Military Housing: Information on the Privatization of Unaccompanied Personnel Housing
Published: 2014-03-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Partly in response to concerns that inadequate housing might be contributing to servicemembers' decisions to leave the military, Congress enacted the MHPI in 1996. The initiative gave the Department of Defense (DOD) legal authorities to replace or renovate inadequate housing for unaccompanied military personnel (those without dependents) and military families using private-sector financing, ownership, operation, and maintenance. Certain military personnel receive the BAH, which can be used to pay rent to live in privatized housing. Since 1996, DOD has built and modernized on-installation unaccompanied personnel housing using military construction funds. According to a February 2013 DOD report to Congress, from fiscal years 1996 through 2012, DOD spent over $20 billion of military construction funds to build and modernize on-installation housing for unaccompanied military personnel.
GAO was asked to review DOD's efforts to privatize unaccompanied housing. GAO discusses the (1) analyses the military services conducted to make decisions about privatizing housing for unaccompanied personnel and (2) status of housing projects the military services have privatized for unaccompanied personnel. GAO obtained and reviewed fiscal years 1996-2013 housing plans and analyses the services conducted, reviewed information on privatization projects, and interviewed DOD and service officials.
GAO is not making recommendations in this report.
section_title: What GAO Found
paragraphs: Since Congress enacted the Military Housing Privatization Initiative (MHPI) in 1996, the military services conducted several analyses and considered other factors to determine whether to privatize housing for unaccompanied personnel. These analyses were conducted between 1997 and 2011. The Army's and the Navy's analyses compared different scenarios--such as whether to rely on privatization or use traditional military construction funding to improve housing quality--and considered information from multiple installations in these analyses. In contrast, the Air Force and Marine Corps analyzed the feasibility of privatizing unaccompanied housing at a few selected installations. For example, the Air Force based its initial analysis on information for two locations, while the Marine Corps based its 2008 analysis on information specific to one installation. The Navy and Army concluded that privatization could be used under a narrow set of circumstances at specific installations, such as where unaccompanied servicemembers were already receiving the basic allowance for housing (BAH). The Air Force and Marine Corps concluded that privatization was not suitable for meeting any of their housing needs. For example, an April 2000 Air Force memorandum indicated that privatization could have a negative effect on building unit cohesion. Other factors also played a role in the four services' decisions about whether to privatize housing, including (1) the limited availability of the BAH for junior unaccompanied personnel, which may result in not having a dedicated stream of income to pay rent for privatized housing; (2) the frequency or duration of unit deployments, which could affect the occupancy rates of unaccompanied housing; and (3) uncertainty about the future size of the military, and whether there would be sufficient demand for privatized housing.
Between 1996 and 2013, the Army and Navy implemented seven privatized unaccompanied personnel housing projects. The Air Force and Marine Corps have not used the privatization authorities, and are instead using military construction funds to improve the quality of their unaccompanied personnel housing. Air Force housing officials told us that Air Force unaccompanied personnel housing inventory generally meets current housing needs. According to Marine Corps officials, the Marine Corps intends to eliminate existing housing deficiencies by demolishing inadequate unaccompanied personnel housing and using military construction funds to replace or renovate housing by the end of fiscal year 2014. According to Office of the Secretary of Defense and military service housing officials, none of the services have plans to pursue any future privatized housing projects for unaccompanied personnel.
section_title: What GAO Recommends
paragraphs: GAO is not making recommendations in this report.

section_title: Letter
paragraphs: In the mid-1990s, the Department of Defense (DOD) became concerned  that inadequate housing was contributing to servicemembers’ decisions to  leave the military. As part of its efforts to improve the quality of military  housing, DOD requested certain authorities from Congress that would  allow the department to use the private sector’s investment capital and  housing construction and operations expertise so that the department  could replace or renovate inadequate housing. According to DOD  officials, privatization could be a faster method to improve the condition of  military-owned housing compared with constructing government-owned  housing using traditional military construction funding. In 1996, Congress  enacted the Military Housing Privatization Initiative (MHPI), which gave  the military services the authorities to privatize housing for  unaccompanied military personnel (those without dependents) and  military families in the United States. These authorities allow for private- sector financing, ownership, operation, and maintenance of military  housing. Under the initiative, DOD can invest in the privatization efforts  and provide direct loans, loan guarantees, and other incentives to  encourage private-sector developers to construct and operate housing  either on or off military installations.
Certain military personnel receive a basic allowance for housing (BAH),  which, when the servicemembers choose to live in privatized housing, is  typically used to pay rent to privatized housing project companies, which  are operated and managed by developers. The BAH is a cash allowance  paid from DOD’s military personnel appropriation account to cover the  typical monthly costs of rent, utilities, and renter’s insurance. Personnel  eligible for the housing allowance typically are not required to live in any  particular location; they can elect to live at their military service’s  privatized housing project (if one exists on or off the installation) or to live  elsewhere.
