Rental Housing Programs: Excluding Servicemembers' Housing Allowances from Income Determinations Would Increase Eligibility, but Other Factors May Limit Program Use
Published: 2006-07-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Although the Department of Defense (DOD) pays active-duty servicemembers who do not live in military housing a Basic Allowance for Housing (BAH) to help them afford private market residences, expected growth at some military installations has raised concerns about whether nearby communities will have enough affordable rental housing for incoming personnel. In response to a congressional mandate, GAO assessed (1) how excluding BAH would affect servicemembers' eligibility to apply for federal rental housing programs and (2) factors that could affect their use of the programs in selected communities gaining military personnel. GAO compared servicemembers' eligibility for the programs as of December 2005 by including and excluding BAH from income determinations and examined factors affecting potential program use near four growing military installations.
section_title: What GAO Found
paragraphs: Excluding BAH from income determinations for federal rental housing programs would have substantially increased the percentage of servicemembers eligible to apply for the programs as of December 2005, assuming military pay was their only income. To be eligible to apply for rental assistance programs of the Departments of Housing and Urban Development (HUD) and Agriculture (USDA), or to live in units produced by the Internal Revenue Service's (IRS) Low-Income Housing Tax Credit program, households must have incomes at or below a specific limit, generally 50 percent or 60 percent of the median household income for their area. At the 50 percent income limit, 20 percent of servicemembers who received BAH would have been eligible if BAH were excluded from income determinations, compared with 1 percent with BAH included. Most junior enlisted members would have been eligible if BAH were excluded, as would have small percentages of senior personnel. However, at all levels, many would not have been eligible if their households had even modest income from other sources. Agency and community officials cited factors that could limit the role of federal programs in building housing or helping servicemembers afford existing units near four installations that GAO examined. DOD officials said that servicemembers would be unlikely to need the programs because BAH payments provide for the median cost of market-rate housing. Some community officials said the tax-credit program, which spurs housing production, could be useful if more servicemembers qualified. But developers would have to compete for tax credits, and market factors--such as the financial feasibility of building units that junior enlisted members could afford--could limit their interest. The HUD and USDA programs might help some servicemembers rent existing units, but--because the programs are not entitlements--servicemembers could face lengthy waits, and eligible civilians might wait longer for assistance.

section_title: Letter
paragraphs: As a result of base closings and realignments and other restationing  actions, some military installations will be experiencing growth in the next  several years, raising concerns about whether the nearby communities will  have an adequate supply of affordable housing for incoming military  personnel or whether communities can develop such housing. To help  make housing affordable to servicemembers, and in keeping with its policy  of relying on the private market as the primary source of housing for  servicemembers, the Department of Defense (DOD) pays a Basic  Allowance for Housing (BAH) to servicemembers stationed in the United  States who do not live in military housing. In fiscal year 2005, DOD made  about $11.6 billion in BAH payments to approximately 850,000 active-duty  servicemembers. DOD sets the housing allowance amounts annually to  cover the median cost of rent, including utilities and renter’s insurance. The  housing allowance amounts vary according to the location and rank (pay  grade) of each servicemember, and also vary depending on whether the  servicemember has any dependents. Servicemembers may choose to spend  more or less than their allowance amounts on their actual housing  expenses.
Although BAH is intended to allow servicemembers to acquire suitable  housing in the private market, some community leaders and housing  developers have argued that federal rental housing programs also offer the  potential to help provide affordable housing for servicemembers relocating  to growing installations. The federal programs include the Low-Income  Housing Tax Credit (LIHTC) and tax-exempt multifamily housing bond  programs, which are administered by the Internal Revenue Service (IRS) of  the Department of the Treasury (Treasury) and the states and support  development of rental housing. Other programs, including public housing  and programs that subsidize tenants’ rents, are administered by the  Department of Housing and Urban Development (HUD) and the  Department of Agriculture (USDA). To be eligible to apply for these  programs, households must have incomes at or below a specific limit,  generally 50 percent or 60 percent of the median household income for  their area, adjusted for family size. (These programs are not entitlements,  however, and not all eligible households receive assistance.) To help  servicemembers meet these income eligibility restrictions, proponents of  using federal programs to address the military’s housing needs have  proposed excluding BAH from servicemembers’ incomes when  determining eligibility for the programs.
Noting concerns about the availability of affordable private housing for  servicemembers, particularly in rural areas with growing installations, the  conference report accompanying the fiscal year 2006 Transportation,  Treasury, Housing and Urban Development, the Judiciary, the District of  Columbia, and Independent Agencies Appropriations Act directed us to  report on the potential effect of excluding BAH from income when  determining eligibility for federal rental housing programs. Accordingly,  this report discusses (1) how excluding BAH from income determinations  would have affected the eligibility of servicemembers receiving BAH as of  December 2005 and (2) programmatic and market factors that could affect  eligible servicemembers’ participation in the programs in selected  communities gaining military personnel.
