Military Housing: Enhancements Needed to Housing Allowance Process and Information Sharing among Services
Published: 2011-05-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Defense (DOD) paid active duty military personnel over $18 billion in housing allowances in fiscal year 2010. DOD sets housing allowance rates annually based on market costs of rent, utilities, and renter's insurance. Also, DOD has identified 26 installations significantly impacted by expected growth in personnel due to various rebasing actions. The Senate report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2011 (S. 3454) directed GAO to review DOD's rate-setting process, among other issues. GAO determined (1) whether there are enhancements to strengthen DOD's rate-setting process and (2) whether service members have encountered challenges in obtaining off-base housing. GAO reviewed program documents, including a 2010 DOD report to Congress, analyzed data, and interviewed DOD officials and subject matter experts.
section_title: What GAO Found
paragraphs: DOD uses a data-intensive process to set housing allowance rates that officials said generally meets program goals. Key quality assurance steps in DOD's process include involving installations in the rental data collection process and verifying data prior to calculating allowance rates. However, some enhancements related to (1) providing additional information to installation officials and service members, (2) defining a key term for data collection, and (3) developing more accurate cost estimates for budget requests could further strengthen the process. First, installation officials and service members do not have access to information on the three costs that comprise the allowance--rent, utilities, and renter's insurance--because DOD issues a single rate for each pay grade. As a result, installation officials cannot help ensure the accuracy of the rates and service members are not fully informed of potential housing costs. Second, in areas with low vacancy rates, officials said it can be difficult to find enough rental properties that meet the definition of available because the definition is limited to rentals on the market within 4 to 6 weeks prior to data collection. As a result, properties that some installations submit may not be fully representative of rental costs in the area or representative properties may be excluded, increasing the possibility of inaccurate rates in an area. Third, the military services have consistently underestimated the amount needed to pay the allowance by $820 million to $1.3 billion each year since 2006 when preparing budget requests, in part because the services' processes do not allow them to accurately estimate the number of service members who will receive the housing allowance. GAO recognizes the difficulties in developing accurate housing allowance cost estimates. However, as a result of consistently underestimating the amount needed to pay the allowance--which is an entitlement for service members and must be paid--DOD has had to shift funds that were budgeted for other programs, which could disrupt the funding of the other programs. Also, DOD's budget does not provide the full picture of housing allowance costs, limiting the ability of Congress and DOD to make fully informed funding decisions. Some service members have encountered challenges in obtaining off-base housing at some growth installations. Military service data show current housing deficits, ranging from about 1 percent of total demand to more than 20 percent, at 19 of 26 installations DOD identified as significantly impacted by growth. Installation officials GAO interviewed expect such housing challenges to continue or worsen. DOD uses a number of tools to address these housing challenges that could be used at other installations, such as expanding housing privatization projects and encouraging collaboration between installations and communities. GAO found that installations share information on these tools on an ad hoc basis, such as through e-mail messages or at conferences, because DOD does not have a formal communications process that would allow them to store and share such information. As a result, DOD cannot ensure that installations that are currently experiencing housing challenges or may experience such challenges in the future will have the needed information on various tools that can be used to address these challenges.
section_title: What GAO Recommends
paragraphs: GAO is recommending that DOD (1) provide information on the costs that comprise the housing allowance to installation officials and service members, (2) assess the benefits and drawbacks of revising the definition of "available" properties for data collection, (3) improve its processes to estimate allowance costs for the budget, and (4) develop a formal process for installations to share information on housing tools. DOD generally concurred with all four of GAO's recommendations.

section_title: Letter
paragraphs: The Department of Defense (DOD) spent about $18 billion in fiscal year  2010 on housing allowances for active duty military personnel that live in  the United States. Comprising about 20 percent of a service member’s  annual direct cash compensation, the Basic Allowance for Housing is  designed to cover the average monthly costs of rent, utilities, and renter’s  insurance. Each year, DOD collects data and sets housing allowance rates  based on market costs of these three housing cost components for 364  separate areas to account for regional variances in housing expenses  within the United States. Since housing costs may change over time, DOD  annually adjusts housing allowance rates to better reflect actual costs of  housing in the community. DOD primarily relies on communities to  provide housing for about two-thirds of service members, so accurate  housing allowances and a supply of adequate and affordable housing are  both necessary to satisfy military housing needs. Twenty-six domestic  military installations have or are projected to experience population  growth due to the continued implementation of several DOD initiatives— such as Base Realignment and Closure (BRAC), Grow the Force, Army  Modularity, and Global Defense Posture and Realignment. For some  installations, this growth has already occurred due to ongoing  implementation of these various major initiatives, creating increased  demands on both DOD and the surrounding communities to provide  adequate and affordable housing for service members and their families.
In 2009, Section 605 of Public Law 111-84 required the Secretary of  Defense to review two aspects of the housing allowance program and  submit a report that included recommendations, as appropriate. DOD  issued its report in June 2010. Subsequently, the Senate report  accompanying a bill for the National Defense Authorization Act for Fiscal  Year 2011 (S. 3454) directed GAO to review DOD’s report to determine if  the department is using the most effective, accurate, and efficient system  for setting Basic Allowance for Housing rates. The Senate report also  directed GAO to independently assess the effects of base realignment  decisions on military installation populations and whether DOD has  accounted for these basing decisions in determining housing allowance  rates. Based on the congressional direction on these two issues, we  determined (1) whether there are enhancements that DOD could  incorporate to strengthen its process to set housing allowance rates,  including DOD’s process to budget for the allowance, and (2) whether  service members assigned to installations expecting significant growth as  a result of BRAC or other basing initiatives have encountered challenges in  obtaining off-base housing and the extent to which DOD uses and shares  tools to address these challenges.
To determine whether DOD could enhance its housing allowance rate- setting process, we reviewed DOD’s report on housing standards and  surveys and other guidance and reports discussing DOD’s rate-setting  process. We also analyzed DOD’s budget justification documentation for  the housing allowance. We met with officials from relevant organizations  and offices within DOD, including the Defense Travel Management Office,  the Office of the Under Secretary of Defense (Comptroller), military  service officials who oversee the housing allowance program, military  service officials involved with developing the housing allowance cost  estimates, officials from five military installations expecting personnel  increases, and the contractor that assists DOD with collecting housing  cost data used to set allowance rates. Additionally, we interviewed  representatives of organizations with recognized expertise in military  compensation and associations that represent the interests of military  service members and their families. We considered a number of potential  enhancements to DOD’s current rate-setting process and performed  further analyses to determine the benefits and drawbacks of each,  including potential financial savings or costs. To determine whether  service members have encountered challenges in obtaining off-base  housing at installations expecting or have incurred significant personnel  increases over the last several years and the extent to which DOD uses  and shares tools to address these challenges, we analyzed DOD and GAO  reports related to growth installations and housing demand. Additionally,  we interviewed housing officials from the Directorate of Housing and  Competitive Sourcing within the Office of the Under Secretary of Defense  (Acquisition, Technology and Logistics), each of the military services, and  five installations projected to increase in population. (See appendix I for a  more detailed description of our scope and methodology.)
We conducted this performance audit from August 2010 through May 2011  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: A member of the uniformed services—including the Air Force, Army,  Coast Guard, Marine Corps, National Oceanic and Atmospheric  Administration, Navy, and Public Health Service—who is entitled to basic  pay is also eligible to receive the Basic Allowance for Housing, subject to  certain exceptions. The Secretary of Defense—through the Defense  Travel Management Office within the Office of the Under Secretary of  Defense (Personnel and Readiness)—sets the housing allowance rates for  all personnel who receive the allowance. According to the Defense Travel  Management Office, senior executives and flag officers from the Coast  Guard, Public Health Service, and the National Oceanic and Atmospheric  Administration Corps, in addition to the three military departments,  provide oversight of the housing allowance program through the Per Diem  Travel and Transportation Allowance Committee.
The legislation that created the Basic Allowance for Housing program,  Section 603 of the National Defense Authorization Act for Fiscal Year  1998, among other things, consolidated two authorities for providing  housing allowances—the Basic Allowance for Quarters program and the  Variable Housing Allowance program—and changed the way DOD  calculates housing allowances to be based on adequate housing for  civilians with comparable income levels in the same area, rather than on  service members’ reported housing expenditures, which was a major  factor in calculating the Variable Housing Allowance. According to DOD,  housing allowance rates based on the market costs of rental housing  ensure a better correlation between allowance payments and rental costs.  In January 2000, the Secretary of Defense announced a quality-of-life  initiative to increase housing allowances gradually over a 5-year period to  eliminate a service member’s average out-of-pocket housing costs from an  average of more than 18 percent in 2000. Figure 1 shows the amounts DOD  obligated for the housing allowance and the number of service members  who received the allowance from fiscal years 2000 through 2010.
