Military Housing: Opportunities Exist to Better Explain Family Housing O&amp;M Budget Requests and Increase Visibility Over Reprogramming of Funds
Published: 2004-05-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The military services have owned and operated much housing on their installations but increasingly are privatizing housing, relying on the private sector to manage the renovation, construction, and maintenance of existing and new homes for military families. Funding to operate and maintain existing government-owned housing is provided through the family housing operation and maintenance (O&M) appropriations. The amount of funding required varies based on a number of factors, including how quickly privatization occurs to reduce requirements for government-owned housing. As requested, this report discusses the (1) services' assumptions and methods used to develop budget requests and how well their budget justifications explain the impact of privatization on family housing O&M funds and (2) the extent to which Congress has visibility over the services' reprogramming of family housing O&M funds.
section_title: What GAO Found
paragraphs: Budget justification materials submitted to Congress for family housing O&M funding do not clearly and consistently explain funding requirements and how the housing privatization program impacts the services' budget requests, frustrating congressional oversight. Various factors have contributed to this situation. The services use similar assumptions and methods to develop budget requests for family housing O&M, but they often rely on assumptions established up to a year and a half before the budgets are executed. While the services have the ability to revise and update their budget requests, they typically choose not to because of the difficulty of doing so related in part to other competing defense priorities and the relatively small size of the family housing O&M budget. Given these considerations, defense officials said that they are more likely to make the needed funding adjustments through reprogrammings. In addition, changes in the pace of expected privatization can affect funding required for the nine family housing O&M accounts and subaccounts--although not uniformly--but the effects of these changes are not well explained in budget justifications submissions to Congress. Although, in many cases, the services may have data that could result in better informed decision making, they do not always include such information in budget justifications. Congress has limited visibility of the services' reprogramming of family housing O&M funds. For example, Congress is not notified when reprogrammings are below 10 percent of the initial funding amount or result in a decrease. On the other hand, DOD provides congressional decision makers with more information on reprogrammings for other appropriations, such as regular O&M. In addition, compared with the other services, the Navy and the Marine Corps' reporting of reprogrammings provides even less visibility. For example, they did not report to Congress reprogrammings for the four subaccounts--management, services, furnishings, and miscellaneous--within the operations account. In addition, the Defense Finance and Accounting Service's obligation reports for the Navy and Marine Corps do not separate the four operations subaccounts, as they do for the other services. Navy and Marine Corps officials were not aware of the usefulness to separate the four operations subaccounts. Also, the Navy and the Marine Corps obligation data reflecting reprogramming actions do not always match comparable official obligation data produced by the Defense Finance and Accounting Service. Even though the two services have been working with the Defense Finance and Accounting Service, officials told GAO that this has been a long-standing issue and difficult to resolve. Collectively, this lack of visibility over the reprogramming of funds and data inconsistencies hinder the ability of congressional and DOD decision makers to evaluate family housing O&M budget requests and obligations.

section_title: Letter
paragraphs: The military services own and operate much housing on their military  bases while at the same time they are increasingly moving to privatize  their housing. In doing so, they rely on the private sector to renovate and  operate privatized housing as well as build and maintain many new  housing units. Some funding to support both military-owned housing and  privatization is provided for in the family housing operation and  maintenance (O&M) portion of the military construction appropriation act.  The services’ family housing O&M budget requests and resulting  congressional appropriations use a budget structure consisting of nine  accounts and subaccounts. Congress appropriated about $2.7 billion to  operate and maintain about 230,000 housing units for servicemembers and  their families in fiscal year 2004. The services use these funds to meet a  range of family housing requirements, such as managing property,  providing utilities, and maintaining and leasing housing units.
In 1998, the Department of Defense (DOD) estimated that 60 percent of its  family housing inventory in the United States was inadequate and in need  of renovation or replacement. In its Defense Planning Guidance for fiscal  years 2004 through 2009, DOD set a deadline of fiscal year 2007 to  eliminate inadequate family housing across DOD. Recognizing this  situation, Congress gave DOD new authorities to use private sector  investment capital and housing construction expertise to finance, own,  operate, and maintain military housing known as the Military Housing  Privatization Initiative. As the services privatize their housing, reductions  in their housing inventory will occur. A portion of family housing O&M  appropriation supports the privatization initiative, such as funding  environmental assessments and consultant fees.
The conference report accompanying the fiscal year 2004 military  construction appropriation bill directed us to conduct a study on the  assumptions and methods used by the services to develop their respective  budget requests for the nine accounts and subaccounts that comprise the  family housing O&M appropriations and review the reprogramming of  funds between these accounts. We recently provided your offices with  information summarizing our preliminary findings in a briefing format (see  app. I). This report summarizes and updates our findings contained in the  briefing materials in the following two areas: (1) the services’ assumptions  and methods used to develop individual budget requests and how well  their budget justifications explain the impact of privatization on family  housing O&M funds and (2) the extent to which Congress has visibility  over the services’ reprogramming of family housing O&M funds.
To address these objectives, we interviewed Army, Navy, Marine Corps,  and Air Force family housing officials to obtain information on the  assumptions and methods used to develop the family housing O&M budget  requests, the impact of privatization on family housing O&M funds, and the  reprogramming of these funds. In addition, we reviewed the services’  budget justification submissions to assess how well the services explained  their assumptions, methodology, and the impact of privatization. We  assessed the reliability of the services’ data and found some  inconsistencies between Navy and Marine Corps data and Defense  Finance and Accounting Service data. We believe the data gathered are  sufficiently reliable for the purposes of this report. We also discussed the  results of our work with officials from the Office of the Under Secretary of  Defense (Comptroller); the Housing and Competitive Sourcing Office  within the Office of the Under Secretary of Defense for Acquisition,  Technology, and Logistics; the Defense Finance and Accounting Service;  and the military services. We conducted our work from December 2003  through March 2004 in accordance with generally accepted government  auditing standards. Details about our scope and methodology appear at  the end of this letter.
subsections: section_title: Background
paragraphs: In fiscal year 2004, DOD owns and manages about 230,000 housing units  for military families. At the same time, DOD is increasingly moving to  privatize its housing, relying on the private sector to renovate and operate  privatized housing as well as build and maintain many new housing units.
