A History of the Wherry, Capehart,

Section 801, and Section 802 Family

Housing Programs in the Army

by Dr. William C. Baldwin

U.S. Army Corps of Engineers, Office of History

October 1996

Table of Contents

Preface

The Wherry and Capehart Family Housing Programs, 1949­1962

Army Housing Before 1949

The Wherry Program

Problems with the Wherry Program

The Capehart Program

Problems with the Capehart Program

Wherry Acquisition

Growing Criticism of the Capehart Program

Conclusion

The Section 801 and Section 802 Family Housing Programs, 1983­1991

Army Housing Before 1983

New Housing Proposals in 1983

The Original Section 801 and 802 Programs

The Section 801 Program to 1990

The Section 802 Program to 1990

Scoring and the Demise of 801 and 802

Conclusion

Tables

Long-Term Leasing Plans

Rental Guarantee Plans

Completed Section 801 Projects

Preface

The two essays in this report trace the legislative and policy histories of four Army family housing privatization programs: the Wherry and Capehart programs of the 1950s and the Section 801 and Section 802 (also called build-to-lease and rental guarantee) programs of the 1980s. The Capehart program was the largest housing privatization program in the Army's history, followed closely by its predecessor, the Wherry program. Established two decades after the Capehart program ended, the build-to-lease and domestic rental guarantee programs were much smaller, but grew out of the Defense Department's experiences in the earlier privatization programs.

These four programs were not the only Defense Department's family housing privatization efforts. Other small and sometimes obscure programs, such as the surplus commodity, the overseas rental guarantee, and the Section 810 programs, originated during the decade of the 1950s, the most fertile period of housing privatization initiatives. Then, for the most part, they disappeared, due to changing economic or political circumstances.

When the Defense Department and the Army revived their interests in family housing privatization in the early 1990s, a rich legacy of privatization experiments already existed. Mr. Barry Frankel, Director of Real Estate, Headquarters, U.S. Army Corps of Engineers, recognized that this legacy contained valuable lessons learned, but many of those lessons were no longer available or accessible. He asked the Corps' Office of History to produce essays on the histories of the two largest and the two most recent privatization programs. Those essays are provided here.

My research in the history of Army housing began in 1992 when the U.S. Army Engineer Strategic Studies Center asked me to write a survey history of the Army's peacetime housing since the Revolutionary War as a background for their study on the future of Army housing for the Chief of Staff of the Army. That research showed me how little is known about many chapters in the history of Army housing, especially in the 20th century. No broad survey history, long or short, existed. While many Western and seacoast posts and forts of the 19th century have been scrutinized, few historical studies are available for the more recent past. My first attempt to put the history of Army housing in a broad perspective--"A History of Army Peacetime Housing"-- was an annex to the Engineer Strategic Studies Center's housing study and has continued to evolve and expand. The essays in this report are substantial expansions of the research begun for that housing study.

These essays on family housing privatization are based largely on research in congressional documents and in the Research Collections of the Office of History. Operating on a tight schedule, which is common for federal historians, I had to conduct research in materials that were readily available and easily accessible. Because these essays involved the legislative history of the programs, congressional documents were an obvious source. They are incredibly rich and provided perspectives on the views not only of Congress, but also of the executive branch and a wide variety of private interest groups who testified before or corresponded with their elected representatives. The Research Collections are also rich, especially for the period after 1941 when the Corps of Engineers became the construction and real estate agent for the Army and the Air Force.

Many people have helped me in many ways in researching and writing these two essays. Mr. Walter H. Hylton III of the Directorate of Real Estate read the essays carefully and provided many helpful comments and suggestions. Several of my colleagues in the Office of History read and commented on the essays or provided information. Marilyn Hunter edited and formatted the essays with her usual grace, style, and patience. While many people contributed to improving the essays, the mistakes in them are mine. The views expressed are also mine and not necessarily those of the Department of Defense.

Comments or questions

U.S. Army Corps of Engineers

Office of History

Attn: Dr. William Baldwin

7701 Telegraph Road

Alexandria, VA 22315-3865

Phone: (703) 428­6556

The Wherry and Capehart

Family Housing Programs, 1949­1962

In the years immediately after World War II, the U.S. Army faced the biggest housing crisis in its history. Although the Army quickly demobilized millions of men after V­J Day, the peacetime Army of the late 1940s was at least seven times larger than its predecessor of the 1930s. As the wartime cooperation between the Soviet Union and the United States deteriorated into the Cold War, it gradually became apparent that the peacetime Army required after World War II would be larger than any peacetime Army in American history. Among the many problems confronting this new Army was the problem of providing family housing.

Unwilling to spend the huge sums that a large building program would require, the President and Congress turned to the private sector to provide financing. Between 1949 and 1962, the Wherry and Capehart programs produced about 200,000 family housing units for the Defense Department and about 60,000 units for the Army, the largest peacetime expansion of housing in the Army's history. Although both programs encountered difficulties and the private sector approach was ultimately abandoned in the early years of the Kennedy administration, these programs were innovative and in many ways successful approaches to alleviating a perennial Army problem.

Army Housing Before 1949

From early in its history the Army accepted a commitment to provide government-owned housing for most of its officers and soldiers. Unmarried, or at least "unaccompanied," soldiers lived in barracks, and officers, in bachelor officers quarters. The Army attempted, often with limited success, to provide family quarters for all its married officers and those enlisted personnel classified as eligible. In 1949 Congress made married, "career" enlisted personnel--defined as corporals with seven years of service and all sergeants--eligible for public quarters. Where government housing was not available, eligible officers and soldiers received monetary compensation, called the basic allowance for quarters (BAQ) or housing allowance, to obtain housing in the private market. While the Army came to rely heavily on the private market to house its soldiers, its goal in early post-war years was to provide government quarters for all eligible personnel. The Army's objective, according to its director of logistics in 1948, was "to provide quarters on posts for all authorized military personnel."⁽¹⁾

After World War II, the Army had only a small stock of adequate family housing units in the United States. During the war, there had been little permanent construction, and maintenance of existing facilities had been a low priority. Although Congress appropriated military construction funds for a small number of family housing units in the five years after the war, the shortage of units grew larger as the Army expanded. As it had after World War I, the Army converted many wartime temporary mobilization buildings to family housing units. In addition, the Army acquired a number of units built by the Federal Public Housing Administration during the war. Constructed under the provisions of the Lanham Act of 1940, which was enacted to provide temporary housing for war workers and armed Service members, this housing quickly deteriorated. The Army even built trailer parks and supplied leftover wartime trailers to soldiers who could not afford to buy their own. The desperate search for adequate, affordable housing in the Army paralleled a similar search in the civilian world where millions of veterans sought shelter in a housing market constricted by almost two decades of depression and war.⁽²⁾

The plight of soldiers and their families forced to live in private rental housing attracted national attention in 1949 when Life magazine published a photo essay showing the squalid conditions in some housing areas. According to the Secretary of Defense, "rather than be separated from their families because of lack of Government quarters and scarcity of adequate rental housing at their places of assignment, many of the service personnel have accepted disgraceful living conditions in shacks, trailer camps and overcrowded buildings, many at exorbitant rents." Concerned about morale and reenlistment and resigned to the fact that Congress would not appropriate sufficient funds to solve the problem, the Defense Department sought new ways to address the services' housing crisis.⁽³⁾

In 1948 the Secretary of the Army met with representatives from insurance companies and encouraged post commanders to meet with local businessmen to see if private industry could help the Army solve its housing problems. While the businessmen were sympathetic, they considered building housing near installations too risky because the number of soldiers at the base could fluctuate or the installation could be closed. Army commanders who approached federal public housing officials encountered the same problem. The Federal Housing Administration (FHA) could provide mortgage insurance to private developers who constructed rental housing, but could not in most cases certify that a housing project geared toward a military installation was an "acceptable risk." By 1949 a program to address these issues and the military's housing crisis without using appropriated funds took shape in the United States Senate.⁽⁴⁾

The Wherry Program

Senator Kenneth S. Wherry, a Republican from Nebraska, introduced the legislation that established the housing program named for him. Acknowledging that he was not a housing expert, Wherry explained in hearings before the Banking and Currency Committee that he had become interested in military housing because of what happened to Air Force bases in his state after World War II. During the war, according to the senator, Nebraska had more than twenty air bases, all of which were closed after the war except for one installation at Kearney. Then "last winter, just like a bolt of lightning out of the clear sky, came an order that the base at Kearney was to be closed." The primary reason for closing the base was lack of adequate family housing. That experience led the senator to a better appreciation of the importance of family housing to the military services.⁽⁵⁾

Drafted with the assistance of the services and the FHA, Wherry's bill added a title to the National Housing Act, the legislation that since 1934 had governed the federal government's often controversial housing programs. The new Title VIII was patterned after the Section 608 programs, which had provided mortgage insurance for the construction of housing for war workers during World War II and then for rental housing for returning veterans after the war. In place of an FHA determination that a project was an acceptable risk given market conditions, which was required under Section 608, the new program substituted a certification from the Secretary of Defense or his representative. The secretary certified that a military installation needed family housing and that the Defense Department had no plans to close the base or to curtail its activities. With this certification, the administrator of the FHA could provide mortgage insurance to businessmen, called private sponsors in this new program, from a newly established Military Housing Insurance Fund supported largely by insurance premiums paid by the sponsors.⁽⁶⁾

With this insurance the private sponsor of a housing project obtained a loan from a private lender who could market the loan through the Federal National Mortgage Association. The sponsor agreed to build, operate, and maintain the number and type of housing units specified by the military service. To keep costs low, most of the Wherry projects were built on land leased for a nominal fee to the sponsor by the Defense Department, although some were built on private property near the installation. Before the enactment of Title VIII, the department could only lease land with the provision that the lease could be canceled during a national emergency. To reassure potential private sponsors, who maintained that this provision made sponsorship too risky, Title VIII exempted Wherry projects from this condition. The businessmen's nervousness was not entirely unfounded because Wherry leases ran for a period of not less than 50 years and some leases ran for 75 years.⁽⁷⁾

Although built on government land, Wherry housing was not considered government quarters. Private sponsors had to give priority to Service members who wanted to live in Wherry units, but the units were rental housing. Soldiers and officers chose to rent voluntarily and paid their rent using their basic allowance for quarters to the private sponsor. Rental rates, however, were not determined by the amount of the housing allowance. FHA established rental schedules for the units based on its estimate of the income sponsors would need to operate and maintain the housing, repay the mortgage, and make a profit. At a congressionally mandated maximum interest rate of 4 percent, the sponsors would pay off the mortgage in slightly less than 33 years. FHA also required the housing to meet its standards for design, construction, and livability. ⁽⁸⁾

Another provision in Wherry's bill authorized the Defense Department to sell utilities and related services, such as electricity, water, sewage disposal, and telephone service, to the private sponsors when such services were not available from other local sources. In remote locations, these services might not be readily available, and allowing the military installations to sell them would help keep the cost of the housing low.⁽⁹⁾

Most of these provisions of the Wherry program were not controversial, although one senator described the concept of building privately financed housing on land leased from the government as "bizarre" and "out of the ordinary." The controversial provisions were the percentage of sponsor's construction costs that were covered by the mortgage and the maximum dollar amount of the mortgage. Wherry's original bill allowed mortgages to cover 100 percent of the costs of building the housing, but this provision had few advocates. Supported by the Bureau of the Budget, the FHA argued that 90 percent of the replacement costs of the units was sufficient. A higher percentage increased the risk to the government without materially assisting in providing housing. In its experience with the Section 608 programs, which also had mortgages at 90 percent, the FHA had found plenty of builders willing to undertake the projects. The FHA also argued that the sponsors should have at least 10 percent equity in the project as an incentive to the efficient and economical operation and maintenance of the housing.⁽¹⁰⁾

Senator Wherry accepted a reduction from the original 100 percent, but maintained that 95 percent was essential to attract private sponsors. Supported by the Association of General Contractors (AGC) and real estate interests, Wherry contended that private sponsors would not be interested in building in remote areas where construction costs were high without the incentive of a 95 percent mortgage. In the legislation finally passed, Congress accepted the administration's arguments and set the mortgage amount at 90 percent of the replacement cost of the units as estimated by the FHA.⁽¹¹⁾

The maximum amount of the mortgage proved less controversial, although it would later be more problematic. Again relying on its experience with Section 608 housing, the FHA supported a maximum mortgage of $8,100, which at a 90 percent mortgage, limited the cost of Wherry housing to $9,000. To allow construction of units in a variety of sizes, however, the $9,000 limit could be the average cost of all units in a project. As might be expected, the AGC supported a maximum mortgage amount of $9,000. In hearings on the bill, senators asked the FHA if decent housing could be built for $9,000, and the commissioner asserted that the Section 608 programs demonstrated that it could. In addition, the builders of Section 608 housing had to contend with substantial land costs, which would be much lower on land leased from the military services.⁽¹²⁾

In their testimony before Congress, federal housing officials highlighted one of the dilemmas of the Wherry program. To keep rental rates within range of the smaller housing allowances of lower ranking officers and enlisted personnel, the cost of Wherry housing had to be kept low. Even at $9,000 per unit, they warned, the rents on Wherry housing would exceed the housing allowances of junior personnel. Supporters of the bill responded that higher ranking personnel with larger housing allowances could be steered toward Wherry housing, leaving government quarters to be assigned to lower ranking personnel. In the legislation that emerged from the conference committee, Congress kept the maximum average mortgage at $8,100, but allowed the commissioner and the Secretary of Defense to approve some detached single-family units with a mortgage up to $9,000.⁽¹³⁾

President Harry Truman signed the bill into law on 8 August 1949. Neither the Defense Department nor the Army considered the Wherry program to be a complete solution to the services' housing crisis. Both preferred housing built with military construction funds, but for the next six years the Wherry program provided almost all of the housing the services received.⁽¹⁴⁾