Housing allowance rates vary based on a service member’s pay grade,  dependency status, and geographic location. DOD established six housing  profiles, ranging from a one-bedroom apartment to a four-bedroom single- family detached house, and associated each profile with a military pay  grade. Service members with dependents receive a higher housing  allowance than those in the same pay grade and location without  dependents. To set housing allowance rates by geographic area, DOD  established 364 housing areas within the United States. These areas are  generally within a 20-mile or 1-hour commute from military installations.  In total, DOD calculates nearly 20,000 separate allowance rates each year.  To set these rates, DOD uses a yearlong multistep process that involves  hundreds of officials from installation housing offices, the Defense Travel  Management Office, compensation offices in each military service, and a  contractor that is a recognized leader in the field of collecting cost-of- living data. Each year, installation housing officials submit rental data on  the six housing profiles in the 364 housing areas to the contractor. The  contractor then verifies the data; collects additional rental data on its own;  and determines average rental, utility, and renter’s insurance costs for  each housing profile in the 364 housing areas. The contractor then  provides the housing cost data to the Defense Travel Management Office,  which calculates housing allowance rates for each pay grade for service  members with and without dependents in each housing area. Figure 2  shows the annual housing allowance rate-setting process. (See appendix II  for a more detailed description of the annual housing allowance rate- setting process.)
Housing allowance rates in a housing area can fluctuate from year to year  since local housing costs change over time. If housing allowance rates in  an area increase, then a service member stationed in that area will receive  the increased rate. However, if housing allowance rates in an area  decrease from one year to the next, the service member retains the higher  housing allowance rate, known as “rate protection,” as long as their  location and dependency status remain unchanged and their pay grade  does not decrease. This protects service members already committed to a  lease. For example, at Nellis Air Force Base near Las Vegas, Nevada,  housing allowances decreased between 2010 and 2011 for all pay grades  and dependency statuses. The monthly housing allowance for an enlisted  service member in the E-7 pay grade without dependents decreased from  $1,200 to $1,107. If a service member stationed at Nellis Air Force Base in  2010 with this pay grade and dependency status remained at the  installation in 2011 with the same pay grade and dependency status, then  the service member’s housing allowance would remain $1,200. However, a  service member at the same pay grade and dependency status that  relocated to Nellis Air Force Base in 2011 would receive a monthly  housing allowance of $1,107.
DOD policy is to rely on the private sector as the primary source of  housing for personnel normally eligible to draw a housing allowance.  While DOD may require certain service members to live on base, such as  key personnel and most junior-enlisted personnel without dependents,  about two-thirds of service members and their families in the United  States choose to live off base in the local community. If a service member  chooses to live on base in privatized family housing, the service member  pays the privatization developer rent that is usually equal to the housing  allowance. While DOD calculates the housing allowance based on rental  market costs, service members may choose to apply their allowance  toward purchasing a home or renting a housing unit that could be more or  less than their housing allowance. Service members are permitted to keep  any portion of their housing allowance not spent on housing and  conversely will have to use other funds to pay housing costs that exceed  their allowance.
Several DOD initiatives are contributing to changes in housing needs in the  local communities due to the relocation of military personnel, including:    Grow the Force: In January 2007, the President announced and Congress  approved an increase in the Army end strength by more than 74,000 active  duty, National Guard, and reserve personnel and the Marine Corps end  strength by 27,000 Marines through the Grow the Force initiative. The  services met these increased end strength goals by 2009.
BRAC: Several installations are experiencing growth due to  implementation of the 2005 BRAC round. Under the 2005 round, DOD is  implementing 182 recommendations which must be completed by the  statutory deadline of September 15, 2011. These recommendations include  a large number of realignments, prompting significant personnel  movements among installations.
Army Modularity: The Army is restructuring its force as it implements  force modularity, which entails converting units to brigade combat teams,  resulting in some installations receiving one of more of these brigade  combat teams.
Global Defense Posture and Realignment: DOD began to realign its  overseas basing structure in 2004 and planned to relocate about 44,500  Army personnel from overseas to domestic installations by 2013.
Iraq Drawdown: DOD is relocating many troops from Iraq to domestic  installations, although the net growth at these installations may be offset  by troops deploying to Afghanistan.
As a result of these initiatives, DOD’s Office of Economic Adjustment has  identified 26 domestic installations significantly impacted by the growth in  military populations. This growth has raised several concerns, one of  which is the availability of housing on base and in the communities near  installations. We have previously reported on the growth-related  challenges at growth installations and in the communities surrounding  them. Specifically, we found that many communities will face growth- related challenges in the short term, including challenges to identify and  provide additional infrastructure—such as schools, roads, housing, and  other services—to support the expected population growth. Figure 3  shows the location of growth installations as defined by DOD’s Office of  Economic Adjustment as of January 2011.
The National Defense Authorization Act for Fiscal Year 2010 required the  Secretary of Defense to conduct a review of two aspects of the housing  allowance program and submit a report by July 1, 2010. DOD hired a  contractor with expertise in human services consulting to undertake the  study and perform the analyses that served as the basis for DOD’s report.  DOD submitted its report to Congress in June 2010. DOD’s report  contained a review of the housing profiles used to determine housing  allowance rates and a review of the process and schedule for collecting  housing data that provide the basis for setting DOD’s housing allowance  rates. DOD’s 2010 report to Congress states that overall housing allowance  rates are generally comparable to civilian housing expenditures for most  pay grades but are not identical. Also, data the contractor provided to  DOD for its use in preparing its report to Congress do not show a clear  trend in housing choices by civilians that would support changing the  profiles. Defense Travel Management Office officials said that they study  the relationship between housing choices of civilians and the housing  allowance rate about every 3 years, but have not made changes to the  housing profiles since implementing the current rate-setting process.  Although the contractor analyzed possible alternatives to improve the rate- setting process, neither the contractor nor DOD’s report to Congress  recommended any changes to the current process.
section_title: DOD’s Data-Intensive Process Helps to Ensure the Accuracy of Housing Allowance Rates, and Some Enhancements May Further Strengthen the Process
paragraphs: DOD uses a data-intensive process to set housing allowance rates that  officials said generally meets the goals of the program, although  enhancements related to providing information to installation officials and  service members, defining a key term for data collection, and developing  more accurate cost estimates for the allowance to use in budget requests,  could further strengthen the process.
subsections: section_title: DOD Uses a Data-Intensive Process to Set Housing Allowance Rates
paragraphs: DOD uses a data-intensive process to set housing allowance rates that  includes a number of quality assurance steps designed to help ensure the  reasonable accuracy of the rates, such as:    Involving installation officials in the data collection process: The  housing office and command leadership at each installation have the  opportunity to submit properties for inclusion in the data used to set the  rates and identify areas for exclusion from the data. Data collection efforts  involve numerous installation officials, with officials from the five  installations we reviewed estimating that they spent from 12 to 275 staff  days per year on data collection tasks. By involving installation officials in  the data collection process, DOD benefits from local expertise to help  ensure that the properties used to set the housing allowance rates are  adequate in terms of the quality of the properties and appropriate for  military personnel of the designated rank.
Reviewing the data before data collection is complete: After  installations submit their first round of housing cost data, representatives  from each of the military services meet with the Defense Travel  Management Office and the data collection contractor to review the  submitted data. The service representatives generally check that each of  the installation housing offices submitted data and that the data submitted  are reasonable when compared to past rental rates. If a service  representative identifies an installation that has not submitted data or  anomalies in the data, the service representative typically contacts the  installation to address the situation. The service representatives and  officials from the Defense Travel Management Office said that these  reviews have been effective at verifying that the installations are following  DOD’s data submission guidance and determining whether the data appear  reasonable to include in the rate-setting analysis.
Verifying the rental data: The contractor hired by DOD to analyze the  data contacts landlords of installation-submitted properties to verify that  the rental rates are current and accurate and that the property is located  within the boundaries of the military housing area. This verification  process also helps to ensure the accuracy of the data.
Officials we interviewed generally stated that DOD’s rate-setting process is  an effective process that meets the purpose and goal of the program,  which is to provide fair housing allowances to service members and to  help service members cover the costs of housing in the private sector.  These officials identified few potential changes to the rate-setting process,  in part since DOD has implemented several changes to the rate-setting  process in the decade since establishing the program. For example, in  2003, the contractor started comparing the rental data submitted by the  installation housing offices to the data the contractor collected as an  additional quality assurance step. In 2011, the data collection contractor  began a comprehensive review of the housing area boundaries to verify  that the housing areas are accurate.
