Military Housing: Management Issues Require Attention as the Privatization Program Matures
Published: 2006-04-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Defense (DOD) intends to privatize about 87 percent of the military-owned housing in the United States by 2010. As of December 2005, it had awarded 52 projects to privatize over 112,000 family housing units and had plans to award 57 more projects to privatize over 76,000 more units over the next 4 years. The program, begun in 1996, has become DOD's primary means to improve family housing and to meet its housing needs when communities near installations do not have enough suitable, affordable housing. Because of expressed interest related to the oversight responsibilities of several committees, GAO assessed (1) whether opportunities exist to improve DOD's oversight of awarded housing privatization projects, and (2) to what extent projects are meeting occupancy expectations.
section_title: What GAO Found
paragraphs: Although DOD and the individual services have implemented program oversight policies and procedures to monitor the execution and performance of awarded privatized housing projects, GAO identified three opportunities for improvement. First, the Navy's methods for overseeing its awarded projects have not been adequate to identify and address operational concerns in some projects or to ensure accurate reporting of project information. As a result, there is less assurance that Navy management could become aware of project performance issues in a timely manner in order to plan needed actions to mitigate the concerns. For example, contrary to project agreements, funds from one project had not been deposited to a Navy reserve account to provide for future project needs, and the Navy had not been reimbursed for police and fire protection services provided to another project. Compared to the Navy, the Army and Air Force had more robust and comprehensive methods for overseeing awarded projects and GAO did not find similar oversight concerns in the Army and Air Force projects it reviewed. Second, the value of DOD's primary oversight tool--the semiannual privatization program evaluation report--has been limited because the report lacks a focus on key project performance metrics to help highlight any operational or financial concerns, has not been issued in a timely manner, and does not ensure data accuracy by requiring periodic independent verification of key report elements. Third, data collected on servicemember satisfaction with housing, which is important for benchmarking and tracking of satisfaction levels over time as well as for making service-to-service comparisons, are inconsistent and incomplete because DOD has not issued guidance to the services for standardized collection and reporting of satisfaction information for all servicemembers. Sixteen, or 36 percent, of 44 awarded privatization projects had occupancy rates below expectations with rates below 90 percent, as of September 30, 2005. In an attempt to increase occupancy and keep rental revenues up, 20 projects had begun renting housing units to parties other than military families, including 2,077 units rented to single or unaccompanied servicemembers, retired military personnel, civilians and contractors who work for DOD, and civilians from the general public. Still, rental revenues in some projects are not meeting planned levels, resulting in signs of financial stress. If lower than expected occupancy and rental revenues continue in the long term, the result could be significantly reduced funds available to provide for future project needs and renovations or, in the worst case, project financial failures. Factors contributing to occupancy challenges include increased housing allowances, which have made it possible for more military families to live off base thus reducing the need for privatized housing, and the questionable reliability of DOD's housing requirements determination process, which could result in overstating the need for privatized housing. DOD has yet to implement some previous GAO recommendations to improve the reliability of the requirements assessments supporting proposed projects.

section_title: Letter
paragraphs: The Department of Defense (DOD) intends to privatize about 87 percent of  the military-owned housing in the United States by 2010. Since the  enactment of the National Defense Authorization Act for Fiscal Year 1996,  which provides for private-sector financing, ownership, operation, and  maintenance of military housing, privatization has become DOD’s primary  means for improving family housing and meeting requirements when the  communities near installations do not have an adequate supply of suitable,  affordable housing. Similar to servicemembers who live in the local  community, servicemembers who choose to live in privatized housing  receive a housing allowance that they use to pay rent and utilities.  According to DOD officials, the purpose of the housing privatization  program is to help improve servicemember quality of life by improving the  condition of military-owned housing faster and more economically than  would be achieved by the use of traditional military construction funding.  By the end of December 2005, the services had awarded 52 projects to  privatize over 112,000 family housing units and had plans to award 57 more  projects to privatize over 76,000 more units over the next 4 years.  According to DOD, the 52 awarded projects will provide about $13.9 billion  in housing improvements, with private-sector developers and lenders  providing about $12.9 billion, or about 92 percent of the financing, and  DOD providing the balance.
This report represents a continuation of our long-standing reviews of issues  related to housing privatization. We initiated this engagement under the  authority of the Comptroller General of the United States, and the report is  addressed to you because of expressed interest related to your committees’  oversight responsibilities. This report determines (1) whether  opportunities exist to improve DOD’s oversight of awarded housing  privatization projects, and (2) to what extent awarded projects are meeting  occupancy expectations.
To address these issues, we summarized program implementation status  and costs, compared the status to DOD’s goals and milestones, and  discussed issues affecting program implementation with DOD and service  officials. In doing so, we relied on program status data provided by DOD  and the services. We confirmed the status data for 12 projects, but we did  not otherwise test the reliability of the data. We visited installations where  12 projects were underway to review actual project performance and to  determine whether performance information and concerns were  adequately captured and reported to top management in a timely manner.  The installations were chosen because they contained established  privatization projects, represented each of the military services, and in  some cases had reported occupancy challenges. We compared occupancy  rates in awarded projects with occupancy expectations; and, for the 12  projects at the installations we visited, we explored the causes,  consequences, and service response when occupancy levels were below  expectations. We also examined and compared DOD’s and the services’  policies, guidance, and procedures for overseeing awarded privatization  projects. We conducted our work from July 2005 through February 2006 in  accordance with generally accepted government auditing standards. A  more detailed description of our scope and methodology is included in  appendix I.
subsections: section_title: Background
paragraphs: In the mid-1990s, DOD became concerned that inadequate housing  allowances and poor quality military housing were negatively affecting  quality of life and readiness by contributing to servicemember decisions to  leave military service. DOD noted that when living in private-sector  housing in the local communities, servicemembers were paying about 19  percent of housing costs out of pocket, because housing allowances were  inadequate. DOD also noted that the quality of military-owned housing had  been in decline for more than 30 years because military-owned housing was  not considered a priority and because earlier attempts at solutions ran into  regulatory or legislative roadblocks. DOD officials stated that much of the  military-owned family housing in the United States was old, lacked modern  amenities, and required renovation or replacement. DOD estimated that  completing this work with historical funding levels and traditional military  construction methods would take more than 20 years and cost about $16  billion.