As of February 2004, DOD had privatized about 55,100 housing units and  expected to privatize about 160,000 housing units by the end of fiscal year  2007, including construction of many new units. To operate and maintain  the government-owned infrastructure, the services use family housing  O&M funds to perform maintenance, pay utilities, provide services,  manage the family housing program, and fund various other family  housing requirements. Also, funding for military-owned and privatization  support costs is provided for in the family housing O&M portion of the  annual military construction appropriation. For fiscal year 2004, Congress  appropriated about $2.7 billion for family housing O&M in the military  construction appropriation. The services request these funds using a  budget structure comprised of nine accounts and subaccounts (see fig. 1).  In turn, Congress, in its conference report accompanying the bill, uses the  same nine accounts and subaccounts to designate its understanding of  how the funds are to be used. As shown in figure 1, DOD groups the four  subaccounts—management, services, furnishings, miscellaneous—under  the operations account.
Congressional conferees expressed several concerns about the services’  family housing O&M budget requests in the conference report  accompanying the 2004 military construction appropriation bill.  Conferees stated concerns about the services not adequately explaining  the assumptions and methods used to develop the family housing O&M  budget requests and about the services’ reprogramming actions.  Furthermore, conferees reduced each of the services’ fiscal year 2004  family housing O&M budget requests by $10 million due to the way the  services calculated their family housing O&M requirements. Conferees  further reduced the Navy’s request by another $7.7 million due to concerns  about how the Navy accounted for its housing privatization effort in its  family housing O&M budget request for fiscal year 2004.
subsections: section_title: Family Housing O&M Budget Process
paragraphs: As part of the President’s budget request to Congress, the services develop  budget requests and justification submissions to fund family housing O&M  programs and activities. The process begins with the family housing  master plans, which provide a consolidated strategy for planning,  programming, and executing the family housing program and include  funding plans for maintaining government-owned housing and plans  indicating a time frame for privatization. The services’ budget formulation  process translates the strategy from the family housing master plans into  their respective budget requests. In that process, assumptions about the  future requirements for family housing, including assumptions related to  housing privatization, are established and refined. The budget requests are  based largely on historical obligations adjusted for pricing and program  assumptions. The Office of the Secretary of Defense (OSD) provides  inputs on key pricing assumptions such as inflation, foreign currency  rates, and pay adjustments. OSD and the services determine program  assumptions including expected reductions in inventory due to housing  privatization. For example, when the services are developing the budget  request for the utilities account, they typically look at prior year costs per  unit and adjust the costs for anticipated inflation and expected changes in  housing unit inventory.
The family housing O&M budget requests are developed through a series  of scheduled steps as part of DOD’s Planning, Programming, and  Budgeting System. The planning stage begins about one year before the  budget request is sent to Congress, as the family housing O&M  requirements are defined based on the family housing master plans (see  app. I, slides 10 and 11). Around the same time, OSD issues its Defense  Planning Guidance, which may provide broad planning assumptions for  the services. For example, DOD’s requirement to eliminate inadequate  housing by 2007 is derived from the Defense Planning Guidance. In the  programming phase, the services develop their Program Objectives  Memorandums, which are 6-year plans that define service requirements.  Program Objectives Memorandum budget targets, including family housing  O&M budget targets, are then matched against the services’ available  resources. The programming phase concludes with decisions that are  documented in OSD’s Program Decision Memorandums issued about 3 to  4 months before the President submits the budget to Congress. At the  same time, the services are developing the family housing O&M budget  request. This request is included in the budget submission the services  send to OSD for consideration. As the budgeting phase begins, changes to  the budget estimation submission are issued as Program Budget Decisions,  the last of which is generally issued 2 months before the President submits  the budget to Congress in February.
When submitting the budget requests to Congress, the services include  justification submissions to summarize the process by which the budget  request was derived. Typically, the justification submissions for family  housing O&M accounts include a definition of what the account funds, a  description of the prior fiscal year’s appropriation, and expected pricing  and program changes to that account. The estimate for the budget year is  then developed based on those changes. In addition, the justification  submissions provide a brief statement about pricing and program changes.
section_title: Reprogrammings of Family Housing O&M Funds
paragraphs: During the budget execution year, reprogrammings may be necessary if  obligations for each account and subaccount do not match the initial  funding amount as specified in the conference report. Historically, the  services have reprogrammed family housing O&M funds to pay for  unexpected events such as natural disasters, utility rate increases, and  foreign currency differences. Delays in housing privatization have also  caused some of the services to reprogram funds to pay for expenses  associated with housing units they had expected to privatize, according to  service officials. Also, OSD and the services consider all family housing  O&M accounts, except maintenance, as “must-pay” accounts, meaning that  such programs and activities funded in these accounts must be paid even if  the obligations differ from the initial funding amount.
According to DOD’s Financial Management Regulation, the services are  required to notify Congress of any reprogramming of family housing O&M  funds that are 10 percent or more of the initial funding level. The  conference report accompanying the 2004 Military Construction  Appropriations Act further states that the services are to notify Congress  when reprogrammings reach 10 percent in the family housing O&M  accounts and subaccounts.
section_title: Housing Privatization Affects the Family Housing O&M Budgets
paragraphs: Congress authorized DOD to establish the Military Housing Privatization  Initiative, to use private sector investment capital and housing  construction expertise to finance, own, operate, and maintain military  housing in an effort to help eliminate inadequate housing from DOD’s  inventory. In 2002, OSD accelerated the goal of eliminating inadequate  military family housing from fiscal year 2010 to 2007, which has impacted  the services’ ability to budget for family housing O&M. As the services  privatize their housing, reductions in their housing inventory will occur. As  such, funding levels for the family housing O&M accounts and  subaccounts are affected differently by privatization (see app. I, slide 15).  Some accounts are more directly related to the inventory of military- owned housing and will therefore be expected to decrease generally in  proportion to the decrease in inventory due to privatization. These  accounts include costs for utilities, furnishings, and services (e.g., trash  removal, snow clearing, and fire and police protection). Other accounts,  such as leasing, are based on specific anticipated requirements  independent from the housing inventory and pace of privatization. Some  accounts, primarily the management subaccount and maintenance of real  property account, are partially influenced by privatization-related factors.  The management subaccount, for example, covers mostly salary costs for  activities such as housing referrals, waiting lists, tenant and landlord  complaints, and basic housing allowance surveys in addition to the  administrative costs directly related to managing military-owned housing.  As a result, many of these costs remain regardless of privatization since  they are not related to the housing inventory.
