Military Housing:

Privatization Off to a Slow Start and Continued Management Attention Needed

NSIAD-98-178: Published: Jul 17, 1998. Publicly Released: Jul 17, 1998.

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GAO reviewed the Department of Defense's (DOD) Military Housing Privatization Initiative, focusing on DOD's efforts to: (1) measure progress to date; (2) assess issues associated with privatizing military housing; and (3) determine whether the new initiative is being integrated with other elements of DOD's housing programs.

GAO noted that: (1) DOD considers privatization to be a powerful new tool to help address the military housing problem; (2) two years have passed since the new authorities were signed into law, yet no new agreements have been finalized to build or renovate military housing; (3) more than a dozen projects are being considered; however, only one project is close to contract signing; (4) according to DOD, progress has been slower than expected because the initiative represents a new way of doing business for both the military and the private sector; (5) many legal, financial, contractual, and budgetary scoring issues had to be resolved to the satisfaction of parties representing the government, developers, and private lenders; (6) although DOD expects implementation to speed up after the first few privatization deals are completed, it is difficult to predict how much the program can be accelerated given the unique circumstances of individual projects; (7) in addition to potential benefits, implementation of the privatization initiative raises several concerns; (8) one concern is whether privatization will result in significant cost savings; (9) to a large degree, privatization shifts funding from military housing construction, operations, and maintenance accounts to military personnel accounts to pay for increased housing allowances used to pay rent to developers of privatized housing; (10) GAO's review of the services' life-cycle cost analyses for two privatization projects disclosed that the difference in the cost of privatization and traditional military construction financing was considerably less than the services' estimates and relatively modest; (11) the privatization initiative has not been fully integrated with other elements of an overall housing strategy to meet DOD's housing needs in an optimum manner; (12) comprehensive housing referral services could lessen the need for government housing, yet only the Navy has aggressively pursued this option; (13) better coordination between the separate offices responsible for housing allowances and military housing construction and management could ensure that their decisions on housing matters are made in concert, rather than in isolation, with each other; and (14) comprehensive, better integrated plans could tie together the elements of DOD's housing program and help maximize the advantages of the privatization initiative while minimizing total housing costs.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD originally stated that a policy and procedures handbook was under development. The handbook would include the standard methodology for life cycle cost analyses. A draft handbook was issued for review in October 1998. Since that time, DOD has issued revised draft guidance. However, as of August 2001, final guidance has not been issued and DOD had no firm date for doing so. GAO is following up on DOD's guidance for performing life cycle cost analyses during GAO's current review on the status of the military housing privatization initiative (350074).

    Recommendation: The Secretary of Defense should expedite the Housing Revitalization and Support Office's effort to develop a standardized methodology for comparing life-cycle costs of proposed privatization projects with military construction alternatives. This action should include establishing and monitoring milestones for the development and implementation of the methodology.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: According to DOD, it is working to integrate the privatization initiative with other elements of DOD's housing program. DOD has been working to improve the housing requirements determination process for several years. However, needed improvements to this process still have not been implemented. The services have completed housing master plans that specified their respective methodologies to eliminate inadequate housing by 2010. However, the master plans did not analyze how DOD's initiative to increase housing allowances will impact the requirement for military family housing. In GAO's current review of the status of the military housing privatization initiative (350074), GAO is following up on the need for analyses of the housing allowance initiative's impact on DOD's housing program.

    Recommendation: The Secretary of Defense should expand the directive to the services concerning their plans for eliminating inadequate housing. Specifically, the Secretary should direct the services to prepare detailed, integrated housing plans that will: (1) describe their plans for improving their housing requirements determination processes; (2) demonstrate how they will attempt to maximize their reliance on community housing in accordance with DOD's stated policy; and (3) outline improvements in housing referral services. The plans should also include analyses of the estimated impact of the new housing allowance program on the availability of housing in local communities and show how housing allowances, traditional military construction, and the privatization initiative will be used in concert to meet DOD's housing needs in the most economical manner. Each service plan should include estimated milestones for achieving the goals of the plan.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: DOD has established a Housing Policy Board to coordinate efforts. Agency officials stated that this step should help DOD to address the elements in the recommendation and ensure better integration of DOD's family housing efforts.

    Recommendation: The Secretary of Defense should establish a mechanism to promote more effective coordination between the offices responsible for housing allowances and housing management.

    Agency Affected: Department of Defense


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