In response, and with the approval of Congress, DOD began two major  initiatives. First, DOD began an initiative to increase housing allowances to  cover the average cost of housing and utilities in each of the nation’s  various geographic areas, thus eliminating the average out-of-pocket  housing costs paid by servicemembers. This initiative was completed at the  beginning of calendar year 2005. Second, DOD began an initiative to  privatize most military-owned housing to use private capital and  construction expertise to replace or renovate inadequate housing faster  than could be achieved using traditional funding methods at historical  funding levels. At DOD’s request, Congress enacted legislation in 1996  authorizing the Military Housing Privatization Initiative to allow private- sector financing, ownership, operation, and maintenance of military  housing.
DOD policy states that private-sector housing in the communities near  military installations will be relied upon as the primary source of family  housing. However, when communities do not have an adequate amount of  suitable housing, DOD intends to use housing privatization—rather than  military-owned housing financed with military construction funds—as the  primary means for meeting family housing requirements. As of December  2005, the services had awarded 52 projects to privatize over 112,000 family  housing units and had plans to award 57 more projects to privatize over  76,000 more units by 2010. Table 1 shows implementation status by service.  Also, appendix II contains more detailed status information on the 12  projects at the installations we visited during this review.
The duration of the initial development period—that is, the period when  developers construct new housing units and renovate older units—varies  among privatization projects, often lasting from 5 to 10 years. Thus,  planned housing improvements resulting from privatization normally are  not completed for several years after the projects are awarded. For all  awarded projects as of September 2005, privatization developers had  completed the construction of 10,911 new housing units and the renovation  of 9,161 older housing units. Figures 1 through 5 show photographs of  newly constructed and older privatized housing units at selected  installations we visited.
Servicemembers can choose whether or not to live in privatized housing— there are no mandatory assignments. Those who choose to live in  privatized housing receive the same housing allowance (which is used to  pay rent and utilities) as they would if they rented or purchased housing in  the local communities.
Within the Office of the Secretary of Defense (OSD), the Housing and  Competitive Sourcing Office, which reports to the Deputy Under Secretary  of Defense (Installations and Environment), provides oversight of the  housing privatization program, but the primary responsibility for  implementing it rests with the individual services. OSD designed and uses  the program evaluation plan report to oversee the effectiveness of the  program and the performance of awarded projects. The report, prepared  semiannually for the periods ending June 30 and December 31, is a  compilation of extensive data submitted by the services for each awarded  project and includes information on project contract structure,  construction and renovation progress, occupancy, financial performance,  and servicemember satisfaction with the housing.
This report is a continuation of a series of reports that we have issued on  matters related to DOD’s housing privatization program as well as DOD’s  process for determining housing requirements. The following summarizes  key issues from these reports:  In July 1998, we reported on several concerns as the housing  privatization program began, including (1) whether privatization would  produce insignificant cost savings and whether the long contract terms  of many projects might cause the building of housing that will not be  needed in the future; (2) whether controls were adequate to protect the  government’s interests if developers failed to operate and maintain the  housing as expected; and (3) whether DOD would face certain problems  if privatized housing units were not fully used by military members and  were subsequently rented to civilians, as the contracts permit.
In March 2000, we reported that initial implementation progress for the  privatization program was slow, the services’ life-cycle cost analyses provided inaccurate cost comparisons, and DOD lacked a plan for  evaluating the effectiveness of the program.
In June 2002, we reported that DOD needed to (1) revise its housing  requirements determination process to take into account greater use of  community housing as well as the projected impact that the housing  allowance initiative might have on military installation housing  requirements; and (2) improve the value of the primary privatization  oversight report by completing the report on time, including information  on funds accumulated in project reinvestment accounts, and obtaining  periodic independent verification of key report elements.
In May 2004, we reported that DOD needed to improve its revised  housing requirements determination process to help ensure that  housing investments, whether through military construction or  privatization, were supported by consistent and reliable needs  assessments. We also reported that DOD needed to survey  servicemembers with dependents to update information on the housing  preferences for family housing, given recent changes such as the  increase in housing allowances.
In response to each report, DOD officials have stated that they planned  management actions to address our concerns.
section_title: Opportunities Exist to Improve the Oversight of Awarded Privatization Projects
paragraphs: Although OSD and the services have implemented program oversight  policies and procedures to monitor the execution and performance of  privatized housing projects, opportunities exist for improvement. Though  owned and managed by the private sector, DOD maintains a strong interest  in the operational and financial performance of privatized housing projects  because it is accountable for public funds expended and because,  according to DOD officials, the military’s housing objectives can be met  only if the projects remain viable. Thus, adequate program oversight is  essential to help monitor and safeguard the government’s interests and to  help ensure the long-term success of the program. However, we identified  three areas of concern—the adequacy of the Navy’s oversight methods, the  usefulness of DOD’s primary oversight report, and the consistency of  tenant satisfaction data—which provide opportunities for enhancing the  oversight of awarded privatization projects. Specifically, as evidenced by  issues identified in some Navy and Marine Corps projects we visited, the  Navy’s oversight methods are not adequate to identify some project  operational concerns or to ensure accurate reporting of project  information. As a result, in contrast to the Army and the Air Force which  have more robust oversight methods, there is less assurance that Navy  management could become aware of project performance issues in a timely  manner in order to plan needed actions to mitigate the concerns. Also, the  usefulness of OSD’s primary program oversight tool—the semiannual  privatization program evaluation report—has been limited because the  report has not focused on key project performance metrics, has not been  issued in a timely manner, and has included inaccuracies. Moreover, data  on servicemember satisfaction with housing are inconsistent because DOD  has not issued guidance to the services for collecting and reporting  satisfaction information. As a result, data gathered to date cannot be  readily tracked over time or compared among the services, and their value  could be improved as a tool to more fully assess the impact of the  privatization program, as well as the impact of DOD’s overall housing  program, on servicemember quality of life.
subsections: section_title: Navy Program Oversight Did Not Identify and Address Some Project Concerns and Reporting Inaccuracies
paragraphs: The Navy’s oversight program for monitoring Navy and Marine Corps  projects has not adequately identified and addressed some project  operational concerns, nor does it ensure accuracy in project information  reported to DOD headquarters. Adequate program oversight is essential to  help monitor and safeguard the government’s interests and to help ensure  the long-term success of the program. However, in contrast to the Army’s  and Air Force’s oversight programs, the Navy’s oversight program was less  comprehensive and thus provided less assurance that Navy management  would become aware of project performance issues in a timely manner. To  illustrate, we found that the Army and the Air Force have robust, well- developed portfolio oversight programs to help top management monitor  implementation of their privatization programs. Both of these services  collected and analyzed detailed performance information on each project  including construction progress, construction costs, occupancy levels,  rental revenues, operating expenses, net operating income, and the debt coverage ratio. These services prepared detailed project reports, which  compared actual project performance data with expectations and  discussed reasons for significant variances. The Army and the Air Force  also prepared quarterly portfolio summary reports, which monitored  project execution, analyzed trends, highlighted current and potential  performance issues, and documented recent and planned actions to  address any project concerns.
