DoD Military Housing Privatization

STATEMENT BY:
ROBERT E. BAYER
DEPUTY ASSISTANT SECRETARY OF DEFENSE
(INSTALLATIONS)

SUBCOMMITEE ON MILITARY INSTALLATIONS AND FACILITIES OF THE HOUSE NATIONAL SECURITY COMMITTE
MARCH 7, 1996

MILITARY HOUSING PRIVATIZATION INITIATIVE

Mr. Chairman and distinguished members of the Subcommittee on Military Installations and Facilities, it is a pleasure to appear before you today to provide you with a status report of the Department of Defense's (DoD) implementation of the Military Housing Privatization Initiative, Title XXVIII, Subtitle A, of the National Defense Authorization Act for Fiscal Year 1996. Before proceeding, Mr. Chairman, I want to acknowledge the leadership and support provided by the Congress in general, and this Committee in particular. Without your personal support, we would not be poised today to launch into a major new process to improve living conditions for our Service members and their families. We look forward to your continued support as we test these authorities and learn how to best use them to meet our mutual goal of providing our service men and women with quality living accommodations.

PROBLEM
The quality of life (QoL) of our Service members and their families continues to be one of Secretary Perry's highest priorities. Today's Service members are a force of volunteers who joined the military for a career, not a two year tour of duty. Over the past three decades, the percentage of military members who are married and the percentage of time they spend deployed away from home have steadily increased, whereas the quality of their housing, and associated support such as schools, recreation, day care, etc., has failed to keep pace.

Secretary Perry recognizes the importance of housing as a key element in the quality of life of our Service members and their families. He is determined to improve their living conditions to maintain high morale and a ready force.

His quality of life budget increase last fall was a significant first step. Secretary Perry added $2.7 Billion over the Future Years Defense Program (FYDP) for several areas of quality of life including quarters allowances, housing maintenance, and recapitalization. As an integral part of this initiative, he chartered the Defense Science Board's Quality of Life Task Force...the Marsh Task Force.

The Task Force members spent several months taking an independent look at the quality of life of Service members. Key to this effort was extensive travel and interviews with Service members and their families. In its October 1995 report, the Task Force confirmed disconcerting downward trends in perceived quality of life. The panel warned that readiness and morale are in jeopardy. In the panel's view, continuing to neglect these issues risks eroding the force because even the most dedicated Service members may leave the service.

The Task Force recommended several ways the Department could improve the quality of life for our Service members. One of its top recommendations was to use private expertise and capital to accelerate improvement of government owned housing ... unaccompanied and family housing ... and encourage the development of more affordable housing in local communities. As the Task Force stated, "Well-equipped forces have the instruments to win war and forces satisfied with their quality of life are motivated to fight." It is our job to make sure our forces are satisfied with their quality of life. We know that military deployments require Service members' full attention in order to be effective and safe. We want to minimize anxieties about their families during these stressful periods that come all too often in today's world.

The Department currently faces three significant housing problems. First is the condition of DoD owned family housing. Today's military families are living in yesterday's houses. DoD currently houses about 1/3 of our families in over 300,000 government owned family housing units located both on and off base. About 2/3rds of these units need to be renovated or replaced because over the past 30 years, they have not been sufficiently maintained or modernized. Using the traditional military construction approach, it would cost taxpayers nearly $20 billion to accomplish this task and it would take 30-40 years to solve this problem. Neither the costs nor time lines of the current system of housing construction and modernization meet the challenge we face. We can not afford a "business as usual" approach.

The second problem relates to the other two-thirds of our service families. They live in local communities because of DoD's policy to rely first on the private sector to provide suitable family housing. We do not intend to change this overall strategy. However, we recognize that the majority of Service members living in local communities are enlisted personnel whose compensation is at the lower end of the military pay scale. Their income makes it difficult for them to find quality, affordable housing within a reasonable commuting distance. Some of the communities around our installations simply do not have enough affordable, quality rental housing to accommodate our Service members.

Finally, our barracks are in desperate need of improvement. Renovation or replacement of barracks is the largest single functional category within the MILCON, and the repair and maintenance (RPM) portion of the Operations and Maintenance (O&M) budget. This resource commitment reflects Secretary Perry's continuing five year commitment to improving the quality of life for single military members. Additional funding by Congress for FY 96 increases both RPM (by $322 Million) and revitalization of barracks (by $212 Million). We plan to track these expenditures to ensure that these additional funds are used to improve barracks.

In November, 1995, the Department established the "1+1" standard for new, permanent party barracks construction. This standard prescribes an 11 square meters (118.4 square feet) standard, similar to the design the Army has been using under a waiver for several years. These quarters include two individual living/sleeping rooms with closets, and a shared bath and kitchenette service area. This module will normally house two E1-E4 members or one member E5 and above. Exceptions are approved so a Service can modify this arrangement where mission or overall conditions dictate. This standard is optional for barracks outside the continental United States (CONUS) funded by other than the United States or constrained by site conditions. The Services will begin to phase in adoption of this standard with the FY 96 program.