You requested that we review DOD’s efforts to privatize housing for  unaccompanied personnel. Specifically, we discuss the (1) analyses that  the military services conducted to make decisions about privatizing  housing for unaccompanied personnel and (2) status of housing projects  that the military services have privatized for unaccompanied personnel.
To address these objectives, we focused on privatized unaccompanied  housing projects that were constructed, renovated, and operated entirely  or partially with private capital between fiscal years 1996 (when Congress  enacted the MHPI) and 2013. We reviewed the statutory authority for the  MHPI and reviewed DOD- and service-level guidance implementing the  initiative. Specifically, we reviewed the Office of the Secretary of  Defense’s program evaluation plans and, for the military services with  privatized housing projects, information about their unaccompanied  housing master plans. We also reviewed but did not evaluate analyses  that the Army, Navy, Air Force, and Marine Corps documented to support  their respective housing privatization decisions. We did not evaluate  these analyses because DOD and service officials told us that they had  no plans to pursue any additional unaccompanied privatized housing  projects. Further, in cases where they did privatize, all projects are  complete except for two. To corroborate our understanding of these  analyses, we interviewed officials in the Facilities Investment and  Management Directorate and Facility Energy and Privatization Directorate  of the Office of the Deputy Under Secretary of Defense (Installations and  Environment) responsible for overseeing housing privatization, as well as  officials in associated offices in the Army, Navy, Air Force, and Marine  Corps.
For each of the seven existing privatized housing projects for  unaccompanied personnel, we reviewed information such as the location,  target population, number of beds, occupancy rates, and financial  information such as projected revenues, expenses, and net operating  income. To assess the reliability of these data, we discussed with the  military services and officials from the Office of the Secretary of Defense  the process for collecting the data, and the steps they took to ensure that  the data were accurate. We determined that the data were sufficiently  reliable for the purposes of this audit. We conducted site visits to four of  the seven Army and Navy unaccompanied privatized housing projects.
Specifically, we visited projects in high- and low-population density areas.  During these visits, we interviewed installation housing officials to  determine the status of privatized housing projects for unaccompanied  personnel and to identify any issues related to specific projects. In  addition, we interviewed commanding officers as well as junior and senior  enlisted unaccompanied personnel to obtain their perspectives on  privatized unaccompanied housing. At each location we visited, we toured  both privatized and government-owned housing for unaccompanied  personnel. We also interviewed the private-sector developers responsible  for the privatized projects we visited to get their views on the financial  status of existing and any future projects. The information gathered from  our site visits is not generalizable to all privatized unaccompanied  personnel housing projects.
We conducted this work from April 2013 to March 2014 in accordance  with generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings and conclusions  based on our audit objectives. We believe that the evidence obtained  provides a reasonable basis for our findings and conclusions based on  our audit objectives.
subsections: section_title: Background
subsections: section_title: Basic Allowance for Housing (BAH)
paragraphs: Unaccompanied personnel who are not assigned to government-owned  housing, or are above certain pay grades, are authorized to receive the  BAH, and the amount of the allowance is based on factors that include a  servicemember’s pay grade, dependency status, and geographic location.  Additionally, each service determines pay grades at which personnel are  no longer assigned to government-owned housing. Junior  unaccompanied personnel are generally required to live in government- owned unaccompanied housing on their installation, commonly referred to  as barracks (Army and Navy), dormitories (Air Force), or bachelor  enlisted quarters (Marine Corps), and may be eligible for the housing  allowance only if on-installation, government-owned housing is not  available.
In table 1, we list the pay-grade thresholds each military service has  established for junior unaccompanied personnel permanently assigned to  installations in the United States and required to live in government- owned housing.
section_title: DOD Efforts to Improve Quality of Housing for Unaccompanied Personnel
paragraphs: In 1995, DOD adopted a new construction standard that called for more  space and increased privacy in new government-owned housing for  servicemembers permanently assigned to an installation. The new  standard, which was modified in 2007, provided each junior  unaccompanied servicemember with a private sleeping room and a  kitchenette and bath shared by one other member. DOD justified the  adoption of the new standard primarily as an investment in quality of life  aimed at improving military readiness and retention. All the military  services except the Marine Corps accepted the new standard, and  developed various initiatives to implement it, as discussed below. The  Marine Corps believed that the new standard did not allow for the unit  cohesion and team building needed to reinforce Marine Corps values and  develop a stronger bond among junior Marines. Therefore, the Marine  Corps obtained a permanent waiver from the Secretary of the Navy to use  a different design standard—one sleeping room and bath shared by two  junior Marines. According to a February 2013 DOD report to Congress on  government-owned housing for unaccompanied personnel, from fiscal  years 1996 through 2012, DOD spent over $20 billion of military  construction funds to build and modernize on-installation housing for  unaccompanied personnel.