In contrast, the Navy’s oversight program was less structured, included  fewer details on project performance, and did not include summary  oversight reports on portfolio performance, even though such reports were  required by Navy guidance. Specifically, in February 2004, the Navy  established a portfolio management group and assigned the group  responsibility to oversee the Navy’s and Marine Corps’ housing  privatization program. Although the group’s charter stated that it would  review project performance information and prepare consolidated  portfolio summary reports, Navy officials stated that no such reports had  been prepared at the time of our review in January 2006, almost 2 years  after the charter was approved. Navy officials initially told us that the  required summary reports were not needed because portfolio monitoring  was performed in other ways, such as a review of monthly status reports  from each project. They further stated that the Navy intended to eliminate  the reporting requirement. Subsequently, Navy officials told us that the  summary performance reports were needed and would be prepared in the  future.
During our visits to Navy and Marine Corps privatization projects, we  found instances where Navy oversight had not been adequate to identify  and address some project operational issues and ensure accurate reporting  of project performance information to OSD. For example:   During our September 2005 visit to the Navy’s Kingsville II project at the  Naval Air Station Kingsville, Texas, we found that project funds had not  been disbursed in accordance with the project agreement. According to  the agreement, 30 percent of the project’s net cash flow—that is, the  rental revenue remaining after payment of expenses and debt service— was to be deposited to a Navy-owned reserve account to be available for  future project needs. On the basis of the project’s net cash flow during  the first and second quarters of 2005, over $42,000 should have been  deposited to the Navy’s account. Yet, only $314 was deposited. When we  asked about this, Navy officials initially told us that the deposit amount  was correct and consistent with original expectations. When we again  questioned the deposit amount, Navy officials stated that the funds had  not been appropriately disbursed and that they had asked the project  developer for a complete analysis of the reserve accounts from project  inception. The officials subsequently stated that a deposit was made to  correct the balance in the Navy reserve account. Navy officials also  stated that, in light of the shortcomings identified, the project agreement  would be amended to require deposit and disbursement reports for all  reserve accounts and to ensure that the project’s annual audit included a  compliance review.
During our visit to the Navy’s South Texas project in September 2005, we  found that the project had not reimbursed the Navy for police and fire  protection services, as specified in a memorandum signed by the Navy  in January 2002. The memorandum stated that the project would pay the  Navy for police and fire protection services provided by the Naval Air  Station Corpus Christi beginning in calendar year 2002. The initial  annual payment was to be $84,756 with cost-of-living adjustments in  future years. However, when we asked about the payments in  September 2005, we were told that no payments had been made because  the Navy had not processed the proper paperwork to bill the project for  reimbursement. When we again asked about the reimbursement status  in December 2005, Navy officials stated that they were working to  resolve the issue. As of January 2006, 4 years after the project  memorandum was initially signed, the Navy still had not billed the  project for reimbursement.
We found that inaccurate project status information was reported to  OSD for five of the eight Navy and Marine Corps projects we reviewed in  detail. For example, data reported to OSD on the San Diego II project  showed that the project’s total development cost was $304 million,  although the correct amount was $427 million. Also, data reported to  OSD for the Camp Pendleton I showed that the project’s reinvestment  account balance was $725,000 although the correct balance was  $104,000. Further, data reported to OSD for the Marine Corps’ Tri- Command project showed that no net operating funds or interest would  be used to help finance the project during the initial development period  even though project closing documents in March 2003 showed that $53.6  million from net operating funds and interest were expected to be used  to help finance the project. Navy officials stated that corrections would  be made in the information reported to OSD.
During our review, Navy officials stated that they had begun a top-to- bottom evaluation of the privatization oversight program. They stated that  our review had been helpful in identifying items that required attention,  such as those we mentioned. The officials stated that while they believed  that their current procedures protected the government’s interests and  alerted top management to project concerns, they were conducting a  comprehensive review to ensure consistency and completeness, upgrade  the monitoring and oversight process, and make oversight responsibilities  better defined and, perhaps, more aggressive. As part of the review, the  officials stated that they intended to consider the Army’s and the Air  Force’s oversight procedures and reports and also intended to ensure that  appropriate portfolio performance summary reporting was completed in a  timely fashion. The officials said that they planned to complete the review  and implement oversight improvements by late spring 2006.
section_title: OSD’s Primary Program Oversight Report Is of Limited Usefulness
paragraphs: OSD’s semiannual privatization program evaluation report is of limited  usefulness because it is unwieldy, untimely, and includes inaccurate  information on some Navy and Marine Corps projects. Established in  January 2001, the report is OSD’s primary tool for overseeing the program’s  effectiveness and the performance of awarded projects. Although the  report is a potentially useful tool for monitoring program implementation,  the value of the report has been limited for several reasons.
First, as the number of awarded projects has increased from 7, when the  report was established, to 52 at the end of December 2005, the report is not  well focused, and has become unwieldy with the growing volume of data  provided. The December 2004 report contained 268 pages and, unless  changed, the report size will continue to increase as additional projects are  awarded. A streamlined report that focuses on a few key performance  metrics from each project could more readily highlight any operational or  financial concerns that might require management attention. Both the  Army and the Air Force portfolio summary reports include such focused  information and thus might provide useful insight in restructuring the OSD  report.
Second, the report’s usefulness has been limited because the report is not  timely. Although the report is not intended to provide for real-time  monitoring of awarded projects—the individual services have this  responsibility—information included in the report is so dated by the time  the report is issued that its value, as a tool to highlight any operational or  financial concerns to top management in a timely manner, is questionable.  For example, the report containing project information as of December 31,  2004, was due March 15, 2005, but it was not issued until June 2005, 3  months late, and contained data that were about 6 months old. Similarly,  the report containing project information as of June 30, 2005, was due by  September 15, 2005, but was not issued until February 2006, almost 5  months late, making the information in it more than 7 months old.
Third, the reports include inaccuracies because data reported by the  services are sometimes incorrect. OSD officials stated that, although they  review data submitted by the services for consistency and accuracy  compared to other information provided to OSD, reported information has  not been subjected to periodic independent verification to check accuracy.