To address these objectives, we obtained DOD’s personnel data for  December 2005 and analyzed 702,975 records of servicemembers who were  BAH recipients at that time to determine their potential eligibility for  federal rental housing programs. We included the following federal  programs: HUD’s public housing, Housing Choice Voucher, and  project-based Section 8; USDA’s Section 515 Rural Rental Housing Loans  and Section 521 Rural Rental Assistance; and IRS’s LIHTC and tax-exempt  multifamily housing bonds. We compared potential eligibility for rental  housing programs by including and excluding BAH from income eligibility  determinations. Because data on spousal income and other sources of  income were unavailable, for this analysis we assumed that the primary  components of military pay were the only sources of income for the  servicemember households. We tested the data that we used in our analysis  and found it sufficiently reliable for our purposes. Furthermore, we  interviewed and reviewed relevant documentation from installation  officials, rental housing program officials, and community organization  representatives in the following four communities near installations  gaining military personnel: Fort Benning, Georgia; Fort Bliss, Texas; Fort  Drum, New York; and Fort Riley, Kansas. We cannot generalize the  information from these installations to all installations that will gain  military personnel. We conducted our work in and around Washington,  D.C., and Junction City and Manhattan, Kansas, between November 2005  and July 2006, in accordance with generally accepted government auditing  standards. Appendix I contains a more detailed description of our scope  and methodology.
subsections: section_title: Background
paragraphs: BAH, one of several components of military compensation, is intended to  provide servicemembers with an allowance to enable them to obtain  suitable housing when military-owned housing is not provided.  Accordingly, BAH payments reflect the cost of housing where  servicemembers are stationed, and the payments change annually in  response to increases or decreases in local housing costs. Still, the most  recent base realignment and closure (BRAC) process, among other  restationing actions, will cause movement of large numbers of military  personnel to communities that initially may lack enough private housing  that is affordable to most servicemembers. Several HUD, USDA, and IRS  rental housing programs that are intended to make housing affordable to  low-income households count BAH as income when assessing the  eligibility of active-duty servicemembers.
subsections: section_title: Military Compensation Incorporates Basic Pay, Allowances, and Bonuses
paragraphs: BAH is one of several elements of regular military compensation.  Regardless of whether they live in military-owned housing or receive BAH,  servicemembers receive basic pay and a Basic Allowance for Subsistence  (BAS). BAH and BAS are not subject to federal income tax. With the  addition of average BAH payments to the other two pay elements, regular  military compensation in 2006 starts at $26,401 for the lowest-ranking  enlisted servicemembers and culminates at $183,196 for the  highest-ranking officers, excluding consideration of any tax advantage  because the allowances are not subject to federal income tax (see fig. 1).
In addition to the primary elements of military compensation shown in  figure 1, servicemembers with duty stations in more than 55 continental  U.S. locations, where nonhousing expenses exceed the national average by  at least 8 percent, receive a cost-of-living allowance. Servicemembers also  may receive other types of pay, allowances, or bonuses, depending on their  professional backgrounds, skills, or duties. For example, servicemembers  may receive special pay for hardship duty or exposure to hostile fire,  allowances when they are separated from their families because of a  change in station or a temporary duty assignment, and bonuses for  enlistment and reenlistment.
According to DOD officials, in March 2006, about 950,000 personnel lived in  private housing (including privatized military family housing) and received  BAH—including roughly 70 percent of active-duty servicemembers in the  United States, as well as some activated reservists and servicemembers  stationed overseas whose dependents lived in the United States. DOD  generally requires enlisted servicemembers in the lowest ranks who do not  have dependents to live on base in furnished living quarters, commonly  referred to as barracks. These enlisted servicemembers do not receive  BAH.
Each year, DOD sets BAH rates (i.e., the allowances servicemembers  receive monthly) that are based on the median local monthly cost of  housing, including current market rents, utilities, and renter’s insurance.  The amounts that servicemembers receive also are based on their pay  grades and whether they have dependents. To calculate BAH rates for  different pay grades, DOD uses six standard categories of  housing—ranging from an one-bedroom apartment to a four-bedroom,  single-family detached house—that are intended to match the housing  normally occupied by civilians with comparable incomes. DOD applies  separate categories to servicemembers with and without dependents, but  the number of dependents does not affect the BAH amount.
BAH rates have increased since 2000 as DOD implemented an initiative to  reduce servicemembers’ out-of-pocket housing costs. Prior to 2005, the  BAH rate for each area and pay grade was the local median monthly  housing cost minus a percentage of the national median monthly housing  cost. That deduction represented the amount that servicemembers would  have to pay out of pocket if their actual housing costs exactly matched the  median local housing cost for their pay grade. In 2000, the deduction was 19  percent of the national median housing cost. DOD gradually reduced the  deduction so that, by 2005, BAH rates equaled the median housing cost for  each area and pay grade. Furthermore, while the housing allowance is  calculated on the basis of the rental market, servicemembers may choose  to apply their allowance toward purchasing a home, and they are free to  spend more or less than their allowance on housing.
We reported in April 2006 that the increases in BAH rates had made it  possible for more servicemembers to afford private housing in the local  market, thus reducing the need for privatized housing at installations. This  has recently contributed to lower-than-expected occupancy rates at some  privatized housing projects. If some privatized projects persistently  experience lower-than-expected occupancy rates, they could encounter  financial difficulties or, at worst, failures. To avoid such concerns in future  privatization projects, we recommended that DOD determine how  increased BAH rates would affect installations’ housing requirements and  provide guidance on how the services should incorporate this information  into their assessments of the need for privatized family housing.
section_title: More Than 100 Installations Will Gain Personnel through the 2005 BRAC Process
paragraphs: The National Defense Authorization Act for Fiscal Year 2002 authorized a  new BRAC process in 2005. This was the fifth such process in the last two  decades, but the first since 1995. As in previous processes, Congress  enacted the legislation to close unneeded bases and realign others. On  November 9, 2005, Congress accepted in their entirety the most recent  BRAC recommendations for base closings and realignments. DOD has 6  years, or from 2005 until September 15, 2011, to implement these  recommendations.