Army: Between fiscal years 1996 and 2012, the Army spent over $12  billion of military construction funds on its barracks modernization  program to modernize housing for all Army unaccompanied personnel  permanently assigned to an installation. The renovated facilities meet  the current DOD standard configuration, and each module includes  two bedrooms, one bathroom, a cooking area, and appliances. The  housing complex also includes laundry facilities.
Navy: The Navy spent about $2.5 billion of military construction funds  between fiscal years 1996 and 2012 on improving the condition of its  housing for unaccompanied personnel. A key component of the  Navy’s modernization program for unaccompanied housing is the  Homeport Ashore program, which was created to improve the quality  of life among ship-based junior sailors by moving them off ships and  into unaccompanied housing on shore while their ships were docked  in their homeport. The Navy expects to complete this initiative by  fiscal year 2016 utilizing both privatization and military construction  authorities. However, the BAH statute (37 U.S.C. § 403(f)) prohibits E- 1 to E-3’s without dependents on sea duty from receiving the BAH,  and privatized housing projects are not generally feasible unless  military members are receiving a housing allowance. Congress, in the  Bob Stump National Defense Authorization Act for Fiscal Year 2003,  amended the housing privatization authorities by adding a new  section (10 U.S.C. § 2881a) that authorized the Navy to carry out up  to three pilot unaccompanied housing privatization projects in which  junior enlisted members without dependents could be authorized  higher rates of partial BAH to pay their rent. Per 37 U.S.C § 403(n),  partial BAH is a payment at a rate determined by the Secretary of  Defense based on a specified historical rate (typically around $8 per  month, as of 2011) paid to members not authorized to receive BAH,  such as those assigned to live aboard ships or in government  quarters. The 10 U.S.C. §2881a authority expired on September 30,  2009, and the Navy executed two of the three authorized projects  prior to the expiration of the authority.
Air Force: The Air Force spent almost $3 billion of military construction  funds from fiscal years 1996 to 2012 on modernizing its dormitories  for unaccompanied personnel. Air Force housing officials told us that  the service has adequate housing for all its airmen. The Air Force also  implemented a policy in 1996 whereby each unaccompanied airman  permanently assigned to an installation is assigned to a private  bedroom. In 2006, the Air Force started requiring that its dorms be  built or renovated according to a four-bedroom module design, called  Dorms-4-Airmen, specifically for unaccompanied personnel in the pay  grades from E-1 to E-3 and E-4 with less than 3 years of service. The  design was based on Air Force criteria, detailed analysis of square- footage requirements and constraints, and prototype development. It  was designed to achieve the goal of providing privacy while boosting  social interaction.
Marine Corps: The Commandant of the Marine Corps approved the  Bachelor Enlisted Quarters campaign plan in 2006. The goals of the  plan were to eliminate existing space deficiencies, demolish  inadequate housing, and achieve the new standard of one sleeping  room and bath shared by two junior Marines by fiscal year 2014. From  fiscal years 1996 to 2012, the Marine Corps spent about $3.5 billion of  military construction funds to replace and renovate its housing for  unaccompanied personnel.
section_title: Budget Treatment of Privatization Projects
paragraphs: In June 1997, DOD and the Office of Management and Budget (OMB)  agreed to a set of guidelines that would be used as a frame of reference  for scoring privatization projects. The implications of scoring depend on  which MHPI authority will be used. For example, the guidelines state that  if a project provides an occupancy guarantee, then funds for the project  must be available and obligated “up front” at the time the government  makes the commitment of resources. In other words, if a project provides  an occupancy guarantee, then the net present value of the guarantee— the cumulative value of the rents to be paid for the housing over the entire  contract term—must be obligated at the beginning of the project.  According to Army and Navy officials, none of the privatized projects for  housing unaccompanied personnel discussed in this report include an  occupancy guarantee.
section_title: Each of the Services Conducted Analyses and Considered Other Factors in Determining Whether to Privatize Housing for Unaccompanied Personnel
paragraphs: From 1997 to 2011, the services conducted several analyses of the costs  and suitability of privatization as a financing method for their housing  needs for unaccompanied personnel. Using different methods, such as  business-case and life-cycle cost analyses, and using different  assumptions about how repairs and upkeep for housing would be funded,  the services reached different conclusions about the potential for cost  savings from using either privatization or the traditional government- funded military construction approach. The Army concluded that  privatization is feasible but more costly in most cases, while the Navy  found that privatization is feasible in certain locations. The Air Force and  Marine Corps concluded that privatization was not desirable for housing  their unaccompanied personnel.