Problems with the Wherry Program

The military services quickly proposed numerous housing projects and quickly encountered problems. Under the original regulations governing the Wherry program, the services were not authorized to hire architect-engineer companies to draw up detailed plans and specifications for the housing projects. As a result, the requests for proposals from potential private sponsors specified the number of units in a proposed project, but provided only general guidelines on the design and size of the units and the rental rates. Bidders had to devise their own plans and schedules of rents resulting in a wide range of proposals with designs and prices that were difficult to compare. In some cases the services picked proposals that the FHA later rejected because the schedule of rents was too low or the designs failed to meet FHA requirements. Unsuccessful bidders and the services complained, leading the Secretary of Defense to suspend the program and appoint an investigating commission.⁽¹⁵⁾

The Department of Defense Housing Commission's investigation confirmed the problems with the design and bidding processes and also discovered in the first few months of the Wherry program the flaw that would ultimately lead to its termination. Prospective sponsors, the investigation noted, appeared to be calculating their bids so that they built the projects for the amount of the mortgage they could obtain, a maximum average of $8,100 per unit. Sponsors could thus avoid putting any of their own money into the project. In May 1950, Congress passed legislation that authorized the services to hire architect-engineer firms to draw up plans and specifications upon which potential sponsors would bid. The winning bidder would then reimburse the government for the design services. Congress did not, however, address the more serious problem of what would later be excoriated as "windfall profits" gained from building the projects for less than the amount of the FHA-insured mortgage.⁽¹⁶⁾

Under the new procedures, the Army and the Air Force sent approved projects to the Corps of Engineers. Corps' district offices hired architect-engineer firms, which designed the projects in close cooperation with the FHA. Using these plans and specifications, the districts advertised the project. In consultation with the FHA, the district engineers chose the lowest acceptable bids and forwarded them to the appropriate service. The service secretaries issued the successful bidders a certificate of military necessity, which allowed the bidders to apply for mortgage insurance from the FHA and for loans from private lenders. Now bona fide Wherry private sponsors, the winning bidders built the projects under FHA inspection. By mid-1950, the early procedural problems of the Wherry program were resolved, but more serious problems soon surfaced.⁽¹⁷⁾

As the post-war housing boom continued into the 1950s, housing construction costs climbed. The $9,000 Wherry housing unit, which appeared modest but livable in 1949, soon became less and less adequate. Recognizing the pressures of added costs, Congress in 1951 authorized the FHA to raise the maximum mortgage amount by $900 in high cost areas and allowed the services to spend up to an average of $1,000 per unit of appropriated funds for site improvements.⁽¹⁸⁾

These modest supplements did not entirely compensate for the fact that few private sponsors apparently intended to build a $9,000-unit. Growing nervous about rumors of fraud in federal housing programs, Congress enacted an "anti-windfall profits" amendment to Title VIII in 1953. The amendment included a cost certification provision requiring private sponsors to certify that the actual cost of their projects equaled or exceeded the FHA-insured mortgage amount. If the sponsors had built the projects for less than the mortgage amounts, they had to repay the difference, or windfall profits, to their lenders. Although unpopular with builders, this version of cost certification appeared to sanction the apparently common practice of building Wherry projects for the amount of the mortgage, a practice called "mortgaging out."⁽¹⁹⁾

In the spring of 1954, the rumors of housing fraud became a housing scandal. The target of the scandal was the FHA and the Section 608 program, the model for Wherry. According to congressional investigators, unscrupulous builders aided by corrupt FHA official had reaped enormous profits at the expense of the taxpayers. Although President Eisenhower and congressional Republicans blamed the corruption on Truman-era FHA officials, the President fired his own appointee as FHA commissioner. Democrats hinted that the fraud had benefitted wealthy eastern Republicans. Inevitably the Wherry program came under scrutiny, and Congress enacted a tougher cost certification provision in August 1954. Now Wherry sponsors had to certify that the FHA-insured mortgage was no more than 90 percent of the actual cost of their projects. This more stringent anti-windfall profits provision and the scandal killed the Wherry program, although its legislative death did not come for another year. Few new Wherry projects started after 2 August 1954.⁽²⁰⁾

The Capehart Program

In the spring of 1955 the Senate Banking and Currency Committee began hearings on legislation to replace the now moribund Wherry program. Sponsored by and subsequently named after Senator Homer E. Capehart, a Republican from Indiana, the new program attempted to correct the flaws of its predecessor. Under the new program, the FHA provided mortgage insurance for private sponsors who built, but did not operate, family housing units on government-owned or leased land. The Secretary of Defense had to certify the need for family housing at an installation in order to initiate a project. If the FHA disagreed with the secretary's determination, it could require the Defense Department to guarantee the new mortgage insurance fund against loss. The services retained architect-engineer firms to design the projects, which were advertised for bids.⁽²¹⁾

The winning bidder formed a separate corporation for each project and obtained mortgage insurance for 100 percent of his bid from the FHA. Insured against risk by this mortgage guaranty, the corporation obtained a 25-year mortgage from a private lender. Although Congress limited the mortgage rate to 4 percent, the sponsor could obtain a short-term construction loan for 1¼ percent more and charge the additional amount to the project. The corporation also reimbursed the service for the design costs. When construction of the project was complete, the sponsor turned the corporation over to the service, which assumed the mortgage obligation. The winning bids could not exceed the FHA estimate of replacement cost or an average cost of $13,500 per unit. Even Congress had to acknowledge that Wherry housing at $9,000 per unit had been too cheap, especially in the housing boom years of the 1950s.⁽²²⁾

When the service took the project over from the sponsor, the project became government quarters assigned to families of Service members who forfeited their housing allowance. The services used the forfeited housing allowances to pay off the mortgages and operated and maintained the projects using appropriated funds.⁽²³⁾

In his testimony before the Senate Banking and Currency Committee, Senator Capehart maintained that his program would be cheaper than building housing with appropriated funds. In fact, he averred in one burst of enthusiasm, "by this method it will cost the government nothing, because the mortgage is amortized and paid from the rents that the men in the service will pay." Some senators and executive branch witnesses failed to follow Capehart's logic, and the result was several lengthy and increasingly opaque exchanges comparing the cost of construction with direct funding and the cost of Capehart's program. Senator Capehart defended, often testily, the cost savings of his program until its demise in 1962. In one lucid moment in 1955, however, he did acknowledge, "It's just a question of whether you want to sell bonds to build houses or whether you want to sell mortgages to build them."⁽²⁴⁾

Other witnesses from the FHA and the Treasury Department questioned the need for mortgage insurance and even for FHA involvement in the program. The FHA commissioner testified that "we do not believe that it is necessary for the FHA to insure mortgages guaranteed by the Department of Defense." A senator wondered, "Why does anybody have to be insured against default by the United States Government?" When the FHA complained that it had little authority over the new program, Capehart responded that he wanted to reduce the "red tape" that had hampered the Wherry program. While the FHA did estimate the replacement cost of the projects and could disagree with the Secretary of Defense's determination that an installation needed additional housing, the housing agency did have a less important role in the Capehart program than it had in the Wherry one.⁽²⁵⁾

Department of Defense witnesses maintained the same position they had taken in 1949 during the Wherry hearings: the department would prefer to build housing with appropriated funds but would accept any program which helped with its housing crisis. Cautiously critical of the Wherry program, department witnesses acknowledged that Wherry houses were small. Because the new program had higher ceilings on the average cost per unit and allowed the Defense Department greater control over the housing, the department preferred Capehart to Wherry.⁽²⁶⁾

Despite the criticisms of the Capehart bill, Congress passed it and the President signed it on 11 August 1955. Part of the Housing Amendments of 1955, the law created a new Title VIII to the National Housing Act. In response to critics who argued that the law did not provide enough protection against windfall profits, which some claimed had plagued the Wherry program, Congress made Capehart construction contracts subject to the Renegotiation Act of 1951. Under that act the government could take steps to recover excessive profits. Capehart sponsors were, therefore, not required to certify their costs as Wherry sponsors had been. This legislation inaugurated the second major and most successful housing program of the 1950s.⁽²⁷⁾

Problems with the Capehart Program

Like the Wherry program, however, the Capehart program encountered some early problems. The first project for Air Force housing in Texas produced eleven bids, all of which exceeded the FHA estimate of replacement cost. According to the terms of the agreements between the FHA and the Defense Department, the department could ask the FHA to reevaluate its estimate. Because the difference between the lowest bid and the replacement cost estimate was so small, the FHA was able to revise its estimate upward and still remain well below the $13,500 average cost per unit ceiling. On the second project, all the bids exceeded the replacement cost by a wide margin and most exceeded the $13,500 ceiling. The FHA was unwilling to make substantial revisions in its estimate, and the Army canceled the project. All of these high bids were remarkable because the FHA made its replacement cost estimates available to all bidders. In response to these problems, Congress revised the Capehart program in 1956.⁽²⁸⁾

The Housing Act of 1956, which became law on 7 August 1956, increased the ceiling on the average mortgage amount per unit from $13,500 to $16,500. While congressmen had questioned the FHA's revision of its replacement cost estimate, they did not prohibit the practice. The early projects advertised under the new law, however, all produced bids below the FHA estimate. Both the FHA and the Defense Department announced that they did not anticipate a further need to revise FHA estimates. In addition to the cost limitation, the new law also prescribed the maximum size of the units, subjecting Capehart housing to the same restrictions imposed on housing built with appropriated funds. Enacted in 1948, these restrictions ranged from 1,080 square feet for a lower ranking enlisted person to 2,100 square feet for a general officer. The Housing Act of 1956 also required the FHA to notify the Banking and Currency committees if it disagreed with a Defense Department decision to build a Capehart housing project.⁽²⁹⁾

The issue of committee jurisdiction over the program also surfaced in 1956. Because the Wherry and Capehart programs were titles in the National Housing Act, they came under the jurisdiction of the Banking and Currency committees. The House armed services complained that some military housing was constructed "without any reference whatsoever to the properly cognizant committees of the Congress." The first version of that year's military construction authorization bill specified that no military service could build or acquire any housing unless it had "come into agreement with the Armed Services Committees" of both houses. After President Eisenhower vetoed the bill because it violated the constitutional separation of powers, Congress revised the section to require the Defense Department to report to the armed services committees its intention to construct or acquire housing. Thwarted in their attempt to gain more control over the program, the armed services committees continued to criticize Capehart housing⁽³⁰⁾

Wherry Acquisition

After some initial problems, the Capehart program functioned smoothly during the next few years. Ironically, however, the Wherry program became a bigger problem with the establishment of the Capehart one. The Wherry owners association lobbied vigorously against the Capehart bill. With the prospect of new housing units that could cost 50 and later almost 85 percent more than their units, Wherry sponsors feared that soldiers would shun their smaller and at times more expensive housing. Installation commanders, who did not like Wherry housing because they did not control it, would fill public quarters and Capehart units, leaving Wherry housing with high vacancy rates.⁽³¹⁾

Vacancy rates were an important element for Wherry profitability. When it initially calculated the rental rate schedule for Wherry units, the FHA assumed a 5, and later, 3 percent vacancy rate. Wherry owners maintained that at a vacancy rate above 5 percent, they lost money. In September 1956, 17 percent of the Wherry units had vacancy rates of more than 5 percent, and with the rapid construction of Capehart housing, Wherry owners feared that their vacancy rates would get worse.⁽³²⁾

Senator Capehart tried to reassure the Wherry owners during the hearings on his new program in 1955, promising that Congress would protect their interests. The Housing Act of 1955, which established the Capehart program, included a provision authorizing the Secretary of Defense to acquire Wherry projects by purchase or condemnation at their fair market value. Several Wherry sponsors offered the sell their projects, but the Defense Department did not opt to buy any.⁽³³⁾

In the spring of 1956, Wherry owners suffered another setback. The Supreme Court ruled that local governments could tax Wherry projects. Although the FHA and the Defense Department had recognized local taxation as a possible problem when the program was established, the rental schedules had included no allowance for the expense of local taxation. Wherry owners immediately applied for rental increases, but such increases were likely to make Wherry housing less attractive to Service members and thus raise the housing's vacancy rate.⁽³⁴⁾

In the Housing Act of 1956, Congress attempted to limit the amount of local taxation, but some local governments resisted, raising the prospect of years of litigation. In an attempt to honor Senator Capehart's pledge to protect Wherry sponsors, the Senate Banking and Currency Committee included a provision in the law requiring the Defense Department to acquire Wherry projects at installations where the department planned to build Capehart ones. Instead of paying the fair market value, however, the Defense Department was limited to paying a formula price prescribed in the law. The concept of a formula price had first appeared in that year's military construction authorization act, which was under the jurisdiction of the Armed Services committees.⁽³⁵⁾

The formula price was the "FHA estimate of replacement cost of the housing and related property. . .as of the date of the final endorsement for mortgage insurance reduced by an appropriate allowance for physical depreciation." For most Wherry projects, mortgage endorsement had occurred in the early 1950s. Wherry owners complained bitterly about this reduction in the amount the Defense Department could pay for their projects. In the Housing Act of 1957, the House Banking and Currency Committee obtained a softening of the deduction for depreciation, but the formula price remained below the fair market value Wherry sponsors thought they deserved.⁽³⁶⁾

Under the provisions of the 1956 law, the Defense Department began rapidly acquiring Wherry projects. By the summer of 1959, the department had acquired 70 percent of the almost 84,000 Wherry units. Three-quarters of these acquisitions, however, were mandatory. The services had different perspectives on Wherry housing. While the Air Force acquired almost all of its Wherry units, largely by negotiation with the sponsors, the Army and the Navy acquired a much smaller proportion and used condemnation to acquire most of their mandatory units. Both services maintained that their budgets were not large enough to absorb the cost of bringing Wherry units up to acceptable standards and then maintaining them. The Defense Department estimated that it cost $2,000 to renovate each acquired Wherry unit, including the cost of converting one-bedroom units to two- and three-bedroom units.⁽³⁷⁾

To encourage the laggard services to acquire their Wherry units, the House Armed Services Committee held hearings in May 1959. One of the primary witnesses was a Texas lawyer, Roland Boyd, who was general counsel of the Wherry Housing Association. By 1959, four years after the first legislation on Wherry acquisition, the Wherry owners were a disillusioned group whose primary goal was selling their projects to the services. Boyd began his testimony by criticizing the notion of "windfall" profits. "Due to experience, efficiency, 'luck' in material and labor cost, weather, coupled with the owner's control or connection with material sources, many were able to complete their projects for a cash outlay of less than the mortgage amount." In contrast to some congressmen who expected Wherry sponsors to make their money on the operation, not the construction, of the projects, the average Wherry owner, according to Boyd, "had a dream that he could make some money on the construction and if he did not there, certainly on the operation of the project thereafter."⁽³⁸⁾

When the establishment of the Capehart program convinced Wherry owners that they had to abandon the military housing business, they discovered that some services preferred to use condemnation proceedings rather than pay the already inadequate formula price. "Many government employees consider it a crime for private enterprise to realize a profit," Boyd complained. Although the sponsors thought the formula price was unfair, they were willing to settle for it rather that face years of legal proceedings. After almost a decade of what they considered unfair treatment, the Wherry sponsors concluded that "if a mistake has been made in the program, it was the turning of ownership, operation and management of military housing over to private industry. The military and private enterprise are not compatible in the field of ownership and management of military housing."⁽³⁹⁾

Although the Wherry sponsors painted a bleak picture of the program in 1959, they and Defense Department witnesses agreed that by some measures the program had been a success. It had provided the services with some 84,000 housing units in about four years. Compared to other similar FHA-insured programs, Wherry was also a financial success. By 1959, only 23 projects with 4,784 units had gone into default, and the mortgage insurance premiums collected by the FHA more than covered these losses. Losses in the Wherry program were three-tenths of one percent of the total insurance written, while losses in the Section 608 program, which had been the model for Wherry, were more than three times as large. At an average size of 831 net square feet, the Wherry units were not large, and at an average mortgage amount of $8,314 they were not expensive. But the program provided the Army some 27,000 badly needed family housing units, and the Army eventually purchased more than 19,000 of those units to add to its stock of public family housing.⁽⁴⁰⁾

Growing Criticism of the Capehart Program

While Congress and the Defense Department struggled with the acquisition of Wherry housing, the Capehart program produced even more family housing than its troublesome predecessor. By the early 1960s, the Defense Department had obtained some 115,000 Capehart housing units, and the Army, 36,000. Spared the taint of windfall profits and the niggling annoyances of operations and maintenance, the Capehart program looked like the great engine of defense housing production. As early as 1957, however, its critics began to voice their discontent.