We previously noted similar concerns about the privatization program  evaluation report. In our June 2002 report, we recommended that DOD  improve the report’s value by completing the report on time, including  information on funds accumulated in project reinvestment accounts, and  obtaining periodic independent verification of key report elements.  Although the report now includes information on funds accumulated in  project reinvestment accounts, concerns remain about the report’s  timeliness and accuracy. These concerns may be of additional importance  given that the House Appropriations Committee requested in 2005 that  DOD begin submitting a summary of the results of the program evaluation  plan used to monitor the military housing privatization initiative to the  committee and that information from the report has been cited in DOD  testimony on the housing privatization program.
section_title: Methods for Measuring Servicemember Satisfaction with Privatized Housing Are Not Consistent
paragraphs: The services have adopted different methods and time frames for collecting  and analyzing information about servicemember satisfaction with  privatized housing, largely because OSD has not issued guidance on how or  when the data must be collected. This limits the data’s value for tracking  occupant satisfaction over time as well as making service-to-service  comparisons. Given that the overall goal of the housing privatization  program is to improve the quality of life for servicemembers by improving  the condition of military housing, DOD considers that one measure of  program success is whether or not servicemembers are satisfied with  privatized housing. To gauge servicemember satisfaction, OSD requires the  services to collect and report satisfaction information from occupants at  each awarded project as part of the input to the privatization program  evaluation report. Specifically, OSD requires the services to survey  occupants and to report the occupants’ responses to the question “Would  you recommend privatized housing?” Data are reported separately for  occupants of privatized housing that is newly constructed, newly  renovated, and not renovated. Similar satisfaction information is not  routinely collected from the majority of servicemembers who live in the  communities surrounding military installations.
The information required by OSD could be useful in assessing satisfaction  levels over time and for comparing satisfaction levels among projects and  the services to identify trends and factors attributing to higher or lower  satisfaction levels. However, using satisfaction data for these purposes  requires that the services collect consistent information, and this is not the  case. Largely because OSD has not provided guidance on how or when the  services should collect servicemember satisfaction data, the services have  adopted different methods and time frames for collecting and analyzing  satisfaction information.
The Army uses a contractor to survey privatized housing occupants  annually between April and July. The 2005 survey asked 72 questions on  various aspects of maintenance and property management services, unit  condition, and amenities. Responses to most questions were requested  using a 5-point scale—for example, where “1” represents very  dissatisfied or no agreement and “5” represents very satisfied or  extreme agreement. Prior to 2005, the Army’s survey requested most  responses on a 7-point scale. Army officials stated that the change was  made to be more compatible with surveys performed by the other  services. However, the requested response to the “Would you  recommend privatized housing?” question was “yes” or “no”, rather than  a requested response on a 5-point scale. Therefore, because the Navy  and the Air Force request that servicemembers respond to this question  using a 5-point scale, the Army did not achieve compatibility with the  other services in the responses to this key question.
The Navy uses a different contractor to survey privatized housing  occupants at various times during the year. The survey asks 48 questions  with responses requested on a 5-point scale, including the question on  whether the occupant would recommend privatized housing. Navy  officials stated that the Navy strives to survey each project once a year.  However, surveys were not conducted at some Navy and Marine Corps  privatized housing projects in 2004 or 2005, and for six projects, the  Navy reported no satisfaction information to OSD for inclusion in the  December 2004 privatization program evaluation report.
Air Force officials stated that until 2005 each privatized project  conducted a local survey of occupants. However, due to disparities in  the ways the survey was administered from one installation to another  and because of the difficulty in achieving statistically significant  response rates (for example, only nine responses were obtained from  382 tenants at the Patrick Air Force Base project in 2004), the Air Force  decided to adopt a centralized approach. In June 2005, the Air Force  used the same contractor as the Navy and surveyed occupants at all Air  Force privatized projects. The survey asked 54 questions—mostly the  same questions that the Navy asked—with responses requested on a 5- point scale, including the question on whether the occupant would  recommend privatized housing.
With different survey methods, questions, and time frames, the information  being collected cannot be readily used for the purposes of benchmarking,  tracking, or comparing servicemember satisfaction levels. Thus, the value  of the information to help measure whether or not the privatization  program is succeeding in its goal of improving servicemember quality of  life could be improved. Further, because housing satisfaction information  is not routinely collected on servicemembers who do not live in privatized  housing, DOD lacks complete information on the impact of its overall  housing program on servicemember quality of life.
section_title: Lower Than Expected Occupancy Creates Concerns in Some Privatization Projects
paragraphs: Sixteen projects, or 36 percent, of 44 awarded privatization projects had  occupancy rates below expectations with rates below 90 percent, as of  September 30, 2005, raising concerns about project performance. Although  the projects were justified on the basis of meeting military family housing  needs, 20 projects have begun renting housing units to parties other than  military families, including unaccompanied military personnel and the  general public, in an attempt to keep rental revenues up. Still, rental  revenues in some of the projects we visited have not met expectations,  resulting in signs of financial stress such as having months where project  revenues were insufficient to pay all project expenses. In the long term, if  lower than expected occupancy and rental revenues persist, the result  could be significantly reduced funds deposited into reserve accounts,  which provide for future project needs and renovations. Or, in the worst  case, there could be project financial failures. Factors contributing to  occupancy challenges include poor condition of existing housing that has  not yet been renovated in some projects, significantly increased housing  allowances, which have made it possible for more military families to  afford off-base housing thus reducing the need for privatized housing, and  continued problems in DOD’s housing requirements determination process,  which could result in overstating the need for privatized housing. Although  deployments can also contribute to occupancy challenges, they were cited  as a contributing factor to lower than expected occupancy rates in only 1 of  the 12 projects we reviewed. The services are monitoring occupancy and  revenue concerns, and in some cases, have taken or planned steps to  address the concerns. However, without additional steps to help ensure  that the size of future privatization projects is reliably determined, future  projects could face similar occupancy and financial challenges.
subsections: section_title: Occupancy Was Below Expectations in Some Projects
paragraphs: We found that some awarded projects, as shown in table 2, were not  meeting occupancy expectations. According to service officials, the  expected occupancy rate during a project’s initial development period,  when many housing units are being constructed or undergoing renovation,  is usually around 90 percent of the units available for rent. After  completion of the initial development period, most projects expect  occupancy rates of about 95 percent. As of September 30, 2005, occupancy  was below expectations and below 90 percent in 6 of the Army’s 19  awarded projects, 4 of the Navy’s and Marine Corps’ 13 awarded projects,  and 6 of the Air Force’s 12 awarded projects. Although most of these  projects were in their initial development periods, 1 Navy and 2 Air Force  projects were not. In total, of 85,590 privatized housing units available for  rent, 77,355 units or 90 percent were occupied and 8,235 units or 10 percent  were vacant.
