Originally created 07/22/98

Report: Pentagon housing plan will save less than expected



WASHINGTON -- The Pentagon's plan to use private developers to build military housing is off to a slow start and will save less money than expected, a congressional report concludes.

While the program will mean the Pentagon can spend less money building new housing, it will require more money to help service members and their families afford rent in new, privately owned housing.

The report issued this week by the General Accounting Office, an investigative arm of Congress, said the Pentagon has greatly exaggerated the savings it will realize by using private lenders and developers to provide housing for military families instead of building government-owned housing.

"Whether privatization also saves the government money in the long term, and if so, how much money, are questions that have not been answered," the GAO found.

In an analysis of projects proposed for Fort Carson, Colo., and Lackland Air Force Base, Texas, the report said the Pentagon's estimate of savings was $170 million higher than the GAO's, more than a threefold difference.

Defense Secretary William Cohen said Tuesday that the quality of military family housing "has been a particular problem for us" and the Pentagon response is "to find ways in which we can leverage the private sector's creativity" and "increase the supply of quality housing for our troops."

In a written response to the findings, John Goodman, head of the Pentagon's Housing Revitalization Support Office, which is in charge of the privatization program, said the slow progress of developing privatized housing "was appropriate and necessary to resolving critical program issues. ... Proceeding more rapidly would have created major long-term problems."

The cost comparisons done by GAO, Goodman said, wrongly assume that the Department of Defense still has the money to build housing the old-fashioned way -- by hiring contractors to construct homes that the government will own on or near bases. In fact, military construction budgets are steadily shrinking, and any savings become important in the current tight budget environment, he said.

"Although less than DOD's projections, even these savings are nonetheless significant," Goodman said.

Established by Congress in 1996, the housing privatization initiative allows the Pentagon to provide loan guarantees, land leases, commercial incentives and the opportunity for contractors to own and operate the military family housing units they build. Unless renewed by Congress, the program will phase out in 2000. Supporters worry that the Pentagon's slow progress will lead lawmakers to let the program die.

The GAO concluded that after nearly three years of effort, "no new agreements have been finalized to build or renovate military housing. More than a dozen projects are being considered; however only one project (Lackland) is close to contract signing." The Associated Press reported on those delays last week.

The Pentagon says that using traditional construction methods to upgrade or replace the estimated 200,000 family housing units deemed substandard would require more than $20 billion and 30 to 40 years. Initially, the privatization plan was billed as enabling the Pentagon to solve the problem in 10 years. That deadline has already been extended by four years because of the program's slow start.

By using privatization methods, the GAO found, construction costs to the taxpayer will shrink, but the shift to more private-sector housing will bring an increase in the subsidies the Pentagon pays to service members who cannot afford private rents on their own.

In 1997 the Pentagon paid $4.3 billion in housing allowances to cover about 80 percent of a typical family's housing costs, including utilities.