Along the same lines, DOD’s 2010 report to Congress noted that their  review uncovered relatively few complaints or concerns with the rate- setting process, that participants believe the current process works well,  and that problems have been addressed through refinements to the  process. Additionally, our 2001 review found that the contractor followed  reasonable procedures to ensure that the housing data collected were  accurate. DOD still uses the same contractor for data collection and the  fundamental procedures that we reviewed in 2001 are still in place or have  been enhanced. In appendix II of this report, we have summarized DOD’s  data-intensive process for setting housing allowance rates.
DOD sets its housing allowance rates for an area based, in part, on current  market rental cost data, which DOD collects annually for each housing  area. Thus, any cost increases—due to changes in the supply of or demand  for housing or any other reason—should be captured through the annual  rate-setting process, according to Defense Travel Management Office and  service compensation officials. These officials noted that DOD does not  explicitly consider the supply of or demand for housing, including changes  due to planned population changes at an installation, when determining  housing allowance rates, noting that revising housing allowance rates to  attempt to account for installation population changes would likely lead to  inaccurate rates.
From 2006 through 2009, DOD had the authority to temporarily increase  housing allowance rates in disaster areas or areas with installations that  experienced a sudden population increase. Defense Travel Management  Office officials stated that three installations—Fort Riley, Kansas; Cannon  Air Force Base, New Mexico; and Fort Drum, New York—inquired about  the authority, but the regular rate-setting process was able to address the  changes in housing costs and the authority was not used. According to  these officials, population changes to date have not occurred so rapidly  that they could not be addressed through the regular rate-setting process,  and they did not expect to need to implement the provision in response to  population changes. However, they noted that they cannot speculate on  the effects of a natural disaster on housing costs, so having the authority  to react to such an event would be desirable.
section_title: Installation Officials and Service Members Do Not Have Access to All Three Housing Allowance Rate Cost Components
paragraphs: Installation officials and service members do not have access to  information on the amount or proportion of the housing allowance rate  derived from each of the three costs that comprise the housing allowance.  As part of the process to determine housing allowance rates, the  contractor calculates the median monthly rental costs, average monthly  renter’s insurance costs, and average monthly utility costs for each of the  six housing profiles, based on local rental market costs. DOD sums these  figures to determine the total housing allowance rate for each of the  housing profiles, and then uses that data to determine a single figure for  the housing allowance for each pay grade. Because DOD issues a single  figure for the housing allowance rate for each pay grade, installation  officials and service members do not know the amounts of the three costs  that comprise the total housing allowance rate.
Without access to information on the three costs that comprise the  housing allowance rate, installation officials cannot help ensure the  accuracy of the total housing allowance rates. The data collection  guidance provided to the military installations states that the installations’  expertise and knowledge of the local market is crucial to the rate-setting  process. Installation officials participate in the rate-setting process by  submitting data on rental costs in the area. However, DOD is not taking  full advantage of the installations’ expertise and knowledge of the local  market to help ensure the accuracy of the total housing allowance rates,  and particularly the utility and renter’s insurance cost data. Rather, the  data collection contractor determines the average utility and renter’s  insurance costs in each housing area for each housing profile through  databases. Furthermore, the contractor collects additional data on rental  costs in each housing area to supplement the data that installation officials  submit. Officials from the Defense Travel Management Office said that  installation officials do not have access to the final calculations of median  rent, average utilities, and average renter’s insurance costs since they  believe most of the officials’ questions about housing allowance rates can  be addressed without providing such detail. While we did not identify  specific concerns with the accuracy of these databases or the rental data  collected by the contractor, installation officials we interviewed raised  concerns that they do not have access to information that would allow  them to help ensure the accuracy of the costs and the resulting housing  allowance rates.
Officials we interviewed at the five installations said that the total housing  allowance rates in their area generally appeared to be accurate for most of  the housing profiles, but said that they could not fully confirm the  accuracy of the rates without additional information on the three  components—rent, utilities, and renter’s insurance—used to calculate the  rate. For example, an official at one installation noted that the housing  allowance for the area appeared slightly lower than the average housing  costs in the area and originally questioned the accuracy of the utility costs  for the area. When notified that utility costs comprised about 25 percent of  the total housing allowance in 2011 for that housing area, the housing  official said the utility cost used in the rate calculation appeared  reasonable for the amount that service members are paying for utilities,  but noted that the remaining amount of the allowance was significantly  lower than the rental data the installation submitted and the rental costs in  the area. While DOD’s report to Congress does not mention issues related  to providing additional information to installation officials or service  members, the contractor’s report that served as the basis of DOD’s report  noted the need for a feedback mechanism to allow installations to see the  average cost data prior to housing allowance rates being calculated.
Additionally, without access to information on the three costs that  comprise the housing allowance rate, service members cannot take such  costs into full consideration when choosing off-base housing, particularly  when moving into a new area. Overall, rental costs comprise the majority  of the housing allowance rate, averaging more than 75 percent of the rate  across all housing areas and profiles, and the utility costs averaged more  than 20 percent of the housing allowance rate with renter’s insurance  costs comprising the remaining portion. However, these averages vary by  housing area and profile, as is to be expected given the unique local  housing markets. Our analysis shows that the local utility costs DOD used  to calculate the 2011 housing allowance rates are within 5 percent of the  housing profile’s average in more than two-thirds of areas, but the utility  costs ranged from nearly 8 percent to nearly 40 percent of the total  housing allowance, which could be a significant cost difference when  moving between housing areas and could affect service members’  decision-making process for choosing affordable housing. For example, if  an enlisted service member with dependents in the E-6 pay grade  relocated from Schofield Barracks, Hawaii, to Fort Knox, Kentucky, the  percentage of the housing allowance rate calculated from the area’s utility  costs would increase from about 15 percent of the total housing allowance  at Schofield Barracks to about 26 percent at Fort Knox. Similarly, if a  Marine with dependents in the same pay grade relocated from Camp  Pendleton, California, to Marine Corps Air Station Cherry Point, North  Carolina, the percentage of the housing allowance calculated from local  utilities would increase from about 15 percent of the total housing  allowance at Camp Pendleton to about 24 percent at Marine Corps Air  Station Cherry Point. Without knowledge of the average utility costs as a  percentage of the housing allowance in the new area, the service member  may make decisions on where to live and how much of the housing  allowance to spend on rent, utilities, and renter’s insurance based on his  or her experience at the previous duty location. In that case, the service  member in either of the above examples would underestimate the amount  needed to pay the average utilities at the new duty location by more than  $100 per month, or about 10 percent of the total housing allowance at the  new locations, and would have to pay the excess amount from other  income sources.
Housing officials at four of the five installations we interviewed said that  without information on the breakdown of estimated costs for utilities and  renter’s insurance, some landlords view the overall housing allowance rate  as the market rental rate and set rental rates equal to the full housing  allowance rate for a specific pay grade without regard to utility expenses  that would also need to be paid. Also, some service members choose  housing in which the rental cost is equal to the full housing allowance rate  without fully understanding the financial implications when rent does not  include the additional costs of utilities or renter’s insurance. A service  member paying more than the allowance rate to obtain housing does not  necessarily mean that the housing allowance rate in an area is not  accurate. The housing allowance rate is set based on the average housing  costs in an area and most service members in an area will not have  housing costs exactly equal to the average. A service member who chooses  housing in which costs exceed these averages will have to pay more than  the housing allowance for some housing costs and, conversely, a service  member with costs below the averages can keep the remaining amount.  We have previously reported on the importance of educating service  members on their compensation, specifically noting that past studies  suggest that revealing more information about components of  compensation has a greater impact on the component’s satisfaction rate  than the actual amount itself.