The 2005 BRAC process affects a substantial number of communities  surrounding installations that are expected to experience considerable  growth in military personnel. While scores of installations will gain or lose  military personnel, more than 20 installations each are expected to gain  between 2,000 and 21,000 military, civilian, and mission-support contractor  personnel. For the most part, installations with the largest gains are  located in predominantly urban counties. However, some installations are  in rural areas that may have less housing available, raising the possibility  that incoming personnel initially could face a shortage of nearby housing  that is affordable to them. The installations that will gain the most  personnel through BRAC are Department of the Army installations, with  their gains attributable to actions such as the consolidation of various  activities and the return of personnel from overseas locations under DOD’s  integrated global presence and basing strategy. In addition to shifts related  to BRAC, the Army is realigning personnel as it changes its force structure.
section_title: Many Federal Rental Housing Programs Include BAH in Income Determinations
paragraphs: Various HUD, USDA, and IRS rental housing programs are intended to  make housing affordable for lower-income renters. None of the federal  agencies that administer these programs maintain data on the number of  participating servicemembers. The programs either support the production  of new or rehabilitated rental housing for eligible families or subsidize  tenants’ rents to make existing units affordable (see table 1). Specifically:   Among the production programs, LIHTC and Section 515 Rural Rental  Housing Loans require property owners to restrict the rents that eligible  tenants pay. The rent on each tax-credit unit generally cannot exceed 30  percent of the applicable income limit, adjusted for the number of  bedrooms. Tenants pay 30 percent of their adjusted incomes toward the  rent on Section 515 units. The tax-exempt multifamily housing bonds  program requires units to be set aside for eligible families, but the rents  on these units generally do not have to be restricted.
Rental assistance programs make payments to property owners to make  up the difference between an eligible tenant’s rent contribution  (generally, 30 percent of adjusted monthly income) and a unit’s total  rent. The Housing Choice Voucher program offers tenant-based rental  assistance that tenants can use to rent privately owned apartments or  single-family homes, and that they can transfer to new residences if they  move. In contrast, the project-based Section 8 and Section 521 Rural  Rental Assistance programs offer project-based rental assistance, which  is attached to specific properties and is available to tenants only when  they are living in units at these properties.
Public housing also subsidizes tenants’ rents. However, rather than  making rental assistance payments to owners that are keyed to tenants’  rent payments, HUD provides public housing agencies with annual  operating subsidies that are based partly on the property’s projected  overall rental income.
All of these federal programs use a common definition of income as set out  in a HUD regulation. Under this definition, incomes of servicemember  households include all regular pay, special pay, and allowances (including  BAH) of the servicemember, except special pay to servicemembers who  are exposed to hostile fire. Each program determines households’  eligibility to apply by comparing their incomes with an income limit,  expressed as a percentage of the area median. The income limits are  adjusted for family size, with higher limits for larger families. In addition,  the HUD and USDA programs use tenant income (with certain  adjustments) to determine how much of a unit’s rent the tenant will pay.
The programs generally target various categories of households, defined  according to the relationship between a household’s income and the local  area median income (AMI): extremely low (household income is no more  than 30 percent of AMI), very low (no more than 50 percent of AMI), low  (no more than 80 percent of AMI), and moderate (no more than $5,500  above 80 percent of AMI). In addition to these categories, the LIHTC and  tax-exempt multifamily housing bond programs can target households with  incomes that are no more than 60 percent of AMI. For purposes of this  report, we focused on the 50 percent and 60 percent of AMI limits because  they generally apply to new applicants for the two largest federal rental  housing programs, Housing Choice Voucher and LIHTC.
The federal rental housing programs are not entitlements and, as a result,  do not assist all households that HUD has identified as having housing  needs—that is, households with very low incomes that pay more than 30  percent of their income for housing, live in substandard housing, or both.  According to HUD data for 2003, federal rental housing programs assisted  an estimated 4.3 million households, or 27 percent of all renter households  with very low incomes. Over 9 million renter households with very low  incomes (about 59 percent) did not receive federal assistance and had  housing needs. Of these 9 million households, over 5 million had what HUD  terms “worst case” needs—that is, they paid over half of their income in  rent, lived in severely substandard housing, or both.
section_title: Excluding BAH When Determining Income Would Extend Eligibility to More Servicemembers, Assuming No Additional Household Income
paragraphs: Assuming that the primary components of military pay were the only  sources of servicemembers’ household incomes, excluding BAH payments  from income when determining servicemembers’ eligibility for federal  rental housing programs would have substantially increased the percentage  that would have been eligible to apply for the programs as of December  2005. Specifically, most junior enlisted members would have been eligible  for the programs, as would have much smaller percentages of senior  servicemembers. In addition, although few in number, servicemembers  with the largest families (nine or more persons) would have been  somewhat more likely to be eligible for the programs than those with  smaller families. However, to the extent that servicemembers’ households  had income from nonmilitary sources, fewer of them would have been  eligible for the federal programs. We lacked data on servicemember  household incomes from nonmilitary sources, but at least 80 percent of the  potentially eligible servicemembers were married, and income earned by  spouses would likely have disqualified many of these households.