In 1957 the Senate Armed Services Committee asked the Defense Department to compare the costs of the various methods of producing family housing. The cost of housing built with appropriated funds as compared to housing built under the Capehart program was debated in 1955, and cost comparisons based on a bewildering array of plausible and not-so-plausible assumptions proliferated in the ensuing years. The Defense Department figures generally showed Capehart units to be more expensive. After poring over these figures, the Senate Armed Services Committee in 1958 declared that the "time-payment or credit-card method is too costly and should be changed." In 1959 it reiterated that "the committee has long contended that it is more economical to build appropriated fund housing." Until 1960, however, the majority in Congress seemed content with the Capehart program.⁽⁴¹⁾

While it did not address the issue of comparative cost, a General Accounting Office (GAO) report in 1960 criticized several aspects of the Capehart program. According to the GAO, the services overstated their housing requirement by underestimating privately owned family housing available in the communities surrounding military installations and by underestimating the number of military personnel who preferred to live in privately owned housing. Thus the services were building too much Capehart housing. In addition, the report maintained that all Capehart units approached the $16,500 ceiling, which Congress had intended for high cost areas alone. According to the GAO, the services spent this excess money on "costly and desirable, but not essential features," such as air conditioning and dishwashers.⁽⁴²⁾

By the spring of 1960, the Capehart program was encountering problems in obtaining mortgage financing. In 1959 the FHA increased the interest rate from 4¼ percent to 4½, the maximum statutory amount. As the mortgage market became tight in 1960, lenders required discounts of six points or more on 4½ percent mortgages. High discounts, therefore, made it difficult for the Defense Department to obtain acceptable bids under the $16,500 limit on the average cost per unit, which was increased to $19,800 in June 1960.⁽⁴³⁾

Critics of the Capehart program received their biggest boost in the spring of 1960 when the program was touched with scandal. A California developer, Hal B. Hayes, stopped work on seven projects when it was discovered that his subcontractors and suppliers had liens on the projects because he had not paid them. During the following months, it became clear that neither the FHA nor the Defense Department had adequate procedures for dealing with the resulting legal problems. In March of the following year, the usual cast of government witnesses and an unrepentant Hal B. Hayes sat down before the Preparedness Investigating Subcommittee of the Senate Armed Services Committee. Hayes complained vaguely of excessive change orders and harassment by FHA and military personnel. "No contractor has defied the FHA and stayed in business," he alleged. In his questioning of Hayes, Senator Capehart asked if one of the builder's costs was included in his bid for the project. Hayes responded, "Yes, sir. It comes directly out of the taxpayer's pocket." The senator returned to one of his fixed ideas: "But, Mr. Hayes, I must correct you. Under the Capehart Housing Act nothing comes out of the taxpayer's pocket unless the mortgages are defaulted." "It is like taking a shot of opium for cancer. It feels good," Hayes retorted. While the exchange between the senator and the witness produced no additional enlightening analogies, others seized on the issue of Capehart financing.⁽⁴⁴⁾

In debate on the military construction authorization bill on the floor of the Senate in May 1961, Senate Democrats, especially those on the Armed Services Committee, attacked the Capehart program. According to Senator Richard Russell, the program had produced "a great deal of waste and extravagance and sharp practices on the part of some contractors." For its opponents, however, the program had more serious flaws. Senator Harry Byrd described it as "the worst instance of backdoor spending that has come to my knowledge," and Senator Russell added that "the Capehart program deludes people with the idea that we will not have to pay for the housing, because it postpones it all into the future." The Senate voted not to renew the Capehart program beyond 1961 and to build family housing with appropriated funds.⁽⁴⁵⁾

In a compromise with the House, which had extended the program, the final authorization bill signed into law continued the Capehart program until 1 October 1962 and included 3,000 new Capehart units and 2,000 units to be constructed with appropriated funds. After a review of military housing programs, the new Kennedy administration also expressed discontent with the Capehart program. A Defense Department witness testified before Congress in the spring of 1962 that "neither you nor we have been satisfied with private financing since it is the most costly method of acquiring housing and has proven difficult to administer." Later that year Congress did not extend the Capehart program and voted to build family housing exclusively with appropriated funds. After years of debate, Senate Democrats on the Armed Services Committee prevailed. Military family housing no longer appeared as a title in the often amended National Housing Act, and it no longer came under the purview of the Banking and Currency committees. That year Congress authorized almost 14,000 new family housing units, the largest single authorization since the war, and then appropriated funds for about half of that number.⁽⁴⁶⁾

Conclusion

While the Wherry and Capehart housing programs did not solve the Defense Department's family housing crisis, they did make substantial progress in alleviating it. The two programs produced the largest increase in family housing in the Army's history. Both programs had weaknesses, but Wherry was by far the most problematic. At $9,000 per unit Wherry housing in 1949 was not unreasonably cheap. At $8,100 or less per unit it became more marginal, and when housing costs jumped in the early 1950s, Wherry housing became small, expensive rental housing that appealed to few of its potential customers.

As Congress envisioned the Wherry program, its success depended on builders' willingness to make no profit on construction, modest profits on operation for 33 years, and then big returns for the last years of the lease. Wherry builders wanted to make profits sooner and feared, not unreasonably, that operating the units at a profit would be a delicate undertaking. Hostile installation commanders or unexpected troop movements could turn a profitable project into a financial disaster. This lack of correspondence between what Congress expected and what the sponsors expected ultimately doomed the program.

Both Wherry and Capehart programs suffered from their association with civilian federal housing programs. Controversial from its beginnings during the Depression, the federal housing effort, especially housing for low-income families, was the subject of heated debate in the 1950s. A whiff of scandal in one program could easily taint others, and accusations of shady practices by one developer could easily sully others.

Both Senator Wherry and Senator Capehart conceded that building housing with appropriated funds would be best, but both argued that the Defense Department would not or could not maintain a long-term program of housing construction because of the many demands on its resources. The decade of the 1960s would prove them right. The first post-Capehart appropriated housing program was drastically reduced before it left Congress, and in a few years the war in Southeast Asia pushed housing to a low priority. Instead of replacing the cyclical pattern of military housing programs, Wherry and Capehart became just another, if somewhat longer, boom cycle in the long boom-or-bust history of Army housing.

The Section 801 and Section 802Family Housing Programs, 1983­1991

In the Military Construction Authorization Act for Fiscal Year 1984, Congress enacted and President Ronald Reagan signed legislation that established two new pilot programs for military family housing. Dubbed the "801" and "802" programs after the sections of the act that established them, the programs attempted to tap the resources of the private sector to improve military family housing. Armed with a series of inducements and guarantees, the Defense Department hoped to persuade private developers to build family housing on or near military installations and make that housing available to Service members. Better family housing, the Defense Department argued, would improve morale and encourage reenlistment. While these factors are critical to any armed force, they were especially important for an all volunteer force, which was just a decade old. As the Reagan administration launched its post-Vietnam buildup of American forces, family housing, like manpower and hardware, would benefit from increased military spending.

Army Housing Before 1983

Throughout its history, the Army has faced a shortage of adequate housing, especially family housing. The housing shortage of the large post-World War II Army was particularly acute. In response to this crisis, Congress launched the Defense Department's largest peacetime family housing programs. The Wherry and Capehart programs used private capital to construct new military family housing. While these programs greatly expanded the Army's housing stock, they did not provide enough to house all of the families of officers and eligible enlisted personnel. By the 1960s the Defense Department acknowledged that it would have to rely on the private community to provide most of its family housing. In areas where adequate housing was not available or not affordable or where military necessity required it, the Defense Department would still provide military housing.⁽⁴⁷⁾

In the early 1960s the privatization programs fell out of favor with Congress, and the Defense Department returned to building housing with appropriated funds. Although Congress had pledged to continue the rapid pace of housing construction, the war in Southeast Asia soon relegated housing to a low priority. In the aftermath of the war, the country abandoned conscription and adopted an all volunteer force. To make military service more attractive to Service members, Congress supported a brief surge of family housing construction with appropriated funds in the mid-1970s. But the budget priorities of the Carter administration in the late 1970s again reduced the level of family housing construction.⁽⁴⁸⁾

The election of Ronald Reagan in 1980 brought to office an administration determined to rebuild American military strength and committed to using private enterprise to perform as many governmental functions as possible. But the cost of erasing the Defense Department's housing deficit with appropriated funds was staggering and competed with the numerous other requirements for rebuilding the armed forces. Again, as they had done three decades earlier, Congress and the administration turned to the private sector for the capital to revitalize family housing.

By 1980 the Defense Department had either willingly or reluctantly experimented with a wide variety of methods for providing family housing at home and abroad, but three methods had proved more enduring and widely applicable: rental guarantee, installment-purchase, and leasing. Rental guarantee programs induced private developers to provide housing and make it available to Service members by guaranteeing a certain level of occupancy for a fixed period. The overseas Rental Guarantee Program, first authorized in 1952, was an example of this type of program. Installment-purchase involved government-insured mortgages that allowed private developers to borrow money to build houses. In the Wherry program, the developers were supposed to operate and maintain the housing for 50 years. In the Capehart program, the services took over the mortgages after construction and repaid them over 25 years with appropriated funds. The Capehart program of the late 1950s and the early 1960s was the largest and in many ways the most successful post-World War II housing program.

"Tactical leasing" was the first large postwar leasing program. When the Army built Nike air defense installations in the 1950s, it discovered that housing in some urban areas protected by the missiles was too expensive for junior officers and enlisted personnel. Legislation in 1955 allowed the Defense Department to lease housing and assign it to Nike personnel as government quarters. Although Congress in 1962 authorized leasing at all military installations, domestic short-term leasing remained a relatively small program. Leasing overseas expanded dramatically, however, in the mid-1970s as the Defense Department turned to this approach to provide much-needed family housing abroad. When the administration and Congress tackled the problem of military family housing in the early 1980s, they had a variety of options to consider from the rich, but often misunderstood, history of Defense Department housing privatization programs.⁽⁴⁹⁾

By 1980 family housing had become a high priority for the Defense Department. While the proportion of married officers had always been high, the proportion of married enlisted personnel had grown steadily since the end of World War II and especially after the formation of the all volunteer Army. The Army leadership increasingly recognized the influence of family issues on morale and reenlistment and in 1983 declared that support for Army families was "an organizational imperative."⁽⁵⁰⁾

Although the Defense Department's goal was to insure that all service families were adequately housed, the General Accounting Office (GAO) charged in a 1979 report that families of lower graded enlisted personnel often lived in unsuitable housing. Because these people were not eligible for assignment to on-post housing, they were forced to live in the community where rents were often high or housing was poor. Some even qualified for government-supported low-income public housing. GAO recommended that all personnel be declared eligible for government quarters and that priority be given to families based on need.⁽⁵¹⁾

While this recommendation ran counter to the whole history of military housing assignment practices, Congress did attempt to improve the housing of Service members by establishing the variable housing allowance (VHA) in 1980. In addition to the basic allowance for quarters, or housing allowance, paid to eligible Service members who lived off post, the services paid a variable supplement to that allowance in higher cost areas. The variable allowance did improve the housing of eligible personnel, but did not always keep up with rising housing costs. Even with the VHA, the services maintained that they needed additional housing.⁽⁵²⁾

New Housing Proposals in 1983

In 1983 the Reagan administration proposed a new housing program, which relied on the resources of the private sector. This new program would obviate the need for major new housing construction with appropriated funds and would allow the Defense Department to phase out short-term domestic leases, which had become unpopular with Congress. According to Lawrence Korb, Assistant Secretary of Defense for Manpower, Reserve Affairs, and Logistics, the new program would "maximize private initiative, benefit the community, minimize Government involvement, increase freedom of choice for all people in choosing housing, and greatly reduce the Government's short- and long-term costs." Under the new "Housing Assurance Program," the Defense Department would induce private developers to build new rental housing near military installations with housing shortages by guaranteeing up to 97 percent occupancy of the housing for 15 years. The developers would build the housing on private land to local community (not Defense Department) standards and rent the housing by priority to military personnel. Military personnel would voluntarily rent the units, using their housing allowances, and would pay their own utilities.⁽⁵³⁾

