BAH, one of several components of military compensation, is intended to provide servicemembers with an allowance to enable them to obtain suitable housing when military-owned housing is not provided. Accordingly, BAH payments reflect the cost of housing where servicemembers are stationed, and the payments change annually in response to increases or decreases in local housing costs. Still, the most recent base realignment and closure (BRAC) process, among other restationing actions, will cause movement of large numbers of military personnel to communities that initially may lack enough private housing that is affordable to most servicemembers. Several HUD, USDA, and IRS rental housing programs that are intended to make housing affordable to low-income households count BAH as income when assessing the eligibility of active-duty servicemembers. BAH is one of several elements of regular military compensation. Regardless of whether they live in military-owned housing or receive BAH, servicemembers receive basic pay and a Basic Allowance for Subsistence (BAS). BAH and BAS are not subject to federal income tax. With the addition of average BAH payments to the other two pay elements, regular military compensation in 2006 starts at $26,401 for the lowest-ranking enlisted servicemembers and culminates at $183,196 for the highest-ranking officers, excluding consideration of any tax advantage because the allowances are not subject to federal income tax (see fig. 1). In addition to the primary elements of military compensation shown in figure 1, servicemembers with duty stations in more than 55 continental U.S. locations, where nonhousing expenses exceed the national average by at least 8 percent, receive a cost-of-living allowance. Servicemembers also may receive other types of pay, allowances, or bonuses, depending on their professional backgrounds, skills, or duties. For example, servicemembers may receive special pay for hardship duty or exposure to hostile fire, allowances when they are separated from their families because of a change in station or a temporary duty assignment, and bonuses for enlistment and reenlistment. According to DOD officials, in March 2006, about 950,000 personnel lived in private housing (including privatized military family housing) and received BAH—including roughly 70 percent of active-duty servicemembers in the United States, as well as some activated reservists and servicemembers stationed overseas whose dependents lived in the United States. DOD generally requires enlisted servicemembers in the lowest ranks who do not have dependents to live on base in furnished living quarters, commonly referred to as barracks. These enlisted servicemembers do not receive BAH. Each year, DOD sets BAH rates (i.e., the allowances servicemembers receive monthly) that are based on the median local monthly cost of housing, including current market rents, utilities, and renter’s insurance. The amounts that servicemembers receive also are based on their pay grades and whether they have dependents. To calculate BAH rates for different pay grades, DOD uses six standard categories of housing—ranging from an one-bedroom apartment to a four-bedroom, single-family detached house—that are intended to match the housing normally occupied by civilians with comparable incomes. DOD applies separate categories to servicemembers with and without dependents, but the number of dependents does not affect the BAH amount. BAH rates have increased since 2000 as DOD implemented an initiative to reduce servicemembers’ out-of-pocket housing costs. Prior to 2005, the BAH rate for each area and pay grade was the local median monthly housing cost minus a percentage of the national median monthly housing cost. That deduction represented the amount that servicemembers would have to pay out of pocket if their actual housing costs exactly matched the median local housing cost for their pay grade. In 2000, the deduction was 19 percent of the national median housing cost. DOD gradually reduced the deduction so that, by 2005, BAH rates equaled the median housing cost for each area and pay grade. Furthermore, while the housing allowance is calculated on the basis of the rental market, servicemembers may choose to apply their allowance toward purchasing a home, and they are free to spend more or less than their allowance on housing. We reported in April 2006 that the increases in BAH rates had made it possible for more servicemembers to afford private housing in the local market, thus reducing the need for privatized housing at installations. This has recently contributed to lower-than-expected occupancy rates at some privatized housing projects. If some privatized projects persistently experience lower-than-expected occupancy rates, they could encounter financial difficulties or, at worst, failures. To avoid such concerns in future privatization projects, we recommended that DOD determine how increased BAH rates would affect installations’ housing requirements and provide guidance on how the services should incorporate this information into their assessments of the need for privatized family housing. The National Defense Authorization Act for Fiscal Year 2002 authorized a new BRAC process in 2005. This was the fifth such process in the last two decades, but the first since 1995. As in previous processes, Congress enacted the legislation to close unneeded bases and realign others. On November 9, 2005, Congress accepted in their entirety the most recent BRAC recommendations for base closings and realignments. DOD has 6 years, or from 2005 until September 15, 2011, to implement these recommendations. The 2005 BRAC process affects a substantial number of communities surrounding installations that are expected to experience considerable growth in military personnel. While scores of installations will gain or lose military personnel, more than 20 installations each are expected to gain between 2,000 and 21,000 military, civilian, and mission-support contractor personnel. For the most part, installations with the largest gains are located in predominantly urban counties. However, some installations are in rural areas that may have less housing available, raising the possibility that incoming personnel initially could face a shortage of nearby housing that is affordable to them. The installations that will gain the most personnel through BRAC are Department of the Army installations, with their gains attributable to actions such as the consolidation of various activities and the return of personnel from overseas locations under DOD’s integrated global presence and basing strategy. In addition to shifts related to BRAC, the Army is realigning personnel as it changes its force structure. Various HUD, USDA, and IRS rental housing programs are intended to make housing affordable for lower-income renters. None of the federal agencies that administer these programs maintain data on the number of participating servicemembers. The programs either support the production of new or rehabilitated rental housing for eligible families or subsidize tenants’ rents to make existing units affordable (see table 1). Specifically: Among the production programs, LIHTC and Section 515 Rural Rental Housing Loans require property owners to restrict the rents that eligible tenants pay. The rent on each tax-credit unit generally cannot exceed 30 percent of the applicable income limit, adjusted for the number of bedrooms. Tenants pay 30 percent of their adjusted incomes toward the rent on Section 515 units. The tax-exempt multifamily housing bonds program requires units to be set aside for eligible families, but the rents on these units generally do not have to be restricted. Rental assistance programs make payments to property owners to make up the difference between an eligible tenant’s rent contribution (generally, 30 percent of adjusted monthly income) and a unit’s total rent. The Housing Choice Voucher program offers tenant-based rental assistance that tenants can use to rent privately owned apartments or single-family homes, and that they can transfer to new residences if they move. In contrast, the project-based Section 8 and Section 521 Rural Rental Assistance programs offer project-based rental assistance, which is attached to specific properties and is available to tenants only when they are living in units at these properties. Public housing also subsidizes tenants’ rents. However, rather than making rental assistance payments to owners that are keyed to tenants’ rent payments, HUD provides public housing agencies with annual operating subsidies that are based partly on the property’s projected overall rental income. All of these federal programs use a common definition of income as set out in a HUD regulation. Under this definition, incomes of servicemember households include all regular pay, special pay, and allowances (including BAH) of the servicemember, except special pay to servicemembers who are exposed to hostile fire. Each program determines households’ eligibility to apply by comparing their incomes with an income limit, expressed as a percentage of the area median. The income limits are adjusted for family size, with higher limits for larger families. In addition, the HUD and USDA programs use tenant income (with certain adjustments) to determine how much of a unit’s rent the tenant will pay. The programs generally target various categories of households, defined according to the relationship between a household’s income and the local area median income (AMI): extremely low (household income is no more than 30 percent of AMI), very low (no more than 50 percent of AMI), low (no more than 80 percent of AMI), and moderate (no more than $5,500 above 80 percent of AMI). In addition to these categories, the LIHTC and tax-exempt multifamily housing bond programs can target households with incomes that are no more than 60 percent of AMI. For purposes of this report, we focused on the 50 percent and 60 percent of AMI limits because they generally apply to new applicants for the two largest federal rental housing programs, Housing Choice Voucher and LIHTC.