subsections: section_title: Most Junior Enlisted Members and Some Senior Members Would Have Been Eligible if Military Pay Were Their Sole Source of Income
paragraphs: Assuming that the primary components of servicemembers’ military pay  were their only sources of household income in 2005, we found that by  excluding BAH from income determinations, 19.9 percent of  servicemembers of all grades would have been eligible for federal rental  housing programs that used an income limit of 50 percent of AMI, compared with less than 1 percent of servicemembers with BAH included.  Similarly, at the 60 percent of AMI limit, 39.3 percent of the  servicemembers would have been eligible if BAH were excluded when  determining income, compared with 4.8 percent if BAH were included (see  fig. 2). At both income limits, most junior enlisted members (for our  purposes, E-1 through E-4) would have been eligible for the programs if  BAH were excluded. Specifically, at the 50 percent of AMI limit,  substantial majorities of E-1s (92.4 percent), E-2s (78.7 percent), and E-3s  (65.2 percent) would have been eligible. At the 60 percent of AMI limit,  virtually all E-1s (99 percent) and E-2s (97.6 percent) and substantial  majorities of E-3s (90.2 percent) and E-4s (64.6 percent) would have been  eligible.
In addition, using the same assumption that household income included  only the primary components of military pay, some senior enlisted  members and officers would have been eligible for the programs if income  determinations excluded BAH. Specifically, at the 50 percent of AMI limit,  19.2 percent of E-5s and 9.4 percent of E-6s would have been eligible, as  would have very small percentages of servicemembers in pay grades E-7  through E-9 (see fig. 2). The percentage of eligible officers also would have  been very small, as follows: 1 percent using the 50 percent of AMI limit, and  2 percent using the 60 percent of AMI limit.
section_title: Excluding BAH, More Servicemembers with Families of All Sizes Would Have Been Eligible, Especially Larger Families
paragraphs: Again assuming that the primary components of military pay were the only  sources of household income, by excluding BAH from income  determinations, considerable percentages of servicemembers with families  of all sizes would have been eligible for the programs, using either the 50  percent or 60 percent of AMI limit. However, because the programs’ income  limits increase with family size, servicemembers with larger families  (although relatively few in number) generally would have been more likely  to be eligible than those with smaller families (which were much greater in  number). For example, with BAH in income determinations, 6.6 percent  (59) of the largest families (those with nine or more persons) would have  been eligible for programs using the 50 percent of AMI limit, compared  with 0.5 percent (866) of the smallest (two-person) families (see fig. 3).  With BAH excluded, 40.6 percent (361) of the largest families would have  been eligible, compared with 23.7 percent (45,262) of the smallest families.  The same general pattern held true for programs using the 60 percent of  AMI limit. For example, 63.8 percent (568) of the largest families and 44.5  percent (84,999) of the smallest families would have been eligible if BAH  were excluded from income determinations.
section_title: Additional Household Income Would Reduce the Number of Eligible Servicemembers
paragraphs: To the extent that servicemembers had additional sources of household  income, their actual eligibility for the federal rental housing programs  would have been less than the percentages shown in our analysis.  Additional sources of household income could include income on assets  (such as savings accounts or mutual funds), employment of other  household members, or types of military pay that we did not include in our  analysis. For example, figure 4 shows that—at both program income  limits and with BAH included in or excluded from income  determinations—at least 80 percent of the potentially eligible  servicemembers were married and, thus, could have had additional income  earned by a spouse. In addition, at least 9 percent of the potentially eligible  servicemembers received other types of military pay.
To illustrate how additional sources of household income could affect  eligibility for the federal rental housing programs, we calculated the  amounts of additional income it would take to disqualify married  servicemember households that would have been eligible on the basis of  their military incomes alone. We found that, among the married  servicemembers who were potentially eligible with BAH included in  income determinations, income from even part-time, minimum-wage work  by their spouses likely would have disqualified many from the federal  programs. The same was true even if BAH were excluded from income  determinations. For example, with BAH included, spousal income of $2,004  would have been enough to disqualify half of the married servicemembers  that were potentially eligible for programs using the 50 percent of AMI limit  (see table 2). With BAH excluded, spousal income of $4,044 would have  been enough to disqualify half of the married servicemembers that were  potentially eligible. At the 60 percent of AMI limit, $3,108 in spousal income  would have disqualified half of the potentially eligible married  servicemembers with BAH included in income determinations, compared  with $6,180 if BAH were excluded. As shown in table 2, these amounts  represent part-time work of 24 hours per week or less at the federal  minimum wage.
section_title: Eligibility Aside, Lack of Demand and Other Factors Could Limit Servicemembers’ Use of Federal Rental Housing Programs
paragraphs: Agency officials and representatives from the four communities we  examined described factors that may limit the role of federal rental housing  programs in increasing the supply of housing or helping servicemembers  afford existing housing, regardless of how BAH affects their eligibility.  DOD officials said that servicemembers would be unlikely to need federal  rental housing programs because BAH rates cover median local housing  costs and would adjust annually to reflect any increases in market rents  that resulted from increased demand for housing near growing  installations. Yet, some community officials said that the LIHTC program  could be used to build more affordable housing if more servicemembers  were eligible. However, states would have to award tax credits to projects  in these communities, and housing market factors—such as the financial  feasibility of building market-rate units with rents that low-ranking  servicemembers could afford—could affect developers’ interest in using  the LIHTC program. Furthermore, although HUD and USDA programs  could help some eligible servicemembers rent existing units, the programs  are not entitlements; the limited availability of this rental assistance may  preclude servicemembers from using the programs. Also, if more  servicemembers applied for these programs, eligible lower-income civilians  might face longer times on waiting lists.
