Military Housing Privatization:

DOD Should Take Steps to Improve Monitoring, Reporting, and Risk Assessment

GAO-18-218: Published: Mar 13, 2018. Publicly Released: Mar 13, 2018.

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What GAO Found

The Department of Defense (DOD) has regularly assessed the financial condition of its privatized housing projects; however, it has not used consistent measures or consistently assessed future sustainment (that is, the ability to maintain the housing in good condition), or issued required reports to Congress in a timely manner. Specifically:

  • Some data used to report on privatized housing across the military services are not comparable. For example, there are inconsistencies among the projects in the measurements of current financial condition (for example, the ability to pay debts and maintain quality housing).These differences have not been identified in reports to Congress.

  • The military departments vary in the extent to which they use measures of future sustainment, and information regarding the sustainment of each of the privatized housing projects has not been included in the reports to Congress.

  • DOD's reporting to Congress has not been timely. DOD is statutorily required to report to Congress the financial condition of privatized housing projects on a semiannual basis, but it has not reported on any fiscal year since 2014.

By taking steps to improve the consistency of the information provided and meet the reporting requirement, DOD would provide decision makers in Congress with useful, timely information about the financial condition of the privatized housing projects as they provide required oversight.

DOD has not fully assessed the effects of reductions, relative to calculations of market rates for rent and utilities, in servicemembers' basic allowance for housing payments on the financial condition of its privatized housing projects. In August 2015, DOD required the military departments to review their privatized housing portfolios and outline any effects of the reductions. Each military department reported that the reductions would decrease cash flows to their long-term sustainment accounts. However, the reports did not specify the significance of the reductions on each project's future sustainment or identify specific actions to respond to shortfalls at individual projects. If DOD fully assesses the effects of the basic allowance for housing reductions on privatized housing and identifies actions to respond to any risks, DOD and Congress will be better informed to make decisions affecting the projects.

DOD has not defined when project changes require prior notice to the Assistant Secretary of Defense for Energy, Installations, and Environment or its tolerance for risk relative to its goal of providing servicemembers with quality housing, including the risk from reduced sustainment funding. Specifically, the military departments had different understandings of when project changes, such as financial restructurings, required prior notice. Additionally, DOD has not required the military departments to define their risk tolerances—the acceptable level of variation in performance relative to the objectives—regarding the future sustainability of the projects. By clearly defining the conditions that require advance notification and developing risk tolerance levels, DOD would have consistent information that would improve its oversight of privatized housing and inform its response to any future sustainment challenges.

Why GAO Did This Study

In 1996 Congress provided DOD with authorities enabling it to obtain private-sector financing and management to repair, renovate, construct, and operate military housing. DOD has since privatized 99 percent of its domestic housing.

The Senate Report accompanying a bill for the National Defense Authorization Act for 2017 included a provision that GAO review privatized military housing projects and the effect of recent changes in the basic allowance for housing on long-term project sustainability. This report examines the extent to which DOD has (1) assessed and reported the financial condition of each privatized housing project; (2) assessed the effects of recent reductions in the basic allowance for housing on privatized housing; and (3) defined notification requirements for project changes and risk tolerances relative to privatized housing goals. GAO reviewed policies, project oversight reports, and financial statements, and interviewed DOD officials and privatized housing developers.

What GAO Recommends

GAO is making eight recommendations, including that DOD improve the consistency and timeliness of the information reported on the financial condition of its privatized housing projects, fully assess the effects of the reductions in basic allowance for housing on the projects, clarify when project changes require notice, and define tolerances for project risks. DOD concurred with each of our recommendations and identified actions it plans to take to implement them.

For more information, contact Brian J. Lepore at (202) 512-4523 or leporeb@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: DOD concurred with this recommendation. When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should ensure that the Assistant Secretary of Defense for Energy, Installations, and Environment provides additional contextual information in future reports to Congress on privatized military housing to identify any differences in the calculation of debt coverage ratios and the effect of these differences on their comparability. (Recommendation 1)

    Agency Affected: Department of Defense

  2. Status: Open

    Comments: DOD concurred with this recommendation. When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should ensure that the Assistant Secretary of Defense for Energy, Installations, and Environment revises its existing guidance on privatized housing to ensure that financial data on privatized military housing projects reported to Congress, such as debt coverage ratios, are consistent and comparable in terms of the time periods of the data collected. (Recommendation 2)

    Agency Affected: Department of Defense

  3. Status: Open

    Comments: DOD concurred with this recommendation. When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should ensure that the Assistant Secretary of Defense for Energy, Installations, and Environment revises its guidance on privatized military housing to include a requirement that the military departments incorporate measures of future sustainment into their assessments of privatized housing projects. (Recommendation 3)

    Agency Affected: Department of Defense

  4. Status: Open

    Comments: DOD concurred with this recommendation. When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should ensure that the Assistant Secretary of Defense for Energy, Installations, and Environment takes steps to resume issuing required reports to Congress on the financial condition of privatized housing in a timely manner. (Recommendation 4)

    Agency Affected: Department of Defense

  5. Status: Open

    Comments: DOD concurred with this recommendation. When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should ensure that the Assistant Secretary of Defense for Energy, Installations, and Environment reports financial information on future sustainment of each privatized housing project in its reports to Congress. (Recommendation 5)

    Agency Affected: Department of Defense

  6. Status: Open

    Comments: DOD concurred with this recommendation. When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should ensure that the Assistant Secretary of Defense for Energy, Installations, and Environment provides guidance directing the military departments to assess the significance of the specific risks to individual privatized housing projects resulting from the reductions in the basic allowance for housing and identify courses of action to respond to any risks based on their significance. (Recommendation 6)

    Agency Affected: Department of Defense

  7. Status: Open

    Comments: DOD concurred with this recommendation. When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should ensure that the Assistant Secretary of Defense for Energy, Installations, and Environment finalizes guidance in a timely manner that clearly defines the circumstances in which the military departments should provide notification of project changes and which types of project changes require prior notification or prior approval. (Recommendation 7)

    Agency Affected: Department of Defense

  8. Status: Open

    Comments: DOD concurred with this recommendation. When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should ensure that the Assistant Secretary of Defense for Energy, Installations, and Environment revises its guidance on privatized military housing to require the military departments to define their risk tolerances regarding the future sustainability of their privatized housing projects. (Recommendation 8)

    Agency Affected: Department of Defense

 

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