Officials from the Defense Travel Management Office said they believe  that publishing information on the three costs that comprise the total  housing allowance may be distracting to the service members or may lead  to service members’ feeling that their choices are restricted, as few service  members have housing costs that exactly match the costs used to  calculate the allowance. Installation housing officials and an official from  one military service that we talked to generally disagreed with this view  and said that the additional information would allow service members to  make better-informed decisions rather than constraining service members’  housing choices. During our review, DOD began to make available some  high-level information about utility costs to service members and  installation officials upon request. Specifically, DOD’s data collection  contractor updated its information sheet on the methodology for  calculating utility costs, which each of the military services’ housing  allowance representatives have and can distribute when asked about  utilities. DOD’s service housing allowance representatives said that they  plan to provide the utilities information sheet when responding to  installation officials’ questions on utility costs. The Army representative  said that the information sheet could be distributed to installation officials,  service members, family members, or the general public in response to  questions. The Air Force representative said the Air Force plans to  distribute the information sheet along with the data collection guidance to  all of its installation housing offices. The updated information sheet states  that a nationwide percentage of the portion of the housing allowance for  utilities does not exist, but provides a range for expected monthly utility  costs ($120 to about $600) and an average ($294) across all of the housing  profiles and geographic areas, noting that nearly one-quarter of housing  profiles are within 10 percent of the average. However, we believe that  providing such a wide range of expected costs, as opposed to information  more tailored to a specific geographic area and housing profile, does not  provide installation officials with information that would allow them to  help ensure the accuracy of the rates and does not provide service  members with information that would help them make informed and  fiscally responsible choices.
section_title: Definition of “Available” May Limit the Number of Properties Submitted in the Rate-Setting Process
paragraphs: Officials at four of the five installations we interviewed said that, in areas  with low vacancy rates, it can be difficult to find rental properties for some  housing profiles that are adequate and meet the definition of currently  available housing used in the data-gathering process. These officials noted  that rental properties that meet the definition of available in such markets  tend to be inadequate or undesirable for a variety of reasons, including  high rental costs, poor physical condition of the property, or located in a  high-crime area and, therefore, are not representative of housing costs in  the area. The data collection guidance provided to military installations  defines “available” properties to include properties that are currently on  the rental market or have been on the market within 4 to 6 weeks prior to  data submission. The law governing the housing allowance program  requires that rates be based on the costs of adequate housing for civilians  with comparable incomes in the same area. However, because the  definition of “available” used in the data collection process limits data  submission to only those properties that were available for rent within 4 to  6 weeks prior to data submission, the properties that some installations  submit may not be as fully representative of current market costs for  adequate housing for comparable civilians in the same area or properties  that are representative of such costs may be excluded, increasing the  possibility of inaccurate rates for the area. While some Defense Travel  Management Office and military service housing allowance officials  questioned whether revising the definition of “available” would lead to  additional properties submitted during the data collection process,  officials involved in the data collection process at four out of the five  installations we interviewed and one of the military services indicated that  extending the definition of available—up to 90 days, for example—would  allow installations to submit cost data on additional rental properties,  which could improve the accuracy of the housing allowance rates. For  example, housing officials at Fort Drum, New York, told us that low  vacancy rates in the area make it difficult to collect enough housing cost  data on properties available only within a 4- to 6-week window. As a result,  they questioned the accuracy of the data they submitted stating that if they  were allowed to include housing cost data spanning a longer availability  timeframe, they would have more assurance that the data they submitted  would result in a more accurate cost estimate.
We recognize that revising the definition of “available” for data collection  has some potential drawbacks; however, it is unclear to us whether these  drawbacks would outweigh the potential benefits of improved accuracy of  the rates from the submission of additional adequate properties. If DOD  expanded the definition of “available” used in the data collection process  then rental cost data might not be as current. Using the current definition,  rental rates for properties available 6 weeks prior to the first data  submission are more than 9 months old when the housing allowance rates  become effective. Revising the definition of “available” to 90 days would  mean that rental rates for the earliest properties would be nearly a year  old when rates became effective. However, the extent to which rental  costs would significantly change in an additional 6 weeks is unclear.  Additionally, Defense Travel Management Office officials and a  representative of the data collection contractor noted that as rental rates  get older, it becomes increasingly difficult to verify the rental rates with  landlords for properties available more than 6 weeks prior to data  submission. If the contractor cannot verify the rental rates, then the  property cannot be included in the data used to set the housing allowance  rates, which could lessen the benefit gained from submitting additional  properties.
section_title: DOD Has Consistently Underestimated Costs of Housing Allowances in Its Budget Estimates
paragraphs: Since fiscal year 2006, DOD has consistently underestimated the total  costs of paying the housing allowance to service members by $820 million  to $1.3 billion each year—or about 6 to 11 percent of the amount  estimated—meaning that DOD has spent more on the housing allowance  than estimated. Figure 4 shows the difference between the amount that  DOD estimated in its budget submission it would cost to pay the housing  allowance and the actual amount DOD obligated for the housing  allowance for fiscal years 2006 through 2010. A difference of $0 would  signify that DOD estimated the exact amount of funding it needed to pay  housing allowances. Positive amounts signify that DOD’s estimates were  higher than the actual amount needed to pay housing allowances. Negative  amounts signify that DOD’s estimates were lower than the actual amount  needed to pay housing allowances.
The military services generally use a four-step process to develop housing  allowance cost estimates for budgeting purposes. First, using current year  data, the services calculate the percentage of service members who  received the housing allowance for each pay grade and dependency status,  referred to as “participation rates.” Second, the services apply the  participation rates to the projected force structure to determine the  number of people that will receive the housing allowance at each pay  grade for the budgeted year, which is usually 2 years in the future. Third,  the Office of the Under Secretary of Defense (Comptroller) provides the  military services with an “inflation factor” to determine the housing  allowance rates for each pay grade for budget purposes. Fourth, the  services multiply the number of service members projected in a pay grade  by the projected housing allowance rate to determine the estimated cost of  the housing allowance. While the services have processes in place to  develop housing allowance cost estimates, budget officials in the Office of  the Under Secretary of Defense (Comptroller) and the military services, as  well as our analysis, indicated that the services have consistently  underestimated the total cost of the housing allowance in part because the  services’ processes do not allow them to accurately estimate the number  of service members who will receive the housing allowance.
A number of factors have affected the services’ ability to accurately  estimate the cost of the housing allowance. A key underlying factor is the  timing of developing the budget estimates. The military services begin  their process to develop budget estimates about 18 months before the  housing allowance rates for the calendar year take effect, and the  President submits the budget request to Congress almost a year before the  new housing allowance rates take effect and about 2 months before DOD  begins collecting the data for the rates, leading to challenges in accurately  estimating the number of service members and housing allowance rate for  each pay grade. Other key factors that have influenced the services’ ability  to accurately estimate the cost of the housing allowance include:    Changes in planned force structure. In recent years, the military  services have made changes in their planned force structure between the  time that the service developed the estimate and when the allowances  were paid to service members. For example, the Marine Corps reached its  end strength goals for Grow the Force 2 years ahead of budget estimates,  leading to more Marines than estimated actually receiving the housing  allowance.
Increased use of mobilized reserve personnel. Budget officials said  that an increase in the number of mobilized reserve personnel has made it  difficult to accurately estimate the number of personnel that will receive  the housing allowance. The Tenth Quadrennial Review of Military  Compensation report also identified this as a challenge to accurately  estimating housing allowance costs, noting that the number of reservists  serving on active duty since 2001 and the higher proportion of reservists  with dependents compared with the active duty force makes it difficult to  estimate the number of service members who will be eligible to receive a  housing allowance. That report recommended that DOD continue to  improve its population estimating procedures to ensure that the housing  allowance budget is as accurate as possible.
Changes to the housing allowance rates. DOD does not set its housing  allowance rates until December of each year, about 10 months after the  President’s budget is submitted to Congress and more than 2 months after  the new fiscal year begins. DOD budget officials said that the rate  estimates have been a factor in underestimating the housing allowance  costs to a lesser degree than other factors. Based on our analysis, as well  as the Tenth Quadrennial Review of Military Compensation, errors in  estimating the numbers of service members that actually received the  housing allowance were generally larger than errors in estimating the  actual housing allowance rates, although errors in estimating the housing  allowance rates did affect the accuracy of the total cost estimates.
Changes in housing policies. Budget officials noted that changes in  housing policies that allow service members to receive the housing  allowance who previously were not eligible for the allowance, changes in  the number of privatized housing units, or other changes to housing or  housing allowance policies affect the accuracy of the services’ estimates  for the number of personnel and total cost of the housing allowance.
The military services have taken some actions that they said should help  improve the accuracy of the housing allowance cost estimates. For  example, the Army is developing a methodology to account for rate  protection for service members if the rates decrease after being stationed  at an installation. Officials expect to start using the methodology with  estimates developed later this year. Since rate protection allows service  members to retain their higher housing allowance rate in areas where  rates decrease, the ability to better account for rate protection could  improve the accuracy of housing allowance cost estimates. Additionally,  the Marine Corps recently developed tools that allow them to gather  dependency rates monthly. DOD budget officials provided suggestions for  further improving estimates, such as coordinating with the service budget  office before implementing housing policies that lead to increases in the  number of service members who receive the housing allowance.