subsections: section_title: The Army and Navy Compared Different Scenarios from Installations Service-Wide
paragraphs: The Army conducted three sets of analyses to determine whether to  privatize housing for unaccompanied personnel. These analyses used  different scenarios and data gathered from multiple locations. The Army  documented the analytical processes used, and communicated its  conclusions to service leadership. In 2004, the Army formed a task force  to assess the feasibility and desirability of privatization of unaccompanied  personnel housing. Task-force members conducted the study over 6  months, visiting six sites, including Fort Detrick, Maryland; Fort Leonard  Wood, Missouri; Fort Lewis, Washington; Fort Stewart, Georgia; Fort  Hood, Texas; and the Presidio of Monterey, California. There appeared to  be no consistent criteria applied for site selection in the task-force study in  that the reasons for selection differed in each case. For example, Fort  Lewis was selected in part because of command interest, and Fort  Leonard Wood was selected because it is a training installation that  represents the consolidation of training missions at a larger site. Study  authors also considered 18 scenarios, 5 of which were Army-wide. These  scenarios involved different assumptions about the number and pay  grades of unaccompanied personnel housed on and off installations, as  well as the amount of money spent by the Army to construct and sustain  new facilities. The study concluded that privatization of housing for  unaccompanied personnel was financially feasible at selected  installations, such as Fort Stewart and Fort Hood, in part because a  majority of senior enlisted personnel there were already receiving the  BAH and living off the installation; however, all members of the leadership  task force responsible for the study could not reach consensus on the  study’s findings. For example, the study authors suggested that soldiers  should not be mandatorily assigned to privatized housing. OMB scoring  rules require that mandatory assignment be treated as an occupancy  guarantee, which would have the effect of committing the government to  a large long-term expenditure. However, other members of the task force  questioned whether mandatory assignment might be necessary to  support the building of cohesive units, which is fostered by working and  living together as a team.
The Army completed an additional analysis of privatization in response to  a 2009 congressional inquiry. The Army prepared a report that focused  on the privatization of housing for junior unaccompanied personnel. The  analysis included a review of privatization’s effect on costs, soldiers’  quality of life, and the Army’s traditions and culture. The study was  conducted over a 3-month period and included modeling scenarios at Fort  Polk, Louisiana; Fort Irwin, California; and Fort Meade, Maryland, and  one U.S.-wide extrapolation. The three locations were chosen because  their barracks needed renovations and local commanders and private- sector developers supported privatization. The analysis concluded that  privatization was feasible, but the cost to privatize barracks would be  higher than what the Army was currently spending on barracks  construction and sustainment.
The Army also conducted a series of due diligence studies at Fort  Benning, Georgia; Fort Irwin, California; Fort Knox, Kentucky; Fort  Leonard Wood, Missouri; Fort Meade, Maryland; and Fort Polk,  Louisiana, in April and May 2010. The purpose of these studies was,  among other things, to assist the Army in determining the feasibility of  implementing barracks privatization pilot projects. In July and August  2010, the results of the studies were condensed into business-case  analyses to show the potential costs or savings the Army would  experience at each of the six sites if barracks privatization projects were  executed. According to the Army report, the bottom-line finding of the  analyses was that such projects would result in a significant net cost to  the Army if executed, because the Army was not funding all barracks  requirements at 100 percent. The report further stated that the Army’s  expected BAH payments would be greater than the actual barracks  funding that was currently taking place. Fort Meade was the only  exception of the six sites because less than 50 percent of the junior  servicemembers were Army, but the Army was funding all barracks for all  the services. The report concluded that the Army’s expected BAH  payments at Fort Meade would be less than the current Army Military  Construction, Operation and Maintenance, and Sustainment, Restoration  and Modernization funding.
Like the Army, the Navy developed analyses that considered multiple  scenarios. In 2009, the Navy conducted a business-case analysis using  three scenarios and data collected from site visits at San Diego,  California; and Norfolk, Virginia; which were the only Navy locations with  privatized projects for unaccompanied housing. The service used both  quantitative and qualitative data, drawing on the pro forma financial  statements and requests for proposals from the San Diego and Norfolk  privatization projects, military construction budget, and BAH data from  multiple years, as well as interviews with personnel across the Navy. The  study compared three alternative scenarios with a baseline scenario. One  of the scenarios involved privatization, another featured construction with  military construction funds, and the third assumed the community  provided the majority of the housing needs. Under the baseline scenario,  the assumptions were that the Navy would own and operate all housing  for unaccompanied personnel, and would underfund building  maintenance and support. Briefings to leadership documented the  analytical process and summarized the results of the study. The Navy  analysis concluded that privatization of housing for unaccompanied  personnel would be more cost-effective for housing junior sailors based  on their receiving a higher partial rate of BAH (versus the full BAH rate),  rather than building new quarters using traditional military construction  funding.