subsections: section_title: Servicemembers May Not Need Programs because BAH Rates Cover Median Costs and Are Adjusted for Changing Rents
paragraphs: According to DOD officials, servicemembers would be unlikely to need  federal rental housing programs to obtain affordable housing near growing  installations because BAH rates cover local housing costs and would adjust  for any increases in market rents that resulted from personnel gains. As of  2005, BAH rates fully cover the median local cost of housing at each  installation. Officials noted that DOD’s recent initiative to reduce  servicemembers’ out-of-pocket housing costs had resulted in substantial  increases in BAH rates nationwide, including at the four selected  installations we reviewed (Forts Benning, Bliss, Drum, and Riley). In  addition, the officials said that, if increased demand for housing near a  growing installation caused upward pressure on housing costs, DOD would  adjust BAH rates upward as part of the annual rate-setting process,  allowing servicemembers to obtain market-rate housing without additional  federal assistance. However, if vacant units were not available in the  communities immediately surrounding a growing installation, DOD  officials acknowledged that some servicemembers might have to seek  housing in outlying communities until the private market responded with  new construction closer to the installation.
Furthermore, the National Defense Authorization Act for Fiscal Year 2006  authorized the Secretary of Defense to prescribe temporary increases in  BAH rates in disaster areas or areas that contain one or more installations  that are experiencing a sudden increase in the number of servicemembers  assigned to the installation. Specifically, a temporary increase in BAH  rates would be based on the amount by which area housing costs increased  because of the disaster or influx of service members and would apply until  new rates for the next calendar year took effect. According to DOD  officials, no installations had requested an increase in BAH rates because  of installation growth, and the Secretary had not used this authority as of  June 2006. If an installation requests a temporary increase in BAH rates  because of installation growth, the officials said that DOD would review  local market conditions to determine whether an increase was warranted.
section_title: Ability of the LIHTC Program to Produce Needed Housing Could Be Affected Not Only by Servicemembers’ Eligibility, but Also by the State Allocation Process and Market Conditions
paragraphs: To varying degrees, officials in the four communities (near Forts Benning,  Bliss, Drum, and Riley) that we examined described a need to build more  private housing for incoming servicemembers. Some officials indicated  that, under certain conditions, the LIHTC program could help address their  anticipated housing needs.
According to officials at the selected installations, expected gains in  military personnel ranged from about 4,500 at Fort Benning to about 19,500  at Fort Bliss (see table 3). The rural installations—Fort Drum and Fort  Riley—expected more substantial growth relative to their existing supply  of housing than did the urban installations. The communities generally did  not yet have precise data on the expected number of servicemembers that  would be most likely to seek private housing (servicemembers with  families and those in higher pay grades who do not have dependents) or  required to live in barracks (servicemembers in junior pay grades who do  not have dependents). However, community officials in the Fort Riley area  estimated that at least 9,000 more housing units would be needed,  considering both the estimated number of incoming military personnel and  the expected growth in the civilian employment at the installation.  Similarly, community officials near Fort Drum estimated the need for  approximately 2,000 additional units. Community officials in the Fort  Benning and Fort Bliss areas had not developed such estimates, but they  also anticipated that some new construction would be necessary to  accommodate installation growth as well as other population increases.
Officials in some of these communities indicated that, under certain  conditions, the LIHTC program could help address their anticipated  housing needs. In particular, officials in the rural communities surrounding  Fort Drum and Fort Riley said that the LIHTC program could help them  build more affordable housing in response to installation growth, but only  if more servicemembers would qualify to live in tax-credit units (see sidebar). Assuming that the primary components of military pay were the  only sources of household income, modest percentages of servicemembers  at Fort Drum and Fort Riley in December 2005 might have qualified for  tax-credit units using the 60 percent of AMI limit even under the program’s  existing income definition, but much larger percentages (about 37 percent  and 26 percent, respectively) would have been eligible if BAH were  excluded from income determinations (see fig. 5). In contrast, almost none  of the servicemembers at Fort Benning and Fort Bliss would have been  eligible under the existing income definition, and modest percentages  (about 14 percent and 10 percent, respectively) would have been eligible if  BAH were excluded from income determinations. The variation in  servicemembers’ eligibility across installations reflected differences in the  percentages of servicemembers in the lowest pay grades.
Although these data, which pertain to personnel already located at these  installations as of December 2005, do not indicate how many incoming  personnel might be eligible to live in tax-credit units, they suggest that  substantial percentages of those at the rural installations might become  eligible if BAH were excluded from income determinations. In light of that  possibility, community officials near Fort Drum and Fort Riley stated that  excluding BAH could create opportunities to use the LIHTC program.  Specifically:  Community officials near Fort Drum indicated that some developers  were interested in building new rental housing but faced obstacles in  financing projects because of an estimated gap between current market  rents, which incoming junior enlisted personnel likely could afford, and  the higher rents that developers would need to charge to make new  apartments financially feasible without government subsidies. The  officials had been working with developers to seek financing assistance  through state programs, including New York’s low-income housing tax  credit program, which serves households with incomes up to 90 percent  of AMI. However, because the state programs are relatively small, the  officials said that increasing servicemembers’ eligibility for the larger  federal LIHTC program would provide more financing options for  developers.
