R48137 — Privatized Military Housing: Costs and Budgetary Issues for Congress

Privatized military housing programs have become an area of legislative interest for the 118th Congress. Some Members have advocated for expanding the existing program to provide more privatized housing for servicemembers without dependents (also known as unaccompanied housing, barracks, or dormitories). These expansion proposals have raised questions about costs and budget scoring rules associated with existing and, potentially, future privatized housing programs. The privatized military housing program dates back to the mid-1990s, when the Department of Defense (DOD) reported that most of its government-owned domestic family housing inventory was inadequate and in need of repair or complete replacement. DOD estimated at that time that it would cost about $20 billion in appropriated funds and would take up to 40 years to build adequate military family housing using existing authorities for new construction or renovation. In response, Congress, in the National Defense Authorization Act for Fiscal Year 1996 (NDAA; P.L. 104-106), established new authorities for a privatized military housing program, known as the Military Housing Privatization Initiative (MHPI). The MHPI provides an alternative approach to the traditional military construction (MILCON) process that builds government-owned and -operated housing facilities. Using MHPI authorities, DOD makes loans, conveys and leases military properties, provides funding, and carries out other activities designed to incentivize private-sector developers and property management companies to finance, own, operate, and maintain family housing units. During the past 20 years, DOD has privatized nearly all of the family housing facilities in the United States. For housing that supports service members without dependents, privatized housing accounts for less than 2% of DOD’s housing facilities; the remaining 98% of unaccompanied housing is owned and operated by the government. The advent of privatized housing programs has resulted in a new set of costs, benefits, risks, and oversight issues associated with military housing. DOD’s long-term legal agreements with private housing entities have reshaped annual spending for military construction and family housing accounts, military personnel accounts (for Basic Allowance for Housing, or BAH), parts of the general Operation and Maintenance accounts, and certain mandatory spending related to government loans. Some advocates assert that the MHPI program is a cost-effective way to provide military housing. The Congressional Budget Office (CBO) has asserted that the MHPI approach is ultimately more expensive than traditional military construction and management program, due in part to the long-term or indirect costs incurred by the government. After more than two decades of operating privatized housing programs, DOD has documented some of the long-term costs and budgetary effects associated with the MHPI programs. Cumulative DOD contributions to MHPI to date total at least $28.0 billion. Budget scoring rules that Congress and the executive branch apply to MHPI programs have evolved since the MHPI program’s inception in 1996. Budget scoring is a process that Congress and the executive branch use to estimate the change in government spending that may result from proposed or enacted legislation. In the early years of the MHPI program, some of the Office of Management and Budget’s accounting practices for MHPI projects were are at odds with government-wide standards, and initial cost estimates from the CBO may not have fully accounted for the costs of government commitments that the MHPI programs ultimately entailed. As a result, DOD was able to initiate new MHPI construction and renovation projects while recording only a portion of the projects’ cost in the budget. In the intervening years, certain accounting practices and budget scoring policies related to the MHPI have changed. For potential future MHIP projects, Congress and DOD may have to record a greater portion of the projects’ costs in the budget. In other words, proposals for additional MHPI projects in the future may appear in the annual budget process to cost more than similar projects appeared to cost in the early years of the MHPI program.

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