for their installations and will

encourage the services to share this data with each installation. In view of

the importance of this information to installation officials, we believe that

the Secretary should direct the services to provide it as we recommended

rather than simply encourage them to do so.

We performed our work at the Office of the Secretary of Defense and the

headquarters of the Army, the Navy, the Air Force, and the Marine Corps.

We also visited three installations that had expressed concern about the

2000 housing allowance rates for their areas—Fort Lewis and McChord Air

Force Base in the Tacoma, Washington, area and Travis Air Force Base,

California. At each location, we interviewed responsible agency personnel

and reviewed applicable policies, procedures, and documents. We also

obtained information from DOD’s contractor for obtaining local housing

cost information, Runzheimer International.

To determine the reasons that many January 2000 allowance rates

decreased, we reviewed the history and objectives of the housing

allowance program and the allowance program it replaced, examined the

policies and procedures established for setting rates, reviewed the data

and documentation supporting the final January 2000 rates, compared

contractor-collected rental cost data with fair market rent data developed

by HUD, discussed the rate development process and outcomes with DOD

and service headquarters officials and with officials at the installations

visited, and observed rental housing units used for rate sampling at the

installations visited.

To determine DOD’s response to the rate decreases, we discussed the

results of DOD’s review of the rate-setting process with DOD and service

headquarters officials and with officials at the installations visited,

documented the changes DOD made in the rate-setting process for 2001,

reviewed and compared the final housing allowance rates for 2000 with

2001 rates, and discussed with DOD headquarters officials additional

changes planned for the rate-setting process.

To identify any improvements DOD might make to the rate-setting

process, we obtained views from DOD and service headquarters officials

and officials at the installations visited concerning the effectiveness of

changes already made to the rate-setting process and the need for any

additional changes. We also reviewed past reports prepared by DOD’s

contractor that discussed possible improvements to the rate development

process.

Scope And

Methodology
Page 15 GAO-01-508 Military Personnel

We conducted our review from August 2000 through February 2001 in

accordance with generally accepted government auditing standards.

We are sending copies of this report to the Honorable Donald H. Rumsfeld,

Secretary of Defense; the Honorable Joseph W. Westphal, Acting Secretary

of the Army; the Honorable Robert B. Pirie, Jr., Acting Secretary of the

Navy; the Honorable Lawrence J. Delaney, Acting Secretary of the Air

Force; General James L. Jones, Commandant of the Marine Corps, and

appropriate congressional committees. We will also make copies available

to others upon request.

If you or your staff have any questions concerning this report, please call

William Beusse at (202) 512-3517 or me at (202) 512-5140. Major

contributors to this report were Gary Phillips and Jim Ellis.

Carol R. Schuster

Director, Defense Capabilities

 and Management
Appendix I: Comments From the Department

of Defense

Page 16 GAO-01-508 Military Personnel

Appendix I: Comments From the Department

of Defense
Appendix I: Comments From the Department

of Defense

Page 17 GAO-01-508 Military Personnel
Appendix II: Housing Standards

and Basic Allowance for

Housing Rates

Page 18 GAO-01-508 Military Personnel

As the basis for establishing servicemember basic allowance for housing

rates, the Department of Defense (DOD) uses the costs of adequate

housing for civilians with comparable incomes.1

 To do this, DOD has

identified six housing standards, ranging from a one-bedroom apartment

to a four-bedroom, single-family detached house and has applied, or

anchored, a standard to each military rank, or pay grade, matching the

type of housing normally occupied by civilians with comparable incomes.2

DOD established separate housing standards for members with and

without dependents and established a method to ensure that allowance

rates would increase with each pay grade. Using the housing standards

and the local costs of each standard in about 350 geographic areas of the

country, DOD establishes the allowance rates for each year.

Tables 1 and 2 show the program’s housing standards for members with

and without dependents and show how rates increase with each pay

grade. As an illustration, consider an enlisted member with dependents in

pay grade E-7. Table 1 shows that the housing standard for this member is

a three-bedroom townhouse or duplex. However, the allowance rate for

this member is equal to the average local cost of a three-bedroom

townhouse plus 36 percent of the difference in this cost and the average

local cost of the next higher housing standard—a three-bedroom single

family house. In January 2000, the national average monthly housing

allowance for this member was $806, with the typical member paying $186

out-of-pocket for housing and utilities.

 1

See the National Defense Authorization Act for Fiscal Year 1998, Pub. L. 105-85, sec. 603.

2

For compensation, DOD used regular military compensation for each pay grade. Regular

military compensation includes basic pay, housing and subsistence allowances, and the tax

advantage from the nontaxable housing and subsistence allowances.