SOLUTION
The Department is extremely pleased with the broad new authorities provided in the National Defense Authorization Act for Fiscal Year 1996. They will help us attract private capital to solve our housing problems much more quickly. The new authorities in this Military Housing Privatization Initiative permit:

Guarantees, both for loans and rental occupancy;
Conveyance or lease of existing property and facilities;
Differential payments to supplement Service members BAQ/VHA;
Investments, both limited partnerships and stock/bond ownership; and,
Direct Loans.

These new authorities can be used individually, or in combination. We believe they will allow us to attract private capital and leverage Military Construction (MILCON) dollars by at least 3 to 1. Establishment of the Family Housing Improvement Fund, with its initial appropriation of $22 Million in Fiscal Year 1996 and transfer authority, provides an effective mechanism to fund the selected projects. We have requested an additional $20 Million for this purpose in Fiscal Year 1997. As military construction projects are converted to projects financed using the new authorities, we expect to use the MILCON savings to fund additional projects. The notification and reporting requirements in the law provide Congressional visibility, at key steps, as we proceed.

There is no single "magic bullet" to efficiently and economically revitalize our housing stock or encourage the private sector to meet DoD needs. In real estate, one size does not fit all. Each location, each project, and the terms of each deal will vary according to: market conditions, market penetration, land cost and availability, developer capabilities, and our housing renovation or construction requirements. Approaches that work in one location may fail dismally at another. Therefore, the Department needed, and received from you, a "kit bag" of tools and flexibility to take advantage of each installation's and civilian community's unique circumstances.

BENEFITS
I believe this new housing initiative is the beginning of a mutually beneficial relationship between the Department of Defense and the private sector. For the Department, it will result in faster construction of more housing built to market standards. We expect to save substantially compared to the Military Construction alternative process. Commercial construction and operation is not only faster and less costly than military construction, but private sector funds will also significantly stretch and leverage the Department's limited housing resources ... achieving more improved housing from the same funding level.

There will also be significant investment opportunities in Defense housing for developers and financiers in the private sector. The initiative opens the military construction market to a greater number of development firms. It stimulates the economy beyond traditional MILCON investments through increased private sector building activity because we can build more, and, in some cases put more property on local tax roles.

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	CONGRESSIONAL TESTIMONY 1997