Occupancy rates would have been lower if 20 projects had not rented units  to nontarget tenants—that is, tenants other than military families. Although  the projects were justified on the basis of meeting the needs of military  families, project managers are allowed to offer units for rent to nontarget  tenants, when occupancy rates fall below expected levels for a designated  period of time, such as 2 or 3 months. Normally, project managers follow a  priority list, referred to as a tenant waterfall, when renting units to  nontarget tenants. In a typical tenant waterfall, vacant family housing units  are first offered to single or unaccompanied active duty military  servicemembers; then to DOD-related individuals, such as retired military  personnel and civilians and contractors who work for DOD; and finally to  civilians in the general public. As of September 30, 2005, of 44 awarded  projects, 20 projects, or 45 percent, had rented units to individuals other  than military families. More specifically, 20 projects had rented 1,116 units  to single or unaccompanied military personnel; 662 units to retired military  personnel and civilians and contractors who work for DOD; and 299 units  to civilians from the general public. In all, 2,077 family housing units were  occupied by parties other than military families.
Although renting vacant units to nontarget tenants increases rental  revenue, the practice includes some associated concerns. For example,  although background checks are performed on prospective general public  civilian tenants, several service officials stated that additional concerns  exist when civilians live on military installations, such as whether they  should have access to on-base amenities available to military families. Also,  when units are rented to unaccompanied servicemembers, the rental  revenue is usually less than with military family occupants because the  rental rate is normally based on housing allowance rates, and the  allowance rates for unaccompanied servicemembers are less than the rates  for servicemembers with families. Therefore, although occupancy rates  increase, the increase in rental revenues usually falls short of the revenue  expectations for the units.
section_title: Lower Than Expected Occupancy Causes Financial Stress and Could Reduce Funds for Future Reinvestment
paragraphs: When project occupancy levels are less than expected, project rental  revenues are less than expected, which can cause financial stress, such as  having periods when revenues are insufficient to pay all expenses. If  revenue shortfalls persist in the long term, the result can be reduced or no  funds remaining after payment of operational expenses, debt service, and  developer returns to be deposited into the reserve accounts established to  pay for future project needs and renovations. In a worst—case scenario, there could be insufficient funds to make a project’s loan payments, which  could lead to a financial default.
Although the housing privatization program is relatively young and the  majority of the projects awarded through September 2005 appeared  financially healthy, lower than expected occupancy rates and rental  revenues in some projects were causing financial stress in some of the  projects we visited. The examples below illustrate the occupancy and  financial challenges facing some projects, the reasons for the challenges,  and steps taken or planned in response. While many vacancies involved  older housing units not yet renovated, we also found vacancies involving  newly constructed and renovated units.
At Fort Meade in July 2005, 2,044 units, or 81 percent, of the available  units were occupied, compared to an expected occupancy of 2,332 units,  or 92 percent. Army officials stated that the project’s 491 vacant units  were older units that had not been renovated. Occupancy would have  been lower if the project had not rented units to nontarget parties. Of  the occupied units, 205 units, or 10 percent, were occupied by nontarget  tenants, including unaccompanied military servicemembers, military  retirees, and DOD civilian employees. The shortfall of 288 expected  occupants had caused financial stress for the project. For example, the  project’s net operating income was 33 percent below expectations for  the quarter ending June 30, 2005. Army officials stated that lower than  expected revenues had slowed the project’s construction progress  because funds remaining after payment of project expenses were to be  used to help pay for construction costs during the initial development  period. The officials stated that lower than expected occupancy was  caused by three main factors. First, the poor condition of much of the  privatized housing that had not yet been improved made it unattractive  to military families. Second, increased housing allowances made more  local community housing affordable and caused many military families  to decide to rent or buy housing off base. Third, recent private-sector  housing development in the local communities surrounding Fort Meade  increased the availability of local housing. In response to the occupancy  and financial concerns, Army officials stated that plans were underway  to restructure the project and reduce the project’s planned number of  units. Army officials were optimistic that occupancy would increase as  more units were renovated and additional new units were constructed,  making the project more appealing to military families.
At the Navy’s South Texas project, Navy officials stated that lower than  expected occupancy had been a concern since the project’s beginning in  February 2002. At the time of our visit in September 2005, the occupancy  rate was 78 percent, with 311 units occupied and 87 units vacant. Navy  officials stated that a key reason for low occupancy was that the project  was still in its initial development period, and progress in improving  housing conditions had proceeded much more slowly than planned. As a  result, much of the privatized housing was in poor condition and  unattractive to military families. However, of the 87 vacant units, Navy  officials stated that only 11 were awaiting renovation or replacement,  and the remaining 76 units consisted of newly constructed or renovated  housing units. Other causes for low occupancy included reduced  housing requirements caused by reductions in military personnel  assigned to the area and increased housing allowances, which made  more local community housing affordable for servicemembers. With  reduced occupancy, the project had experienced signs of financial  stress. For example, in July 2005, the project’s rental income was 26  percent below budget and was insufficient to pay the project’s operating  expenses. Also, the project’s debt coverage ratio was a negative number,  meaning that net operating income was insufficient to cover the  project’s debt payment. Navy officials stated that the project faced little  risk of financial failure during its initial development period because  accounts were established at the project’s inception to provide for debt  service payments during this period. Nevertheless, Navy officials  expressed concern about the project and had taken actions to address  the situation. In August 2004, an agreement was reached to reduce the  project’s scope by 80 units, and Navy officials stated that further project  scope reductions might be considered in the future.
At Robins Air Force Base, 559 units, or 83 percent, of 670 available units  were occupied in September 2005 compared to the expected occupancy  rate of 97 percent. This project had completed its initial development  period and consequently all available units are newly constructed or  renovated. Of the occupied units, 109 units were occupied by nontarget  tenants, including 42 civilians. Air Force officials stated two reasons for  the low occupancy. First, increased housing allowances and attractive  mortgage interest rates had caused some servicemembers to decide to  purchase homes in the local community. Second, the project’s design,  which included many two-bedroom units, was less appealing to some  military families. As a result of the low occupancy rates, Air Force  officials stated that the project faced significant financial challenges.  The Robins project was one of three Air Force projects rated as  unsatisfactory in the Air Force’s September 2005 portfolio summary  report because of financial weakness and concerns about meeting  developmental and/or financial obligations. Air Force officials stated  that alternatives were being explored, which may require renegotiation  of the project agreement with the developer to improve the project’s  long-term financial viability.