In 2011, 2 years after the initial analysis, the Navy reviewed the issue of  the privatization of housing for unaccompanied personnel again and  reached similar conclusions. The Navy study found that privatization  requires lower operating costs than housing funded through annual  appropriations requested through the military construction budgeting  process and sustained at the required levels of operation and  maintenance. However, the study noted that privatization of housing for  unaccompanied personnel is only viable at select locations, such as  where there is a stable population and a need to provide sailors with  housing ashore when their ship is in its homeport. In such areas, enough  population might exist to sustain the necessary level of occupancy in  unaccompanied housing while sailors are at sea.
section_title: The Air Force and Marine Corps Analyzed the Feasibility of Privatizing Housing for Unaccompanied Personnel at Selected Installations
paragraphs: The Air Force and Marine Corps analyses of whether to privatize  unaccompanied personnel housing reviewed privatization at a few  selected locations. The Air Force developed three analyses reviewing  privatization over a 5-year period beginning in 1997. Air Force officials  documented the analytical processes used through reports and  memorandums and communicated the conclusions to service leadership  in briefings. The first effort, the Dormitory Privatization Feasibility Study,  lasted for 5 months and included site visits to two bases where data were  collected for a feasibility analysis. The Air Force selected the two  locations—Dover Air Force Base, Delaware; and Tinker Air Force Base,  Oklahoma—from eight candidate bases nominated by the major  commands, in part because both bases had housing shortages. Tinker  had the largest housing shortage of the eight candidate bases with 59  percent of the total demand for unaccompanied housing unmet,  compared with 12 percent at Dover, and both had rooms that would  require future renovation or replacement. Based on post-site-visit financial  analyses, the study authors found that privatization would be less  expensive than traditional military construction at Tinker but not at Dover.  A 51-year life-cycle cost comparison conducted in 1997, provided to us by  Air Force officials, showed the cost of privatization at Tinker to be $163.7  million, compared with the military construction cost of $205.7 million. For  Dover, the analysis showed a cost of $110.5 million for a traditional  military construction approach compared with $132.5 million for  privatization. The study authors concluded that privatization was more  suitable for installations with a slow local economy, high installation and  local support for privatization, degraded existing facilities, and a large  unaccompanied housing shortage—conditions that existed at Tinker.  Further, the study concluded that since privatization of housing for  unaccompanied personnel was suitable only for certain locations, it could  be used only to augment traditional military construction funding, not to  replace it.
Later, in 1997, the Air Force organized an exercise to discuss whether to  use privatization as a tool to construct dormitories. The team conducting  the exercise was composed of more than a dozen Air Force headquarters  housing and installation officials. The team discussed the results of the  Dormitory Privatization Feasibility Study, as well as other factors such as  the effects of utilities, leasing, and mandatory assignment of personnel to  privatized housing on OMB scoring, and leadership control over housing  residents’ activities. The team recommended that the Air Force not  pursue privatization to construct dormitories, primarily because the team  found that privatization was not a cost effective alternative to using  military construction funding for building dormitories. In 2002, 5 years  later, another team composed of new members from all levels of the Air  Force met to establish a baseline for an Air Force dormitory privatization  program. This team also identified a number of issues, such as unit  integrity, the scale of necessary government commitment of funds,  enforcing discipline among tenants, and conducting inspections in a  building that was not solely government-owned, that would make  privatization projects unfeasible unless they were resolved. In an April  2000 memorandum, the Air Force Chief of Staff argued against privatizing  unaccompanied personnel housing. The official indicated that residing in  on-base dormitories ensures that junior enlisted personnel acclimate to  the Air Force, build esprit de corps with members of their unit, and have  access to base services such as medical, fitness, recreation, commissary,  and exchange facilities. Ultimately, according to Air Force officials, the Air  Force decided that military construction would meet their needs for  housing and decided against using privatization.