Community officials near Fort Riley noted that servicemembers make  up a substantial portion of the current and expected future rental  market in the area, particularly in the community of Junction City just  outside of the installation. They said that while some developers of  tax-credit projects have expressed interest in building more units in the  area, they would only do so if the pool of potential tenants included  more incoming servicemembers, because the demand for additional  tax-credit units among civilian families is limited.
However, even if BAH were excluded from income when determining  eligibility and if developers proposed building tax-credit units,  LIHTC-funded development might be limited near growing installations  because the state agencies that award available tax credits have a variety of priorities. By law, each state must prepare an annual plan that identifies  its criteria for distributing its allocation of credits among proposed  developments. A state would have to weigh how a proposed property  would address the housing needs near growing installations against the  state’s priorities and selection criteria. States must give preference to  projects serving the lowest-income tenants and projects that would serve  qualified tenants for the longest periods of time. The states’ selection  criteria also must include other considerations, such as tenant populations  with special housing needs. For example, the priority housing needs in  Kansas’s plan for allocating tax credits in 2006 include projects in  communities with populations of fewer than 5,000; preservation of housing  with Section 8 or Section 521 project-based rental assistance; projects for  special-needs populations, such as the homeless or people with disabilities;  and projects whose units would offer below-market-rate rents. Projects  addressing these priorities would receive extra points in the scoring  process used to evaluate proposals.
Furthermore, officials in the four communities described market factors  that could influence whether developers would try to use the LIHTC  program to build housing near growing installations. In general,  developers would have limited incentive to compete for tax credits if  conditions for building market-rate housing were favorable, such as in  areas having a higher-income population. Generally, market-rate housing  allows developers to charge whatever rents the market will bear, without  other restrictions. In contrast, applicants for tax-credit financing must  agree to limit the rents charged for tax-credit units for at least 30 years and  must comply with other federal requirements for 15 years or risk losing the  right for investors to claim the tax credits. Thus, developers might be less  likely to propose new tax-credit units near a growing installation that  expected to receive more senior servicemembers with relatively high  incomes than near one that expected more junior members with relatively  low incomes. For example:  Aside from military students who would live on base, most of the  incoming military personnel at Fort Benning are associated with the  planned realignment of a training school with primarily senior-ranking  personnel. Community officials said that because these personnel likely  could afford to pay market rates for housing, they did not expect  developers to focus on providing new housing through the LIHTC  program.
In contrast, on the basis of preliminary estimates from Fort Riley  officials, roughly 45 percent of the servicemembers that would  eventually be stationed there might be married members in pay grades  E-1 through E-6. As of early 2006, the communities near Fort Riley had  substantial market-rate development under way or in the planning  stages. However, community officials anticipated that enough additional  low-cost housing would be needed for servicemembers in these lowest  pay grades to justify building tax-credit units for them (assuming they  were to become eligible).
In addition, developers might be more disposed to seek LIHTC financing in  areas where the cost to build new housing was high relative to the incomes  of junior enlisted members. For example:  Whereas officials in the Fort Benning area expected that developers  could build new market-rate housing within the price range that  incoming servicemembers could afford, officials in the rural Fort Drum  and Fort Riley areas stated that increasing construction, labor, and  infrastructure costs could make new market-rate units too expensive for  junior enlisted members or could make it difficult to secure financing  for market-rate units. For example, the cost of bringing materials and,  perhaps, workers into a rural area can contribute to relatively high  development costs.
Near Fort Bliss, El Paso city officials said that the LIHTC program might  be an attractive financing alternative for developers if they could not  otherwise build housing that servicemembers with the lowest incomes  could afford. However, the officials did not yet know whether  developers might need subsidies. They planned to study the issue by  considering the expected incomes of servicemembers who would be  arriving at Fort Bliss, the supply and price of existing housing, and the  development costs and rents that would be charged for new market-rate  housing.
section_title: Waiting Time and Scarcity of Larger Units May Preclude Servicemembers from Renting Existing Units through HUD and USDA Programs
paragraphs: Even if more servicemembers were to become eligible for HUD and USDA  rental housing assistance programs, waiting lists for units and the limited  availability of large units might limit servicemembers’ participation in these  programs, according to officials from HUD, USDA, and the four selected  communities.
Rather than financing new rental housing near growing installations, HUD’s  Housing Choice Voucher, public housing, and project-based Section 8  programs and USDA’s Section 515 and Section 521 programs primarily  would help servicemembers rent existing units if they obtained the  programs’ assistance, typically by making up the difference between their  required contribution (generally 30 percent of adjusted monthly income)  and a unit’s total rent. However, these programs are not entitlements, and  many of the HUD, USDA, and community officials said that the limited  number of units or limited supply of rental assistance may deter eligible  servicemembers from applying for these programs, especially in areas with  long lists of applicants already awaiting assistance. If they did join the  programs’ waiting lists, servicemembers might find other private,  military-owned, or privatized housing; relocate to a different installation; or  become ineligible for the program because of a promotion before they rose  to the top of a list. In all four of the communities we reviewed, the Housing  Choice Voucher and public housing programs had waiting lists, with times  ranging from a few months to 2 years, according to officials from HUD field offices and the housing authorities that maintain the lists. For example, in  Columbus, Georgia, near Fort Benning, the waiting list for vouchers was  long enough that it was closed as of March 2006 and was not expected to  open to new applicants until 2008.