At Patrick Air Force Base, military families occupied 172, or only 29  percent, of the 592 available units. Nontarget tenants, including 135  unaccompanied servicemembers and 126 civilians, occupied 261  additional units to make the overall occupancy rate 73 percent  compared to an expected occupancy rate of 90 percent. Air Force  officials attributed the low occupancy to the poor condition of the  project’s units, where planned improvements were far behind schedule.  The project, which will consist of all new units when completed, had no  new units ready for occupancy at the time of our visit in early December  2005. The officials also said that increased housing allowances had  caused many military families to decide to obtain housing in the local  community. Although the project’s nontarget tenants had significantly  reduced the financial challenges that would have occurred if only  military families occupied the housing, the project still faced financial  stress. For the quarter ending September 30, 2005, the project’s net  operating income was 28 percent below expectations. Largely because  of financial issues, the project was restructured in April 2005 to increase  debt and provide additional funds needed to complete the initial  development period. As part of the restructuring, some funds that had  initially been required to flow into the project’s reserve account for  future project needs and renovation were allowed to be used for  construction funding. Air Force officials stated their belief that, as  housing improvements are completed, both occupancy rates and the  number of military family tenants will increase and the project’s  financial performance will improve.
At the time of our visit to the Marine Corps’ Tri-Command project in  early October 2005, the expected occupancy rate was 93 percent.  However, the actual rate was 83 percent, with 1,393 of 1,680 available  units occupied and 287 units vacant. Service officials stated that most  vacant units were older units that had not been renovated. According to  installation officials, the lower than expected occupancy rate was  caused by increased housing allowances, which had led some  servicemembers to decide to rent or buy housing in the local  community. Also, although the project was awarded in March 2003, the  project was still undergoing initial development and, with many of the  planned housing improvements not yet completed, much of the on-base  housing was in poor condition and unattractive to military families. With  lower than expected occupancy, the project showed signs of financial  stress. In September 2005, the project reported that rental revenues  were 14 percent below expectations and the net operating income was  30 percent below expectations. Also, the project’s debt coverage ratio  was .66, meaning that the project’s operations did not produce sufficient  funds to cover the debt payment. Marine Corps officials stated that the  project faced little risk of financial failure during its initial development  period because accounts were established at the project’s inception to  provide for debt service payments during this period. Still, the officials  expressed concern about the project’s finances. In an effort to improve  occupancy and financial performance, the project revised its  revitalization strategy in August 2005 and obtained $44.1 million in  additional private loans to finance upgrades to more housing units than  originally planned to make the units more appealing to potential renters.  Marine Corps officials stated that the revised strategy should result in  improved project performance.
section_title: Increased Housing Allowances and Unreliable Needs Assessments Contribute to Occupancy Concerns
paragraphs: Increases in monthly housing allowances and unreliable estimates of  housing requirements contribute to occupancy concerns in some  privatization projects by reducing the need for privatized housing or  possibly overstating the required size of some projects. Some causes of  occupancy concerns, such as changes in personnel assignments and  deployments, often cannot be predicted and are beyond the control of the  services. While deployments can contribute to occupancy challenges, they  were cited as a contributing factor to lower than expected occupancy rates  in only 1 of the 12 projects we reviewed. Also, as the condition of privatized  housing at some installations improves with the construction of new  housing and the renovation of older housing units, the projects may attract  more military families and the occupancy rates may improve. However,  other factors, such as the impact of DOD’s zero-out-of-pocket housing  allowance initiative and the reliability of DOD’s overall housing  requirements assessment process, can also affect occupancy rates and are  important considerations in planning for future housing privatization  projects. To help ensure that the size of housing projects is accurately  determined, we previously reported that DOD needed to study how  increased allowances might affect future housing needs and to make  improvements in its requirements process to maximize reliance on local  community housing, as required by DOD policy. Yet, because DOD has yet  to implement these recommendations, the planned size of future  privatization projects may not be based on reliable needs assessments,  which could contribute to occupancy and financial challenges in some  future projects.
For example, in June 2002, we noted that uncertainties existed in the future  need for military-owned and privatized housing because of DOD’s initiative  to increase housing allowances. Prior to the initiative, servicemembers  with families living in community housing received, on average, an  allowance that covered about 81 percent of housing costs, including  utilities. Servicemembers paid the remaining 19 percent of housing costs  out of pocket using other sources of income. Under the initiative begun in  2001, housing allowances increased each year over a 5-year period,  progressively eliminating the average out-of-pocket costs. By January 2005,  the average housing allowance fully covered the average costs of housing  and utilities in each geographic area with the typical servicemember paying  no additional out-of-pocket costs. Table 3 illustrates the increase in housing  allowances for selected military paygrades in five locations before the  initiative in 2000 and after the initiative in 2006.
Our report further noted that increased housing allowances from the zero- out-of-pocket initiative would make a significant impact on the military  housing program. First, increased allowances should decrease the  requirement for military-owned or privatized houses by making local  community housing more affordable to servicemembers. Second, over  time, the supply of community housing available to military families could  increase and reduce the requirement for military-owned or privatized  housing as private developers construct new housing near military  installations to profit from renting to servicemembers at market rates.  Third, increased allowances should allow DOD to better satisfy the  preferences of most servicemembers to live off base and reduce demand  for on-base housing. For these reasons, we recommended that DOD take  into account the projected impact that the housing allowance initiative  might have on military housing requirements. Yet, as of January 2006, DOD  had not conducted detailed analyses to consider the effects of increased  allowances on requirements, nor had the department provided guidance to  the services on how these effects should be considered in their housing  requirements assessments.
We also previously reported on changes needed to increase the reliability of  DOD’s housing requirements determination process. In May 2004, we  noted that, although DOD had revised its process and made improvements,  additional steps were needed to ensure consistency, accuracy, and  maximum reliance on private housing in the communities surrounding  military installations. Specifically, we noted that (1) DOD had not provided  the services with timely detailed guidance for implementing the revised  requirements process; (2) in the absence of detailed guidance, the services  used inconsistent methods and sometimes questionable data sources and  assumptions when determining family housing needs at various  installations; and (3) as a result, DOD could not know with assurance how  many housing units it needed and whether its housing investment decisions  were justified. The report also noted that DOD’s revised requirements  process provided exceptions to the use of available, suitable local  community housing at each installation. We noted that one exception— military mission requirements—appeared clearly justified, but the other  exceptions did not and could result in the services identifying more on-base  family housing requirements than were actually needed. For example,  DOD’s process allows installations to include in its military-owned or  privatized housing requirement a quantity of housing to accommodate up  to 10 percent of the projected number of families at those installations,  regardless of the availability of local housing.