In 2008, the Marine Corps completed a feasibility analysis to decide  whether to privatize housing for unaccompanied personnel at a single  location—Camp Pendleton, California—as it lacked sufficient high-quality  housing for unaccompanied personnel. The service documented this  analysis in a briefing submitted to Marine Corps leadership and a  memorandum prepared the following year. The feasibility analysis  included an examination of the cash contributions required from the Navy,  a participation test for the 336-bed project, and a life-cycle cost analysis.  The feasibility analysis concluded that privatization of housing for  unaccompanied personnel would be 55 percent more expensive than  building new quarters using military construction funds. A 2009 Marine  Corps summary on the subject of bachelor housing privatization noted  that Marines are assigned to barracks with others from their unit, which  promotes unit integrity and unit cohesion. However, the direct or  mandatory assignment of servicemembers to privatized housing could be  viewed as providing an occupancy guarantee to the developer, which  under the OMB guidelines would require that the full value of the  guarantee must be available and obligated “up front” at the time the  government makes the commitment of resources. In interviews, Marine  Corps officials stated that privatized housing is incompatible with Marine  Corps culture because Marines do not deploy as individuals; they deploy  as units. Moreover, E-1 to E-3 Marines, like E-1 to E-3 sailors on sea  duty, are assigned to shared rooms. This configuration is an important  element of the Marine Corps’ philosophy and goal of fostering team  building, companionship, camaraderie, and unit cohesion, according to  the 2010 report by the LMI company on unaccompanied personnel  housing for junior enlisted members, which was commissioned by DOD to  provide a comprehensive view of housing programs for unaccompanied  personnel across the services. The Marine Corps conducted no  additional analyses of privatization for unaccompanied personnel. Starting  in 2008, the Marine Corps undertook a $2.8 billion military construction  initiative to build new barracks over a 6-year period from fiscal year 2008  through fiscal year 2014. According to Marine Corps officials, the Marine  Corps decided that military construction would meet its needs for housing  and decided against using privatization.
section_title: Other Factors Influenced the Services’ Decisions Regarding Privatizing Housing for Unaccompanied Personnel
paragraphs: In addition to the three issues of OMB scoring, the life-cycle cost of  government construction and operation of housing versus that of  privatized construction and operation of housing, and unit integrity, the  services’ analyses and our interviews with service officials identified three  other factors that influenced the services’ decisions about whether to  privatize housing for unaccompanied personnel:
BAH: Most junior unaccompanied personnel without dependents are  not eligible to receive a housing allowance (and, in the case of junior  shipboard sailors, are not entitled by law to receive a BAH). Without  the assurance of a steady stream of income from the BAH, which  junior unaccompanied personnel could use to pay rent for privatized  housing, private-sector developers would likely be unwilling to  participate in privatized housing projects, the Army’s 2005  Unaccompanied Personnel Housing Privatization Task Force Study  concluded. In interviews and in some analyses, such as the Army’s  task-force study report, the services expressed reluctance to assume  any additional costs, particularly a cost relating to personnel since  such obligations to pay costs in the future must typically be funded at  the time the obligation is made. In the Army’s privatization task-force  report, the Army’s resource-management officials noted that even just  a few pilot privatization projects could lock the Army into a 50-year  BAH bill that must be funded, because the leases for privatization  projects generally run for 50 years.
The frequency or duration of unit deployments: With privatized family  housing, the frequency of deployments of the servicemember  generally does not affect the rent received because the  servicemember’s family remains behind and maintains the leased  property. However, unaccompanied personnel living in privatized  housing do not receive the BAH when they are deployed, if they do  not have a lease. Therefore, frequent or prolonged deployments can  reduce the occupancy rates of privatized housing. Occupancy rates  are a key indicator of a housing project’s financial viability.
The uncertainty about the future size of the force: According to a 2012  DOD budget-priorities document, the department plans to reduce the  size of the active Army from a post-9/11 peak of about 570,000 in  fiscal year 2010 to 490,000 by fiscal year 2017, and the active Marine  Corps from a peak of about 202,000 in fiscal year 2010 to 182,000 by  fiscal year 2017. None of the services’ analyses discussed the  current uncertainty about the future size of the force, partly because  most of them were written before the current force-structure  reductions were announced. These reductions may eliminate current  housing deficits and create a disincentive for private-sector  developers to participate in privatization projects.
section_title: Status of Military Services’ Projects to Privatize Housing for Unaccompanied Personnel
paragraphs: Between 1996 and 2013, the Army and the Navy implemented seven  privatized unaccompanied personnel housing projects. As stated  previously in this report, both the Army and Navy have also used military  construction funding to upgrade and renovate their housing for  unaccompanied personnel The Air Force and the Marine Corps have not  used the privatization authorities, and are instead using military  construction funds to improve the quality of their unaccompanied  personnel housing. Air Force housing officials told us that the Air Force  unaccompanied personnel housing inventory generally meets current  housing needs. According to Marine Corps officials, the Marine Corps  intends to eliminate existing housing deficiencies by demolishing  inadequate unaccompanied personnel housing, and using military  construction funds to replace or renovate such housing by the end of  fiscal year 2014. According to Office of the Secretary of Defense and  military-service housing officials, none of the services have plans to  pursue any future privatized housing projects for unaccompanied  personnel.
