Developers of privatized housing projects face a range of issues that could affect their financial condition and future sustainment, including changes in the number of personnel at an installation, the need to maintain aging infrastructure and unforeseen project expenses. The Government Accountability Office (GAO) highlighted the list to show that a policy change implemented in 2015 that has gradually reduced the rate of increase in service members’ basic allowance for housing (BAH) is not the only reason a project may be struggling.
Large-scale reductions in the number of service members assigned to an installation or the inactivation of units can hurt a project’s occupancy rate and result in revenue and cash flow challenges, the congressional watchdog agency found. The loss of a brigade combat team at Fort Knox, Ky., in 2014, for example, caused the occupancy rate of the post’s privatized hosing project to drop from 95 to 70 percent, posing challenges to its financial health.
Some housing projects have taken over responsibility for the associated utility infrastructure, resulting in oversight and maintenance that has been more costly than expected in some cases and reduced cash flows, according to the report. Projects typically are not structured to absorb the cost of maintaining aging infrastructure, Air Force officials told GAO. After becoming aware of the problem, the Air Force decided to stop transferring utility infrastructure to developers in subsequent projects. In fact, some project owners have asked the military departments to take back the infrastructure.
Unexpected expenses, including from weather-related damage or litigation, also can create a challenge for some projects. The Navy’s Mid-Atlantic project, for example, has experienced unforeseen expenses stemming from water intrusion, mold and related litigation. Navy officials’ projections that a significant amount of sustainment work would not be required in the first five to 10 years of its projects have not been borne out, according to the report.
The military departments and developers pointed to BAH calculations prepared by DOD that do not appear to reflect local conditions as another factor that can affect project finances.
Photo courtesy of U.S. Navy