section_title: Services Do Not Clearly and Consistently Explain the Impact of Privatization in Their Budget Justifications to Congress
paragraphs: Budget justification materials submitted to Congress for family housing  O&M funding do not clearly and consistently explain how the housing  privatization program impacts the services’ budget requests. The services  use similar assumptions and methods to develop budget requests for  family housing O&M, but they often rely on assumptions established up to  a year and a half before the budgets are executed. While the services have  the ability to revise and update their budget requests, they typically choose  not to because of the difficulty of doing so when faced, in part, with other  competing defense priorities, and the relatively small size of the family  housing O&M budget. Furthermore, changes in the pace of expected  privatization can affect funding required for individual accounts and  subaccounts, although not uniformly, but the impact of privatization is not  well explained in the services’ budget justifications.
subsections: section_title: Services Often Rely on Assumptions Established up to a Year and a Half Before Budget Execution
paragraphs: The services use similar pricing and program assumptions and methods to  develop their family housing O&M budget requests and base their budget  requests largely on historical obligations adjusted for assumptions about  pricing (e.g., inflation, foreign currency rates, and pay adjustments) and  the housing program (e.g., expected reductions in inventory due to  housing privatization). For example, when the services are developing the  budget requests for the utilities account, they typically look at prior year  costs per unit and adjust the costs for anticipated inflation and expected  changes in housing unit inventory. Further, many of the pricing and  program assumptions for family housing O&M are established up to a year  and a half before the budget is executed. For example, service officials  told us that the fiscal year 2004 budget requests were largely determined  when the services’ Program Objectives Memorandums were completed in  May 2002. Similarly, many of the assumptions, such as the privatization  rate, used in preparing the fiscal year 2004 budget request were largely  based on the services’ 2002 family housing master plans. Once these  assumptions are established, service officials told us that the budget  requests are less likely to be changed, even if newer information becomes  available. While the services have the ability to revise and update their  budget requests, service officials told us they typically do not revise the  requests because competing defense priorities and the relatively small size  of the family housing O&M budget request make revisions difficult. For  example, if a service anticipates a slippage in privatization after the family  housing O&M budget request is programmed, officials said that revising  the request becomes more complicated because previous assumptions  have already been reflected in funding shifts to the military personnel  appropriation budget request to pay for the expected increase in the  housing allowance for those servicemembers intended to be in privatized  housing. Rather, service officials said that they are more likely to make the  needed funding adjustments for family housing O&M during budget  execution through reprogrammings.
section_title: Services Are Unclear and Inconsistent in Explaining the Impact of Privatization in Their Budget Justifications to Congress
paragraphs: The services’ budget justification submissions to Congress are unclear and  inconsistent in explaining the impact of privatization on the family housing  O&M budget requests. More specifically, the submissions are not clear in  explaining how housing inventory reductions due to privatization affect  each of the nine family housing O&M accounts and subaccounts or the  extent to which a previously established privatization schedule is on track  or slipping. Service officials told us that slippage in the privatization  schedule can cause an increase in the cost for some accounts, such as the  utilities and maintenance of real property accounts that primarily are  influenced by the number of housing units still in DOD’s housing inventory  and not yet privatized. While some decreases in family housing O&M  requests were credited to inventory reductions in military-owned housing,  the justification submissions accompanying the requests did not fully  explain how privatization led to those decreased requests. For example:    The Navy indicated a decrease in funds for most of the family housing  O&M accounts and subaccounts because of privatization in fiscal year  2004, but it provided no additional information explaining how  privatization affected the request for each account.
The Army indicated a decrease in funds for the management  subaccount because of privatization in fiscal year 2004, but it did not  explain what management activities the Army adjusted due to  privatization.
In addition, the services did not consistently address the impact of  privatization for each of the family housing accounts and subaccounts  within a fiscal year, nor did they consistently address the impact of  privatization on a specific account from fiscal year to fiscal year. For  example:    The Army indicated decreases in funds for most of the family housing  O&M accounts because of privatization in fiscal year 2003, but it did  not decrease funding in the management subaccount for privatization,  as would be expected. In contrast, the Army did indicate decreases in  funds for the management subaccount in fiscal years 2002 and 2004 due  to privatization.
The Air Force indicated decreases in funds for inventory reductions  due to privatization in its management subaccount request in fiscal  years 2002 and 2003. In contrast, in fiscal year 2004, the Air Force’s  budget request for the same subaccount had no discussion of the  impact of privatization. Nor did the request include a reduction in the  funding for the management subaccount in fiscal year 2004, as would  be expected.
