However, when communities do not have an adequate amount of  suitable housing, DOD intends to use housing privatization—rather than  military-owned housing financed with military construction funds—as the  primary means for meeting family housing requirements. As of December  2005, the services had awarded 52 projects to privatize over 112,000 family  housing units and had plans to award 57 more projects to privatize over  76,000 more units by 2010. Opportunities Exist to Improve the Oversight of Awarded Privatization Projects

Although OSD and the services have implemented program oversight  policies and procedures to monitor the execution and performance of  privatized housing projects, opportunities exist for improvement. Specifically, as evidenced by  issues identified in some Navy and Marine Corps projects we visited, the  Navy’s oversight methods are not adequate to identify some project  operational concerns or to ensure accurate reporting of project  information. As a result, in contrast to the Army and the Air Force which  have more robust oversight methods, there is less assurance that Navy  management could become aware of project performance issues in a timely  manner in order to plan needed actions to mitigate the concerns. Also, the  usefulness of OSD’s primary program oversight tool—the semiannual  privatization program evaluation report—has been limited because the  report has not focused on key project performance metrics, has not been  issued in a timely manner, and has included inaccuracies. Moreover, data  on servicemember satisfaction with housing are inconsistent because DOD  has not issued guidance to the services for collecting and reporting  satisfaction information. According to  the agreement, 30 percent of the project’s net cash flow—that is, the  rental revenue remaining after payment of expenses and debt service— was to be deposited to a Navy-owned reserve account to be available for  future project needs. Lower Than Expected Occupancy Creates Concerns in Some Privatization Projects

Sixteen projects, or 36 percent, of 44 awarded privatization projects had  occupancy rates below expectations with rates below 90 percent, as of  September 30, 2005, raising concerns about project performance. Although  the projects were justified on the basis of meeting military family housing  needs, 20 projects have begun renting housing units to parties other than  military families, including unaccompanied military personnel and the  general public, in an attempt to keep rental revenues up. In the long term, if  lower than expected occupancy and rental revenues persist, the result  could be significantly reduced funds deposited into reserve accounts,  which provide for future project needs and renovations. Or, in the worst  case, there could be project financial failures. Factors contributing to  occupancy challenges include poor condition of existing housing that has  not yet been renovated in some projects, significantly increased housing  allowances, which have made it possible for more military families to  afford off-base housing thus reducing the need for privatized housing, and  continued problems in DOD’s housing requirements determination process,  which could result in overstating the need for privatized housing. More specifically, 20 projects had rented 1,116 units  to single or unaccompanied military personnel; 662 units to retired military  personnel and civilians and contractors who work for DOD; and 299 units  to civilians from the general public. With  reduced occupancy, the project had experienced signs of financial  stress. Provide guidance to the services to help ensure consistent collection  and reporting of housing satisfaction information from all  servicemembers, which would allow for benchmarking and tracking of  tenant satisfaction over time as well as for making service-to-service  comparisons. Further, we determined the status of steps  taken by DOD in response to previous GAO recommendations to address  concerns in the reliability of the services’ housing requirements  assessments.
Why GAO Did This Study

The Department of Defense (DOD) intends to privatize about 87 percent of the military-owned housing in the United States by 2010. As of December 2005, it had awarded 52 projects to privatize over 112,000 family housing units and had plans to award 57 more projects to privatize over 76,000 more units over the next 4 years. The program, begun in 1996, has become DOD's primary means to improve family housing and to meet its housing needs when communities near installations do not have enough suitable, affordable housing. Because of expressed interest related to the oversight responsibilities of several committees, GAO assessed (1) whether opportunities exist to improve DOD's oversight of awarded housing privatization projects, and (2) to what extent projects are meeting occupancy expectations.

What GAO Found

Although DOD and the individual services have implemented program oversight policies and procedures to monitor the execution and performance of awarded privatized housing projects, GAO identified three opportunities for improvement. First, the Navy's methods for overseeing its awarded projects have not been adequate to identify and address operational concerns in some projects or to ensure accurate reporting of project information. As a result, there is less assurance that Navy management could become aware of project performance issues in a timely manner in order to plan needed actions to mitigate the concerns. For example, contrary to project agreements, funds from one project had not been deposited to a Navy reserve account to provide for future project needs, and the Navy had not been reimbursed for police and fire protection services provided to another project. Compared to the Navy, the Army and Air Force had more robust and comprehensive methods for overseeing awarded projects and GAO did not find similar oversight concerns in the Army and Air Force projects it reviewed. Second, the value of DOD's primary oversight tool--the semiannual privatization program evaluation report--has been limited because the report lacks a focus on key project performance metrics to help highlight any operational or financial concerns, has not been issued in a timely manner, and does not ensure data accuracy by requiring periodic independent verification of key report elements. Third, data collected on servicemember satisfaction with housing, which is important for benchmarking and tracking of satisfaction levels over time as well as for making service-to-service comparisons, are inconsistent and incomplete because DOD has not issued guidance to the services for standardized collection and reporting of satisfaction information for all servicemembers. Sixteen, or 36 percent, of 44 awarded privatization projects had occupancy rates below expectations with rates below 90 percent, as of September 30, 2005. In an attempt to increase occupancy and keep rental revenues up, 20 projects had begun renting housing units to parties other than military families, including 2,077 units rented to single or unaccompanied servicemembers, retired military personnel, civilians and contractors who work for DOD, and civilians from the general public. Still, rental revenues in some projects are not meeting planned levels, resulting in signs of financial stress. If lower than expected occupancy and rental revenues continue in the long term, the result could be significantly reduced funds available to provide for future project needs and renovations or, in the worst case, project financial failures. Factors contributing to occupancy challenges include increased housing allowances, which have made it possible for more military families to live off base thus reducing the need for privatized housing, and the questionable reliability of DOD's housing requirements determination process, which could result in overstating the need for privatized housing. DOD has yet to implement some previous GAO recommendations to improve the reliability of the requirements assessments supporting proposed projects.