We have previously reported that when full funding information is not  included in the President’s annual budget submission or provided during  the congressional appropriations process, it understates the true cost of  government to policymakers at the time decisions are made and steps can  still be taken to control funding, which is even more important in a time of  constrained resources. While we recognize the difficulties in accurately  estimating the costs of the housing allowance, consistently  underestimating the amount needed to pay the housing allowance affects  other DOD programs. The housing allowance is an entitlement for service  members. As such, DOD must pay the allowance to service members at the  specified rates and, therefore, has had to find another source of funding  when underestimating the amount needed to pay the allowance. This can  include shifting funds that Congress has appropriated for other purposes,  including other budget activities within the military personnel  appropriation or other defense appropriations, in accordance with  applicable laws and policies, or requesting additional funding in a  supplemental request. However, shifting funds from another program  could disrupt the funding of the other program. Additionally, while an  official from the Office of the Under Secretary of Defense (Comptroller)  said that DOD’s budget provides the best estimates available, as a result of  consistently underestimating the amount needed to pay the housing  allowance, DOD’s budget does not provide decision makers in Congress  and DOD with the full picture of housing allowance costs, limiting the  ability of both Congress and DOD to make more fully informed funding  decisions.
section_title: Service Members Have Encountered Housing Challenges at Some Growth Installations and DOD Does Not Have a Formal Information- Sharing Process for Tools to Address Such Challenges
paragraphs: Some service members have encountered challenges in obtaining off-base  housing near some installations that are increasing in size due to several  major defense initiatives, such as BRAC, Grow the Force, Army  Modularity, and Global Defense Posture and Realignment. DOD officials  have used a number of tools to address challenges in obtaining off-base  housing, but DOD does not have a formal process that allows installation  officials to share information on these tools.
subsections: section_title: Housing Deficits Exist at Most DOD Growth Installations and Are Expected to Continue or Worsen
paragraphs: According to the military services’ data, demand exceeds the supply of  housing at 19 of the 26 growth installations, resulting in housing deficits.  Current housing deficit estimates range from about 1 percent of the total  estimated demand at Fort Polk, Louisiana, to more than 20 percent of  estimated demand at Cannon Air Force Base, New Mexico, according to  service data. Economic conditions in recent years, among other factors,  have made it difficult for developers to obtain funding for new  construction projects in the communities, particularly for multifamily  rental housing projects. This has contributed to the estimated housing  deficits, according to installation housing and community officials we  interviewed. In addition, these officials said that the high number of  deployments in recent years, among other issues, has led to concerns  among lenders about anticipated demand for newly constructed units,  potentially making lenders more reluctant to provide loans for  construction.
Housing and community officials from four of the five installations we  reviewed—Fort Riley, Kansas; Cannon Air Force Base, New Mexico; Fort  Drum, New York; and Fort Bliss, Texas—noted that service members are  currently experiencing challenges in obtaining adequate and affordable  housing in the communities surrounding the installation and expected that  these challenges will continue or worsen in the future.
Fort Riley has a current estimated deficit of about 700 family housing units  (about 4 percent of family housing demand at the installation), based on  Army data. Fort Riley officials stated that based on current plans, all but  one of Fort Riley’s brigades—about 80 percent to 90 percent of the  population assigned to the installation—will be at the installation starting  in October 2011. The return of most of the brigades, combined with longer  periods of time at the duty station, will further increase the demand for  housing on and around Fort Riley. Installation housing officials said that  due to the limited amount of housing, service members have had to look  further away from the installation to find adequate housing. Community  officials noted that in recent years families have not relocated immediately  with service members due to continuous deployment, which has led to  difficulty in estimating the amount of family housing needed in the future.
Cannon Air Force Base has a projected deficit of about 530 family housing  units (about 20 percent of projected demand at the installation), based on  Air Force data. In addition to the planned population increase at the  installation, installation and community officials expect additional demand  for housing in the area from the labor force expected to construct projects  on the installation in support of the planned growth and a large energy  project in the community. Installation officials said that occupancy rates  for rental housing in the community have exceeded 99 percent in 2010 and  2011. Due to the limited availability of housing in the community,  installation officials said there is a high demand for even inadequate family  housing units on base, which are expected to be privatized in 2012.  Additionally, some service members are purchasing homes in the area and  others are paying more than the housing allowance for rent or renting in  less desirable areas.
Fort Drum has a current estimated deficit of about 1,700 family housing  units (nearly 20 percent of family housing demand at the installation),  based on Army data. Fort Drum officials stated that the lack of available  housing in the community surrounding the installation, among other  issues, has led an increasing number of service members to relocate to the  installation without their families. By relocating to the installation  unaccompanied, these service members can find smaller housing units  than they would need for their family or share housing with another  service member. Alternatively, depending on the availability of housing,  some service members that relocate with their families obtain housing 30  to 40 miles away from the installation. Installation and community officials  stated they expect housing availability to be further limited starting in 2012  when all but about 1,000 of Fort Drum’s deployed soldiers are expected to  be at the installation for the first time since their recent growth occurred.
Having most of the units return is expected to exacerbate current housing  demand.
Fort Bliss has a current estimated deficit of about 2,900 family housing  units (about 15 percent of family housing demand at the installation),  based on Army data. Due to the limited amount of housing near the  installation that is affordable to junior enlisted personnel, Fort Bliss  officials stated that junior enlisted personnel typically obtain housing on  the outskirts of El Paso and experience long commutes to the installation.  Officials noted that growth in the civilian population of El Paso due to  families relocating there from Mexico has further limited the supply of  housing available in the community for service members, and as more  soldiers return from deployment over the next year, the community’s  housing supply will be further strained.
Camp Lejeune and Marine Corp Air Station New River, North Carolina,  have an estimated deficit of nearly 3,500 family housing units (nearly 20  percent of family housing demand at the installation), according to Marine  Corps data. Despite the estimated shortfalls, installation housing officials  said that service members have not encountered challenges in obtaining  housing in the community, in part due to the number of mobile homes in  the area. While DOD considers mobile homes as inadequate housing and  does not include these units in its housing market analyses, some service  members have chosen to live in these homes, which helped mitigate the  projected housing deficit.
section_title: DOD Uses Several Tools to Address Housing Challenges
paragraphs: Service members are encountering challenges obtaining adequate housing  at some installations due to the limited supply of housing in the area, but  DOD’s policy is to rely on the private sector as the primary source of  housing for personnel normally eligible to draw a housing allowance and  DOD is limited in its ability to increase the supply of housing in the  community. However, installation housing officials we interviewed use or  have plans to use several tools to help service members and their families  obtain housing either on base or in the community, many of which could  be replicated and used in other areas. Selected tools include:    Housing privatization: Since 1996, the military services have been  obtaining private sector financing and management to repair, renovate,  construct, and operate military family housing on the installations—also  known as housing privatization. In a typical privatized military housing  project, a military department leases land to a developer for a term of 50  years. The developer is responsible for constructing new homes or  renovating existing homes and leasing them, giving preference to military  service members and their families. Service members who choose to live  in the privatized housing then use their housing allowance to pay rent.  Housing officials at each of the installations we interviewed are  developing and implementing plans to negotiate with privatization  partners to increase the supply of adequate housing on base. For example,  Fort Bliss officials stated that their privatization partner has agreed to  build an additional 800 to 1,000 privatized homes on the installation to help  address the housing deficit. An installation official expected that the  homes would not be completed until 2012, at the earliest. Additionally, the  Army and Navy have privatized housing for unaccompanied senior enlisted  personnel and officers at five installations: Fort Irwin, California; Naval  Station San Diego, California; Fort Stewart, Georgia; Fort Drum, New  York; and Fort Bragg, North Carolina. The Navy also privatized  unaccompanied housing for junior enlisted personnel at Naval Station San  Diego, California, and Naval Station Norfolk, Virginia. The Army and Navy  selected these sites due to projected deficits in housing for  unaccompanied personnel.
Domestic leasing program: The domestic leasing program provides  temporary housing for military families pending availability of permanent  housing through DOD payment of rent and other housing costs of privately  owned housing units that are assigned to military families as government  quarters. For example, Army officials stated they are using the program as  a short term bridging strategy for housing service members and their  families until local communities respond to the increasing housing  demand near installations. The program is currently in use at two growth  installations—Fort Drum and Fort Bliss.