Although the services’ budget justification submissions to Congress are  unclear in explaining the impact that housing privatization is having on the  family housing O&M budget at the time the budget is prepared, all the  services have information that could help clarify how privatization affects  the family housing O&M accounts and subaccounts. For example, Army  officials recognized that clear information explaining the impact of  privatization is not always presented to Congress and, consequently,  added additional information explaining privatization impacts in its fiscal  year 2005 family housing O&M budget justification submission. Also, the  Army and the Navy are currently conducting studies to better determine  the impact of housing privatization on their management costs. OSD  officials said that more experience with housing privatization is needed to  properly assess its impact on funding levels for the management  subaccount. The dynamics of trying to maintain government-owned  housing while increasingly moving to privatization means that early  assumptions about when privatization will actually occur for individual  projects can change over time and require changes in funding for selected  accounts and subaccounts.
section_title: Congress Has Limited Visibility Over the Reprogramming of Family Housing O&M Funds
paragraphs: Congress has limited visibility of the services’ reprogramming of family  housing O&M funds. Although the services are required to notify Congress  of reprogrammings to an account or subaccount by 10 percent or more,  notification of reprogrammings by less than 10 percent or a decrease in  funds to an account is not required. However, appropriations such as the  regular O&M do provide such information. Compared with the other  services, reporting for the Navy and the Marine Corps provides even less  visibility over their reprogramming actions because reprogrammings for  the four operations subaccounts were not reported to Congress. In  addition, their data reflecting reprogramming actions throughout the year  do not always match comparable official obligation data produced by the  Defense Finance and Accounting Service.
subsections: section_title: Current Requirements on Reprogrammings Provide Congress with Limited Visibility
paragraphs: Current requirements provide congressional decision makers with limited  visibility of the services’ reprogrammings between the nine family housing  O&M accounts and subaccounts. The services are required to report to  Congress reprogrammings that are 10 percent or more to an account or  subaccount. However, Congress is not notified when reprogrammings are  below 10 percent or result in a funding decrease. Other required  appropriations reporting, such as regular O&M, provides congressional  decision makers with more information.
Current reporting requirements do not provide Congress with complete  visibility of the services’ reprogrammings between the family housing  O&M nine accounts and subaccounts. First, the services are not required  to inform Congress of reprogrammings below 10 percent. Due to the  varying sizes of the accounts within family housing O&M, a below- threshold reprogramming in a large account such as maintenance can be  significant when compared to smaller accounts or subaccounts. On the  other hand, smaller valued accounts may generate many more  reprogramming actions because of their smaller funding base. As shown in  table 1, in fiscal year 2003, the Army reprogrammed 4.7 percent   ($22.6 million) to the maintenance account. Although the amount  reprogrammed into the maintenance account was below 10 percent, this  amount represented 54.4 percent of the services subaccount. In another  example, the Air Force was not required to notify Congress of a   $3.7 million increase in the leasing account because it was below 10  percent in fiscal year 2003. Second, the services are not required to notify  Congress of decreases to an account. Between fiscal year 2001 and 2003,  there were 14 instances involving decreases of 10 percent or more from an  account. As shown in table 1 for example, the Air Force reprogrammed  14.9 percent ($75 million) in fiscal year 2003 from the maintenance  account to fund expenses in other accounts.
In other appropriations, DOD provides congressional decision makers  with more information on reprogrammings than in family housing O&M.  For example, the services are required to submit a Report of Programs to  Congress twice a fiscal year for regular O&M. The report provides  information tracking the movement of funds from initial appropriation  through final obligation, including supplementals, rescissions, transfers,  and reprogrammings. For the family housing O&M appropriation, DOD is  not required to provide such a report, thus limiting congressional visibility  over all reprogrammings. Service officials told us that such information is  already tracked at the headquarters level and could be provided to  Congress.
section_title: Navy and Marine Corps’ Reporting Provides Even Less Visibility Over Reprogrammings
paragraphs: When compared to the other services, reporting on the Navy and the  Marine Corps’ family housing O&M reprogrammings provides less  visibility. The reporting of the Navy and the Marine Corps’ family housing  O&M funds does not always separate the operations account into the four  subaccounts. In addition, the Navy and Marine Corps obligation data  reflecting reprogramming actions during a fiscal year do not always match  comparable official obligation data produced by the Defense Finance and  Accounting Service.
The reporting of the Navy and the Marine Corps’ family housing O&M  funds does not always separate the operations account into the four  subaccounts. While the other services notified Congress of  reprogrammings that were 10 percent or more for the subaccounts within  operations, until fiscal year 2004, the Navy and the Marine Corps  combined the four subaccounts into the operations account when  reporting reprogrammings. For example, in fiscal year 2003, the  management and services subaccounts increased by 19.7 percent   ($16.1 million) and 11.7 percent ($7.3 million), respectively. Even though  the reprogrammings exceeded the 10 percent threshold, no notification  was sent to Congress because when these reprogrammings were  combined with the other subaccounts, overall reprogrammings in the  operations account did not exceed 10 percent. Navy budget officials said  that with their fiscal year 2004 notifications to Congress, the Navy and the  Marine Corps will be reporting reprogrammings for each subaccount  individually, similar to the practices of the other services. In addition, the  Defense Finance and Accounting Service does not report obligations for  the four subaccounts individually for the Navy and the Marine Corps, as it  does for the other services.
Unlike the other services, Navy and the Marine Corps obligation data  reflecting reprogramming actions during a fiscal year do not always match  comparable obligation data produced by the Defense Finance and  Accounting Service. For example, in fiscal year 2002, the Defense Finance  and Accounting Service reported obligations for the Navy and Marine  Corps’ maintenance account as $391.1 million. However, the Navy and the  Marine Corps reported fiscal year 2002 obligations of $368.5 million for  maintenance in their justification submission to Congress. According to  Navy and OSD officials, examples like this are part of long-standing  problems with ensuring the consistency of data between Navy, Marine  Corps, and Defense Finance and Accounting Service data systems.  However, because Defense Finance and Accounting Service obligation  data are considered official, OSD officials use that data when evaluating  the budgets for the family housing O&M program. Service officials told us  they are working with the Defense Finance and Accounting Service to  address these issues.
section_title: Conclusions
paragraphs: The services’ budget justification submissions to Congress have not  always been clear in explaining funding requirements and the impacts of  the privatization initiative on the budget requests for each of the nine  family housing O&M accounts and subaccounts. Although the family  housing O&M budget requests are expected to decrease due to reductions  in housing inventory as the services privatize more housing, a continued  lack of clarity in explaining the impacts of privatization will not allow  Congress to determine the appropriateness of any decreases. Until the  services provide Congress with sufficient data in their budget justification  submissions explaining the impact of privatization, the services will  continue to hinder the ability of Congress to conduct its oversight  responsibilities. This also places the services at risk of having Congress  reduce their budgets, as was the case with their fiscal year 2004  appropriations for family housing O&M.