subsections: section_title: The Army Has Five Projects to Privatize Housing for Unaccompanied Personnel
paragraphs: The Army has projects to privatize housing for unaccompanied personnel  at five locations. Four of these projects are at Fort Irwin, California; Fort  Drum, New York; Fort Bragg, North Carolina; and Fort Stewart, Georgia.  At each of these locations, sufficient adequate and affordable housing  was not available off the installation. These projects were intended to  house unaccompanied personnel at pay grades E-6/Staff Sergeant and  above, who are eligible to receive the BAH. In 2012, the Army made a  decision to implement a fifth privatization project at Fort Meade,  Maryland, for unaccompanied personnel E-5/Sergeant and below.  These junior unaccompanied personnel currently receive the BAH and  are living off the installation because Fort Meade does not have enough  housing for unaccompanied personnel on-site. The initial development  cost for the Army projects was about $219 million, all of which was  incurred by the privatized housing project companies.costs generally included the costs of construction and project financing.  The Army’s investment in the projects was in the form of land leased to  the privatized housing project companies to serve as the sites for the  projects. Table 2 summarizes the status of the Army’s five projects to  privatize housing for unaccompanied personnel.
section_title: The Navy Has Two Projects to Privatize Housing for Junior and Mid-Level Unaccompanied Personnel
paragraphs: In 2002, Congress amended the MHPI to provide the Navy with the  authority to carry out not more than three pilot projects using the private  sector for the acquisition or construction of unaccompanied personnel  housing. The amendment to the MHPI also authorized the payment of  higher rates of partial BAH to personnel occupying housing acquired  using the pilot authority. The Navy implemented two such projects—at  San Diego, California, and at Hampton Roads, Virginia—before its pilot  authority expired on September 30, 2009. According to Navy officials,  these locations were selected because both are fleet concentration areas,  and the privatization projects also support the Navy’s Homeport Ashore  Program. The Navy’s projects include 8 existing buildings (1 at San  Diego and 7 at Hampton Roads) that the Navy conveyed to the private- sector developer and 91 new buildings (3 at San Diego; 1 mid-rise  building and 87 “manor homes,” each consisting of five two-bedroom  apartments, at Hampton Roads). San Diego has 2,398 bedrooms, while  Hampton Roads has 3,682 bedrooms, for a total of 6,080 bedrooms. The  development costs for both projects totaled around $1.1 billion, of which  the Navy provided cash equity investments of about $80 million, with the  developers providing about $1 billion. The developers’ costs generally  included the costs of construction, project financing, and operating  expenses. Table 3 summarizes the status of the Navy’s two projects to  privatize housing for junior and mid-level unaccompanied personnel.
Details about each project follow.
subsections: section_title: San Diego, California
paragraphs: In December 2006, the Navy awarded its first pilot project to privatize  housing for junior unaccompanied personnel at Naval Station San Diego,  California. The project included the privatization of one existing building  and the construction of three new buildings. According to Navy officials,  the existing building includes 258 “modules” built to the 1995 DOD  standards for housing for unaccompanied personnel, each featuring two  sleeping rooms and a small common area. The new buildings include 941  “market-style” two-bedroom apartments, and, in total, the San Diego  project provides 2,398 bedrooms. The existing building, which was  conveyed to the developer, was intended to house junior unaccompanied  personnel (E-4/ Petty Officer Third Class and below), and the new  buildings were intended to house mid-level unaccompanied personnel (E- 4/ Petty Officer Third Class with more than 4 years of service to E-6/Petty  Officer First Class). The three new buildings became available to rent  within a 4-month period, beginning in December 2008. Navy officials told  us that delivering 1,882 new beds within 4 months caused significant  occupancy challenges, and that the target population of E-4 to E-6 has  never been realized because of the on-base location of the project. In  addition, they stated that while the sailors recognize the superior facilities  and amenities, they are reluctant to return to quarters inside the  installation’s fence line with restricted access for their friends and family.  Therefore, the private-sector developer and the Navy decided to  temporarily expand the target demographic from E-4 with more than 4  years of service through E-6 to now include Homeport Ashore sailors and  junior shore-based sailors (E-4 and below).