Although the Defense Department witnesses before congressional committees did not provide specific information on how the rental rates would be determined, they did assert that the rates should be "reasonably equivalent to comparable rental units in the community." The private developer would operate and maintain the housing, and only that portion of the rent devoted to operation and maintenance would be allowed to rise over the 15 years of the guarantee period. The Defense Department would not have the option of buying the property at the end of the lease because that would defeat the purpose of the program, which was to provide new housing to the community.⁽⁵⁴⁾

Not only did the Housing Assurance Program conform to the Defense Department's policy of relying primarily on the local community for military family housing, but it also responded to criticisms of the military family housing program contained in a Rand study. According to the draft study, the Defense Department only received about 75 cents' worth of family housing services for each dollar it spent. Because the private sector was more efficient in providing housing, relying on housing allowances was the cheapest way to provide military family housing. According to Rand, leasing was the most expensive option followed closely by constructing housing with appropriated funds.⁽⁵⁵⁾

When a committee member asked Korb if the Defense Department had ever used the rental guarantee approach, he responded, "Not to my knowledge." The Defense Department witness who provided detailed explanations of the proposed program, Robert A. Stone, Deputy Assistant Secretary of Defense (Installations), was better versed in the history of military housing and compared the housing assurance proposal to the Rental Guarantee Program, which had been used overseas since the early 1950s.⁽⁵⁶⁾

According to Stone, the new proposal corrected a number of flaws in the Rental Guarantee Program. Rental guarantee contained a ceiling on the monthly per unit cost of the housing, which at times had made it impossible for the Defense Department to get foreign developers to bid on projects. While the overseas program limited the length of the agreement to 5 to 10 years, often too short a time to entice developers, it allowed renewals, which defeated the objective of the housing assurance program to obtain new housing. Another flaw, Stone asserted, was that the overseas developers could make a profit without maintaining the housing and often provided inadequate maintenance. The rental guarantee units were built to Defense Department (not community) standards, occupancy was restricted to military personnel, and units were assigned like government quarters. The Defense Department witnesses maintained that they had learned lessons from the old rental guarantee program and had incorporated them in the new proposal.⁽⁵⁷⁾

Although the members of the House military installations and facilities subcommittee were generally supportive of the need for additional family housing, they asked probing questions about the housing assurance program. One member asked how the Defense Department would insure that the owner performed proper maintenance, and Stone replied that the Defense Department would have the right to cancel the agreement with the owner if maintenance was inadequate. Another asked why the units did not revert to the government at the end of the 15-year agreement. According to Stone, that would in fact be a disincentive for the owner to perform good maintenance. Mandating new housing on private land would increase the housing stock of the surrounding community, and therefore accord with the Defense Department's policy of relying on the private sector for housing. Asked what incentive an owner would have to keep his units full if his rents were guaranteed, the deputy assistant secretary replied that the agreement with the owner would require him to exert an earnest effort to attract military tenants first and then civilian tenants if his units were still unrented. Stone acknowledged that many details of the program remained to be decided.⁽⁵⁸⁾

In response to a question from the subcommittee chairman, Ronald V. Dellums (D­CA), about what housing problem the housing assurance program was designed to solve, Stone revealed one of the program's ultimate weaknesses. The problem was that in a small number of communities "housing is so tight that military people who are assigned to bases there have a very difficult time in getting adequate housing." Most of those people were enlisted personnel whose housing allowances were small. But if the market was so tight, one committee member asked, what in this program would induce an owner to sign an agreement with the government that would insure him something he already had--a high demand for his units? How would this program produce affordable housing in a market where demand had driven housing prices up?

Near the end of the hearings, Congressman Kenneth B. Kramer (R­CO) summarized reservations of several committee members: "How will the guarantee of occupancy bring down the price to an affordable level for those who simply cannot afford to pay now? I simply do not see how this is going to make an unaffordable area more affordable by guaranteeing landlords occupancy over a long-term contract." In response Stone conceded, "we deal in a mysterious arithmetic."⁽⁵⁹⁾

The Defense Department's housing assurance program was not the only new privatization proposal before Congress in 1983. Representatives Charles W. Stenholm (D­TX) and Donald E. Young (R­AL) proposed a long-term domestic leasing program to provide housing for the Air Force. According to Stenholm, the idea for the program came from a group of civic leaders and businessmen in Abilene, Texas. Distressed by the plight of lower ranking airmen from Dyess Air Force Base who could not find adequate and affordable housing, these community leaders wanted to build housing and lease it to the Air Force for an extended period of time. Existing legislation limited domestic leases to one year.

With the assistance of the Air Force, the representatives drew up a program that would allow the Air Force to test long-term leases at five bases. To provide maximum flexibility, the program would apply to either new or existing housing, which could be leased from 10 to 30 years. The housing could be on or off base and would generally become government property at the end of the lease. Off-base projects might best, however, be left in the private sector. Maintenance could be performed by the owner, the government, or a government contractor. Although the monthly rent (excluding maintenance and utilities) would be limited to $1,000 per unit during the first year, it could exceed that figure in subsequent years, allowing private investors to take advantage of variable rate mortgages. Stenholm recognized that this amount was well above the existing legislative limit on domestic leases, which could not exceed $500 per month including utilities and maintenance, but he argued that it was justified because "we are buying, not merely renting." The Air Force would assign service families to the units, and lower ranking members would be eligible for the housing. Anticipating criticisms that his program would be "off-budget" and obligate the government for large future expenditures, Stenholm argued that future outlays for the leases would be known in advance unlike the open-ended outlays required by other federal programs. His program, Stenholm believed, was flexible, it helped the "neediest" Service members, and it could be implemented quickly.⁽⁶⁰⁾

The Original Section 801 and 802 Programs

After hearings in the spring of 1983, the House of Representatives in June passed H.R. 2972, its version of the military construction authorization bill for 1984. The bill contained both a long-term leasing program similar to Representative Stenholm's proposal and a rental guarantee program similar to the Defense Department's housing assurance proposal. In early July the Senate passed an omnibus defense authorization bill, which included military construction, but the upper house did not address long-term leasing and explicitly rejected the housing assurance proposal because it feared the proposal was too expensive and committed the government to long-term agreements during a period of changing defense priorities. In what it described as a "carefully crafted compromise," the conference committee produced in September a report that contained both long-term leasing and rental guarantee programs. Both houses agreed to the conference report in late September, and on 11 October 1983 President Ronald Reagan signed the Military Construction Authorization Act, 1984.⁽⁶¹⁾

Section 801 of the act established the Military Family Housing Leasing Program. The section differed in several ways from Stenholm's proposal and the House version of the bill (see Table 1).The most substantial difference concerned who was eligible to live in the new 801 housing. Both Representative Stenholm and proponents of the House bill wanted lower ranking enlisted personnel, who were not eligible for government quarters and had the most difficulty in finding decent and affordable housing, to have access to 801 housing. The conferees, however, firmly insisted that the leased housing would be available only to "eligible military personnel (E-4 [with] over two years service) except when all eligible personnel are otherwise adequately housed." Eligibility, the conferees insisted, was a separate issue, and they continued to believe that priority should be given to personnel who "in all likelihood are committed to a career in the military."⁽⁶²⁾

The new 801 program also differed in other ways from earlier proposed leasing programs. Unlike Stenholm's proposal, the new program could be used by all three military departments, and the leases could not exceed 20 years instead of the 30 years that Stenholm proposed. Both Stenholm and the House permitted the leasing of new or existing housing, but the conference committee insisted that the leased housing be newly constructed. While the House version had subjected the leases to the existing $500 monthly ceiling on short-term leases, the conference committee did not establish a ceiling. The report warned, however, that "the conferees do not expect any short term, high annual lease cost contracts to be executed." The leases would be competitively bid and provide housing built to Defense Department specifications on either military or privately owned land. The government

¹Includes legislative and policy changes.

²30 years in Alaska.

³Amended to 150 percent of ceiling cost on short-term leases or $750.

would have the right of first refusal to acquire the units at the end of the lease. While the law allowed the government to operate and maintain the units if that was more cost effective, the conference committee hoped "that the military departments would opt for having the contractor provide for the operation and maintenance of the housing units." The law also required the services to submit the leases to the Office of Management and Budget (OMB) and the appropriate congressional committees for review.⁽⁶³⁾

Section 802 of the authorization act established the Military Housing Rental Guarantee Program, which was very similar to the Defense Department's housing assurance proposal. There were, however, some differences (see Table 2).

While the housing assurance proposal called for the new units to be built to community standards, the law specified that presumably higher Defense Department standards would be followed. Although the House bill envisioned

the program helping lower ranking enlisted personnel to find suitable housing, the law gave priority to eligible military families and bachelors. In the hearings on their proposal, Defense Department witnesses said it would give Service members more choices in housing, but the conference report specified that assignment to both 801 and 802 housing must be accepted. The housing assurance proposal, the House version of the program, and the authorization act all agreed, however, that the guarantee of up to 97 percent occupancy would last 15 years and could not be renewed. The private owner would provide adequate maintenance or risk losing his guarantee. Only that part of the rental rate devoted to operations and maintenance would be allowed to rise over the 15 years of the guarantee period.⁽⁶⁴⁾

None of the versions of the rental guarantee program provided detailed specifications for determining the rental rate for the housing units, but all assumed that the rents would be comparable to those in the surrounding area. The authorizing act contained two provisions relating to the rates. The first limited them to those of "comparable rental dwelling units in the same general market area." The second specified that the agreement "may not assure more than an amount equivalent to the shelter rent of the housing units, determined on the basis of amortizing initial construction costs." This provision was oddly reminiscent of the fear of "excess profits" that had haunted the Wherry housing program three decades earlier.⁽⁶⁵⁾

Neither Section 801 nor 802 projects could be built at an installation unless the services had demonstrated that the base had a validated family housing deficit. In addition, an 802 project could not be built unless 97 percent of the military controlled family housing in the commuting area had been occupied for 18 consecutive months. The law waived this requirement for new installations or installations that expected a large influx of additional military personnel.

Because the Section 801 and 802 programs were new, the authorization act established them as pilot programs for two years, but they were renewed regularly until they became permanent in 1991. During the first three years of the program, the Army received a disproportionate share of the new housing authorizations, largely because it was forming two new light infantry divisions. The authorization act allowed each of the three services to sign two agreements for each program but limited each agreement to 300 units. The next year's act authorized the Army to obtain 600 units of either 801 or 802 housing, and the continuing resolution for Fiscal Year 1985 authorized 1,200 additional units of 801 housing. In the 1986 authorization act, each service received permission to obtain 600 units of both 801 and 802 housing. By the fall of 1986 the Army was planning to build 3,000 units of build-to-lease and 1,200 units of rental guarantee housing at seven installations--one of its largest peacetime housing programs.⁽⁶⁶⁾

Although congressional legislation established the basic parameters of the two new privatization programs, the Defense Department and the services had to work out myriad details before contracts were signed and construction began. The department assigned the Navy responsibility for developing the model request for proposals (RFP), but each service had to adapt the model to its own requirements. Most of the next two years were devoted to implementing the programs. While Congress and the military tended to discuss the two programs together, they were, in fact, very different and came to have very different histories. Although both encountered problems in their beginnings, Section 801 soon produced a stream of new housing, but Section 802 took more than a decade to produce its first housing unit. While some problems were common to both programs, their different histories will be discussed separately in the rest of this essay.⁽⁶⁷⁾

The Section 801 Program to 1990

The act authorizing the 801 and 802 programs required the Defense Department to conduct an economic analysis of the life cycle costs of each proposed project and demonstrate to Congress that those costs were less than alternative methods of providing the same housing. In its implementing regulations on the 801 program, the department specified that traditional military construction with appropriated funds would be the alternative method and that the life cycle costs of such a project would be the maximum allowable or ceiling costs for an advertised 801 project. Any 801 leasing project that was cheaper than military construction would, the department assumed, be cost-effective.⁽⁶⁸⁾

In a 1986 evaluation of the new housing programs, the General Accounting Office criticized this approach and the method the department was using to evaluate the bids on 801 projects. According to GAO, leasing ought to be more expensive than building with appropriated funds and any analysis that found it cheaper was flawed unless the leased housing was of inferior quality or the construction methods were more economical. In addition, GAO contended that the method used in evaluating the bids placed greater emphasis on quality than on cost. The competitive process thus produced "the most quality under the ceiling cost" and did not necessarily provide adequate housing at the least possible cost. Of the six 801 projects that GAO examined, all the winning proposals were more than 95 percent of the ceiling costs. While assuring the House and Senate committees on armed services, which had requested the study, that the Defense Department's procedures conformed to the law, GAO clearly had reservations about the build-to-lease program.⁽⁶⁹⁾

Both Sections 801 and 802 of the authorizing act included the requirement that any contract with private developers should include a provision that "the obligation of the United States to make payments under the agreement in any fiscal year is subject to the availability of appropriations for that purpose." This lack of certainty about future appropriations made it difficult for some 801 developers to obtain financing for their projects. Even though the House Appropriations Committee opined that it did not expect the requirement for annual appropriations to "hinder financing potential to interested proposers," Corps of Engineers' lawyers still had to allay the fears of nervous investors. According to the Corps' Office of Counsel, the Congressional Budget and Impoundment Control Act of 1974 required such language in legislation involving long-term contracts. The act sought to control "backdoor" spending, which could commit future Congresses to large, relatively uncontrolled obligations to spend money. Caught between a Congress that would not modify the requirement and investors who would not ignore it, the Corps' counsel drafted a "good faith" or "comfort" letter explaining the origins of the language and assuring the investors that "this language is not intended to afford Federal agencies with a convenient escape clause to avoid their responsibilities." The letter closed with the assurance that "the Army will in good faith seek to secure such appropriations as are necessary to make all payment required under the lease." Although no executive branch agency could guarantee the actions of future Congresses, the Corps' Chief Counsel, Lester Edelman, recalled some years later his bemused surprise when investors accepted the assurances. The Defense Department maintained that lingering uncertainty about annual appropriations pushed up the interest rates for 801 financing and made the housing more expensive than it should have been. The department also maintained that Congress' reluctance to make the 801 and 802 programs permanent led investors to question Congress' long-term commitment to privatization. But while uncertainty about the programs may have slowed the process, most of the 801 developers were able to get adequate financing.⁽⁷⁰⁾