To address these matters, we recommended that DOD provide the military  services with more detailed guidance on implementing the revised housing  requirements process to help ensure that housing investments, whether  through military construction or privatization, were supported by  consistent and reliable needs assessments. We also recommended that  DOD review the rationale supporting the exceptions to using local  community housing in an effort to reduce or narrow the scope of the  exceptions and help maximize use of available community housing. In  response, DOD stated that it planned to include detailed guidance on  implementing the requirements process in a forthcoming revision to the  DOD housing management manual. DOD officials stated that the revised  manual would also include guidance narrowing the scope of the exceptions  provided to the services in the use of available community housing.  Although the revised manual was originally scheduled for issuance in  December 2004, the manual had not been issued at the time of our review  in January 2006. DOD officials stated that they were still revising the  manual and that the final version should be issued during 2006.
The fact is that the  scopes are currently based on static housing requirements and  market analysis. Markets are not static, as is evidenced by the speed at which the private  sector has provided housing thereby reducing subsequent  requirements…The Air  Force should carefully consider expectations for future (2 to 5 years) housing needs when  establishing the scope of new projects….Because of the delays between the date of the  housing requirements and market analysis and the delivery of units, the Air Force may be  building too may homes. Overbuilding in any project could pose a significant risk.
section_title: Conclusions
paragraphs: Adequate privatization program oversight is essential to help monitor and  safeguard the government’s interests and ensure the long-term success of  the program. Unless the Navy follows through with its plans to improve its  policies and procedures for overseeing its housing privatization program,  Navy management will continue to lack assurance that it can become  aware of project performance issues in a timely manner. Also, unless DOD  streamlines its privatization program evaluation report to focus on key  project performance metrics, completes the report on time, and obtains  periodic independent verification of key report elements, the report’s value  as an oversight tool will continue to be limited. Further, until DOD provides  guidance to the services to help ensure consistent collection and reporting  of housing satisfaction from all servicemembers, the value of the  information to help measure this aspect of the privatization program’s  success, as well as the impact of DOD’s overall housing program on quality  of life, will also continue to be less useful than it could be.
In the long term, if lower than expected occupancy rates and rental  revenues at some privatization projects persist, the result could be  significantly reduced funds flowing into reserve accounts that were  established to provide for future project needs and renovations. In the  worst-case scenario, the program could see project financial failures,  which could affect the quality of housing available to military families.  Such concerns may occur in future privatization projects unless DOD fully  considers the impact of increased allowances on housing requirements and  implements improvements to its requirements determination process so  that the planned size of future projects is reliably determined.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Defense direct the Deputy Under  Secretary of Defense (Installations and Environment) to take the following  five actions:  Require the Navy to upgrade the monitoring and oversight of its housing  privatization program to ensure consistency, completeness, and  preparation of appropriate portfolio summary performance reports.
Improve the value of DOD’s privatization program evaluation report by  streamlining the report to focus on key project performance metrics,  completing the report on time, and obtaining periodic independent  verification of key report elements.
Provide guidance to the services to help ensure consistent collection  and reporting of housing satisfaction information from all  servicemembers, which would allow for benchmarking and tracking of  tenant satisfaction over time as well as for making service-to-service  comparisons.
Determine how increased housing allowances from the zero-out-of- pocket initiative will most likely impact future family housing  requirements and provide guidance on how the impacts should be  factored into the services’ housing requirements assessments.
Expedite issuance of the revised DOD housing management manual and  ensure that the revision includes guidance to improve the reliability of  housing requirements assessments and reduce the scope of the  exceptions provided to the use of available community housing.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, the Director for Housing and  Competitive Sourcing within the Office of the Under Secretary of Defense  for Acquisition, Technology and Logistics fully agreed with three and  partially agreed with two of our recommendations and stated that  shortcomings identified in the report would be forthrightly addressed.  Noting that our report was an important contribution to DOD’s oversight of  the housing privatization program to date, DOD stated that steps were  already underway to streamline the privatization program evaluation report  and improve the report’s accuracy. Also, DOD intends to closely observe  project vacancy rates in view of the increased housing allowance rates and  ensure that the revised housing management manual, now scheduled for  completion by the end of calendar year 2006, addresses the housing  requirements issues identified in our report. DOD also stated that its  privatization program evaluation report was not intended to provide real- time project oversight and that this was the role of the services’ portfolio  management systems. Our report does not imply that the evaluation report  should provide for real-time project oversight. Nevertheless, because the  evaluation report is the department’s primary tool for evaluating the  program’s effectiveness, we continue to believe that such a report which  focuses on key performance metrics and contains accurate and timely  information is important for OSD in carrying out its oversight and effective  stewardship of the program.
DOD partially agreed with our recommendation that the Navy be required  to upgrade the monitoring and oversight of its housing privatization  program to ensure consistency, completeness, and preparation of  appropriate portfolio summary performance reports. DOD stated that it  disagreed with our assumption that, because the Navy did not prepare  summary portfolio briefings and the Navy’s input to the privatization  program evaluation report contained errors, the Navy was at risk of not  being aware of potential problems with projects. DOD also stated that a  review of other projects conducted by the Navy and a Navy consultant did  not identify issues such as those we identified at the Kingsville II and South  Texas projects. However, DOD stated that additional guidance was being  developed for internal reviews of audits and financial data from general  partners to ensure accurate monitoring and oversight of distributions.
Finally, DOD stated that the cost of fire and police services at the South  Texas project was not invoiced or reimbursed for 2 years, not for 4 years, as  stated in our report.
