BAH Cuts Could Hurt Privatized Housing, Too By Karen Jowers

Army Times
September 2, 2013
Pg. 8

The possibility of reducing Basic Allowance for Housing rates clearly would have an immediate effect on troops’ wallets by forcing them to pay more out of pocket for housing. But it also could affect another aspect of their quality of life: privatized housing.

The Pentagon’s recent Strategic Choices and Management Review recommended, among other things, looking at reducing housing allowances.

The Defense Department is considering the idea among many, as officials try to determine how to make nearly $500 billion in additional cuts over the next decade under the automatic budget cuts known as sequestration.

“I have concerns as a former soldier any time there’s talk about reductions in pay and entitlements,” said Ivan Bolden, a retired Army colonel who is chief of Army privatization.

About 30 percent of military families are housed on installations, and about 70 percent live in the civilian community. Under the military family housing privatization initiative, most family housing on installations in the U.S. has been transferred to private companies. BAH is the only revenue stream for the operation, maintenance and future repairs and replacements of troops’ privatized housing. Troops receive their BAH, then pay rent to the privatization partner, generally through allotment.

The monthly payment, which is generally capped at the amount of BAH, is designed to cover the troops’ rent, their projected average use of utilities and renter’s insurance.

The companies have acquired hefty loans for the projects and they pay for all construction, renovation, operation and maintenance, relying solely on the BAH income from troops who choose to live there.

“BAH is fundamental to privatized housing project planning and the projects’ ability to deliver quality housing for airmen,” said Air Force spokeswoman Natasha Waggoner.

Companies are required to set money aside each month for future costs such as replacement of roofs, carpets and appliances, repairs, renovations, building replacement houses. “The sustainment piece is the beauty of [privatized housing] because we have that money set aside.”

Even a 1 percent reduction in BAH, over time, could result in effects such as fewer replacement homes, fewer renovations, fewer amenities and longer wait times for maintenance, Bolden said.

Air Force officials contend that there are potential consequences to privatized housing not only if BAH is cut, but also even if BAH remains flat.

“The initial impact of these reductions is projected to begin within six years if BAH remains flat and sooner if BAH decreases,” Waggoner said.

Income and expenses for the projects are planned based on an anticipated BAH increase of 1 percent to 3 percent per year for the life of the project, she said.

“In short, BAH increases are paramount to providing, maintaining and repairing quality homes,” she said.

The Air Force analyzed three scenarios of possible BAH reduction, she said: no future BAH inflation until 2035; reducing BAH by 10 percent; and reducing BAH by 15 percent.

Marine Corps officials are continuing to monitor BAH discussions, said Robert Kass, head of the housing section of Marine Corps Installations Command, and are looking at the situation as transitory, for now.

“A short-term decrease in the BAH rates will only have minor impact because the overall health of the project is based on the 50-year projected revenue stream, not a small one-time decrease,” Kass said.

Privatization was adopted to deal with a deteriorating military housing stock that, by the late 1990s, had produced a $16 billion backlog in construction, renovation and maintenance that would have taken 30 years to dig out of using traditional appropriated military construction funds.

Under the Army privatization program, for example, private companies have spent about $13 billion and the Army has spent about $1.9 billion in taxpayer dollars to fix deteriorating housing. Thus, private companies have spent about $6 for every $1 of taxpayer dollars spent on Army housing.

About 80 percent of new construction and renovation has been completed across the services to fix the initial problems, said DoD spokesman Mark Wright.

Privatization saved housing, officials said

The military’s privatized housing program so far has shielded the housing stock from the corrosive effects of sequestration, according to defense and service officials.

If the housing had not been largely privatized over the past decade, cuts to military operations and maintenance accounts “would have seriously impacted family housing,” said Defense Department spokesman Mark Wright.

With privatized housing, troops pay rent — generally their Basic Allowance for Housing — directly to the private company that owns, operates, maintains, renovates and replaces the houses.

Funding for BAH has not been reduced under sequestration because military personnel budget accounts so far have been exempted.

A few family housing units in the U.S. are still owned by the government for various reasons, including historical significance.

The Marine Corps has privatized 99.7 percent of its U.S. family housing. Under sequestration, government-owned family housing operations “have suffered reductions in construction, major repair, as well as staffing restrictions,” said Robert Kass, head of the housing section of the Marine Corps Installation Command.

If the majority of the housing hadn’t been under the control of private companies, it would have suffered the same reductions, he said, with some delays in services and a reduction of base-provided services.

If Air Force housing had not been privatized, said spokeswoman Capt. Natasha Waggoner, “the service to our military families living in government-owned homes would have been impacted due to civilian staff furloughs and deferred repair and renovation projects.”

Before housing privatization, the bulk of BAH for troops living on the installation went back to the services for the operation and maintenance of government housing. But the services had to take money from housing operation and maintenance accounts for other priorities, leading to deterioration in the housing stock in the 1990s.

“Private developers haven’t skipped a beat,” said Ivan Bolden, chief of Army privatization. “They have worked to maintain the same quality of life. [Under sequestration,] senior leaders are making tough choices. I think sustainment of housing would be lower priority, and rightfully so.”

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