After they arranged financing and signed the lease agreement, the private developers began construction. To insure compliance with their agreements, government contractors are often required to post performance bonds. The model RFP for the 801 program did not call for performance bonds, and the Army decided not to use them, except at Fort Wainwright, Alaska, where the project was on post, because bonds would increase the cost of the housing and did not seem appropriate for a 20-year lease. But the model RFP did allow the government to cancel the agreement, establish a new schedule, or assess liquidated damages if the contractor did not complete the housing units by the date specified in the agreement. In one case at Fort Drum, New York, the agreement specified very low liquidated damages, and canceling the agreement at Fort Drum was not a realistic option. Because the Army was fielding two new light infantry divisions at Fort Wainwright and Fort Drum, construction at these installations was on a tight schedule. In addition, the Army decided not to field the division at Fort Drum until adequate housing for the soldiers and their families was available. While this decision conformed to the Army's new family-friendly policy, it placed Corps construction managers at Fort Drum in a difficult position. Eventually the Army obtained 2,000 units of 801 housing at the installation in upstate New York.⁽⁷¹⁾

Because the Fort Drum projects were the first and the Army wanted them quickly, Fort Drum encountered a number of problems with the 801 program. As word of the program spread, prospective developers vied to option desirable tracts of land, and the process of sorting out these conflicts delayed the program. One contractor scattered the housing in a variety of locations, some of which were quite far from the post. Regulations required the housing to be within 30 miles or a 60-minute commute from the installation. The severe winter weather in upstate New York often lengthened commuting time, and even in good weather families at the distant locations felt isolated from the military community and needed second cars or public transportation to reach installation facilities such as clinics and commissaries.⁽⁷²⁾

Other problems surfaced at Fort Drum. Although the department assumed that 801 projects built on private land would be subject to local taxes, it did not anticipate that some contractors would hold up construction while they negotiated favorable tax deals with local governments. The department also assumed that because a private contractor was building the 801 housing on private land, the project would not be subject to higher wage rates mandated by the Davis­Bacon Act. A labor union on a Fort Drum project complained to the Department of Labor, which ruled that Davis­Bacon wage rates did apply to 801 projects.⁽⁷³⁾

The 801 agreements differed from the Corps' normal military construction contracts because they called on Corps field offices to "monitor" construction rather than "inspect" it. The Defense Department maintained that inspection was not necessary because local governments would enforce their building codes and lending institutions would protect their investments by insuring that the housing was properly built. GAO found two schools of thought in the Corps. One agreed that monitoring was sufficient, but the other believed that without inspection there was no way to insure that the contractor was living up to his agreement. GAO concluded that inspection was not necessary, but that the Defense Department needed to define what monitoring entailed. In spite of the delays involved in resolving some of these early problems, the Section 801 program was well underway by the end of 1986.⁽⁷⁴⁾

Just as the program was resolving its early problems, Congress, particularly the House, began to have reservations about built-to-lease. The House Armed Services Committee complained that the 801 leases were too expensive, asserting without citing any evidence that "the government is paying twice what it would cost to construct new houses." The House Appropriations Committee feared that the Defense Department planned to rely too heavily on leasing rather than construction with appropriated funds. In a section of its report on the 1987 military construction appropriations bill, entitled "The Case Against Leasing," the committee maintained that the program was "structured to get the highest quality housing at the highest allowable cost." Both House committees called for a moratorium on new 801 leases until the Defense Department corrected problems in the program and studied other alternatives, including construction with appropriated funds.⁽⁷⁵⁾

The Senate committees were less disenchanted with the 801 program. While they called on the Defense Department to reexamine the program and produce a plan showing how it would address the family housing deficit using the various alternatives available to it, the committees were willing to extend the pilot program and allow more leasing. The conferees agreed to extend 801 for two years and authorized 1,000 additional leases for each service, but they insisted that each new project submitted to the committees for approval show at least a 5 percent savings when compared to the military construction alternative.⁽⁷⁶⁾

By late 1986 the costs of new leases began to decline and Congress seemed mollified. In 1987 the House Appropriations Committee commended the Defense Department for bringing leasing costs under control. Responding to the congressional demand for a five-year program to address the family housing deficit, the Defense Department produced a plan that called for 60 percent of the new housing to be built with appropriated funds and 40 percent to be leased under Section 801. This plan seemed to calm members who feared that the Defense Department was abandoning construction with appropriated funds. Although congressional disenchantment with Section 801 seemed to subside in 1987, the program continued to experience growing pangs.⁽⁷⁷⁾

One of the issues that had worried Congress in 1983 when the program was enacted was assuring that contractors performed adequate maintenance on the housing units during the life of the lease. While the authorizing legislation allowed the Defense Department to operate and maintain the units, Congress clearly preferred that contractors carry out these duties.

Maintenance did become a problem with some of the Army's 801 projects, and in the spring of 1987 the department announced that it would operate and maintain the projects in the future. The Army opposed this change because it would add an additional contracting burden on the installations and possibly increase the total cost of the build-to-lease program. In his justification of the change to Congress, however, Stone explained that profits for the developers were high during the first seven or eight years of a lease when depreciation was high and maintenance costs were low. After that period, as previous experience with the Wherry housing program showed, developers lost interest in maintenance. Corps of Engineers' personnel found that maintenance problems could crop up even in the early years of a lease.

In any event, Stone argued that the department was following the example of private businesses that hired construction specialists to build their buildings and then turned to maintenance specialists to run them. The Defense Department also believed that separating operation and maintenance from construction would help developers in obtaining financing for their projects. Although the department's assumption of operation and maintenance was, as Congressman David O'Brien Martin (R­NY) described it, "a big change," Congress accepted it.⁽⁷⁸⁾

Congress also accepted another big change without any public signs of grumbling. In his testimony in 1983, Stone stressed the importance of building new housing, but four years later the department asked for authority to apply the 801 program to existing units that had been rehabilitated for residential use. Congress noted that this provision would give the 801 program more flexibility especially in urban areas where land availability was a problem.⁽⁷⁹⁾

In his testimony to Congress in the spring of 1987, Stone also announced that in the future the Defense Department would not build 801 projects on government-owned land. Two early projects at Fort Wainwright, Alaska, and Fort Hood, Texas, were built on the installations, but congressional committees expressed reservations about the practice. By 1987 the Defense Department and developers were also having second thoughts. At the end of the 20-year lease, the services had the right of first refusal if the developer tried to sell a build-to-lease project. If the department bought the housing at fair market value after making lease payments for 20 years, then it paid for the project twice. If it bought the housing for less than fair market value, then the developer would have to pay back taxes on the depreciation he had claimed during the original lease. Worse still, the Office of Management and Budget (OMB) would interpret such a transaction as an installment purchase. Stone acknowledged that an 801 project on a military installation "does not look to OMB or to our Comptroller like a lease. It looks like we are buying the property on time." In the defense authorization act passed in 1991 Congress mandated that Section 801 projects be built off post.⁽⁸⁰⁾

As early as 1985 when the 801 program was only two years old, the House Appropriations Committee asked the Defense Department to examine another alternative housing program, installment purchase. At the conclusion of an installment purchase agreement, the government would own the housing and would presumably have something to show for its expenditures.

The committee was asking the department to revive the Capehart housing program of the 1950s. Under that program, established in 1955 and phased out after 1961, the government insured mortgages for private developers who built family housing for the services on military installations. When the housing was completed, the developers turned the mortgages over to the services, which made the payments from the forfeited housing allowances of the occupants of the housing. In fiscal year 1989 the services made their final payments on Capehart mortgages. To celebrate this anniversary, the Air Force, which had been the most enthusiastic supporter of Capehart housing, supported a revival of the program. As the largest housing privatization program of the post-World War II era, Capehart had a good reputation. In a 1988 report the Defense Department praised the program: "We understand Capehart. It is an old friend. This financial authority to buy now and pay later was very successful."⁽⁸¹⁾

In spite of congressional pestering over the next several years, the Defense Department declined to submit proposed legislation for an installment purchase program. Such a program would violate its "firm policy of full funding." Pressed to explain the policy, Stone responded that "it says if we are going to buy a project, over a 20-year period, at 5 percent a year, we have to have obligational authority in this year's budget for 100 percent even though we only spend 5 percent each year." Build-to-lease was attractive to the department because only one year's lease costs were charged against the defense budget. If the entire 20-year costs were charged against the budget in the first year, the department preferred construction with appropriated funds.

In frustration the House Appropriations Committee complained that "pursuing additional leasing authority while stating that long-term purchase of housing violates current policies, is contradictory and somewhat ridiculous." Stone explained that the policy came from the Office of Management and Budget, which objected to committing future administrations to long-term payments like the Capehart 25-year mortgages. Stone acknowledged that he found the OMB policy "somewhat arbitrary." Asked if they would favor legislation overturning the policy, the services responded affirmatively. But Congress did not enact this legislation and OMB did not relent. Ironically when legislation was enacted in 1990, it had the effect, not of rolling back the OMB policy of full funding, but of extending it to the 801 and 802 programs.⁽⁸²⁾

Even before 1990, the build-to-lease program ran into new problems. In August 1989 the Defense Department notified Congress that the Army intended to solicit bids for a 300-unit Section 801 project at Fort Campbell, Kentucky. Responding to complaints from some of his constituents, Senator James Sasser (D) of Tennessee, who also was chairman of the military construction subcommittee of the Committee on Appropriations, asked the General Accounting Office to investigate the Army's request. GAO concluded not only that a housing project at Fort Campbell was not justified, but also that the Army model for calculating housing deficits was seriously flawed. According to GAO, at Fort Campbell, "the Army overestimated the number of families requiring housing and underestimated the number of existing and projected private rental units." In addition, the procedure for justifying a housing deficit "may indicate a need for housing where none exists." A Corps of Engineers' staff member acknowledged in 1989 that establishing a validated housing deficit "has proved to be one of the most elusive aspects of the 801 process." Based on the preliminary results of the GAO investigation, in December 1989 Senator Sasser deferred new Army build-to-lease projects until the Army reviewed its procedures for calculating housing deficits. After months of wrangling between the Defense Department and GAO, the final report went to Sasser in June 1991, but by then the build-to-lease program had encountered more serious difficulties.⁽⁸³⁾

In spite of the various legislative and policy changes in the 801 program since 1983, long-term leases, like the earlier short-term domestic leases, continued to make some in Congress edgy. In 1988 Congressman Bill Hefner (D­NC) brooded that the 801 program might be a "vehicle that's going to make some folks an awful lot of money." A year later Congresswoman Patricia Schroeder (D­CO) warned that "taxpayers are paying premium prices to lease housing from private developers." In its 1987 report the House Appropriations Committee worried that the cost of leasing would become so large that it "will in effect become de facto entitlement payments." In the minds of some members of Congress, Section 801 housing was overpriced, it was suspiciously popular with the Defense Department, and after 20 years of payments, the government got nothing.⁽⁸⁴⁾

The Section 802 Program to 1990

Although the Section 801 build-to-lease program encountered many problems in its early years, it did produce military family housing. Section 802 did not. The authorizing legislation called for the program to provide housing whose rents were comparable to those in the surrounding area. In its implementing regulations, the Defense Department tied those rental rates to the Service members' housing allowances. Unlike 801 housing, which was based on the government's cost to build and operate, 802 housing was based on the Service members' ability to pay.

The model RFP set the ceiling cost for an 802 project at the basic allowance for quarters plus the variable housing allowance plus a 15 percent contribution by the service member minus an estimate of the utility costs. Except for the utility costs, this formula expressed the amount that the department expected Service members to pay in the private housing market off-post. The total rent was divided into two parts: the shelter rent and the maintenance rent. Shelter rent was the amount adequate to amortize the construction costs of the project, and maintenance rent covered the operation and maintenance of the project. This was an important distinction because the authorizing legislation required the shelter rent to remain constant throughout the 15 years of the agreement, but allowed the maintenance rent to increase at the rate of inflation. In addition, the government paid 80 percent of increases in real estate taxes. Like the 801 ceiling cost, the 802 ceiling cost had to be less than the military construction alternative, but in reality the 802 ceiling cost was well below that of the military construction.⁽⁸⁵⁾

In 1986 Corps of Engineers officials estimated that the 802 ceiling costs for the target population at Fort Drum would be less than $500 per month, but the first year's rent at the Fort Drum 801 projects was $743 per month. No 802 projects were planned at Fort Drum, but at Fort Campbell, Kentucky, the rent per unit for a proposed 802 project was calculated to be $323 per month. Engineers in the Corps' Louisville District told the GAO that 802 housing would be "adequate" but would not be as good as 801 housing or housing built with military construction funds.⁽⁸⁶⁾

Because the ceiling costs were low and most of the rent was frozen for the life of the agreement, 802 projects were not popular with contractors. Contractors who did receive awards had difficulty obtaining financing. The Defense Department had concluded by 1986 that Section 802 would probably not work in urban areas where land and labor costs were high, a conclusion that skeptical members of Congress had reached three years earlier. Supported by a 1986 GAO study, Congress concluded that the current 802 program "does not offer developers sufficient incentive to build housing for the Department of Defense." The Senate persuaded a reluctant House to extend the term of the rental guarantee from 15 to 25 years, allow the entire rent (shelter and maintenance) to rise with inflation, and permit developers to conform to local building codes, which would be presumably less stringent than Defense Department standards.

