DOD will be required to make up the shortfall in revenue developers of privatized housing projects receive from service members as a result of a recent policy change reducing the rate of increase in the basic allowance for housing (BAH), under language in the conference report to the fiscal 2019 defense authorization bill. The measure calls for the department to pay developers 5 percent of BAH cost calculations. The language is intended to protect developers’ recapitalization accounts after Congress agreed to DOD’s plan to slow the growth in the BAH five years ago. Out-of-pocket housing costs for service members have increased by one percentage point a year since 2015, and in 2019 are slated to reach 5 percent.
Rents charged by the owners of privatized housing are tied to service members’ BAH payments, resulting in a drop in revenue at many projects. The provision means that personnel living in privatized housing will cost the Pentagon more than members living off-base. The extra payments will cost DOD about $200 million next year and more than $1 billion over the next five years, reports Military Times. As a result, the administration opposed the change when it initially was included in the House version of the annual policy bill. Section 606 will only apply to housing projects under way prior to Oct. 1, 2014, a change from the House’s original language.
Reductions in BAH are one of the challenges affecting the financial health of housing projects, the military departments have said, according to a recent report by the Government Accountability Office. The provision separately requires the department to submit by Dec. 1, 2018, “a long-range plan to develop measures to consistently address the future sustainment, recapitalization and financial condition of MHPI [Military Housing Privatization Initiative] housing.” The plan should include:
- efforts to mitigate the losses experienced by housing projects as a result of the reduction in BAH; and
- an assessment of the effect of the BAH reduction on the financial condition of privatized housing.
Air Force photo by Carole Chiles