According to Navy officials, this shift has largely solved the occupancy  challenges, yet it has strained revenues for the private developer, as  Homeport Ashore sailors receive only a partial BAH rate based on the  market rent for the existing building, but the private-sector developer’s  financial projections were based on the market rent for the new buildings.  The new buildings were constructed to higher standards compared with  the existing one, and have a higher rent structure that is equivalent to  current market rents for comparable housing in the San Diego area. The  Navy’s evaluation of the developer’s proposed budget for 2013 noted that  although the overall occupancy rate for the San Diego project at the end  of 2012 was about 96 percent, the revenues being received were  insufficient to sustain the project over the long term. Therefore, in June  2013, the Office of the Assistant Secretary of the Navy (Energy,  Installations and Environment) requested the Under Secretary of Defense  (Personnel and Readiness) to authorize a higher partial rate of the BAH  for junior unaccompanied sailors residing in the new buildings. The higher  partial rate of BAH requested would be equivalent to the market rents for  the new buildings. In September 2013, the Office of the Assistant  Secretary of Defense approved the Navy’s request for an increase in the  partial rate for the BAH. The private-sector developer’s cost for the project  was about $321 million, with the Navy providing a cash equity investment  of about $43 million for a total of about $364 million. Figure 1 shows a  bedroom in one of the new buildings at San Diego, California.
The Navy’s Hampton Roads, Virginia, project, awarded in December  2007, was built to house junior unaccompanied personnel (E-4/Petty  Officer Third Class with fewer than 4 years of service and below). The  project included 7 existing buildings on two installations (Naval Station  Norfolk, Virginia, and Naval Support Activity, Norfolk, Virginia) that were  conveyed to the developer and 88 newly constructed buildings on three  separate locations off the installation. Although the new buildings are off  the installation, two locations are on Navy property leased to the  developer, and one location (Newport News) is on land donated by the  city. In total, the Hampton Roads project includes 1,913 apartments and  3,682 bedrooms. Specifically, the 7 existing buildings include 723  apartments and 1,315 bedrooms, and the 88 new buildings include 1,190  apartments and 2,367 bedrooms. According to Navy officials, the  Hampton Roads project initially struggled to meet lease expectations  because of the reluctance of commanding officers to allow sailors off their  ships. As a result, the Commander, Naval Surface Force Atlantic, directed  commanding officers to comply with the Navy’s Homeport Ashore  initiative by allowing sailors to move off the ship. The private-sector  developer’s cost for the project was about $713 million, with the Navy  providing a cash equity investment of $37 million for a total of about $750  million. According to data provided by the Navy, the project’s average  occupancy rate is about 94 percent.
section_title: Agency Comments
paragraphs: We are not making any recommendations in this report. DOD opted not to  provide formal comments on a draft of this report, but provided technical  comments, which were incorporated into this report as appropriate.
We are sending copies of this report to appropriate congressional  committees; the Secretary of Defense; the Secretaries of the Army, Navy,  and Air Force; and the Commandant of the Marine Corps. In addition, this  report will be available at no charge on our website at http://www.gao.gov.
If you or your staff has any questions about this report, please contact me  at (404) 679-1875 or curriec@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix I.
section_title: Appendix I: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Kimberly Seay, Assistant  Director; Vijay J. Barnabas; Julie Corwin; Mae Jones; Barbara Joyce;  Carol Petersen; Michael Silver; and Michael Willems made key  contributions to this report.
section_title: Related GAO Products
paragraphs: Defense Infrastructure: Improved Guidance Needed for Estimating  Alternatively Financed Project Liabilities. GAO-13-337. Washington, D.C.:  April 18, 2013.
Military Housing: Enhancements Needed to Housing Allowance Process  and Information Sharing Among Services. GAO-11-462. Washington,  D.C.: May 16, 2011.
Military Housing Privatization: DOD Faces New Challenges Due to  Significant Growth at Some Installations and Recent Turmoil in the  Financial Markets. GAO-09-352. Washington, D.C.: May 15, 2009.
Military Housing: Management Issues Require Attention as the  Privatization Program Matures. GAO-06-438. Washington, D.C.: April 28,  2006.
Military Housing: Further Improvements Needed in Requirements  Determination and Program Review. GAO-04-556. Washington, D.C.:  May 19, 2004.
Military Housing: Better Reporting Needed on the Status of the  Privatization Program and the Costs of Its Consultants. GAO-04-111.  Washington, D.C.: October 9, 2003.
Military Housing: Opportunities That Should Be Explored to Improve to  Housing and Reduce Costs for Unmarried Junior Servicemembers.  GAO-03-602. Washington, D.C.: June 10, 2003.
Military Housing: Management Improvements Needed as the Pace of  Privatization Quickens. GAO-02-624. Washington, D.C.: June 21, 2002.
Military Housing: DOD Needs to Address Long-Standing Requirements  Determination Problems. GAO-01-889. Washington, D.C.: August 3,  2001.
Military Housing: Continued Concerns in Implementing the Privatization  Initiative. GAO/NSIAD-00-71. Washington, D.C.: March 30, 2000.
Military Housing: Privatization Off to a Slow Start and Continued  Management Attention Needed. GAO/NSIAD-98-178. Washington, D.C.:  July 17, 1998.