Military Family Housing Leasing Program (commonly referred to as  the Section 801 housing program): Starting in 1984, a number of DOD  installations contracted with developers to build new rental housing on or  near military installations through the Section 801 housing program—a  forerunner to the current Military Housing Privatization Initiative. DOD  used the Section 801 Housing program as a means for improving and  expanding military family housing through private developers’ investment.  The leases at four of the installations within our scope have expired or will  expire within the next 2 years and will not be renewed, according to  housing officials at these installations. While the existing contracts at  Cannon Air Force Base will expire in 2012 and 2013, installation housing  officials stated that the installation is attempting to develop a “bridge  lease” that will allow service members to continue renting the units with  some revisions to the current lease agreement to help meet the increased  housing demand. In addition, as we previously reported, Fort Hood, Texas,  extended its Section 801 housing lease to 2029 and renegotiated the lease  terms to retain priority use of the units for military personnel and DOD  civilians.
Low-Income Housing Credit: The Housing and Economic Recovery  Act, which Congress enacted in 2008, contained a provision that altered  the way the Basic Allowance for Housing was treated for the purposes of  determining eligibility under the Low Income Housing Tax Credit  Program. The provision, which is effective through January 2012, applies  only to certain military installations, but according to installation officials  it can, in some cases, effectively expand the supply of available housing.  Nine military installations qualified for the program, including three  installations expecting significant growth—Fort Riley, Fort Bliss, and Fort  Hood. Fort Riley and Fort Bliss officials said that the provision can allow  more service members to qualify for low-income housing. One growth  installation—Fort Drum—did not qualify for the program, but Fort Drum  officials estimated that if the installation had qualified an additional 200  tax credit housing units would likely have been constructed near the  installation.
Housing requirements and market analyses: The military services  routinely conduct housing requirements and market analyses to determine  projected housing surpluses or deficits based on the number of personnel  expected to be stationed at the installation in a given year and to  determine housing requirements and the community’s ability to meet those  requirements. Based on the results of these analyses, the services can  determine whether to use housing tools such as housing privatization,  government-owned housing, or leasing at an installation. Officials at all  five of the installations we interviewed indicated they use the housing  analyses as a tool to determine current and projected housing deficits and  how to address the deficits. However, officials we interviewed at a few  installations raised concerns about the process to develop the analyses  and the accuracy of the results, noting issues with the data used to  establish the estimates and the lack of input from housing officials at the  installation.
Extension of lodging allowance: The Temporary Lodging Expense  Allowance is designed to partially offset expenses when a service member  occupies temporary quarters in the continental United States while  relocating from one installation to another. The Army has extended the  use of this allowance at two growth installations—Fort Drum and Fort  Bliss—from 10 days to up to 60 days. While Fort Bliss officials stated that  service members have generally been able to find housing within 10 days,  the installation requested the extension in anticipation of future growth at  the installation when officials expect that it will take longer for service  members to find housing.
Installation-community collaboration: Among other responsibilities,  DOD’s Office of Economic Adjustment assists growth communities  affected by DOD actions, such as BRAC, that have expressed a need for  planning assistance. The Office of Economic Adjustment has encouraged  the communities near growth installations to establish “growth  management organizations” that are designed to work on issues associated  with community growth and typically include high-level installation  officials. The Office of Economic Adjustment has provided grants to assist  some of the organizations to plan to accommodate the expected  population increases and undertake studies to identify gaps in local  infrastructure, such as housing. In addition, the growth management  organizations provide a forum for community and installation officials to  communicate about challenges, including housing, and develop plans to  mitigate the challenges. For example, community officials from the Fort  Drum Regional Liaison Organization said the organization has plans to  host an event this year to bring together installation officials, developers,  financers, and state and local officials to encourage new housing  development around the installation.
Housing allowance waiver: The Navy and Coast Guard have identified  “critical housing areas” where there is a short supply of housing on base  and in the community. In such areas, a service member may choose to  leave their dependents at their previous duty location and relocate to the  new duty location unaccompanied while continuing to receive the housing  allowance at the rate for the prior location. By relocating to an area  unaccompanied, the service member may have more housing choices,  such as living in a smaller unit than the family needs or sharing housing  with another member. However, the service member has to pay for  housing for himself or herself in one location and his or her family in  another location, which could be costly. The Navy designated six critical  housing areas in 2009, but did not designate any critical housing areas in  2010. The Coast Guard designated 23 critical housing areas in 2010. While  the Army and Air Force have not identified critical housing areas, officials  told us that service secretaries can authorize the housing allowance to be  paid based on a dependent’s location or previous duty station on an  exception basis if circumstances require dependents to reside separately  from the service member or other circumstances deemed acceptable by  the secretary.
Rental Partnership Program: The Rental Partnership Program helps  service members obtain housing at a reduced cost. Installations negotiate  deals with local housing management companies to enter into written  agreements to make adequate housing available to service members.  Installations develop their own unique aspects of the program. For  example, Camp Lejeune uses the program to reduce move-in costs for  junior enlisted service members trying to obtain housing in the  community.
Automated Housing Referral Network: The Automated Housing  Referral Network is an Internet-based rental database used by service  members to find housing. The database contains information on housing  on base and in the community, as well as temporary lodging, shared  rentals, and housing units for sale by owner. The network is widely used  across the services, including the Coast Guard, according to officials in  DOD’s Directorate of Housing and Competitive Sourcing.
section_title: DOD Does Not Have a Formal Process for Sharing Information on Tools to Address Housing Challenges
paragraphs: Installation housing officials we interviewed generally share information  on tools they use or plan to use to address housing-related challenges on a  regular, but ad hoc basis. For example, Fort Drum, Fort Riley, and Fort  Bliss officials stated that most of their information sharing is done through  informal email communication with other Army housing officials. In  addition, housing officials we interviewed at each of the five installations  said that they communicate informally with installations from other  services at the Professional Housing Management Association’s annual  conference, where officials from all of the military services discuss, among  other topics, housing tools and challenges at their installations.  Installation housing officials we interviewed generally stated that having a  repository with information about tools, their use, and their impact at  addressing housing challenges would be beneficial as the installations  continue to plan for current and future growth.
According to the Standards for Internal Control in the Federal  Government, information should be communicated to the individuals  within an organization that need it to carry out their responsibilities.  Among other responsibilities, the Deputy Under Secretary of Defense  (Installations and Environment), which is part of the Office of the Under  Secretary of Defense (Acquisition, Technology and Logistics), is  responsible for providing guidance and general procedures about housing,  including community housing and DOD housing, and communicating and  coordinating with the military departments, including through regular  meetings about housing policy and other housing issues. DOD’s Housing  Management Manual states that, subject to the authority and direction of  their respective DOD components, installation commanders are  responsible for ensuring that service members have access to suitable  housing. However, installation housing officials do not readily have  access to information about certain tools and their use by other  installations and services that could help service members obtain suitable  housing because DOD does not have a formalized information-sharing  process to store and share this information. Without such a process, DOD  cannot ensure that installations that are currently facing housing  challenges or may encounter such challenges in the future have access to  the necessary information on what tools have worked elsewhere to best  position installations to mitigate or solve the challenges. While  information shared through informal networks is useful to those who  receive the information, there is no assurance that information shared and  learned through these communications can be of use to others if the  information is not stored and available for others to readily access.
We identified instances where installation housing officials were generally  unaware of some tools available to address housing challenges. For  example, of the five growth installations we spoke to, three installations  were unaware of the authority DOD previously had to prescribe temporary  increases in housing allowance rates in areas that are experiencing a  sudden increase in the number of service members assigned to the  installation. Officials at one installation in an area with low vacancy rates  noted that the installation did not become aware of the authority until  after it expired and noted that an increase in the housing allowance rates  would have increased service members’ ability to obtain housing. In  addition, officials we interviewed at another installation were not aware of  the Rental Partnership program. We also found an instance where officials  at one installation said it would be helpful to have information from other  installations implementing the domestic leasing program to get the  program started at their installation.
section_title: Conclusions
paragraphs: DOD spends billions of dollars each year to pay the housing allowance to  over a million service members so that they can obtain housing for  themselves and their families. DOD’s housing allowance rate-setting  process is generally viewed as effective and DOD has made improvements  to the process over the past decade. Nevertheless, there are opportunities  for DOD to further enhance its rate-setting process and improve the  accuracy of the housing allowance rates. Accurate housing allowance  rates are critical to meeting DOD’s goals for the housing allowance  program. Rates that are lower than the average housing costs in the  community limit service members’ ability to obtain adequate housing in  the community, while rates that are higher than the average housing costs  risk DOD spending more money than needed for the allowance. Providing  additional information to installation officials about the costs that  comprise the housing allowance rate—rent, utilities, and renter’s  insurance—would enable those officials to help review the accuracy of the  local market-based rates, given their expertise in the local housing area.  Similarly, if DOD provided such information to service members, it could  help them to make more informed decisions about their housing choices.  Additionally, analyzing the benefits and drawbacks of revising the  definition of “available” rental properties for data collection—and revising  the definition, as needed—could enable DOD to increase the sample of  adequate and appropriate properties used to determine the median rental  cost in an area, potentially improving the accuracy of the housing  allowance rates. Furthermore, until DOD develops a process that results in  more accurate estimates of the total costs of the housing allowance, DOD  may continue to shift funds from other programs, potentially affecting the  success of the other programs and limiting the ability of key decision  makers in Congress and DOD to make more informed funding decisions,  which is particularly critical in the current fiscal environment.