Reprogramming notifications provide Congress some visibility over the  movement of funds; however, complete information on all movement of  funds is not required to be provided to Congress for the family housing  O&M appropriation. In contrast, DOD is required to provide Congress with  more information on the movement of funds for other defense  appropriations, such as regular O&M. Until DOD provides Congress  similar information on the reprogramming of family housing O&M funds,  Congress will continue to receive an incomplete picture over the total  movement of family housing O&M funds. Lacking such aggregate  information on all fund movements could also limit Congress’ ability to  fully conduct oversight of family housing O&M programs and activities. In  addition, the Navy and the Marine Corps provide even less visibility of  reprogrammings of family housing O&M funds because they do not report  obligations for the four operations subaccounts and, prior to fiscal year  2004, did not notify Congress of reprogrammings for these subaccounts.  Therefore, congressional and DOD decision makers are not getting the  same level of detail with regard to obligations for the four subaccounts as  they do for the other services. Also, the Navy and the Marine Corps’ family  housing O&M obligation data have been inconsistent with the comparable  data produced by the Defense Finance and Accounting Service. Until the  Navy and the Marine Corps report obligation data using the same structure  that congressional conferees use to designate funds for the four operations  subaccounts and resolve data inconsistencies between them and the  Defense Finance and Accounting Service, DOD and congressional decision  makers will continue to lack sufficient budget visibility, hindering their  ability to evaluate Navy and Marine Corps budget requests with the same  degree of confidence and detail as those of the other services.
section_title: Recommendations for Executive Action
paragraphs: To provide Congress with sufficient data in the services’ budget  justification submissions, we recommend that the Secretary of Defense  direct the Under Secretary of Defense (Comptroller) to work with the  services to better explain the impacts of the housing privatization initiative  on the budget requests for each of the nine family housing O&M accounts  and subaccounts.
To improve visibility over the Navy and the Marine Corps’ reprogrammings  of family housing O&M funds, we recommend that the Secretary of  Defense direct the Secretary of the Navy to work with the Defense Finance  and Accounting Service to take the following two actions:    Report obligation data using the same budget structure that  congressional conferees use to designate how funds are to be used for  the four operations subaccounts, similar to reporting done by the other  military services.
Resolve long-standing data inconsistencies to ensure that obligation  data reported by the Defense Finance and Accounting Service match  obligation data reported by the Navy and the Marine Corps.
section_title: Matter for Congressional Consideration
paragraphs: To improve visibility over reprogrammings of family housing O&M funds  by all services, Congress may wish to consider requiring the Secretary of  Defense to provide it information covering the movement of funds for the  family housing O&M appropriations in a report at the end of the fiscal  year, similar to what DOD now provides to Congress on other DOD  appropriations. This report should provide timely and accurate  information on movement of funds, which includes reprogrammings  within the nine family housing O&M accounts and subaccounts, along with  other information on other fund movements such as transfers and  supplementals.
section_title: Agency Comments
paragraphs: In written comments on a draft of this report, the Deputy Comptroller  (Program/Budget) within the Office of the Under Secretary of Defense  (Comptroller) agreed with our recommendations stating that the  department is taking steps to implement them. In reference to our  recommendation that the services better explain the data provided to  Congress regarding the impact of privatization on family housing O&M  budget requests, the department has already drafted changes to its  financial management regulation and expects to issue an update to these  regulations within the next 90 days. In reference to our two  recommendations to improve congressional visibility of Navy and Marine  Corps’ reprogrammings of family housing O&M accounts and subaccounts  and to improve the consistency of Navy and Marine Corps obligation data,  DOD plans to provide written direction to the Secretary of the Navy and  the Defense Finance and Accounting Service within 30 days after the  release of our report to address these two recommendations.
In addition, the Deputy Comptroller (Program/Budget) within the Office of  the Under Secretary of Defense (Comptroller) responded favorably to our  matter for congressional consideration suggesting that Congress may wish  to consider further improving the visibility of the services’  reprogrammings by requiring DOD to provide information covering the net  movement of funds for each of the nine family housing O&M accounts and  subaccounts. DOD’s comments, which are included in this report in  appendix III, also discusses the types of information DOD would provide  to Congress covering the net movement of funds for the family housing  O&M accounts and subaccounts.
section_title: Scope and Methodology
paragraphs: To assess the services’ assumptions and methods used to develop  individual budget requests and how well their budget justifications explain  the impact of privatization on family housing O&M funds, we reviewed and  analyzed the services’ budget justification submissions covering fiscal  years 2002 through 2004. We evaluated how these justifications  incorporated the services’ privatization schedule and the resulting  explanation in the budget requests. In addition, we interviewed Army,  Navy, Marine Corps, and Air Force family housing officials to obtain  information on the assumptions and methods used to develop the family  housing O&M budget requests. We identified statements in the services’  budget justification submissions to assess how well the services explained  their assumptions, methodology, and the impact of privatization.
To assess the extent to which Congress has visibility over the services’  reprogramming of family housing O&M funds, we compared the services’  initial funding levels with year-end obligations for the nine family housing  O&M accounts and subaccounts to determine the amount reprogrammed  by the services during fiscal years 2001 through 2003. To review the  reprogramming of funds between the family housing O&M accounts,  including amounts over and under established reprogramming thresholds,  we analyzed the services’ and the Defense Finance and Accounting  Service’s budget data for the family housing O&M account. In addition, we  compared these reprogrammings with the congressionally mandated  requirements for the services to report reprogrammings to Congress and  the execution data in the services’ justification submissions to the Defense  Finance and Accounting Service’s reports to ensure that the information  was consistent. For the Army and the Air Force, we found that the  obligation amounts reported matched those reported by the Defense  Finance and Accounting Service. Based on our comparisons and speaking  with Army and Air Force officials, we were satisfied with the information.  Consequently, we determined the use of Army and Air Force justification  materials and Defense Finance and Accounting Service reports was  sufficiently reliable for meeting our objectives. For the Navy and Marine  Corps, we found inconsistencies between the services’ justification  submission and the Defense Finance and Accounting Service’s reports.