In addition, servicemembers with large families may face obstacles to using  rental assistance programs because of the limited availability of units with  three or more bedrooms, according to some HUD, USDA, housing  authority, and installation officials. In the four communities, properties  with project-based Section 8 assistance and public housing developments  offered relatively few units with three or more bedrooms, thereby limiting  the options for families of five or more persons. For instance, in the Fort  Drum area, of 690 project-based Section 8 and public housing units  intended for families, 172 had three bedrooms and 43 had four bedrooms;  the remaining 475 had fewer than three bedrooms. Similarly, although  voucher recipients can seek housing in the broader private rental market,  some of the HUD field office officials noted that larger families could have  a hard time finding a sufficiently sized apartment or house that would meet  the program’s quality and cost standards.
If servicemembers did join the programs’ waiting lists, HUD headquarters  and field office officials noted that housing authorities could adopt  preferences that would reduce servicemembers’ wait for vouchers or  public housing, but some officials said that such a step could be  controversial. The housing authorities that administer vouchers and public  housing developments may establish local preferences for selecting  families from waiting lists, on the basis of local housing needs and  priorities. However, HUD and housing authority officials said that such  preferences—for example, for victims of domestic violence or a single  homeless person—have sometimes met opposition from those who would  face longer waits because they did not qualify for these preferences.
Similarly, some HUD officials said that increasing servicemembers’  eligibility for the programs or giving them preference on waiting lists could  create tensions with lower-income civilians who might have to face even  longer waiting periods for rental assistance as a result. On the basis of the  2006 pay rates for the primary elements of military compensation,  servicemembers in all pay grades would have substantially more income  than most existing Housing Choice Voucher recipients, even without their  BAH payments (see fig. 6). In light of that difference in incomes, some of  the officials also cited potential concerns about balancing any advantages  for servicemembers with the programs’ current emphasis on targeting  assistance to households with extremely low incomes.
section_title: Conclusions
paragraphs: As some military installations gain servicemembers, nearby communities  face opportunities for growth as well as potential challenges in providing  an adequate supply of housing that incoming servicemembers can afford.  Many of these incoming personnel may not have problems finding housing  they can afford—for example, junior enlisted members without dependents  generally live in barracks; DOD has the ability to raise BAH rates for other  servicemembers to reflect any increases in housing costs near the growing  installations; and many servicemembers may have additional resources,  such as spousal income, that they can put toward housing costs. Where  communities lack enough housing for incoming personnel or where rents  are expensive for married junior personnel, federal rental housing  programs might help provide affordable housing for servicemembers  through the production of additional housing or through rental assistance  for existing housing. By excluding BAH from servicemembers’ incomes  when determining eligibility, many of the lowest-ranking servicemembers  could qualify to apply for these programs.
However, the effects of such a change are uncertain and could involve  trade-offs that warrant attention. For example, the LIHTC program (or,  similarly, tax-exempt multifamily housing bonds) could help increase the  supply of affordable rental housing for incoming servicemembers, if more  of the members were eligible to live in tax-credit units. However, even if  more servicemembers were eligible, the extent to which the LIHTC  program would play a role in increasing the supply of affordable housing  near growing installations would depend on local housing market  conditions, the income distribution of incoming servicemembers, and the  decisions of state agencies regarding whether to allocate tax credits to  projects near growing installations or to projects that might address other  state housing priorities. Furthermore, the rental assistance programs are  not entitlements and already do not assist all eligible households. While  some servicemembers might be deterred by the prospect of a lengthy wait  from applying for HUD and USDA rental assistance for existing units, those  who did apply would expand the pool of those waiting for a limited supply  of available assistance. Thus, making more servicemembers eligible by  excluding BAH from income determinations could cause these programs to  serve more servicemembers at the expense of eligible civilians.
section_title: Matter for Congressional Consideration
paragraphs: If the primary intent of excluding BAH from income determinations for  federal rental housing programs is to help increase the supply of rental  housing that servicemembers with the lowest incomes could afford,  Congress should consider first applying such a change only to programs  intended to stimulate production of such housing, such as LIHTC and  tax-exempt multifamily housing bonds.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DOD, HUD, IRS, Treasury, and USDA  for their review and comment. Treasury and USDA did not comment on the  draft report. DOD, HUD, and IRS provided technical comments, which we  incorporated where appropriate. DOD also provided comments in a letter  from the Acting Deputy Under Secretary for Military Personnel Policy (see  app. II).
DOD commented that BAH does an excellent job of achieving the objective  of providing servicemembers with the same quality and quantity of housing  that their civilian counterparts can afford. However, DOD also noted that  servicemembers may have difficulty finding adequate housing if there are  substantial changes in the supply of or demand for housing in a local area,  at least until the private market has had time to adjust to the changing  conditions. DOD also observed that servicemembers with large families,  who seek larger housing than an average size family, may have difficulty  finding adequate housing using their BAH payments alone and may apply  for federal rental housing programs. However, DOD also stated that  servicemembers should be eligible for federal housing subsidies under the  same terms as their civilian counterparts. Furthermore, DOD commented  that excluding BAH from income determinations might transfer existing  scarce resources from low-income civilians to the military and generate  ill-will among civilians toward the military. Finally, DOD stated that, while  our draft report showed that excluding BAH from income determinations  might not have the desired effect of increasing the supply of rental housing  for servicemembers, there might be other ways in which the government  could assist the private market in responding to housing shortgages. Our  draft report discussed the particular difficulties of large families—even  those receiving rental assistance—in finding suitable housing. The draft  report also addressed the potential role of existing programs, particularly  the LIHTC program, in stimulating production of affordable housing near  growing installations. However, examining other possible federal strategies  for increasing the supply of private housing was beyond the scope of this  study.
