Military Housing Privatization: DOD Faces New Challenges Due to Significant Growth at Some Installations and Recent Turmoil in the Financial Markets
Highlights
In response to challenges the Department of Defense (DOD) was facing to repair, renovate, and construct military family housing, Congress enacted the Military Housing Privatization Initiative in 1996. The initiative enables DOD to leverage private sector resources to construct or renovate family housing. As of March 2009, DOD had awarded 94 projects and attracted over $22 billion in private financing. DOD plans to privatize 98 percent of its domestic family housing through 2012. Since GAO's last housing privatization report in 2006, major force structure initiatives have placed new demands on DOD for housing. GAO was asked to assess (1) the progress of DOD's housing privatization program, (2) the occupancy rates of the housing projects, (3) the impact of various force structure initiatives and DOD's efforts to mitigate any challenges, and (4) the effect of financial market turmoil on some projects. To perform this work, GAO visited 13 installations with privatization projects; analyzed project performance data; and interviewed DOD officials, real estate consultants, and private developers.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Defense | For Congress to maintain oversight of the Military Housing Privatization Initiative program, the Secretary of Defense should direct the Under Secretary of Defense (Acquisition, Technology and Logistics) to include, for each project that is retrofitted, an explanation of this practice and information on DOD's total investment in the retrofitted project in its semiannual status report to the congressional defense committees. |
In May of 2009, we reported that although DOD was taking several measures to ensure adequate family housing exists at its installations, it needed to include an explanation of each "retrofitted" project and provide information on DOD's total investment in these retrofitted projects in its semiannual status report to Congress. Army had developed a retrofitting model where an already awarded housing project is retrofitted with a new or another already awarded housing project, thus allowing Army to invest additional funds in these housing projects. As such, on February 1, 2010, DOD provided Congress an explanation of the retrofitting model and information on the amount of additional cash investment provided to these specific retrofitted housing projects in its semiannual report on privatization. As a result, Congress is in a better position to maintain oversight of the Military Housing Privatization program. Thus, DOD the intent of our recommendation has been met.
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| Department of Defense | To better inform Congress about the financial market factors that could affect the privatized military family housing program's financial health and to enhance congressional oversight, the Secretary of Defense should direct the Under Secretary of Defense (Acquisition, Technology and Logistics) to include information in its semiannual report to the congressional defense committees on the effects current conditions in the financial markets are having on housing privatization projects. |
In May 2009, we recommended that DOD include information in its semiannual report to the congressional defense committees on the effects current conditions in the financial markets were having on military housing privatization projects. As a direct result of our recommendation, OSD most recent semiannual status report provided to Congress in February 2010 now includes more detailed information on financial performance of ongoing projects as well as the effects of current financial markets on new projects. For example, OSD included in its report to Congress information on the impact of financial market forces beyond the control of private developers or the military services, changes in rates of return on invested capital, and credit ratings such as recent downgrades given turbulence in the credit market. Consequently, Congress is better informed about the financial market factors that could affect the privatized military family.
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