Population increases and other factors have increased the demand for  housing on and near installations, leading some service members to  encounter challenges obtaining off-base housing near some installations.  DOD officials expect the problem to worsen in the near future as some  initiatives, such as BRAC, are completed and as service members return  home from overseas deployments. Installations have used a number of  tools to help service members find housing, either in the community or on  the installation. However, until DOD institutes a more widespread  communications process that allows sharing of these tools across military  installations and services, DOD cannot ensure that all installation officials  will have access to valuable information on addressing housing challenges  due to growth or other causes—both now and in the future—that could  help improve the quality of life for service members and their families.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Defense take the following four  actions:    To enhance the transparency of the housing allowance rates, direct the  Director of the Defense Travel Management Office to revise policies to  provide information on the three costs that comprise the housing  allowance rate (rent, utilities, and renter’s insurance) by geographic area  and housing profile to installation housing officials to better ensure local- market-based accuracy and to service members to increase understanding  of the rate when selecting housing.
To enhance the accuracy of the housing allowance rates, direct the  Director of the Defense Travel Management Office to more fully assess the  benefits and drawbacks of revising the definition of “available” rental  properties used for data collection purposes, either for all military housing  areas or only those military housing areas that meet a certain low vacancy  threshold.
To promote more accurate budgeting by DOD, direct the Under Secretary  of Defense (Comptroller) and the military services to more fully identify  the causes of inaccurate cost estimates for the Basic Allowance for  Housing program and develop and implement procedures to improve these  estimates. At a minimum, these procedures should include processes to  more accurately estimate the number of service members who will receive  the allowance.
To ensure that current or future growth installations that experience  housing challenges have access to information on tools to address these  challenges, direct the Under Secretary of Defense (Acquisition,  Technology and Logistics) and the Office of the Deputy Assistant  Secretary of Defense (Installations and Environment) to develop a  communications process so that installations can more routinely share  best practices and their use of tools and mechanisms to address housing  challenges.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, DOD generally concurred  with all four of our recommendations. DOD’s response to our  recommendations is printed in its entirety in appendix III. DOD also  provided technical comments, which we incorporated, as appropriate. The  Department of Homeland Security reviewed a draft of this report and did  not have comments.
DOD partially concurred with our recommendation to provide service  members with information on the three elements that comprise the  allowance (rent, utilities, and renter’s insurance). In its response, DOD  said that it will provide the cost elements as a percentage range of total  costs across all profiles by 2012. We believe that this meets the intent of  our recommendation.
DOD concurred with our second recommendation to assess the benefits  and drawbacks of revising the definition of “available” rental properties  used for data collection purposes. DOD said that it has already done so  and plans to expand the definition of available properties to include those  properties that will be available at a future date.
DOD concurred with our third recommendation to identify the cause of  inaccurate cost estimates of the allowance program and improve  procedures to address this problem. DOD plans to establish a working  group, led by the Office of the Under Secretary of Defense (Comptroller),  to better understand how the services budget for the housing allowance  and document and share best practices for estimating the amount needed  to pay the allowance.
DOD concurred with our fourth recommendation to develop a  communications process to share best practices among the installations  and plans to use the Office of the Secretary of Defense’s Housing Policy  Panel and other resources to share information on tools to address  housing challenges.
We are sending copies of this report to the appropriate congressional  committees. We are also sending copies to the Secretary of Defense; the  Under Secretary of Defense (Comptroller); the Under Secretary of Defense  (Acquisition, Technology and Logistics); the Secretaries of the Army,  Navy, and Air Force; the Commandant of the Marine Corps; the Secretary  of Homeland Security; and the Commandant of the Coast Guard. This  report will also be available at no charge on our Web site at  http://www.gao.gov. Should you or your staff have any questions  concerning this report, please contact me at (202) 512-4523 or  leporeb@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this report.  Key contributors are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine whether the Department of Defense (DOD) could enhance  its housing allowance rate-setting process, we reviewed reports about  DOD’s process, including DOD’s 2010 report to Congress, and laws and  guidance governing the program. Additionally, we spoke with officials  responsible for overseeing the rate-setting process in the Defense Travel  Management Office; housing officials in the Directorate of Housing and  Competitive Sourcing within the Office of the Under Secretary of Defense  (Acquisition, Technology and Logistics); a budget official in the Office of  the Under Secretary of Defense (Comptroller); and military compensation  and budget officials responsible for housing allowances from the Army,  Navy, Marine Corps, and Air Force. We also met with representatives from  the Coast Guard to discuss their role in the process for setting basic  housing allowances. Furthermore, we contacted installation housing  officials from Fort Riley, Kansas; Cannon Air Force Base, New Mexico;  Fort Drum, New York; Camp Lejeune, North Carolina; and Fort Bliss,  Texas, to discuss how they collect and submit housing cost data that feed  into DOD’s rate-setting process. Our rationale for selecting these  installations is discussed below. Additionally, we spoke with a  representative from DOD’s contractor for the data collection efforts. We  discussed the technical aspects of a draft of this report with a  representative for the contractor.
To help ensure that we identified a wide range of potential enhancements  to DOD’s current rate-setting process, we also spoke with representatives  from six other organizations: the Center for Naval Analyses, the Lewin  Group, the RAND Corporation, the Fleet Reserve Association, the Military  Officers Association of America, and the National Military Family  Association. We selected these organizations because representatives have  knowledge about military compensation generally or the Basic Allowance  for Housing program specifically, as shown in published reports or  through testifying before Congress and the three associations represent  interests of military service members and their families. In addition to  publishing other work on military compensation, the Lewin Group  performed the research on which DOD based its 2010 report to Congress  on housing standards and the allowance rate-setting process. We  considered a number of potential enhancements to DOD’s current rate- setting process and performed further analyses to determine the benefits  and drawbacks of each, including potential financial savings or costs.
Through the additional analyses of each of the enhancements, we  determined whether the alternative was viable and could enhance DOD’s  rate-setting process without significantly increasing program costs. For  example, with regard to the enhancement of providing more information  to service members about the three costs that comprise the housing  allowance rate, we obtained and analyzed data from the Defense Travel  Management Office on the three costs that comprise the rate for the six  housing profiles in each of the 364 military housing areas. We assessed the  reliability of the data by performing electronic testing for obvious errors in  the accuracy and completeness of the data and reviewing documentation  on how the data are collected and determined that the data were  sufficiently reliable for our purposes. Additionally, we discussed the  enhancement with officials from the Defense Travel Management Office,  the service Basic Allowance for Housing representatives, and five selected  installations. Similarly, with regard to DOD’s process to budget for the  housing allowance, we analyzed budget justification data for the Army,  Navy, Marine Corps, and Air Force for personnel receiving the housing  allowance at the “with” and “without” dependents rates by comparing the  amount DOD estimated to the amount obligated. We reviewed the annual  budget, supplemental requests, and funding for housing allowances  requested in support of Overseas Contingency Operations. We could not  compare DOD’s estimates to its actual obligations for the housing  allowance prior to 2006, as the supplemental budget requests prior to 2006  did not provide sufficient detail for us to determine the amount estimated  for the housing allowance and neither the Office of the Under Secretary of  Defense (Comptroller) or the military services could provide this  information. The Coast Guard’s budget justification documents to  Congress are not in enough detail compared to similar budget justification  documents to Congress from the other military services so we could not  perform a thorough analysis of the Coast Guard’s cost estimates; however,  Coast Guard officials provided similar information that allowed us to  compare the Coast Guard’s overall estimates to obligations.