To demonstrate its commitment to 802, Congress extended the program for four years rather than the two years it extended the 801 program. In addition, the appropriations conference report directed the services to test the 802 program on government-owned land in hopes of reducing land and development costs and allowing "higher quality structures to be built." This would be Congress' first attempt to breathe life into the struggling 802 program.⁽⁸⁷⁾

By the spring of 1987, the Army had authorization for 1,800 units of 802 housing and had awarded contracts for 1,100 units, but these contracts were delayed as the developers searched for financing. Again the Defense Department requested changes to the program to make it more attractive and, according to Stone, "sweeten the deal for the developers." When the deputy assistant secretary had proposed the program in 1983, he stressed the importance of limiting it to new units. In order to reduce costs, however, the Defense Department requested authority to include existing facilities renovated for residential use. In addition, it asked for authority to renew the leases for projects constructed on government-owned land. Congress granted both requests but limited renewals to the term of the original lease.⁽⁸⁸⁾

In 1988 the Defense Department requested additional changes in the 802 program, but Congress, especially the House, balked. The conference report on the defense authorization act for fiscal year 1989 complained that "not one unit has been made available for rent under this program. The program now appears to be entirely different from what was envisioned when it was enacted." The conferees advised the Secretary of Defense to submit a new program based on the lessons learned from the 802 experiment.⁽⁸⁹⁾

In 1989, however, Congress relented and enacted the changes that the Senate had approved a year earlier. It allowed the services to provide to 802 projects the same utilities and other services they provided to military family housing on government land. In order to reduce the financing costs to private developers, Congress allowed the services to default the contractors for failure to provide satisfactory operation and maintenance but did not require the default as the original legislation had specified. Developers and their financial backers feared that they could lose the rental guarantee over a maintenance dispute. Finally, the new legislation allowed the Defense Department or a third party contractor to operate and maintain the 802 projects. "If the program shows no more success next year," the House Armed Services Committee asserted, "the committee does not intend to extend the authorization." Congress warned again that these changes in the program "represent one last opportunity for the military Departments to make section 802 work."⁽⁹⁰⁾

The Army did finally make Section 802 work, and it was the last opportunity, but not for reasons that Congress anticipated in 1989. In 1990 the Army told Congress that it was planning an 802 project in Hawaii, and three years later it announced that Service members were occupying a 276-unit project on Oahu, one of the highest cost of living areas in the nation. After almost a decade of tinkering with the program, the much-transformed housing assurance program touted in 1983 as an answer to the services' housing problem had produced a trickle of family housing units.⁽⁹¹⁾

Scoring and the Demise of 801 and 802

For six years, Congress and the administration tinkered with the Section 801 and 802 family housing programs to make them work and to make them attractive to private investors. By the last round of legislative changes in 1989, it appeared that both programs now had good prospects for success, although some still had doubts. In 1990, however, both programs were caught up in much larger political battles over the federal budget deficit and federal spending. The Budget Enforcement Act of 1990, signed by President George Bush on 5 November 1990, redesigned federal budgeting and spending processes to limit spending and eventually reduce the deficit. The new procedures dramatically changed the rules about how the programs were "scored."⁽⁹²⁾

The process of "scoring" or "scorekeeping" determined whether the total cost of a long-term program would be charged against the federal budget in the first year or would be spread out over the life of the program. The lengthy conference report on the Budget Enforcement Act was quite clear: for leases, lease-purchases, and purchases, "budget authority will be scored in the year in which budget authority is first made available in the amount of the government's total estimated legal obligation." Prior to 1990, OMB scored the Section 801 and 802 programs, somewhat reluctantly it appears, on a yearly basis across the life of the lease. Now the full cost of the 20- or 25-year lease would be scored in the first year. This method of scoring eliminated one of the most attractive features of the programs, smaller yearly expenditures, and made construction with appropriated funds, which resulted in clear title to the housing, preferable.⁽⁹³⁾

Now that the housing programs were in jeopardy, the House and Senate armed services committees, which had criticized them just months earlier, rushed to their defense. Both committees railed against what they portrayed as OMB's decision to score build-to-lease and rental guarantee housing in the first year of the project. In their testimony before the committees, Defense Department witnesses indicated that they were trying to dissuade OMB, but when the House committee appealed to the Congressional Budget Office, it agreed with OMB's interpretation. In the opinion of one widely recognized authority on the budget process, the Budget Enforcement Act strengthened the role of three organizations in the budget process: OMB and the congressional appropriations committees. Ironically these organizations had never been enthusiastic proponents of 801 and 802. The budget enforcement act allowed the Defense Department to follow the old scoring practices until the end of fiscal year 1991 (30 September 1991), and the Defense Department announced that it was not requesting new authorizations for Section 801 and 802 for fiscal year 1992. Just as the two housing programs seemed finally headed for bright futures, they slipped away.⁽⁹⁴⁾

In late 1991 the armed services committees attempted to save the two programs. Although the Defense Department had only requested two-year extensions of the programs, which were still officially pilot programs, the National Defense Authorization Act for Fiscal Years 1992 and 1993 made them permanent. On 5 December 1991, build-to-lease became Section 2835 and rental guarantee became Section 2836 of Title 10, U.S. Code. In making the programs permanent, the armed services and conference committees proposed provisions that they hoped would overcome the scoring problems. Build-to-lease projects could only be built off post, and the department would be required to specify in its budget submission the location, number of units, and cost of each build-to-lease and rental guarantee project.

Other provisions, apparently intended to convince OMB that the programs were not leases to be scored in the first year, had the effect in the opinion of the Defense Department of turning Section 801 contracts into "1-year contracts with up to 24 1-year options which can be terminated at any time without cost to the government." As a result the department concluded that the programs were "unworkable." In 1992 the Senate armed services committee acknowledged that the changes in 801 and 802 "make them less attractive to prospective contractors" but attempted to cajole the department into submitting requests for new projects. But even the Defense Department could not breathe life into the mortally wounded programs.⁽⁹⁵⁾

Conclusion

In 1993 the Army had 4,080 build-to-lease housing units (see Table 3). Three decades earlier the Army reported almost the same number of domestic short-term leases, and this number did not vary greatly over the intervening years until Congress put pressure in the late 1970s on the Defense Department to phase out its short-term leases.⁽⁹⁶⁾

In essence Congress forced the Army to reduce the number of short-term leases and replace them with long-term leases. The number of rental guarantee units at home never approached the number of rental guarantees abroad. Neither 801 nor 802 lived up to the expectations of its proponents before its untimely death in the budget wars of the 1990s, and neither rivaled the great privatization programs of the 1950s--Wherry and Capehart.

Both the build-to-lease and rental guarantee programs had problems. Some Section 801 developers had difficulty obtaining financing, and a few demonstrated a lack of commitment to making the program work for military families. Although Congress fretted that build-to-lease was too expensive, some legislative and policy changes increased the overall cost of the program. Congress also disliked the fact that the program left the services without title to the housing at the end of the lease. Both the Defense Department and Congress worried that developers would not provide adequate maintenance of the housing.

Section 802 had more severe problems. As initially conceived the bulk of the rent was frozen for the life of the agreement, and the cost of the housing was tied to the housing allowances of Service members. In the late 1980s Congress and the Defense Department tinkered with the program to make financing easier by allowing the entire rent to rise with inflation, allowing the guarantee to be renewed, and allowing the government or a third party to perform operation and maintenance. In addition, they attempted to lower the cost of the housing by putting the housing on government property, providing utilities, allowing the use of local building codes, and applying the program to renovated housing. All of these changes produced one small housing project after a decade. Ultimately the success of the Section 802 program depended on the amount of the housing allowances paid to Service members, and even with the variable housing allowance, the allowances did not keep pace with the increasing cost of housing.

A comparison of the four most prominent privatization programs of the post-World War II era--Wherry, Capehart, build-to-lease, and rental guarantee--reveals two broad tendencies: a tendency to separate the cost of the housing from the Service members' ability to pay and a tendency to separate construction from operation and maintenance. Both Wherry and the domestic rental guarantee programs struggled to provide decent housing and sufficient financial incentive to private developers within the narrow confines of the housing allowances and a reasonable additional contribution by Service members. After the travails of the Wherry program, the Capehart program divorced construction from operation and maintenance, but build-to-lease and rental guarantee toiled for years in this unhappy union until their divorces by policy changes in 1987 and 1989. In both the Capehart and build-to-lease programs, the housing ultimately cost more than many Service members could have afforded if the housing had been on the private market, and the government in the end bore the unglamourous (and perhaps unprofitable) burden of operating and maintaining houses owned by developers.

Although it may not be fair to compare the privatization programs of the 1980s with those of the 1950s, some simple comparisons seem worthwhile. The two success stories--Capehart and build-to-lease--built larger and more expensive housing than their companion programs. They were more straightforward with fewer hidden or scarcely recognized expectations and fewer unanticipated flaws. And in comparison to the military construction alternative, they provided the housing more quickly.

All four privatization programs were progeny of the Cold War, two of them at its beginning and two at its end. All were born of the conviction that private enterprise could be mobilized in peacetime to support that war effort. All were tangible reminders of the unprecedented importance that Army families gained in the second half of the 20th century.

1. Quotation from LTG Henry S. Aurand, "Housing for Army Families," Army Information Digest 3 (Oct. 1948), 4. For discussions of BAQ, see Robert R. Morris, Military Compensation Background Papers, 4th edition (Washington, DC: GPO, [1992]), pp. 71­75; U.S. Advisory Commission on Service Pay, Career Compensation for the Uniformed Services (Washington, DC: GPO, 1948), p. 13 and Appendix C; and "Joint Service Housing Allowance Study," Nov. 1991, Research Collections, Office of History, Headquarters, U.S. Army Corps of Engineers, (hereafter cited as Office of History).

2. Aurand, "Housing for Army Families," pp. 3­8; LTG T. B. Larkin, " 'For Want of a House--,' " Army Information Digest 5, no. 4(April 1950), 11; David Bushnell, "History of Holloman Housing, 1942­1957," Historical Branch, Holloman Air Development Center, 1957, pp. 10­11 and 65­68, Office of History; and Margaret Crawford, "Daily Life on the Home Front: Women, Blacks, and the Struggle for Public Housing" in Donald Albrecht (ed.), World War II and the American Dream (Cambridge, MA: MIT Press, 1995), p. 92. The Lanham Act was named after Representative Fritz G. Lanham (D­TX), who served in the House from 1919 to 1947 and was for many years chairman of the Public Buildings and Grounds Committee. See Biographical Directory of the U.S. Congress, 1774­1989 (Washington, DC: GPO, 1989), p. 1342.

3. Quotation from Larkin, "'For Want of a House--,'" p. 9.

4. James A. Huston, "The U.S. Army in the Current National Emergency," pp. III­22 to III­23; Aurand, "Housing for Army Families," p. 6; and House Committee on Banking and Currency, Military Rental Housing: Hearings on H.R. 4491, 81st Cong., 1st sess., 1949, 25­26.

5. Senate Committee on Banking and Currency, Housing in Military Areas: Hearings on S. 1184, 81st Cong., 1st sess., 1949, 12­14. Kenneth S. Wherry was born in Nebraska in 1892 and was elected to the Senate in 1942. He was a Republican party whip from 1944 to 1949 and minority leader from 1949 until his death in November 1951. Biographical Directory of the U.S. Congress, 1774­1989, p. 1342.

6. Congressional Quarterly Service, Congress and the Nation, 1945­1964 (Washington, DC: Congressional Quarterly Service, 1965), pp. 460, 473, 475, and 491; House Committee, Military Rental Housing, pp. 22 and 24­26; and House Committee on Banking and Currency, Military Rental Housing, 81st Cong., 1st sess., 1949, H. Rpt. 854, 1­2. In comments on the Defense Department certification, Senator Wherry commented that it might benefit the senators "to know once you have an air base or an installation it is going to be permanent." Another senator responded, "You have a little inducement to Senators to vote for this bill." Senate Committee, Housing in Military Areas, 24.

7. House Committee, Military Rental Housing, 26 and House Committee, Military Rental Housing, H. Rpt. 854, 2. About 10 percent of all Wherry units were built on private property. House Committee on Armed Services, Subcommittee on Wherry Acquisition, Acquisition of Wherry Housing Projects, 86th Cong., 1st sess., 1959, H. Rpt. 28, 1856.

8. Col. Paul H. Symbol, "Family Housing for the Army," Army Information Digest 12 (July 1957), 20; House Committee, Military Rental Housing, 25; and Senate Committee on Banking and Currency, Mortgage Insurance for Military Housing, 81st Cong., 1st sess., 1949, S. Rpt. 410, 6­7.

9. House Committee, Military Rental Housing, H. Rpt. 854, 2­3 and Senate Committee, Mortgage Insurance for Military Housing, 9.

10. House Committee, Military Rental Housing, 3­36 and Senate Committee, Housing in Military Areas, 12. One worried senator asked Wherry, "You are not afraid they will call this socialistic, are you?" "No," Wherry responded, "this is private enterprise all the way." Senate Committee, Housing in Military Areas, 24.

11. Senate Committee, Housing in Military Areas, 12, 18, 22, and 77; House Committee, Military Rental Housing, 30­31; and Senate Committee, Mortgage Insurance for Military Housing, 6.

12. House Committee, Military Rental Housing, pp. 26 and 30 and Senate Committee, Mortgage Insurance for Military Housing, 8.

13. House Committee, Military Rental Housing, 22­23; Senate Committee, Mortgage Insurance for Military Housing, 3­5; and House Committee of Conference, Military Rental Housing, 81st Cong., 1st sess., 1949, H. Rpt. 1127, 2.

14. House Committee on Armed Services, Sundry Legislation Affecting the Naval and Military Establishments: Hearings on Construction at Military and Naval Installations, 81st Cong., 1st sess., 1949, 3023; and Senate Committee on Banking and Currency, Review of Military Housing Programs, 85th Cong., 1st sess., 1957, S. Rpt. 231, 10.

15. Huston, "The U.S. Army in the Current National Emergency," pp. III­31 to III­32; Bushnell, "History of Holloman Housing," pp. 88­92; House Committee on Banking and Currency, Miscellaneous Hearings: Construction of Military Rental Housing, 81st Cong., 2d sess., 1950, 267­79; and Senate Committee on Banking and Currency, Amending Title VIII of the National Housing Act, 81st Cong., 2d sess., 1950, S. Rpt. 1484, 1­2.

16. Huston, "The U.S. Army in the Current National Emergency," pp. III­32 to III­33; Bushnell, "History of Holloman Housing," pp. 95; Congress and the Nation, 1945­1964, p. 482; and House Committee on Banking and Currency, Amending Title VIII of the National Housing Act, 81st Cong., 2d sess., 1950, H. Rpt. 1860, 1­3. PL 81­498, 2 May 1950, revised the Wherry program. The new legislation also allowed the government to acquire options on private property in cases where Wherry projects were not built on military installations. These options would assure that the property would remain available and would be transferred to the private sponsor of the project.

