Military Housing: Actions Needed to Improve the Process for Setting Allowances for Servicemembers and Calculating Payments for Privatized Housing Projects

GAO-21-137 Published: Jan 25, 2021. Publicly Released: Jan 25, 2021.
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Fast Facts

Servicemembers who are stationed in the U.S. may get housing allowances to help cover the cost of suitable private housing—such as commercial apartments or rental homes. The Department of Defense annually spends billions on housing allowances as one of the largest parts of military compensation.

In 44% of the cases we examined, the DOD didn't collect enough data on some locations and housing types to accurately represent housing costs in those areas. As a result, housing allowance rates may have been set inaccurately.

We recommended (among other things) that the DOD collect more data to help ensure that housing allowance rates are accurate.

Person in military uniform holding a tiny house.

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Highlights

What GAO Found

The Department of Defense (DOD) has established a process to determine basic allowance for housing (BAH) rates, which help cover the cost of suitable housing in the private sector for servicemembers. However, DOD has not always collected rental data on the minimum number of rental units needed to estimate the total housing cost for certain locations and housing types. GAO analysis found that 44 percent (788 of 1,806) of locations and housing types had fewer than the minimum sample-size target. Until DOD develops ways to increase its sample size, it will risk providing housing cost compensation that does not accurately represent the cost of suitable housing for servicemembers.

DOD followed congressional requirements for calculating BAH reductions and payments to privatized housing projects. However, while the 2019 congressionally mandated payments lessened the financial effects of BAH reductions, as intended, they did not do so commensurate with the amount of the BAH reduction. GAO found that privatized housing projects received payments that were either over or under the amount of revenue lost from reductions made to BAH, in some cases by $1 million or more. (see figure)

Number of Privatized Housing Projects and Amounts That Congressionally Mandated Payments Were Above or Below the Basic Allowance for Housing (BAH) Reduction Estimate (in 2019)

Number of Privatized Housing Projects and Amounts That Congressionally Mandated Payments Were Above or Below the Basic Allowance for Housing (BAH) Reduction Estimate (in 2019)

These distortions occurred because the legal requirements for calculating the BAH reduction and the congressionally mandated payments differ. Specifically, the law requires that the BAH reduction be a set dollar amount, regardless of location, while payments to privatized housing projects are required to differ by location. This required method of calculating the BAH reduction amounts is consistent with how prior reductions were calculated. According to DOD, BAH rates were reduced so that servicemembers share a portion of housing costs, and that reduction amount was the same for servicemembers with the same pay grade and dependency status, regardless of location. Until Congress takes steps to ensure congressionally mandated payment calculations are consistent with how BAH reductions are calculated, some privatized housing projects will continue to receive more or less than was intended.

Why GAO Did This Study

DOD spent about $20 billion in fiscal year 2019 on BAH—often one of the largest components of military pay. BAH is designed to cover a portion of servicemembers' housing rental and utility costs in the private sector. Starting in 2015, DOD reduced BAH rates so that servicemembers share a portion of housing costs. The majority of servicemembers rely on the civilian housing market, while others rely on government housing or privatized housing projects. These projects rely on BAH as a key revenue source. In 2018-2020, Congress required DOD to make payments to these projects to help offset the BAH reduction.

Senate Report 116-48 included a provision for GAO to review DOD's BAH process. This report evaluates, among other things, the extent to which (1) DOD established a process to determine BAH and (2) DOD's congressionally mandated payments to projects lessened the effects of BAH reductions. To conduct this work, GAO reviewed relevant guidance and other documents, analyzed key data, and interviewed cognizant DOD officials.

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Recommendations

GAO is making a matter for congressional consideration to revise statutory language to ensure payments to privatized housing projects are consistent with BAH reductions. GAO is also making three recommendations, including that DOD review its sampling methodology to increase sample size. DOD concurred with two recommendations. DOD also partially concurred with one recommendation, which GAO continues to believe is valid, as discussed in the report.

Matter for Congressional Consideration

Matter Status Comments
Congress should consider revising the calculation for payments for privatized housing projects so that the payments are based on national average rates, consistent with the calculation for the BAH rate reduction.
Closed – Implemented
In December 2021, Congress passed and the President signed into law the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2022. In Section 2811 of the NDAA for FY 2022, Congress revised the calculation for payments for privatized housing so that the payments are based on national average rates, consistent with GAO's matter for congressional consideration.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Defense The Secretary of Defense should ensure that the Military Compensation Policy directorate within the Office of the Deputy Assistant Secretary of Defense for Military Personnel Policy, in coordination with the military services, (1) assesses its process for collecting rental property data to determine ways to increase sample size of current representative data and (2) ensures sample size targets are met. (Recommendation 1)
Closed – Implemented
In a letter provided April 15, 2021, the Acting Assistant Secretary of Defense for Manpower and Reserve Affairs partially concurred with our recommendation. It was noted that the Military Compensation Policy directorate within the Office of the Deputy Assistant Secretary for Defense for Military Personnel Policy will review current data collection procedures and identify areas for potential process improvements that could result in increased sample sizes. To address our recommendation, in 2021 DOD piloted a program to use a subscription-based commercial dataset to augment BAH sample sizes as part of the data collection for the 2022 BAH rates. According to DOD, this resulted in a dramatic increase in the quantity and quality of units collected for the BAH sample and as a result, DOD stated they plan to use the external data for the 2023 BAH rates. While this step has increased the number of samples collected overall, DOD is still unable to meet sample size targets in areas where there is low housing stock. To address this and mitigate low sample size-driven margins of error, DOD has implemented the use of a standard data smoothing technique that uses surrounding anchor point values and the national average difference between anchor point estimations to supplement data. As these actions meet the intent of our recommendation, we consider this recommendation to be implemented.
Department of Defense The Secretary of Defense should ensure that the Military Compensation Policy directorate within the Office of the Deputy Assistant Secretary of Defense for Military Personnel Policy, in coordination with the military services, reviews and updates BAH guidance to ensure that information about the BAH rate-setting process, including its sampling methodology and use of minimum sample-size targets, is accurately and fully reflected. (Recommendation 2)
Closed – Implemented
In a letter provided on April 15, 2021, the Acting Assistant Secretary of Defense for Manpower and Reserve Affairs concurred with our recommendation and stated that policy documents for guidance on the BAH program would be updated to accurately reflect the BAH sampling methodology and minimum sample size targets. In January 2022, the Office of Military Compensation Policy published updated BAH guidance describing alternative methods used to estimate the BAH rate for the local area when sample size targets are not met. As we noted in the report, DOD's BAH contractor annually updates and issues internal guidance to inform MHO representatives about the data collection process. In March 2022 the BAH contractor's updated internal guidance to Military Housing Offices clarified the minimum sample size that is necessary for calculating the BAH rate and what occurs when it is not met. As these actions meet the intent of our recommendation, we consider this recommendation to be implemented.
Department of Defense The Secretary of Defense should ensure that the Military Compensation Policy directorate within the Office of the Deputy Assistant Secretary of Defense for Military Personnel Policy, in coordination with the military services, establishes and implements a process for consistently monitoring anchor points, the interpolation table, external alternative data, and any indications of potential bias by using quality information to set BAH rates and ensuring timely remediation of any identified deficiencies. (Recommendation 3)
Open
In a letter provided April 15, 2021, the Acting Assistant Secretary of Defense for Manpower and Reserve Affairs concurred with our recommendation and stated that efforts were underway to determine the resources necessary for setting up a standardized framework for consistently monitoring the BAH program. As of March 2022, DOD is still working toward implementing this recommendation. We will continue to monitor DOD's progress.

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