We disagree with DOD’s description of the Navy’s oversight of its housing  privatization program and continue to believe that, without improvement,  the Navy is at risk of being unaware of potential problems with projects.  First, our report notes that in contrast with the Army and the Air Force, the  Navy’s oversight program was less structured, included fewer details on  project performance, and did not include summary oversight reports on  portfolio performance, even though such reports were required by Navy  guidance. Also, as noted in our report, the Navy agreed that oversight  improvements were needed and had begun conducting a comprehensive  review to ensure consistency and completeness, upgrade the monitoring  and oversight process, and make oversight responsibilities better defined  and, perhaps, more aggressive. Further, we continue to believe that  inaccurate project status information reported to OSD for five of the eight  Navy and Marine Corps projects we reviewed indicates a lack of adequate  oversight and attention to detail. Second, while the Navy and its consultant  apparently did not identify issues at other projects, the Navy was  developing additional guidance for internal reviews of audits and financial  data from general partners to ensure accurate monitoring and oversight of  distributions. We believe that this action indicates the Navy has recognized  the need for better oversight and also raises the question of why such  guidance was not already in place given that the housing privatization  program began in 1996. Third, regarding the reimbursement for the cost of  fire and police services at the South Texas project, our report contains  information provided by top management in the Navy’s housing  privatization program and which we revisited with the Navy officials  several times over the duration of this review. For example, we posed a  written question to the Navy headquarters housing officials in mid- November 2005 in which we reiterated a statement they had previously  made to us earlier that Navy never billed the South Texas project for fire  and police services, and asked for the status of the issue. On November 22,  2005, an official on the staff of the Assistant Secretary of the Navy for  Installations and Environment, without stipulating a set number of years,  provided the following written response, “Navy Region South East and the  installation are working to resolve this issue. As of November 15, 2005, the  project had not been billed for the services.” Subsequently in a December  13, 2005, meeting with Navy privatization program officials, we again  discussed this issue and were told that they were working to resolve the  issue. On January 25, 2006, a senior Navy housing official told us that the  installation had billed the project and had received payment within the last  month. When we asked about the month in which the billing occurred, the  same official responded 2 days later that “The billing has not yet occurred.”  In view of these statements from the top Navy management officials  responsible for overseeing the housing privatization program, we believe  that DOD’s comment that cost of fire and police services at the South Texas  project were not invoiced or reimbursed for 2 years, rather than 4 years,  only helps to illustrate our point—that the Navy should be required to  upgrade the monitoring and oversight of its housing privatization program.
DOD partially agreed with our recommendation that DOD provide  guidance to the services to help ensure consistent collection and reporting  of housing satisfaction information from all service members, which would  allow for benchmarking and tracking of tenant satisfaction over time as  well as for making service-to-service comparisons. DOD stated that tenant  survey guidance already exists and that it would not be suitable to overlay a  programwide directive because of differences among the services in the  data they need to help support their specific, negotiated business  structures. However, DOD also stated that it would revise its guidance to  require consistent use of a 5-point numerical system to measure tenant  satisfaction across the services. DOD also agreed that (1) housing  preferences should be surveyed for all service members, not simply those  occupying privatized housing; (2) it is important to reevaluate  servicemember housing preferences driven by increased allowances and  housing revitalization; and (3) a panel at the Office of Secretary of Defense  has been studying how to best implement such a survey. The intent of our  recommendation was not to require the services to use identical questions  when assessing tenant satisfaction, but rather to ensure that the services’  methods, questions, and time frames were of sufficient consistency to  allow for benchmarking, tracking, or comparing servicemember  satisfaction levels. Ensuring that the services use a consistent 5-point  numerical system for measuring tenant satisfaction is a step in the right  direction. However, we continue to believe that DOD needs to ensure that  the services use consistent time frames in order to make maximum use of  satisfaction information as a tool to help measure whether or not the  privatization program is succeeding in its goal of improving servicemember  quality of life.
DOD’s comments are reprinted in their entirety in appendix III.
We are sending copies of this report to other interested congressional  committees; the Secretaries of Defense, Army, Navy, and Air Force; and the  Director, Office of Management and Budget. 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.
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. The GAO staff members who made key contributions to  this report are listed in appendix IV.
section_title: Scope and Methodology
paragraphs: To determine whether opportunities exist to improve the Department of  Defense’s (DOD) oversight of awarded housing privatization projects, we  summarized program implementation status and costs, compared the  status to DOD’s goals and milestones, and discussed issues affecting  program implementation with DOD and service officials. We relied on  program status data provided by DOD and the services and confirmed the  status data for 12 privatization projects, but we did not otherwise test the  reliability of the data. We also obtained, reviewed, and compared DOD and  service policies, guidance, and procedures for monitoring implementation  and measuring progress in the housing privatization program. We  questioned DOD and service officials responsible for the program about  how they oversee project performance, how they compare performance  with expectations, and what actions they take when performance does not  match expectations. We obtained and reviewed applicable oversight  reports and assessed the extent to which the reports included key project  performance data, trends, and discussion of any performance concerns. We  also compared the issue dates of DOD and service oversight reports with  the due dates to determine the timeliness of the reports; reviewed and  compared the services’ methods and time frames used to measure  servicemember satisfaction with privatized housing; and reviewed the  results of DOD and service efforts to assess servicemember housing  preferences.
Further, we visited selected military installations with housing privatization  projects to review oversight at the local level, to examine project  performance, and to determine whether performance information and  concerns were adequately captured in oversight reports and provided to  top management in a timely manner. Specifically, we visited Fort Meade,  Maryland; Fort Stewart, Georgia; Naval Air Station Corpus Christi, Texas;  Naval Air Station Kingsville, Texas; Naval Station San Diego, California;  Patrick Air Force Base, Florida; Robins Air Force Base, Georgia; Marine  Corps Base Camp Pendleton, California; and Marine Corps Air Station  Beaufort, Georgia. These installations were chosen because they contained  established privatization projects, represented each of the military  services, and a balance of some with and without challenges. Together, the  installations contained 12 separate privatization projects.
To determine to what extent awarded privatization projects are meeting  occupancy expectations, we interviewed DOD and service officials to  discuss project occupancy expectations, the factors that contribute to  lower than expected occupancy rates, the financial and other impacts that  result from lower than expected occupancy rates, and the responses  normally taken when occupancy is below expectations. We obtained,  reviewed, and analyzed project occupancy rates and trends for all projects  awarded as of September 30, 2005, and compared these data to occupancy  expectations. We relied on occupancy data provided by the services and  did not otherwise attempt to independently determine occupancy rates.  Also, for the 12 projects at the installations visited, we reviewed project  justification and budget documents to determine each project’s occupancy  expectations and compared actual occupancy rates with the expectations.  When occupancy rates were below expectations, we reviewed project  performance reports and interviewed local officials to determine the  causes, consequences, and any actions taken or planned in response. We  also reviewed information on the number of privatized family housing units  rented to parties other than military families and discussed the associated  impacts with service officials. Further, we determined the status of steps  taken by DOD in response to previous GAO recommendations to address  concerns in the reliability of the services’ housing requirements  assessments.
We conducted our work from July 2005 through February 2006 in  accordance with generally accepted government auditing standards.
section_title: Details on 12 Housing Privatization Projects
paragraphs: Table 4 provides details on the 12 housing privatization projects at the  installations visited during this review.
section_title: Comments from the Department of Defense
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Barry W. Holman, (202) 512-5581 (holmanb@gao.gov)
section_title: Acknowledgments
paragraphs: In addition to the person named above, Mark A. Little, Assistant Director;  Janine M. Cantin; Susan C. Ditto; Gary W. Phillips; and Sharon L. Reid also  made major contributions to this report.