We discussed the results of our work with officials from the Office of the  Under Secretary of Defense (Comptroller); the Housing and Competitive  Sourcing Office within the Office of the Under Secretary of Defense for  Acquisition, Technology, and Logistics; the Defense Finance and  Accounting Service; and the military services. We have designated DOD’s  financial management area—including funding and cost data—as high risk  due to long-standing deficiencies in DOD’s systems, processes, and  internal controls. However, as discussed, we determined the data we  used during our review of the services’ reprogramming of family housing  O&M funds were sufficiently reliable for this report.
We are sending copies of this report to the Secretaries of Defense, the  Army, the Navy, and the Air Force; the Commandant of the Marine Corps;  and the Director; Office of Management and Budget. We will also make  copies available to others upon request. In addition, the report is available  at no charge on GAO’s Web site at www.gao.gov.
Please contact me on (202) 512-8412, or my Assistant Director, Mark Little,  at (202) 512-4673 if you or your staff have any questions regarding this  report. Major contributors to this report were Laura Talbott, James  Reynolds, Daniel Chen, and Jane Hunt.
section_title: Appendix I: GAO Briefing Slides
subsections: section_title: DOD’s Military Family Housing
paragraphs: Objectives:  Engagement Stems from Congressional Mandate In the conference report accompanying the fiscal year 2004 Military  Construction Appropriations Act, Congress expressed its concerns about the family housing operation and maintenance (O&M) budget:  Congress concerned that the assumptions and methods underlying  the budget request for family housing O&M accounts are not  adequately explained by the services.
Congress concerned about movement of funds between the various  family housing O&M subaccounts.  conduct a study on the assumptions and methods underlying the  services’ budget requests for the family housing O&M budget and  review the movement of funds between the family housing O&M  budget accounts and subaccounts.
subsections: section_title: Army emphasizes fully funding its must pay accounts to
paragraphs: minimize reprogrammings from its maintenance account  and prevent maintenance disruptions during budget  execution year.
Navy and Air Force said that to cover dollar shortfalls for  must pay accounts, they would reprogram funds from the  maintenance account during budget execution year.
All services have different housing privatization rates that  affect their budget estimates:  OSD expects to privatize over 60 percent of its military  family housing inventory by the end of fiscal year 2007.
subsections: section_title: Assumptions and Methods: Budget Request Based Largely on Historical Costs Adjusted for Pricing and Program Assumptions
section_title: Key pricing assumptions—OSD provides input for
paragraphs: reductions through energy conservation initiatives.
Key program assumptions—OSD and services provide input for  anticipated pace of housing privatization:   Projects are being privatized at different pace by service.
Inventory of family housing units decreasing at different amounts by  service.
When assumptions used to build the budget request are not fully  realized, reprogrammings are needed to adjust to reality during the  budget year.
section_title: Assumptions and Methods: Services Use Similar Methods to Develop Budget Requests for the Various Nine Accounts and Subaccounts
section_title: Assumptions and Methods: Not All Military Family Housing O&M Accounts Decrease Proportionally to the Decrease in Inventory
paragraphs: Excludes furnishings for foreign locations. Although the military family housing inventory has been decreasing, service officials told us their maintenance  accounts have not decreased proportionally—mostly in order to address unfunded maintenance backlogs.
section_title: Assumptions and Methods: Many Considerations Go into the Services’ Justification Materials to Support Their Budget Requests
section_title: As the services translate family housing master plans into requests for
paragraphs: appropriations, the budget materials provided to Congress often rely on  pricing and program assumptions made up to a year and a half before  services execute their budgets.
Acceleration of services’ housing privatization plans is having a  significant influence on estimating budget needs, (e.g., OSD moved up  its goal of eliminating inadequate military family housing from fiscal year  2010 to 2007).
Budget adjustments due to privatization schedule slippages could take 2  to 3 years to be remedied.
Services often use maintenance accounts to move funds with the  least disruption because maintenance can be deferred.
Any of these considerations can complicate the budget execution  process if they are not estimated accurately.
section_title: Assumptions and Methods: Justification Materials Lack Clarity as to How Privatization Affects the Family Housing O&M Budget Request
subsections: section_title: Justification materials are unclear as to how the services’ privatization
paragraphs: schedules affect O&M accounts and subaccounts:  Justification materials do not fully explain the impact of privatization on  family housing O&M budget, particularly for management activities.
Material contains many inconsistencies when the budget data are  analyzed from year to year for the same service or are analyzed for the  same account across the services for the same year (e.g., showing how  inventory reductions decreased the budget estimates one year, then  showing no budget reductions the next year although inventory reductions  occurred).
Justification materials summarize the assumptions and methods used to  develop the budget request:  Services have additional information that could help clarify the request.
For example, the Army added additional budget justification information in  its fiscal year 2005 budget request to better explain privatization impacts.
section_title: Some costs for managing housing activities will remain regardless of
paragraphs: Housing management covers mostly salary costs for activities such  as housing referrals, waiting lists, waivers for rental and utility  deposits, tenant and landlord complaints, and basic housing  allowance surveys.
Army and Navy are currently conducting studies to better determine  impact of housing privatization on their management costs (e.g., whether some of these activities could be contracted out or conducted  by the housing privatization developer).
OSD housing officials said more experience with housing privatization  is needed to properly assess its impact on housing management  activities.
section_title: Reprogramming of Funds: Services Reprogram Military Family Housing O&M Funds under Certain Controls
paragraphs: DOD’s financial management regulations state that services are to   seek congressional approval prior to reprogramming funds for  specified accounts (e.g., Housing Privatization Support Costs) and  items reduced by Congress in appropriation and    notify Congress when reprogrammings cumulatively reach or  exceed 10 percent of the adjusted appropriated amount.
Reprogramming data generally reflect the sum of hundreds of  small actions.