Appendix II: Housing Standards and Basic

Allowance for Housing Rates
Appendix II: Housing Standards

and Basic Allowance for

Housing Rates

Page 19 GAO-01-508 Military Personnel

Table 1: Allowance Program Housing Standards for Members with Dependents

Pay grade DOD’s housing standard

Allowance rate is

anchor rate plus this

percentage of the

difference with the next

higher anchor rate

January 2000

national average

monthly housing

allowance rate

January 2000

national average

monthly out-ofpocket amount

E-1,E-2 2-bedroom apartment 0% $564 $130

E- 3 Anchor 2-bedroom apartment 0% 564 130

E-4 2-bedroom apartment 39% 603 140

E-5 Anchor 2-bedroom townhouse/duplex 0% 665 154

O-1 2-bedroom townhouse/duplex 11% 676 156

O-2 2-bedroom townhouse/duplex 98% 757 175

E-6 Anchor 3-bedroom townhouse/duplex 0% 758 176

W-1 3-bedroom townhouse/duplex 1% 759 176

E-7 3-bedroom townhouse/duplex 36% 806 186

O-1E 3-bedroom townhouse/duplex 44% 815 189

W-2 3-bedroom townhouse/duplex 52% 827 191

E-8 3-bedroom townhouse/duplex 75% 857 198

O-2E 3-bedroom townhouse/duplex 93% 879 204

O-3 3-bedroom townhouse/duplex 98% 886 205

W-3 Anchor 3-bedroom single family house 0% 888 206

E-9 3-bedroom single family house 16% 920 213

W-4 3-bedroom single family house 22% 933 216

O-3E 3-bedroom single family house 26% 940 218

W-5 3-bedroom single family house 48% 983 228

O-4 3-bedroom single family house 58% 1,005 233

O-5 Anchor 4-bedroom single family house 0% 1,088 252

O-6 4-bedroom single family house 1%a 1,097 254

O-7 4-bedroom single family house 2% a 1,109 257

Note: The National Defense Authorization Act for Fiscal Year 2001, Pub. L. 106-398, sec. 607,

required a change in the housing standard used to determine allowance rates for members with

dependents in pay grades E-1 through E-4. Beginning on July 1, 2001, the allowance rate for these

members will be based on the average local cost of a two-bedroom apartment, plus 50 percent of the

cost difference between a two-bedroom apartment and a two-bedroom townhouse.

a

For these pay grades, the allowance rates are equal to the rate for a 4-bedroom single family house

increased by the indicated percentage.

Source: DOD
Appendix II: Housing Standards

and Basic Allowance for

Housing Rates

Page 20 GAO-01-508 Military Personnel

Table 2: Allowance Program Housing Standards for Members Without Dependents

Pay grade DOD’s housing standard

Allowance rate is anchor

rate plus this percentage

of the difference with the

next higher anchor rate

January 2000

national average

monthly housing

allowance rate

January 2000

national average

monthly out-ofpocket amount

E-1,E-2 1-bedroom apartment 0% $477 $110

E- 3 1-bedroom apartment 0% 477 110

E-4 Anchor 1-bedroom apartment 0% 477 110

E-5 1-bedroom apartment 67% 535 124

O-1 Anchor 2-bedroom apartment 0% 564 130

E-6 2-bedroom apartment 7% 570 132

W-1 2-bedroom apartment 31% 595 138

E-7 2-bedroom apartment 53% 618 143

O-2 2-bedroom apartment 83% 648 150

O-1E Anchor 2-bedroom townhouse/duplex 0% 665 154

W-2 2-bedroom townhouse/duplex 19% 683 158

E-8 2-bedroom townhouse/duplex 20% 684 158

O-2E 2-bedroom townhouse/duplex 44% 707 163

E-9 2-bedroom townhouse/duplex 51% 713 165

W-3 2-bedroom townhouse/duplex 54% 716 165

O-3 2-bedroom townhouse/duplex 64% 725 168

O-3E Anchor 3-bedroom townhouse/duplex 0% 759 175

W-4 3-bedroom townhouse/duplex 9% 771 178

O-4 3-bedroom townhouse/duplex 40% 811 187

W-5 3-bedroom townhouse/duplex 45% 817 189

O-5 3-bedroom townhouse/duplex 63% 842 194

O-6 Anchor 3-bedroom single family house 0% 889 205

O-7 3-bedroom single family house 2% a 907 209

a

For this pay grade, the allowance rate is equal to the rate for a 3-bedroom single family house

increased by the indicated percentage.

Source: DOD

(702088)
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