To determine whether service members relocating to installations that  DOD projects to experience significant growth have encountered  challenges in obtaining off-base housing and the extent to which DOD is  using and sharing information on tools to address these challenges, we  reviewed and analyzed applicable documentation and interviewed  knowledgeable officials. Specifically, we analyzed data from the Housing  Requirement and Market Analyses for the 26 growth installations to  determine DOD’s housing deficit projections at these installations. While  we recognize that there are some shortcomings of the data, including  concerns raised by installation housing officials about the process to  develop the analyses and the accuracy of the results, we used the data to  provide context on projected housing deficits and determined that the  data were sufficiently reliable for this purpose. To better understand the  tools available to address housing challenges, we reviewed the relevant  legislation; DOD’s Joint Federal Travel Regulations; service-level policies  and other documentation on tools; and past GAO reports that discuss  military housing privatization, the Domestic Leasing Program, and Section  801 housing. Additionally, we interviewed housing officials in the  Directorate of Housing and Competitive Sourcing within the Office of the  Under Secretary of Defense (Acquisition, Technology and Logistics); the  Army, Navy, Marine Corps, Air Force, and Coast Guard headquarters; and  five domestic military installations—Fort Riley, Kansas; Cannon Air Force  Base, New Mexico; Fort Drum, New York; Camp Lejeune, North Carolina;  and Fort Bliss, Texas—to obtain information on whether service members  have encountered challenges in obtaining housing, tools the installations  are using to address these challenges, and processes for sharing  information on the tools. Our rationale for selecting these installations is  discussed below. To better understand the housing issues in the  communities, we interviewed officials who work with growth  communities in DOD’s Office of Economic Adjustment and contacted  community organization representatives in each of the communities near  the 26 growth installations identified by the Office of Economic  Adjustment.
To obtain installation officials’ perspectives on both DOD’s rate-setting  process and housing challenges and tools, we interviewed housing  officials from a nonprobability sample of five domestic military  installations: Fort Riley, Cannon Air Force Base, Fort Drum, Camp  Lejeune, and Fort Bliss. We selected installations that met criteria that  address both of these issues. Specifically, we began our selection with  DOD’s list of 26 significantly impacted growth installations. We narrowed  the list to the five we selected to obtain a sample of installations with a  range of the following characteristics: communities that had identified  housing as a challenge in the growth profiles published by the Office of  Economic Adjustment, installations with different geographic and  population concentrations, installations from different military services,  and installations with officials that the Defense Travel Management Office  identified as particularly knowledgeable about the housing allowance rate- setting process. Not all installations met all of the criteria. Our selection of  three Army installations reflects that the majority of significantly impacted  growth installations are Army installations. Because we selected a  nonprobability sample of installations, the information obtained from  interviews with officials from these five installations cannot be generalized  to other installations.
We conducted this performance audit from August 2010 through May 2011,  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Summary of DOD’s Process to Set Housing Allowance Rates
paragraphs: By law, housing allowance rates are to be based on the costs of adequate  housing for civilians with comparable income levels in the same areas. To  do this, the Department of Defense (DOD) identified six housing profiles,  ranging from a one-bedroom apartment to a four-bedroom single-family  detached house and identified a pay grade for each profile—also referred  to as an anchor—that matches the type of housing normally occupied by  civilians with comparable incomes. Using the housing profiles and the  local costs of each profile in the geographic areas of the country, DOD  establishes the allowance rates each year.
DOD established separate housing profiles for members with and without  dependents and established a method to ensure that allowance rates  would increase with each pay grade. For example, the one-bedroom  apartment profile corresponds to an E-4 without dependents and the four  bedroom single family home profile corresponds to an O-5 with  dependents. DOD sets the housing allowance rates for pay grades that are  not anchors based on the last anchor plus a percentage of the difference  between the last anchor and the next anchor. For example, an E-7 with  dependents receives the same rate as an E-6—the anchor for a three- bedroom townhouse—plus 36 percent of the difference between the  anchor for a three-bedroom townhouse and three-bedroom single-family  detached house. Table 1 and table 2 show the housing profiles for each  pay grade and the method DOD uses to calculate the allowance rates for  service members with dependents and without dependents, respectively.
DOD calculates nearly 20,000 separate allowance rates each year:  for each of the 27 military pay grades, ranging from E-1 (junior  enlisted) to O-10 (general or flag officer);  for personnel with and without dependents (spouse, children, or other  dependents); and  in each of the 364 DOD-established military housing areas.
The housing allowance is intended to cover the average costs of rent,  utilities, and renter’s insurance in private sector housing. Rent, as the  largest of these three expenses, is the focus of most data collection efforts  during DOD’s annual rate-setting process. DOD personnel in installation  housing offices and DOD’s housing allowance contractor collect rental  information for the six housing profiles in spring and summer, when the  rental market is most active and when most service members traditionally  relocate to new installations. Starting in January of each year, the  contractor provides training and guidance to installation officials who will  be collecting rental data. Installation officials, who are generally familiar  with local housing markets, then begin collecting rental information on the  six housing profiles and send this information to the contractor in three  submissions in May, June, and July. The units selected for inclusion in the  sample must be both available, meaning they must be currently available  to rent or were available on the market within 4 to 6 weeks prior to the  data submission, and adequate. While the data collection guidance does  not define adequate, it does provide a list of examples of inadequate types  of housing, including mobile homes, efficiency apartments, weekly or  seasonal rentals, and housing that is in poor physical condition, extremely  expensive, or located in high-crime areas. Although there are guidelines  for housing that is inadequate, service members ultimately choose what  type of housing and where they want to live. While a degree of subjectivity  is involved in determining whether a property is adequate since the quality  of housing varies across areas, the installation officials with whom we  spoke said that they inspect housing units before they are included in the  rental data submission to help ensure that they are suitable for military  personnel. Installation officials also submit census tracts that are in high- crime or otherwise unsuitable areas so that units in these areas are not  included in the rental data sample. All units included in the sample must  also fall within the established military housing area.
Simultaneously, the contractor also collects rental data for the six housing  profiles within the housing areas by using local newspaper classified  advertisements, rental listings, and consultations with real estate  professionals. DOD’s goal is for installations to collect about 60 percent of  rental data while the contractor collects about 40 percent, but this varies  between installations and housing areas. The contractor establishes target  sample sizes for each housing profile in each housing area. Sample sizes  can range from several hundred units per housing profile where there is a  large inventory of available housing to as few as five where certain types  of housing are not as readily available. Each of the services can request  site visits each year, during which officials from the Defense Travel  Management Office and the military service and a representative from the  contractor discuss the rate-setting process with installation officials. Also,  they view a sample of the available housing stock to better ensure that  housing allowance rates are accurate for the area, educate installation  officials on the process, and answer questions from installation officials.
Data collection on rental units stops in August to give the contractor  adequate time to analyze the data and finalize calculations of the median  monthly rent for each housing profile in each housing area. For quality  assurance purposes, the contactor reviews submitted data and eliminates  data errors, any duplicate units submitted, and extreme rent outliers. For  example, installation officials and the contractor collected a total of nearly  60,000 data points in 2010, but about 12,800 were excluded as part of the  quality control process. The contractor also calculates the average utility  costs for each housing profile by analyzing data collected annually by the  U.S. Census Bureau’s American Community Survey. Utilities factored in  the calculation include electricity, gas, oil, water, and sewage. The third  cost element of the housing allowance is renter’s insurance; the contractor  calculates average renter’s insurance premiums based on rates from  leading insurance carriers.
In early September, the contractor sends the median rental costs and the  average costs for utilities and renter’s insurance to the Defense Travel  Management Office, which calculates housing allowance rates for each  pay grade in each of the housing areas, and for personnel with and without  dependents. The Defense Travel Management Office also reviews the  information and rate calculations and makes adjustments, as appropriate.  For example, if rates are 10 percent above or below the previous year’s  rates, the data sample is reviewed with more scrutiny to determine if it is  representative of the rental market. Housing allowance representatives in  the compensation offices of each of the services then review the rate  calculations through October and November. These representatives have  an opportunity to discuss any concerns with the Defense Travel  Management Office. Following service review, the rates are reviewed and  approved by the Office of the Deputy Under Secretary of Defense (Military  Personnel Policy). The approved rates are provided to the Defense  Finance and Accounting Service and DOD begins paying the new housing  allowance rates on January 1. Once approved, the Defense Travel  Management Office posts the housing allowance rates on its Web site and  the rates are available for service members, as well as the public, to view.
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Laura Talbott, Assistant Director;  Steven Banovac; Hilary Benedict; Joel Grossman; Brandon Jones; Ron La  Due Lake; Charles Perdue; Richard Powelson; and Michael Willems made  key contributions to this report.