DOD’s financial management regulations do not allow the services to  transfer funds between appropriations without OSD’s involvement (i.e.,  foreign currency):  No evidence that unauthorized transfers were made.
section_title: Reprogramming of Funds: Congress Has Limited Visibility over the Reprogramming of Family Housing O&M Funds
subsections: section_title: Under current controls, congressional notification is not required when
paragraphs: an account is increased by less than 10 percent or  an account is reduced by any amount.
Services are not required to report to Congress the aggregate movement of  military family housing O&M funds as they are for other accounts, such as  procurement and regular O&M.  This report is called a Report of Programs.
Navy and Marine Corps provide even less information:  Unlike the other services, Navy and Marine Corps do not report obligations  for the four operations subaccounts and, prior to fiscal year 2004 did not  notify Congress of their reprogramming actions for these subaccounts.
Navy and Marine Corps family housing O&M obligation data does not  always match comparable official obligation data produced by Defense  Finance and Accounting Service for the last several years.
section_title: Reprogramming of Funds: No Distinct Pattern or Trend in Reprogramming Funds among the Family Housing O&M Accounts
section_title: We found 33 examples where the military family housing O&M accounts
paragraphs: had changed by more than 10 percent from fiscal years 2001 to 2003:   19 showed fund increases of 10 percent or more, of which the  services were required to notify Congress.  14 showed fund decreases of 10 percent or more, of which the  services were not required to notify Congress.
Many reasons for reprogramming funds such as fact-of-life changes (e.g., foreign currency, utility rates, and natural disasters) and  a lot of flux in the housing privatization program (e.g., the recent  acceleration of the pace of privatization and housing privatization  schedule slippages).
Smaller accounts are more likely to have larger percentage changes.
section_title: Reprogramming of Funds: Army
paragraphs: Reprogramming as a Percentage of Military Family Housing Operation and Maintenance Adjusted  Appropriation by Account and Subaccount ($6,142) (7.34%) ($7,103) (8.02%) ($251) (0.56%) ($4,612) (9.42%) ($3,537) (7.97%) ($3,857) (8.03%) ($31) (2.45%) ($118) (8.99%) ($48,512) (19.80%) ($11,246) (5.33%) ($15,916) (8.20%) ($15,314) (7.86%) ($19,718) (9.24%)
Numbers in parentheses are negatives.
section_title: Reprogramming of Funds: Navy and Marine Corps
paragraphs: Reprogramming as a Percentage of Military Family Housing Operation and Maintenance Adjusted Appropriation by Account and Subaccount ($6,729) (21.79%) ($6,119) (18.93%) ($8,059) (26.74%) ($713) (57.55%) ($435) (36.65%) ($196) (21.63%) ($1,963) (0.50%) ($36,433) (9.00%) ($9,926) (2.65%) ($23,467) (16.45%) ($7,529) (6.14%) ($69) (97.18%) ($2) (2.94%)
Numbers in parentheses are negatives.
section_title: Reprogramming of Funds: Air Force
paragraphs: Reprogramming as a Percentage of Military Family Housing Operation and Maintenance Adjusted  Appropriation by Account and Subaccount ($4,195) (11.07%) ($710) (30.67%) ($574) (24.35%) ($4,165) (0.98%) ($16,405) (3.80%) ($75,000) (14.92%) ($11,945) (10.42%)
Numbers in parentheses are negatives.
section_title: Appendix II: Family Housing Operation and Maintenance Budget Definitions
paragraphs: Department of Defense’s Financial Management Regulation defines the  accounts and subaccounts that Congress uses to designate its  understanding of funds within the family housing operation and  maintenance appropriation as follows:  Operations account. This is a summary account for consolidating costs  accumulated in the following subordinate accounts:    Management account. Accumulates costs of management,  administrative, and support type services at installation level  involving (1) administration costs for installation housing offices  including management office personnel, supplies, equipment, and  utilities pertaining to the functions of a family housing office and  costs for administrative support services provided in supply,  comptroller, maintenance, and other installation offices when the  costs for such services are attributable to family housing; (2) costs  for housing referral administration pertaining to private housing,  including rental guarantee projects and the provision of referral  services, and assistance in locating and inspecting privately owned  family housing for DOD personnel; (3) requirements surveys and  preliminary family housing studies or engineering construction  plans made before Secretary of Defense project approval, which  also includes planning for improvement and rental guarantee  projects and inspection of construction of rental guarantee housing;  and (4) other identifiable management costs that directly support  the family housing program.
Services account. Accumulates costs for authorized services such  as (1) refuse collection and disposal—includes costs of family  housing for collecting garbage, trash, ashes and debris, and for  refuse disposal, such as the operation and maintenance of  incinerators, sanitary fill, and regulated dumps. Also included are  costs for acquisition, maintenance and repair of garbage and trash  containers, and operation of can washing facilities; (2) fire  protection—includes costs for protection and prevention of family  housing facilities; (3) police protection—includes costs for law  enforcement, traffic control, and protection of family housing  facilities, (4) entomological services—includes costs of all control  measures against fungi, insects, and rodents within family housing  dwellings, facilities, and areas; (5) custodial services—includes  costs of janitorial and custodial services performed in common  service areas and the cost of elevator operation in family housing  facilities; (6) snow removal—includes costs of removing, hauling,  and disposal of snow, the cost of ice alleviation, and erection,  maintenance, repairs and removal of snow fences for family housing  areas; (7) street cleaning—includes costs of cleaning streets  comprised of sweeping, flushing, and picking up litter; (8) municipal  type services—includes costs of miscellaneous municipal type  services not identifiable to other listed accounts; and (9) other  services—includes costs of all other authorized services for family  housing.
Furnishings account. Accumulates costs for initial acquisition,  maintenance, repair, and replacement of furnishings, furniture,  movable household equipment, and authorized miscellaneous items.  Also includes control, handling, record keeping, moving of  government-owned furnishings into and out of dwelling units and  charges for connecting and disconnecting equipment, as well as  handling costs incident to storage.
