Better oversight urged for program to privatize military housing
Defense also should update assessments of future housing needs, GAO says.
To succeed in the long term, a Defense Department program to privatize military housing requires better oversight and ongoing assessment of how a separate program to increase housing allowances will affect occupancy rates, auditors found in a recent review.
In a report released Friday (GAO-06-438 ), the Government Accountability Office examined management and oversight of Defense's initiative to upgrade military housing by privatizing about 87 percent of its domestic housing stock by 2010. That initiative, ongoing since 1996, was undertaken to improve housing options seen at the time as substandard.
The program entails joint military-developer oversight of long contracts -- many of them set at 50 years -- for new and renovated family homes. The initiative is about halfway complete, with 52 projects awarded by the end of last year and an additional 57 lined up for the next four years.
But reviewers found that rental occupancy rates in the privatized units were lower than anticipated, with a third of the projects below the 90 percent target rate. Private developers bear most of the risk for low rental income, but the projects are overseen by the service branches, which bank a portion of the rental income for future upgrades and maintenance. Reviewers said insufficient income could threaten the long-term viability of the projects, and Defense's housing plans.
Auditors also said Defense should update assessments of future housing needs, and cited oversight problems with the projects.
A separate, five-year Defense effort that wrapped up in early 2005 sought to eliminate a housing allowance gap that had caused families living off-base to pay 19 percent of housing costs out of pocket. By steadily raising its housing allowances over five years, the department eliminated that gap, supporting a policy of relying primarily on in-community housing for families.
Reviewers noted that the success of the zero-out-of-pocket program created a need to revisit planning for privatization projects -- the second choice for family housing -- for possible occupancy effects. Greater allowances could increase the number of military families opting to live in nearby communities, reviewers noted, as well as trigger new off-base housing development.
GAO criticized Defense for failing to act more quickly on similar concerns voiced in 2002, as well as a December 2004 recommendation to give services better guidance on using housing needs assessments.
Auditors called for improved Navy and Marine Corps oversight of privatization projects, noting that the Army and Air Force had better procedures in place. GAO noted that portfolio summary reports, required by Navy guidance, had not been prepared in the two years of program operation.
They also found accounting problems at some projects. At a Navy project in Texas, auditors found that four years along, the government had not billed the project or collected on reimbursement for fire and police protection provided by the base, established at $85,000 in the first year with subsequent cost-of-living adjustments.
In five of eight project status reports reviewed for the Navy and Marine Corps, auditors found inaccurate information. The report on a San Diego project, for example, put the total development cost at $304 million, rather than the correct $427 million. A Camp Pendleton, Calif., project overstated its reinvestment account balance at $725,000, rather than $104,000.
Defense officials partially concurred with the GAO findings. Joseph Sikes, Defense's director of housing and competitive sourcing, said the department should address the low occupancy rates, and said a survey of service members' housing needs could assist in that effort.
"More important though is an understanding that the housing is being transferred to private ownership," Sikes wrote in a response to the report. "Private sector landlords and the lenders that finance them respond quickly to vacancies."
The response also highlighted that while occupancy rates at individual projects may be low, the average occupancy rate across all projects for the first quarter of fiscal 2006 was 93 percent.
Defense partially concurred with the recommendation to improve Naval reporting on the projects, noting that "the Navy is striving to achieve a balance between the appropriate levels of government oversight while maintaining limited governmental involvement."