17. Engineer School, "Military Construction in Continental United States and Permanent Overseas Bases," Dec. 1951, pp. 53­54, Military Files, VII­19­10, Office of History.

18. Ibid and Senate Committee, Review of Military Housing Programs, 12­13.

19. Senate Committee, Review of Military Housing Programs, 12­13.

20. Congress and the Nation, pp. 1728­29; Senate Committee, Review of Military Housing Programs, 24­25; Senate Committee on Banking and Currency, Housing Act of 1955: Hearings on Bills to Amend the National Housing Act, 84th Cong., 1st sess., 1955, 68­69. For a general discussion of public housing, see Ellis L. Armstrong (ed.), History of Public Works in the United States, 1776­1976 (Chicago: American Public Works Assoc., 1976), pp. 521­52.

21. Senate Committee, Review of Military Housing Programs, 27­28. Homer Earl Capehart was born in Indiana in 1897. He was elected to the Senate from Indiana in 1944 and served through 1962. During the 83d Congress (1953 and 1954) he was chairman of the Banking and Currency Committee. He died in 1979. Biographical Directory of the United States Congress, 1774­1989, pp. 740­41.

22. Senate Committee, Review of Military Housing Programs, 26­27 and Col. Paul H. Symbol, "Army Family Housing," Army Information Digest 13 (Dec. 1958), 28­30. The $13,500 average cost included ranges, refrigerators, and other interior features as well as roads, sidewalks, and outside utilities within the project boundaries. The services could use appropriated funds for land acquisition, site preparation, and utility systems outside the project boundaries.

23. Ibid.

24. Senate Committee, Housing Act of 1955, 38, 47, 49, 51, 408, 417, 428­29, 430, and 434­35.

25. Ibid., pp. 50, 81­82, 429, and 434­35.

26. Ibid., pp. 409 and 413; House Committee on Appropriations, Subcommittee on Department of Defense Appropriations, Military Construction Appropriations for 1956, 84th Cong., 1st sess., 1955, 4­5.

27. Senate Committee, Review of Military Housing Programs, 27­28.

28. Senate Committee on Banking and Currency, Subcommittee on Housing, Military Housing at Abilene AFB, 84th Cong., 2d sess., 1956, 1­42; and Senate Committee, Review of Military Housing Programs, 31­33.

29. Senate Committee, Review of Military Housing Programs, 28­29.

30. Ibid., p. 30; House Committee on Armed Services, Authorizing Construction for the Military Departments, 84th Cong., 2d sess., 1956, H. Rpt. 1890, 27; and Senate Committee on Armed Services, Authorizing Construction for the Military Departments, 84th Cong., 2d sess., 1956, S. Rpt. 2775, 5­6.

31. Senate Committee, Housing Act of 1955, 124; House Committee on Armed Services, Subcommittee on Wherry Acquisition, Report of Special Subcommittee on Acquisition of Wherry Housing of the Committee on Armed Services, 86th Cong., 1st sess., 1959, H. Rpt. 29, 1960.

32. House Committee on Armed Services, Subcommittee on Wherry Acquisition, Acquisition of Wherry Housing Projects: Hearings on Sundry Legislation Affecting the Naval and Military Establishments, 86th Cong., 1st sess., 1959, H. Rpt. 28, 1858.

33. Senate Committee, Housing Act of 1955, 124 and Senate Committee, Review of Military Housing Programs, 20­22.

34. Senate Committee, Review of Military Housing Programs, 17­20; House Committee, Acquisition of Wherry Housing, H. Rpt. 28, 1864­65; and Senate Committee on Armed Services, Military Construction Authorization Fiscal Year 1959, 85th Cong, 2d sess, 1958, S. Rpt. 1982, 45­46.

35. Senate Committee, Review of Military Housing Programs, 23­24; House Committee, Report of Special Subcommittee on Acquisition of Wherry Housing, 1961; and House Committee, Acquisition of Wherry Housing, 1961­62.

36. Ibid.

37. House Committee, Report of Special Subcommittee on Acquisition of Wherry Housing, 1954 and 1961­62.

38. House Committee, Acquisition of Wherry Housing Projects, 1833­35 and 1940.

39. Ibid., pp. 1835, 1840­41, 1942, and 1946.

40. House Committee, Acquisition of Wherry Housing Projects, 1865­66; House Committee, Report of Special Subcommittee on Acquisition of Wherry Housing, 1954 and 1962; and House Committee on Appropriations, Military Construction Appropriations for 1965: Hearings, 88th Cong., 2d sess., 1964, 214.

41. House Committee, Military Construction Appropriations for 1965, 211 and 522; Office of the Chief of Engineers, "Annual Historical Summary, 1 July 1962­30 June 1963," p. 29, Office of History; Senate Armed Services Committee, Military Construction Authorization Fiscal Year 1959: Report on H.R. 13015, 85th Cong., 2d sess., S. Rpt. 1982, 40­44; and Senate Armed Services Committee, Military Construction Authorization for Military Departments, Fiscal Year 1960, 86th Cong., 1st sess., S. Rpt. 296, 34­37.

42. Comptroller General of the U.S., Review of Capehart Family Housing Program of the Department of Defense, July 1960, pp. 1­2.

43. Senate Armed Services Committee, Military Construction Authorization for Military Departments and Reserve Components, Fiscal Year 1961, 86th Cong., 2d sess., 1960, S. Rpt. 1338, 19. In 1959 Congress extended the maximum mortgage period to 30 years. See "OSD­OMB Military Housing Study," 31 October 1975, vol. III, 56­57, Office of History.

44. Senate Committee on Armed Services, Preparedness Investigating Subcommittee, Capehart Military Family Housing: Hearings on Capehart Military Family Housing, 87th Cong., 1st sess., 1961, 180­81, 300, and 351­52.

45. Congressional Record: Proceedings and Debates of the 87th Congress, First Session, vol. 106, part 6 (May 1, 1961 to May 17, 1961), 7609 and 7616.

46. House Committee of Conference, Military Construction Authorization, Fiscal Year 1962, 87th Cong., 1st sess., 1961, H. Rpt. 469, 27­28; Congress and the Nation, 1945­1964, pp. 474, 498­99, and 501; and House Committee on Armed Services, Military Construction Authorization Fiscal Year 1963, 87th Cong., 2d sess., 1962, Hrg. No. 45, 4021. In 1958 the armed services committees had reasserted their authorizing prerogatives in the area of weapons systems acquisition and became major players in the defense budget process, a role they had not exercised since World War II. See Edward A. Kolodziej, The Uncommon Defense and Congress, 1945­1963 (Columbus: Ohio State Univ. Press, 1966), pp. 364­82.

47. William C. Baldwin, "Wherry and Capehart: Army Family Housing Privatization Programs in the 1950s," Past In Review, Engineer 26 (April 1996): 42­44 and William C. Baldwin, "History of the Wherry and Capehart Housing Programs in the Army, 1949­1962," Office of History, Headquarters, U.S. Army Corps of Engineers (hereafter cited as Office of History).

48. William C. Baldwin, "A History of Army Peacetime Housing," Office of History.

49. Baldwin, "A History of Army Peacetime Housing," pp. 10­12; House Committee on Appropriations, Military Construction Appropriations for 1963, 87th Cong., 2d sess., part 3, 1963, 523; and Annex F:"Attitude of Congress" in Engineer Studies Center, "Analysis of USAREUR Family Housing," USAESC-R-85-2, April 1985. PL 161, 84th Cong., 1st sess. (15 July 1955) first authorized domestic leasing. PL 968, 84th Cong., 2d sess. (3 Aug. 1956) first authorized foreign leasing.

50. Baldwin, "A History of Army Peacetime Housing," p. 18.

51. General Accounting Office, "Lower Graded Military Personnel with Families Are Not Suitably Housed But Should Be," CED-79-92, Sept. 25, 1979. In 1979 E-4s who had dependents and had served more than two years were eligible for assignment to on-post family housing. Enlisted personnel above E-4 were eligible. E-4s with two years' service or less and E-1s through E-3s were not eligible.

52. Department of the Army Historical Summary, Fiscal Year 1981 (Washington, DC: U.S. Army Center of Military History, 1988), pp. 110­11.

53. House Military Installations and Facilities Subcommittee of the Committee on Armed Services, Hearings on H.R. 1816 [H.R. 2972] to Authorize Certain Construction at Military Installations for Fiscal Year 1984, 98th Cong., 1st sess., 1983, H.A.S.C. No. 98­7, 4­5.

54. House Committee, Hearings on H.R. 1816, 906­907.

55. C. Peter Rydell et al, "Improving Military Housing Policy," Working Draft, Rand, Sept. 1982.

56. House Committee, Hearings on H.R. 1816, 71 and 909.

57. House Subcommittee on Military Construction Appropriations of the Committee on Appropriations, Military Construction Appropriations for 1984, 98th Cong., 1st sess., part 4, 1983, 536­37.

58. House Committee, Hearings on H.R. 1816, 905­35.

59. Ibid., pp. 920 and 931­32.

60. Ibid., pp. 777­840. Rep. Fernand J. St. Germain (D­RI) also introduced a bill, H.R. 1408, to allow long-term leasing. See pp. 840­41.

61. House Committee on Armed Services, Military Construction Authorization Act, 1984, 98th Cong., 1st sess., 1983, H. Rpt. 98-166, 7­8; Senate Committee on Armed Services, Omnibus Defense Authorization Act, 1984, 98th Cong., 1st sess., 1983, S. Rpt. 98-174, 353; and Committee of Conference, Military Construction Authorization Act, 1984, 98th Cong., 1st sess., 1983, H. Rpt. 98-359, 44­45. The authorizing law was PL 98-115. The Section 801 program was often called build-to-lease, and later the Army named it Army Community Housing.

62. House Committee, Military Construction Authorization Act, 1984, H. Rpt. 98-359, 44­45 and House Committee, Military Construction Authorization Act, 1984, H. Rpt. 98-166, 7. The armed services committee members who endorsed the bill on the floor of the House stressed its role in helping lower enlisted personnel. In September when the House agreed to the conference report, Representative Stenholm reminded members that the earlier House version had allowed lower enlisted personnel to participate in the program and commented, "I wish we could have kept such language in the conference report." Congressional Record, 98th Cong., 1st sess., 1983, 129 pt. 12: 16395-97 and Congressional Record, 98th Cong., 1st sess., 1983, No. 15: H7354. House hearings in March 1987 produced some interesting discussions about the origins of the 801 program. Representative Dellums referred to the 801 program as "the administration and the Pentagon's idea of how to bring about--" The witness from the Pentagon, Robert Stone interrupted, "Absolutely not, Mr. Chairman. You give us far too much credit. It was an initiative of this subcommittee--" But didn't the administration recommend that we "go down this road," Dellums responded. "I came before this committee four or five years ago," Stone recalled, "and testified that the proposed build-lease was a bad idea and that we did not want the authority. And I am pleased that the committee had the wisdom not to pay attention to me." "The chair stands corrected," Dellums reluctantly conceded. Several minutes later he returned to the subject. "You may be correct in one sense, in that it may have been a compromise, it may have been a coming together of ideas generated by this administration and the committee that gave us 801. But my point was that third-party financing certainly was an idea aggressively presented by this Administration." Stone agreed with this interpretation. House Committee on Armed Services, Hearings on National Defense Authorization Act for Fiscal Years 1988/89--H.R. 1748, 100th Cong., 1st sess., 1988, H.A.S.C. No. 100-11, 569 and 71.

63. House Committee, Military Construction Authorization Act, 1984, H. Rpt. 98-166, 7­8; and Committee of Conference, Military Construction Authorization Act, 1984, H. Rpt. 98-359, 44­46. The House version of the bill allowed leases in Alaska to run up to 30 years. When the original House bill came to the floor on 21 June 1983, Representative Stenholm offered an amendment allowing the leases to reach 150 percent of the existing ceiling on short-term leases and the amendment passed. Congressional Record, 98th Cong., 1st sess., 1983, 129, pt. 12: 16606-07.

64. For the House version of Section 802, which was Section 803 in its bill, see House Committee, Military Construction Authorization Act, 1984, H. Rpt. 98-166, 8 and for the enacted legislation, see the conference report, Military Construction Authorization Act, 1984, H. Rpt. 98-359, 46.

65. PL 98-115. For a discussion of the Wherry program, see Baldwin, "History of the Wherry and Capehart Housing Programs in the Army, 1949­1962."

66. General Accounting Office, "Military Family Housing: Observations on DOD Build-to-Lease and Rental-Guarantee Housing Programs," GAO/NSIAD-87-13BR, Oct. 1986, pp. 7­9 and Table IV.1. See also PL 98-115, the Military Construction Authorization Act, 1985 (PL 98-407), the Continuing Resolution for FY 1985 (PL 98-473), and the Military Construction Authorization Act, 1986 (PL 99-167).

67. House Committee on Armed Services, Hearings on H.R. 4931 [H.R. 5604] To Authorize Certain Construction at Military Installations for Fiscal Year 1985, 98th Cong., 2d sess., 1984, H.A.S.C. No. 98-42, 79­80 and 180; House Committee on Appropriations, Military Construction Appropriations for 1985, 98th Cong., 2d sess., 1984, part 5, 824­26; House Committee on Armed Services, Hearings on H.R. 1409 to Authorize Certain Construction at Military Installations for Fiscal Year 1986, 99th Cong., 1st sess., 1985, H.A.S.C. No. 99-3, 20, 32­33, and 614; and House Committee on Appropriations, Military Construction Appropriations for 1986, 99th Cong., 1st sess., 1985, part 5, 583­90.