Miscellaneous account. Accumulates costs for (1) lease rents and  permit payments for housing and trailer spaces leased by the  government from private sources or provided by the Federal  Housing Administration or the Department of Veterans Affairs as  well as reimbursement costs for dwellings provided by state,  municipal, or foreign governments or by other federal agencies,   (2) German land taxes paid to the Federal Republic of Germany  under the North Atlantic Treaty Organization Status of Forces  Agreement for local taxes on land and improvements of family  housing property, (3) fire insurance charges paid to the Federal  Republic of Germany to cover fire damage to family housing  dwelling units, (4) United Kingdom accommodation charges paid in  accordance with the country-to-country agreement for housing  provided to U.S. Forces, (5) other miscellaneous operations costs  not covered elsewhere.
Utility operations account. This is a summary account for accumulating  costs for utilities consumed in family housing. This account excludes the  costs of maintenance and repair of utility systems identified to the family  housing property covered under the Maintenance of Real Property  Facilities Account. Electricity, water, sewage, gas fuel oil or other heating  fuels are the types of utilities reported in this account.
Maintenance of real property facilities account. This is a summary account  for accumulating costs for the following: (1) Dwellings—costs of  maintenance and repair of all family housing buildings as defined in DOD  Instruction 4165.3 including all interior utilities and installed equipment  (typically this involves (a) service calls for minor work including  emergency and temporary repairs normally not in excess of 16 work  hours, (b) routine maintenance for occupancy work and other  maintenance usually scheduled annually or more frequently, (c) repairs  and replacements for rehabilitations and replacement of major  components and installed equipment, (d) interior and exterior painting  and the necessary preparation, and (e) contract cleaning between  occupancy, where authorized); (2) exterior utilities—costs of maintenance  and repair of electric, gas, water, sewage and other utility distribution,  collection, or service systems assigned to family housing (street and area  lighting systems are included in exterior utilities beginning at a point 5 feet  from the house line and ending at a point where the utility system joins a  common use main or terminates); (3) other real property—costs for   (a) maintenance, care, and repair of improved and unimproved grounds,  storm sewerage, and drainage structures and costs of acquisition,  maintenance, and repair of government-owned minor equipment, such as  hand-operated lawn mowers used for grounds maintenance by occupants,  (b) maintenance and repair of paved or stabilized streets, roads, walks,  driveways, utility, service, and parking areas, as well as curbs, gutters,  signs, and other road appurtenances, and (c) maintenance and repair of  facilities other than dwellings, such as fences when the facility is  dedicated to housing, athletic and recreation facilities, community  buildings, and service facilities (also included are the costs of maintenance  of trailer sites including outlets); and (4) alterations and additions—costs  for incidental additions, expansions, extensions, and alterations to the  existing real property (also includes the payments made to military  personnel for telephone reconnection charges when maintenance or repair  work necessitates government-directed nonpermanent change of station  moves and charges resulting from improvement or repair projects funded  in part from the family housing construction account).
Leased housing account. This is a summary account for accumulating  costs for the following: (1) lease cost—foreign account; costs for charges  and other payments specified in the lease agreement for housing in foreign  countries; (2) lease cost—foreign account government rental guarantee  program; costs for charges and other payments specified in the lease  agreement for housing in Europe under the Army’s foreign account  government rental guarantee program; (3) lease cost—domestic account;  costs for charges and other payments specified in the lease agreement for  housing in the United States including U.S. possessions and territories;   (4) lease cost—section 801 account; costs for charges and other payments  specified in the lease agreement for section 801-type housing; (5) other  operation and maintenance cost—foreign account; costs for maintenance,  utilities, and contracted services not provided by the lessor for housing in  foreign countries (also includes initial make-ready costs, costs of  government-owned furnishings, any pro rata share of the costs of  installation services, and administrative costs such as assignment, travel,  and inspection by installation personnel, and reimbursements to the  Department of State for foreign affairs administrative support costs);   (6) other operation and maintenance cost—foreign account government  rental guarantee program; costs for maintenance, utilities, and contracted  services not provided by the lessor for housing in foreign countries (also  includes initial make-ready costs, costs of government-owned furnishings,  any pro rata share of the costs of installation services, and administrative  costs such as assignment, travel, and inspection by installation personnel,  and reimbursements to the Department of State for foreign affairs  administrative support costs); (7) other operation and maintenance   cost—domestic account; costs for maintenance, utilities, and contracted  services not provided by the lessor for housing in the United States (also  includes initial make ready costs, costs of government-owned furnishings,  any pro rata share of the costs of installation services, and administrative  costs such as assignment, travel, and inspection by installation personnel);  and (8) other operation and maintenance cost—Section 801 account; costs  for maintenance, utilities, and contracted services not provided by the  lessor for Section 801-type housing (also includes initial make ready costs,  costs of government-owned furnishings, any pro rata share of the costs of  installation services, and administrative costs such as assignment, travel,  and inspection by installation personnel).
Servicemen’s mortgage insurance premiums account. This is a summary  account for accumulating the costs for servicemen’s mortgage insurance  premium payments.
Privatization support cost account. This account is for accumulating the  costs that the government incurs in direct support of the family housing  privatization program with the exception of those costs that will be  included as part of the privatization project. These costs include all  administrative, planning, development, solicitation, award, transition,  construction oversight, and portfolio management activities associated  with military housing privatization and specifically for: (1) site assessment  costs which includes the costs in direct support of the family housing  privatization program for environmental baseline assessments,  environmental assessments, environmental impact statements, and any  efforts required to be accomplished by the government prior to  privatization for environmental mitigation, site surveys, or real estate  costs; (2) project costs which includes all costs in direct support of the  family housing privatization program for project feasibility studies,  concept development, consultant fees, solicitation, procurement,  contracting, execution, transition, construction management (supervision,  inspection, and overhead), post award management and monitoring, and  portfolio management, and (3) administrative costs which includes all  costs in direct support of the family housing privatization program for  civilian pay, travel, training, supplies, equipment, and for any services  provided by a defense agency in support of the privatization program.
section_title: Appendix III: Comments from the Department of Defense