	STATEMENT BY: ROBERT E. BAYER DEPUTY ASSISTANT SECRETARY OF DEFENSE (INSTALLATIONS) SUBCOMMITEE ON MILITARY INSTALLATIONS AND FACILITIES OF THE HOUSE NATIONAL SECURITY COMMITTE MARCH 7, 1996 MILITARY HOUSING PRIVATIZATION INITIATIVE Mr. Chairman and distinguished members of the Subcommittee on Military Installations and Facilities, it is a pleasure to appear before you today to provide you with a status report of the Department of Defense's (DoD) implementation of the Military Housing Privatization Initiative, Title XXVIII, Subtitle A, of the National Defense Authorization Act for Fiscal Year 1996. Before proceeding, Mr. Chairman, I want to acknowledge the leadership and support provided by the Congress in general, and this Committee in particular. Without your personal support, we would not be poised today to launch into a major new process to improve living conditions for our Service members and their families. We look forward to your continued support as we test these authorities and learn how to best use them to meet our mutual goal of providing our service men and women with quality living accommodations. PROBLEM The quality of life (QoL) of our Service members and their families continues to be one of Secretary Perry's highest priorities. Today's Service members are a force of volunteers who joined the military for a career, not a two year tour of duty. Over the past three decades, the percentage of military members who are married and the percentage of time they spend deployed away from home have steadily increased, whereas the quality of their housing, and associated support such as schools, recreation, day care, etc., has failed to keep pace. Secretary Perry recognizes the importance of housing as a key element in the quality of life of our Service members and their families. He is determined to improve their living conditions to maintain high morale and a ready force. His quality of life budget increase last fall was a significant first step. Secretary Perry added $2.7 Billion over the Future Years Defense Program (FYDP) for several areas of quality of life including quarters allowances, housing maintenance, and recapitalization. As an integral part of this initiative, he chartered the Defense Science Board's Quality of Life Task Force...the Marsh Task Force. The Task Force members spent several months taking an independent look at the quality of life of Service members. Key to this effort was extensive travel and interviews with Service members and their families. In its October 1995 report, the Task Force confirmed disconcerting downward trends in perceived quality of life. The panel warned that readiness and morale are in jeopardy. In the panel's view, continuing to neglect these issues risks eroding the force because even the most dedicated Service members may leave the service. The Task Force recommended several ways the Department could improve the quality of life for our Service members. One of its top recommendations was to use private expertise and capital to accelerate improvement of government owned housing ... unaccompanied and family housing ... and encourage the development of more affordable housing in local communities. As the Task Force stated, "Well-equipped forces have the instruments to win war and forces satisfied with their quality of life are motivated to fight." It is our job to make sure our forces are satisfied with their quality of life. We know that military deployments require Service members' full attention in order to be effective and safe. We want to minimize anxieties about their families during these stressful periods that come all too often in today's world. The Department currently faces three significant housing problems. First is the condition of DoD owned family housing. Today's military families are living in yesterday's houses. DoD currently houses about 1/3 of our families in over 300,000 government owned family housing units located both on and off base. About 2/3rds of these units need to be renovated or replaced because over the past 30 years, they have not been sufficiently maintained or modernized. Using the traditional military construction approach, it would cost taxpayers nearly $20 billion to accomplish this task and it would take 30-40 years to solve this problem. Neither the costs nor time lines of the current system of housing construction and modernization meet the challenge we face. We can not afford a "business as usual" approach. The second problem relates to the other two-thirds of our service families. They live in local communities because of DoD's policy to rely first on the private sector to provide suitable family housing. We do not intend to change this overall strategy. However, we recognize that the majority of Service members living in local communities are enlisted personnel whose compensation is at the lower end of the military pay scale. Their income makes it difficult for them to find quality, affordable housing within a reasonable commuting distance. Some of the communities around our installations simply do not have enough affordable, quality rental housing to accommodate our Service members. Finally, our barracks are in desperate need of improvement. Renovation or replacement of barracks is the largest single functional category within the MILCON, and the repair and maintenance (RPM) portion of the Operations and Maintenance (O&M) budget. This resource commitment reflects Secretary Perry's continuing five year commitment to improving the quality of life for single military members. Additional funding by Congress for FY 96 increases both RPM (by $322 Million) and revitalization of barracks (by $212 Million). We plan to track these expenditures to ensure that these additional funds are used to improve barracks. In November, 1995, the Department established the "1+1" standard for new, permanent party barracks construction. This standard prescribes an 11 square meters (118.4 square feet) standard, similar to the design the Army has been using under a waiver for several years. These quarters include two individual living/sleeping rooms with closets, and a shared bath and kitchenette service area. This module will normally house two E1-E4 members or one member E5 and above. Exceptions are approved so a Service can modify this arrangement where mission or overall conditions dictate. This standard is optional for barracks outside the continental United States (CONUS) funded by other than the United States or constrained by site conditions. The Services will begin to phase in adoption of this standard with the FY 96 program. SOLUTION The Department is extremely pleased with the broad new authorities provided in the National Defense Authorization Act for Fiscal Year 1996. They will help us attract private capital to solve our housing problems much more quickly. The new authorities in this Military Housing Privatization Initiative permit: Guarantees, both for loans and rental occupancy; Conveyance or lease of existing property and facilities; Differential payments to supplement Service members BAQ/VHA; Investments, both limited partnerships and stock/bond ownership; and, Direct Loans. These new authorities can be used individually, or in combination. We believe they will allow us to attract private capital and leverage Military Construction (MILCON) dollars by at least 3 to 1. Establishment of the Family Housing Improvement Fund, with its initial appropriation of $22 Million in Fiscal Year 1996 and transfer authority, provides an effective mechanism to fund the selected projects. We have requested an additional $20 Million for this purpose in Fiscal Year 1997. As military construction projects are converted to projects financed using the new authorities, we expect to use the MILCON savings to fund additional projects. The notification and reporting requirements in the law provide Congressional visibility, at key steps, as we proceed. There is no single "magic bullet" to efficiently and economically revitalize our housing stock or encourage the private sector to meet DoD needs. In real estate, one size does not fit all. Each location, each project, and the terms of each deal will vary according to: market conditions, market penetration, land cost and availability, developer capabilities, and our housing renovation or construction requirements. Approaches that work in one location may fail dismally at another. Therefore, the Department needed, and received from you, a "kit bag" of tools and flexibility to take advantage of each installation's and civilian community's unique circumstances. BENEFITS I believe this new housing initiative is the beginning of a mutually beneficial relationship between the Department of Defense and the private sector. For the Department, it will result in faster construction of more housing built to market standards. We expect to save substantially compared to the Military Construction alternative process. Commercial construction and operation is not only faster and less costly than military construction, but private sector funds will also significantly stretch and leverage the Department's limited housing resources ... achieving more improved housing from the same funding level. There will also be significant investment opportunities in Defense housing for developers and financiers in the private sector. The initiative opens the military construction market to a greater number of development firms. It stimulates the economy beyond traditional MILCON investments through increased private sector building activity because we can build more, and, in some cases put more property on local tax roles.