68. GAO, "Military Family Housing," pp. 8, 11, and 14­17.

69. Ibid., pp. 2 and 11­13.

70. House Committee on Appropriations, Military Construction Appropriation Bill, 1985, 98th Cong., 2d sess., 1984, H. Rpt. 98-850, 56; House Committee on Appropriations, Military Construction Appropriations for 1986, 99th Cong., 1st sess., 1985, part 5, 584­85; Senate Committee on Appropriations, Military Construction Appropriations for Fiscal Year 1990, 100th Cong., 1st sess., 1989, S. Hrg. 101-246, 50; interview, Donita Moorhus with Lester Edelman, Chief Counsel, HQUSACE, Washington, DC, 13 Sept. 1994, pp. 29­31; interview, Donita Moorhus with Paul Cheverie, Counsel, New York District, Alexandria, VA, 9 June 1993, p. 55; letter, Lester Edelman, Chief Counsel to Carl W. Engstrom, 29 Jan. 1986, Office of History; and Roger H. Davidson and Walter J. Oleszek, Congress and Its Members, 2d edition (Washington, DC: CQ Press, 1985), pp. 327­33.

71. GAO, "Military Family Housing," p. 18; House Committee on Armed Services, Hearings on H.R. 4181 to Authorize Certain Construction at Military Installations for Fiscal Year 1987, 99th Cong., 2d sess., 1986, H.A.S.C. No. 99-42, 245; Cheverie interview, pp. 43­44, 50­51, and 69­72; John L. Romjue, The Army of Excellence: The Development of the 1980s Army (Ft. Monroe, VA: U.S. Army Training and Doctrine Command, 1993), pp. 69­74; and Frank Grant, Lisa Mighetto, and Carla Homstad, "Engineering in the Far North: A History of the U.S. Army Engineer District in Alaska," draft, Oct. 1995, pp. 363­68.

72. John Downey, draft report on 801 housing, late 1989, pp. 2 and 7, Office of History; interview, Donita Moorhus with Col. Ralph Danielson, District Engineer, New York District, New York, 13 and 15 Jan. 1992, pp. 30 and 100­101; and Memorandum from Robert A. Stone, Deputy Assistant Secretary of Defense (Installations) to Deputy Assistant Secretary of the Army (Installations and Logistics) et al., 13 Feb. 1987, Office of History.

73. House Committee on Armed Services, Hearings on National Defense Authorization Act for Fiscal Years 1988/1989--H.R. 1748 and Oversight of Previously Authorized Programs, 100th Cong., 1st sess., 1988, H.A.S.C. No. 100-11, 560­61; House Committee, Hearings on H.R. 4181, 241; House Committee, Hearings on H.R. 1816, 4; and interview, Donita Moorhus with Joseph J. Cox, Deputy Counsel, North Atlantic Division, New York, 30 July 1992, pp. 16­18.

74. GAO, "Military Family Housing," pp. 17­18; House Committee, Hearings on H.R. 4181, 244; and interview, Donita Moorhus with Lt. Col. Ramon F. Bradham, USA (Ret.), 14 May 1992, Watertown, NY, p. 33. Bradham was deputy district engineer of the New York Engineer District, assigned to Ft. Drum.

75. House Committee on Armed Services, National Defense Authorization Act for Fiscal Year 1987, 99th Cong., 1st sess., 1986, H. Rpt. 99-718, 278­79; House Committee on Appropriations, Military Construction Appropriations for 1987, 99th Cong., 2d sess., 1986, part 4, 541; House Committee on Appropriations, Military Construction Appropriation Bill, 1987, 99th Cong., 2d sess., 1986, H. Rpt. 99-648, 48­49.

76. Senate Committee on Armed Service, National Defense Authorization Act of Fiscal Year 1987, 99th Cong., 2d sess., 1986, S. Rpt. 99-331, 305; Committee of Conference, National Defense Authorization Act for Fiscal Year 1987, 99th Cong., 2d sess., 1986, H. Rpt. 99-1001, 554­55; Senate Committee on Appropriations, Military Construction Appropriation Bill, 1987, 99th Cong., 2d sess., 1986, S. Rpt. 99-368, 42; and Committee of Conference, Making Continuing Appropriations for Fiscal Year 1987: Conference Report to Accompany H. J. Res. 738, 99th Cong., 2d sess., 1986, H. Rpt. 99-1005, 739­40.

77. The authorization conference report, H. Rpt. 99-1001, p. 55, 14 October 1986, takes a more optimistic tone about the costs of 801 leases. House Committee on Appropriations, Military Construction Appropriation Bill, 1988, 100th Cong., 1st sess., 1987, H. Rpt. 100-209, 42­43; and Senate Committee on Appropriations, Military Construction Appropriations for Fiscal Year 1988, 100th Cong., 1st sess., 1988, S. Hrg. 100-497, 151­53.

78. House Committee, Hearings on National Defense Authorization Act for Fiscal Years 1988/89--H.R. 1748, H.A.S.C. No. 100-11, 567­71; Cheverie interview, pp. 60­63 and 74; interview, Donita Moorhus with Col. Tom Reth, USA (Ret.), 2 March 1993, Reston, VA, pp. 44­49; Downey, draft report on Section 801 housing, pp. 5­6, Office of History: and H. M. West III, Deputy Comptroller of the Army, to Michael P.W. Stone, 25 April 1988, Office of History. In his 13 Feb. 1987 memorandum to his counterparts in the services, Stone mused about separating maintenance from construction; in late March he announced the change in congressional hearings.

79. House Committee, Hearings on National Defense Authorization Act for Fiscal Years 1988/89, 56­57; Senate Committee on Armed Services, National Defense Authorization Act for Fiscal Years 1988 and 1989, 100th Cong., 1st sess., 1987, S. Rpt. 100-57, 181; and Committee of Conference, National Defense Authorization Act for Fiscal Years 1988 and 1989, 100th Cong., 1st sess., 1987, H. Rpt. 100-146, 722.

80. House Committee, Hearings on National Defense Authorization Act for Fiscal Years 1988/89, 567­69 and Committee of Conference, National Defense Authorization Act for Fiscal Years 1992 and 1993, 102d Cong., 1st sess., 1991, H. Rpt. 102-311, 634.

81. House Committee on Appropriations, Military Construction Appropriation Bill, 1986, 99th Cong., 1st sess., 1986, H. Rpt. 99-275, 69; Senate Committee, Military Construction Appropriations for Fiscal Year 1990, S. Hrg. 101-246, 51; House Committee on Armed Services, Hearings on National Defense Authorization Act for Fiscal Year 1990--H.R. 2461, 101st Cong., 1st sess., 1989, H.A.S.C. 101-13, 555 and 557­59; House Committee on Appropriations, Military Construction Appropriations for 1990, 101st Cong., 1st sess., 1989, part 5, 604­05; and Baldwin, "History of the Wherry and Capehart Housing Programs in the Army, 1949­1962."

82. House Committee, Military Construction Appropriations for 1987, part 4, 555; House Committee, Military Construction Appropriation Bill, 1987, H. Rpt. 99-648, 49; and Senate Committee on Appropriations, Military Construction Appropriations for Fiscal Year 1990, 101st Cong., 1st sess., 1989, S. Hrg.101-246, 48. In 1988 the House vigorously objected to OMB's method of scoring installment purchase and voted to require the Defense Department to propose an installment purchase program. House Committee on Appropriations, Military Construction Appropriations Bill, 1989, 100th Cong., 2d sess., 1988, H. Rpt. 100-620, 31.

83. GAO, "Army Family Housing: Additional Dwelling Units Not Justified at Fort Campbell," NSIAD-91-101, June 1991, pp. 1­2 and 17­18 and John Downey, draft report on the 801 program, p. 6, Office of History. GAO also testified on its findings before the Senate Committee on Armed Services in the spring of 1990. See Senate Committee on Armed Services, Department of Defense Authorization for Appropriations for FY 1991, 101st Cong., 2d sess., 1990, S. Hrg. 101-986, Pr. 2, 510­23.

84. House Committee on Appropriations, Military Construction Appropriations for 1989, 100th Cong., 2d sess., 1988, part 5, 607; House Committee on Armed Services, Hearings on National Defense Authorization Act for Fiscal Year 1990--H.R. 2311, 100th Cong., 1st sess., 1989, H.A.S.C. No. 101-13, 584. Hefner was chairman of the Subcommittee on Military Construction Appropriations and Mrs. Schroeder was chairwoman of the Military Installations and Facilities Subcommittee of the House Armed Services Committee.

85. GAO, "Military Family Housing," pp. 18­19 and House Committee, Hearings on H.R. 4181," 240­41.

86. GAO, "Military Family Housing," pp. 11 and 21. See also House Committee on Appropriations, Military Construction Appropriations for 1987, 99th Cong., 2d sess., 1986, part 4, 548­49.

87. GAO, "Military Family Housing," p. 19; House Committee, Military Construction Appropriations for 1986, 583­85 and 587­88; Senate Committee on Armed Services, National Defense Authorization Act for Fiscal Year 1987, 99th Cong., 2d sess., 1986, S. Rpt. 99-331, 305; Committee of Conference, National Defense Authorization Act for Fiscal Year 1987, 99th Cong., 2d sess., 1986, H. Rpt. 99-1001, 554­55; and Committee of Conference, Making Continuing Appropriations for Fiscal Year 1987, 740. In 1987 Stone acknowledged that the idea to freeze the shelter rent and allow the maintenance rent to rise "looked good on paper.... But the result of that idea that looked good on paper was developers cannot get financing." House Committee on Armed Services, Hearings on National Defense Authorization Act for Fiscal Years 1988/1989--H.R. 1748, 100th Cong., 1st sess., 1988, H.A.S.C. No. 100-11, 571­72.

88. House Committee on Armed Services, Hearings on National Defense Authorization Act for Fiscal Years 1988/1989--H.R. 1748, 100th Cong., 1st sess., 1988, H.A.S.C. No. 100-11, 28, 31, 57, 66­67, 529, 565, and 571­72; House Committee on Armed Service, National Defense Authorization Act for Fiscal Year 1988/89, 100th Cong., 1st sess., 1987, H. Rpt. 100-58, 247; Senate Committee on Armed Services, National Defense Authorization Act for Fiscal Years 1988 and 1989, 100th Cong., 1st sess., 1987, S. Rpt. 100-57, 181; and Committee of Conference, National Defense Authorization Act for Fiscal Years 1988 and 1989, 100th Cong., 1st sess., 1987, H. Rpt. 100-146, 722.

89. Committee of Conference, National Defense Authorization Act for Fiscal Year 1989, 100th Cong., 2d sess., 1988, H. Rpt. 100-989, 506­07.

90. House Committee on Armed Services, National Defense Authorization Act for Fiscal Years 1990­1991, 101 Cong., 1st sess., 1989, H. Rpt. 101-121, 356; Senate Committee on Armed Services, National Defense Authorization Act for Fiscal Years 1990­1991, 101st Cong., 1st sess., 1989, S. Rpt. 101-81, 244­45; Committee of Conference, Authorizing Appropriations for Fiscal Year 1990 for Military Activities of the Department of Defense, 101st Cong., 1st sess., 1989, H. Rpt. 101-331, 686; and Senate Committee on Armed Services, Department of Defense Authorization for Appropriations for Fiscal Year 1991, 101st Cong., 2d sess., 1990, S. Hrg. 101-986, part 2, 521­22.

91. Senate Committee, Department of Defense Authorization for Appropriations for Fiscal Year 1991, 530 and House Committee on Armed Services, Hearings on National Defense Authorization Act for Fiscal Year 1994--H.R. 2401, 103d Cong., 1st sess., 1994, H.A.S.C. No. 103-14, 250­51.

92. The Budget Enforcement Act was Title XIII of PL 101-508, Omnibus Budget Reconciliation Act of 1990, 5 November 1990. For an overview of the act see Stanley E. Collender, The Guide to the Federal Budget, Fiscal 1992 (Washington, DC: Urban Institute Press, 1991), pp. 17­29. With the passage of the National Defense Authorization Act for Fiscal Years 1990 and 1991, PL 101-189, 29 Nov. 1989, the Army had authorization for 6,300 Section 801 housing units.

93. Committee of Conference, Omnibus Budget Reconciliation Act of 1990, 101st Cong., 2d sess., 1990, H. Rpt. 101-964, 1174. During the spring 1991 hearings before the House armed services committee, Representative O'B. Martin provided some historical perspective on the scoring issue. When the programs began in 1983, according to Martin, scoring had been an issue, but OMB director, David Stockman (whom Martin incorrectly recalled as "Stock") ruled that the leases could be scored one year at a time. House Committee, Hearings on National Defense Authorization for Fiscal Years 1992 and 1993, 103.

94. House Committee, Hearings on National Defense Authorization For Fiscal Years 1992 and 1993, 103 and 332; House Committee on Armed Services, National Defense Authorization Act for Fiscal Years 1992 and 1993, 102d Cong., 1st sess., 1991, H. Rpt. 102-60, 295­98; Senate Committee on Armed Services, National Defense Authorization Act for Fiscal Years 1992 and 1993, 102d Cong., 1st sess., 1991, S. Rpt. 102-113, 342­43; House Committee on Appropriations, Military Construction Appropriations for 1992, 102d Cong., 1st sess., 1991, part 6, 76; and Collender, Guide to the Federal Budget--Fiscal 1992, pp. 26­28.

95. PL 102-190, National Defense Authorization Act for Fiscal Years 1992 and 1993; Senate Committee on Armed Services, National Defense Authorization Act for Fiscal Years 1992 and 1993, 102d Cong., 1st sess., 1991, S. Rpt. 102-113, 342­44 and 345­46; Committee of Conference, National Defense Authorization Act for Fiscal Years 1992 and 1993, 102d Cong., 1st sess., 1991, H. Rpt. 102-311, 634 and 636; Committee of Conference, Omnibus Budget Reconciliation Act of 1990, 1172­76; House Committee on Appropriations, Military Construction Appropriations for 1993, 102d Cong., 2d sess., 1992, part 5, 453; Senate Committee on Armed Services, National Defense Authorization Act for Fiscal Year 1993, 102d Cong., 2d sess., 1992, S. Rpt. 102-352, 329­30; and telephone conversation with Walter H. Hylton III, Directorate of Real Estate, HQUSACE, 3 May 1996.

96. House Committee on Appropriations, Military Construction Appropriations for 1963, 87th Cong., 2d sess., 1962, part 3, 523; House Committee on Appropriations, Military Construction Appropriations for 1994, 103d Cong., 1st sess., 1993, part 5, 71 and 85; ESC, "Analysis of USAREUR Family Housing," pp. F­1 and F­12.