Military Housing: Analyses of Overseas Housing Costs Are Misleading to Decisionmakers
NSIAD-86-82
Published: Jun 13, 1986. Publicly Released: Jun 13, 1986.
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Highlights
GAO evaluated Army, Navy, and Air Force economic analyses issued between December 1982 and January 1984 to identify the most cost-effective alternative for satisfying military family housing requirements in Europe.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Defense | The Secretary of Defense should require all future economic analyses involving the use of the present-value technique to discount only: (1) current dollar expenditures; and (2) with the average rate of interest on the Department of Treasury obligations which mature during the period of anticipated expenditures. GAO understands that the Office of Management and Budget (OMB) is currently revising Circular A-104 to require this type of discounting procedure. Until this revised guidance is effective, the Secretary of Defense should request a waiver from the current version of Circular A-104 to allow the department to immediately begin using this recommended discounting technique. |
The Department of Defense (DOD) will not request a waiver from OMB Circular A-104, but it will implement the revised circular upon issuance.
|
| Department of Defense | The Secretary of Defense should issue additional guidance on conducting economic analyses of foreign housing that: (1) expands instructions for sensitivity tests; (2) requires full explanation of the special circumstances present when build-to-lease is found to be less expensive than military construction; (3) gives explicit directions on when and how to calculate political risk considerations in estimates of residual value; (4) requires the use of expected inflation and exchange rates which are representative of those accepted by professional economic forecasters unless there are convincing reasons for not using them; (5) requires that housing alternatives be evaluated for financial viability; (6) requires a good rationale with supporting data for assuming maintenance of utility expenses in build-to-lease significantly different from military construction of approximately the same square footage; and (7) gives explicit directions for estimating the rental and sale prices of land. |
A tri-service committee is developing guidance to ensure that economic analyses are accomplished in accordance with OMB Circular A-104.
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Topics
Construction costsCost effectiveness analysisEconomic analysisLeasesMilitary cost controlMilitary facility constructionMilitary housingMilitary forcesInflationConstruction