We are sending copies of this report to other interested congressional  committees; the Secretaries of the Departments of Agriculture, Defense,  Housing and Urban Development, and the Treasury; and the Commissioner  of Internal Revenue. We will make copies available to others upon request.  This report will also be available at no charge on GAO’s Web site at  http://www.gao.gov.
Please call me at (202) 512-8678 if you or your staff have any questions  about this report. Contact points for our Offices of Congressional Relations  and Public Affairs may be found on the last page of this report. See  appendix III for key contributors to this report.
section_title: Objectives, Scope, and Methodology
subsections: section_title: Objectives
paragraphs: Our objectives were to determine (1) how excluding the Basic Allowance  for Housing (BAH) from income determinations would have affected the  eligibility of servicemembers receiving BAH as of December 2005 and (2)  programmatic and market factors that could affect eligible  servicemembers’ participation in the programs in selected communities  gaining military personnel.
section_title: Scope and Methodology
paragraphs: The federal rental housing programs in our scope include the Department  of Housing and Urban Development’s (HUD) public housing, Housing  Choice Voucher, and project-based Section 8 programs; the Department of  Agriculture’s (USDA) Section 515 Rural Rental Housing Loans and Section  521 Rural Rental Assistance programs; and the Low-Income Housing Tax  Credit (LIHTC) and tax-exempt multifamily housing bond programs, which  are jointly administered by the Internal Revenue Service (IRS) of the  Department of the Treasury (Treasury) and the states.
To determine how excluding BAH would have affected the eligibility of  active-duty servicemember households receiving BAH as of December  2005, we compared the incomes of servicemembers who received BAH in  December 2005 with the federal rental housing programs’ income limits in  effect at that time. We obtained personnel and pay data from the  Department of Defense’s (DOD) Active Duty Personnel Master and Active  Duty Pay files for December 2005. We analyzed data on 702,975 active-duty  servicemembers who received BAH payments that month. We calculated  servicemembers’ annual incomes on the basis of their December 2005  payments for basic pay; BAH; Basic Allowance for Subsistence; and, where  applicable, a cost-of-living adjustment for servicemembers in certain high- cost areas. We assumed that these elements of military pay were  servicemembers’ sole sources of household income because data on other  income sources, such as spousal income, were unavailable. However, we  analyzed how other sources of income might have reduced  servicemembers’ eligibility by calculating the median additional annual  income needed before married servicemembers’ families would have  exceeded the income eligibility limit.
To assess the reliability of the data used in our analysis, we interviewed  DOD officials who were familiar with the data, reviewed relevant  documentation, and tested the data for missing and apparently erroneous  values. DOD provided data on 708,548 active-duty members of the  Departments of the Army, Navy and Air Force and the Marine Corps. On the  basis of our tests of these data, we excluded 5,573 (about 0.8 percent)  records because we could not match the servicemembers’ zip codes to the  geographic areas for which income limits were defined, because data on  family size were missing, or because anomalies in the monthly pay data  prevented us from calculating an annual income amount. As a result, our  servicemember population was 702,975 for this analysis. We concluded that  these data were sufficiently reliable for our purposes. Nonetheless, our  analysis was limited because it provided a snapshot of servicemembers’  potential eligibility to apply for the programs on the basis of their incomes  in December 2005. We could not predict the effects of a future change in  income determinations, because potential changes in servicemembers’  incomes or duty locations and annual adjustments to programs’ income  limits would also affect eligibility.
To determine the programmatic and market factors that could affect  eligible servicemembers’ participation in the programs in selected  communities gaining military personnel, we interviewed and reviewed  relevant documentation from military installation officials; rental housing  program officials (including officials from HUD and USDA field offices,  public housing authorities, and state housing finance agencies); and local  government or community organization representatives in four  communities near installations that will gain military personnel as a result  of the 2005 base realignment and closure (BRAC) process or other military  initiatives. We selected Fort Benning, Georgia; Fort Bliss, Texas; Fort  Drum, New York; and Fort Riley, Kansas. We selected these installations on  the basis of their expected net gains of military personnel and preliminary  information indicating that the surrounding communities had initiated  planning to address the housing needs of incoming servicemembers. We  also sought a balance between urban and rural locations. Our selection of  four Army installations reflects that this service generally expected the  largest personnel gains. We visited the Fort Riley, Kansas, area and  contacted the other areas by telephone. We cannot generalize the  information from these four installations to all installations that will gain  military personnel. In addition to our local contacts, we also discussed  factors that affect the use of federal rental housing programs with  headquarters officials at the Army, DOD, HUD, USDA, IRS, and Treasury.
We conducted our work in Washington, D.C.; Arlington, Virginia; and  Junction City and Manhattan, Kansas, between November 2005 and July  2006, in accordance with generally accepted government auditing  standards.
section_title: Office of the Under Secretary of Defense
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Steve Westley, Assistant Director;  Julianne Stephens Dieterich; Alison Martin; Bettye Massenburg; John  McGrail; John Mingus; Marc Molino; David Pittman; and Barbara  Roesmann made key contributions to this report.