The Bad Decisions that Led to Privatized Military Housing Woes

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Outdated family quarters at Fort Lee get demolished to make room for modern replacement units. (U.S. Army/T. Anthony Bell)
Outdated family quarters at Fort Lee get demolished to make room for modern replacement units. (U.S. Army/T. Anthony Bell)

Retired Army Lt. Gen. Thomas Spoehr is the director of The Heritage Foundation's Center for National Defense.

Privatized military housing is under fire. It started with a Feb. 13 hearing of the Senate Armed Services Committee, where multiple witnesses reported horrendous living conditions including "black mold, lead, infestations of vermin, flooding, radon and faulty wiring." Worse, family members testified, complaints were often met with denials, resistance, and even retribution from the private management companies and military chains of command.

None of this is acceptable. But given decisions made years ago, it was predictable.

Roughly a third of military personnel live on installations, where 99 percent of the housing has been privatized. Privatization began around 1996, when Congress authorized the Defense Department to enter into long-term agreements with private companies to repair, renovate, construct and operate base housing.

At the time, two-thirds of military housing needed significant repair or replacement. The Pentagon estimated it would take about $20 billion and 40 years to bring the facilities up to snuff. Yet the Clinton administration was cutting defense spending to cash a "peace dividend." Fixing the housing problems while trying to cling to a semblance of military readiness seemed impossible, given the Pentagon's diminishing budget.

Privatized housing seemed like the answer. Congress authorized the military services to enter long-term agreements with the private sector to construct, repair and operate some 82 housing projects. The details of the agreements differed among the services; the Army and the Navy structured their projects as limited liability companies in partnerships with developers, while the Air Force provided direct loans to the developers. In a typical arrangement, the government leased the land and conveyed existing properties to developers for a 50-year term.

In exchange for building and operating the properties, the private companies were promised the residents' individual housing allowances. The Basic Allowance for Housing (BAH) rates are set for each rank and geographic area, based on surveys.

Companies that entered these agreements based their business plan on the government's guarantee of receiving the full BAH rate from service members and an estimated occupancy rate. BAH payments are their sole revenue source for paying all operating expenses, taxes, insurance, debt, and significantly, scheduled maintenance.

For a while, privatized housing significantly improved the quality of military housing. In many cases, service members got new housing with the latest appliances much more quickly than would have been possible using the meager defense funds available for this purpose.

But then the wheels started coming off.

The occupancy rates that the developers relied on for planning did not anticipate the major military drawdown initiated by the Obama administration in 2011. For example, the Army's ranks dwindled from 566,000 in 2010 to 490,000 by 2017.

Occupancy rates plummeted. At Fort Knox, for example, deactivation of a major unit caused the occupancy rate to plunge from 95 percent to just 70 percent in only one year. Similar reductions occurred in bases across the U.S., depleting the funds developers had counted on to perform preventative maintenance.

And then it got worse.

In 2015, the Obama administration, in a short-sighted effort to save money, began to reduce BAH -- from 100 percent to 95 percent of the market rate for housing. As originally proposed, service members would make up the difference, paying it directly to the companies operating the housing. But that never happened.

Instead, the private developers were left to "eat" the 5 percent reduction in BAH from inside their operating budgets. This decision exacerbated the pressure on the companies' respective maintenance budgets.

Corvias and other private housing companies warned of dire consequences to follow. In 2015, Corvias wrote: "The effects of reductions in both military strength and the BAH have potential long-term effects on Service members and families, MHPI projects, and private partners" (emphasis added).

You might be tempted to say, "tough luck for the developers." But that's not the way the agreements were structured. The military services and the companies were partners, mutually bound together, sink or swim.

Similarly, for at least a decade, the General Accountability Office (GAO) has been sounding the alarm. In 2009, it wrote:

"Some privatization projects with occupancy rates below 90 percent are challenged to generate enough revenue to fund construction, make debt payments, and set aside funds for recapitalization, which could negatively affect the condition and attractiveness of privatized homes and make it harder to compete with other homes in the community" (emphasis added).

And then, just a year ago, the GAO more urgently noted:

"Without complete assessment of the risks of the reductions in the basic allowance for housing on each project, and developing any appropriate courses of action, DoD and the military departments will not be able to know when to take action to address deficits in the funding of long-term sustainment accounts that could lead to diminishment in the quality of military housing" (emphasis added).

Today, people are justifiably angry. A petition titled "Hold Corvias Accountable" has more than 3,300 signatures of angry, uniformed housing occupants at Fort Bragg, N.C. Should Corvias be held accountable? Absolutely. It has at least a moral obligation to provide acceptable housing, and if it is unable to do so, it is morally obligated to let authorities know in an unequivocal manner.

But at the same time, we need to insist on some accountability for those in Washington who passed the legislation and countenanced the decisions that led to operating shortfalls in the privatized housing maintenance budgets. And while we are at it, save a healthy portion of that accountability for those in the Pentagon who were warned on multiple occasions, yet stood by and watched conditions deteriorate.

We ask a lot of our men and women in uniform. We owe them a decent standard of living and housing. In this, they have been failed on multiple levels -- by private contractors, by their military service, by the Office of the Secretary of Defense, and by Congress.

-- The opinions expressed in this op-ed are those of the author and do not necessarily reflect the views of Military.com. If you would like to submit your own commentary, please send your article to opinions@military.com for consideration.

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