The Congress approved the new authorities, and the initiative was signed into law on February 10, 1996. Objectives, Scope, and Methodology

Because it represents a new approach to improving military housing, we reviewed the implementation of the Military Housing Privatization Initiative to (1) measure progress to date, (2) assess issues associated with privatizing military housing, and (3) determine whether the initiative is being integrated with other elements of DOD’s housing program. To determine whether the new initiative is being integrated with other elements of DOD’s housing program, we reviewed DOD’s and the services’ housing policies, programs, initiatives, and plans. DOD officials believe that progress may speed up after the first few projects are approved; however, each project is unique and will require individualized planning and negotiation. Since the authorizing legislation was signed in February 1996 through the end of February 1998, no new agreements were finalized to build or renovate military housing. In January 1998, DOD was actively considering more than a dozen projects for privatization and many others were in the early planning stages. Reasons for Slow Progress

According to DOD officials, privatization implementation has been slower than expected primarily because the initiative represents a new way of doing business for both the military and the private sector. The servicemembers use their housing allowances to pay rent to the developer. Thus, although the exact budgetary consequences from use of the various privatization authorities are not known, it appears that privatization largely results in a shift in funding from military housing construction, operations, and maintenance accounts to military personnel accounts to pay for additional housing allowances. We reviewed the services’ life-cycle cost analyses for two proposed privatization projects at Fort Carson and Lackland Air Force Base to compare estimates of the government’s long-term costs for housing financed with Milcon funds and through the privatization initiative. Privatization Initiative Can Be Better Integrated With Other Elements of DOD’s Housing Program

The privatization initiative is only one of several tools, including housing allowances and traditional military construction, available to meet the housing needs of servicemembers and their families. For example, to maximize the advantages from the initiative and minimize total housing costs, privatization needs to be part of a strategy that ensures (1) accurate determinations of housing needs and the ability of the local communities to meet these needs at each installation, (2) maximum use of private sector housing in accordance with DOD housing policy, and (3) coordinated decisions on the structure of housing allowances and housing construction. According to Navy officials, the Navy has pursued enhanced housing referral services since 1994. However, additional steps can be taken to ensure that the military’s housing problems are addressed in an optimum manner.
Why GAO Did This Study

GAO reviewed the Department of Defense's (DOD) Military Housing Privatization Initiative, focusing on DOD's efforts to: (1) measure progress to date; (2) assess issues associated with privatizing military housing; and (3) determine whether the new initiative is being integrated with other elements of DOD's housing programs.

What GAO Found

GAO noted that: (1) DOD considers privatization to be a powerful new tool to help address the military housing problem; (2) two years have passed since the new authorities were signed into law, yet no new agreements have been finalized to build or renovate military housing; (3) more than a dozen projects are being considered; however, only one project is close to contract signing; (4) according to DOD, progress has been slower than expected because the initiative represents a new way of doing business for both the military and the private sector; (5) many legal, financial, contractual, and budgetary scoring issues had to be resolved to the satisfaction of parties representing the government, developers, and private lenders; (6) although DOD expects implementation to speed up after the first few privatization deals are completed, it is difficult to predict how much the program can be accelerated given the unique circumstances of individual projects; (7) in addition to potential benefits, implementation of the privatization initiative raises several concerns; (8) one concern is whether privatization will result in significant cost savings; (9) to a large degree, privatization shifts funding from military housing construction, operations, and maintenance accounts to military personnel accounts to pay for increased housing allowances used to pay rent to developers of privatized housing; (10) GAO's review of the services' life-cycle cost analyses for two privatization projects disclosed that the difference in the cost of privatization and traditional military construction financing was considerably less than the services' estimates and relatively modest; (11) the privatization initiative has not been fully integrated with other elements of an overall housing strategy to meet DOD's housing needs in an optimum manner; (12) comprehensive housing referral services could lessen the need for government housing, yet only the Navy has aggressively pursued this option; (13) better coordination between the separate offices responsible for housing allowances and military housing construction and management could ensure that their decisions on housing matters are made in concert, rather than in isolation, with each other; and (14) comprehensive, better integrated plans could tie together the elements of DOD's housing program and help maximize the advantages of the privatization initiative while minimizing total housing costs.