Secretary of Defense William S. Cohen announced today a major Department of Defense (DoD) initiative to eliminate service members' out-of-pocket costs for off-base housing in the United States. This action will reduce service members' out-of-pocket costs for housing from an average of 18.8 percent of monthly housing costs in 2000 to 15 percent in 2001, with continued reductions each year thereafter, eliminating those out-of-pocket costs entirely by 2005. To pay for the initiative, the Department has realigned more than $3 billion into the housing allowance program over the next five years, beginning with $160 million in the fiscal 2001 budget.
"This historic boost to the housing allowance is another confirmation of the Department's vigorous and sustained commitment to the quality of life of our men and women in uniform. It adds to the momentum generated by the landmark improvements to military pay and retirement enacted by Congress at the request of the Department of Defense and the Administration in the fiscal 2000 National Defense Authorization Act. It augments our ability to attract and retain the quality individuals America's military needs. Good housing is a top priority for the Department and a crucial component of quality of life," Cohen said.
This initiative continues the major improvements in compensation for service members started last year. It also further strengthens ongoing efforts to eliminate DoD's inadequate on-base family housing by 2010 and inadequate barracks for single members by 2008 through the increased use of privatization as well as traditional military construction (MILCON). The Department has a three-pronged integrated plan to improve housing: increasing housing allowances, increasing reliance upon the private sector through privatization, and maintaining military construction. Housing allowances compensate service members who live off-base, and provide the income stream to support privatization.
Service members, whether single or married, are provided either government housing or a monthly stipend known as Basic Allowance for Housing (BAH) to procure commercially-owned housing in civilian communities around military bases. The size and attributes of the government quarters provided to the service member depend upon his or her rank, marital status and family size. For those service members living off-base, the amount of BAH paid depends upon the service member's rank, marital status and the local cost for housing. Some 750,000 service members in the United States are eligible for BAH. The congressional statute authorizing the BAH system currently limits monthly BAH payments to no more than 85 percent of the average local cost for housing. Service members currently pay for the shortfall out-of-pocket. The fiscal 2001 budget will include the necessary proposed legislative changes to allow out-of-pocket costs to be decreased below the currently legislated 15 percent.
Out-of-pocket costs reflect the difference between BAH rates and the national median cost of housing. While housing costs and BAH rates vary by location in the United States, average out-of-pocket costs are the same for the typical member of each military rank at every location in the United States. For example, a typical married "E-6" (Army or Marine Corps staff sergeant or Navy petty officer first class or Air Force technical sergeant) currently has an out-of-pocket cost of $175 dollars per month, regardless of location, which is 18.8 percent of the $934 national median housing cost for that rank.
This initiative will increase a typical married E-6's monthly BAH by $35 in 2001, with additional increases every year thereafter until the E-6's BAH is $175 higher than if the initiative had not occurred. For a typical married "E-4" (Army specialist, Navy petty officer third class, Air Force senior airman, or Marine Corps corporal), BAH will increase $28 per month in 2001, with a total increase of $111 per month by 2005. BAH is not taxed, so every dollar of BAH goes directly into the service member's pocket.
Service members will benefit from improved quality of housing because of the positive effect that higher BAH will have on housing privatization efforts. In these programs, private developers provide and maintain housing for service members and their family members. The developers' compensation comes from rent paid by service members residing in the housing, using their BAH. Privatization can provide new housing in areas where available housing is limited. Improved BAH increases the income available to private sector developers, facilitating increases in the quantity and quality of privatized housing.
Said Cohen, "The military simply cannot afford to build, own and maintain enough quality housing to meet our needs. Adequate housing is a core military requirement. But building and maintaining housing is not a core military competency. It makes good sense to incentivize the private sector to provide the housing we need. Having said that, it is also critically important to maintaining funding for government-owned and operated housing."
By employing a three-pronged approach -- improved BAH, privatization programs and MILCON - the Department is fulfilling a key commitment to provide safe, quality housing to our men and women in uniform and their families.