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Housing and Quality of Life
Prepared statement of Joshua Gotbaum, assistant secretary of defense (economic security), the Military Installations and Facilities Subcommittee, House National Security Committee,, Tuesday, April 04, 1995

Mr. Chairman and distinguished members of the subcommittee, ... the quality of life of our military service members and their families is one of Secretary [of Defense William J.] Perry's highest priorities. To quote one of many speeches he has given on this subject, "We put a lot of time and money into our people. Our people in uniform are walking investments. If we lose them, we've lost a valuable asset and hurt readiness in a very fundamental way. The main factor in retention is quality of life, not only for troops, but also their families."

Housing is fundamental to quality of life. This morning I would like to describe the challenge and opportunity we have before us today -- to make dramatic improvements in housing for our military service members and their families.

First, I would like to spend a little time describing how our housing got to where it is today.

The military service members who now serve are quite different. Today we have a force of volunteers. They joined to learn a skill, to "be all you can be." They are here for a career, not a two-year tour of duty.

As you might expect, their standards for housing have also changed. For single service members, this means privacy in their barracks. They expect to be treated as adults and professionals. But single service members today are a minority. In 1955 only 42 percent were married; today that figure is 61 percent. We also have a significant number of single parents, who not only require family housing but also a wide range of family services.

Regardless of marital status, they face more complex and ever-changing requirements. Today's force deploys far more often, which places more stress on military service members and their families and more calls on our military installation support mechanisms.

We require single junior-enlisted service members to live in barracks. Almost 450,000 men and women now do so. One-fourth live in facilities that are substandard, and frankly our current standards are not that high.

In the past barracks were viewed not as a home, but as a place to sleep. In the era of conscription and two-year duty tours the quality of life of junior service members was of little concern. Even open bay barracks and gang latrines with hot water were a step up from ship racks and tents.

Today most of our barracks are no longer open bay, but they still offer little room for personal items like televisions or stereos or even all the operational gear we issue today's service members. Many of DoD's barracks were built 30 or more years ago; their average age is nearly 40 years.

The Air Force first realized the importance of providing enlisted personnel with a place to live, not just to sleep, complete with some of the amenities enjoyed by their civilian peers. The other services now recognize the need as well.

In 1992 a triservice steering committee surveyed single service members on barracks standards and asked their views on what needed to be changed. The findings were clear. Most single people would prefer to live off the installation, regardless of cost. The priorities for single members, in order of preference, were larger rooms, privacy, private bath, storage for personal items.

To respond to these concerns the services have been working on such no-cost initiatives as fewer intrusions and restrictions on service members living in barracks.

Improving the quality of these facilities will not be easy. Much of our existing barracks inventory is not in good condition. This is why Secretary Perry significantly increased funds for barracks revitalization and maintenance in this year's budget.

We have also developed a consensus on a standard barracks room module for new construction. We are now considering the timing and financial implications of moving to the new standard. Once we have developed options and know their price tags, Secretary Perry will decide the matter. We also need to consider whether and when it makes sense to replace or revitalize substandard barracks or instead, to rely upon the private sector to house single service members.

Both the percentage of military members who are married and the percentage of time they spend deployed away from home has been increasing steadily. These two factors make the availability, location and condition of family housing increasingly important.

Two-thirds of our families live in the civilian community, where, by policy, we prefer they live if there is suitable housing. Where there is sufficient affordable housing in the community and commuting is not a problem, most of these families are happy.

However, for about one off-post family in eight, that is not the case. Hardships occur when rents are excessive or a family can only afford to live in isolated, sometimes unsafe neighborhoods.

Problems are made worse when the family only has one car or perhaps none. If family members are unable to easily access the family support services available on the installation, they may have more serious problems. It is an added challenge when the installation is in a remote location a long way from a sufficient amount of adequate housing. The unusual work schedules inherent in military life create additional difficulties when service personnel must commute long distances.

Most problematic is a situation which occurs all too often. When housing is not available at a reasonable cost or within a reasonable driving distance from a new duty station, families are "involuntarily separated." That is a polite term for a real problem. At some duty stations the lack of good, safe, affordable housing is splitting up families. They deserve better.

About one-third of military families live in government housing. The DoD owns about 350,000 houses, and this inventory is aging. The average age of military housing is 33 years, and 25 percent of our houses are over 40 years old.

Like most older houses, the electrical systems and water pipes need to be replaced. Heating systems are often inefficient. These houses have not been well-maintained. Conditions vary, but the bottom line is we have well over 200,000 unsuitable houses that need to be fixed up or closed. This is why Secretary Perry added more funds for family housing in this year's budget.

The people who live in government houses do so by choice. The days of mandatory assignment to family housing are gone. Why do people choose to live in substandard houses? One reason is to reduce driving time to work, hospitals, commissaries, family support services, gyms, schools, churches and child care. Families who live on military installations may get along with fewer vehicles. Safety is another important consideration. When service members are deployed, they know their families are in a safe neighborhood with easy access to a host of support structures.

Another reason our people choose to live in substandard houses is cost.

Families who live in town receive about 20 percent less in housing allowances than they pay, on average, for their housing. Families in government housing do not have this additional expense. For this reason, Secretary Perry included a reduction of this out-of-pocket expense in his quality-of-life initiative.

The housing allowance system, too, could use an overhaul. We are looking at ways to improve how allowances are calculated and who should be eligible to receive them.

These conditions did not occur overnight. Our on-base housing has been deteriorating for many years and for many reasons:

 

  • Other priorities. When faced with tradeoffs between force levels, modernization and readiness vs. housing investment, housing has frequently come in second.
  • Rigid management practices. As with many other areas of federal management, our housing procurement and management procedures have become increasingly centralized and specialized.
  • Inflexible specifications and standards. Specifications have become overly detailed, perhaps to avoid past mistakes. As budgets decline fewer institutions have the time and inclination to adjust. Increasingly inflexible specifications gives them little ability to do so, even where local conditions warrant. And, of course, such rigidity contributes to higher costs.
  • Budgeting and appropriations procedures. The federal government's focus on annual appropriations tends to constrain resources for long-range projects like housing. As the budgeting and appropriations process became increasingly lengthy and detailed, flexibility was lost and costs rose.

Secretary Perry recognized that these problems have become critical. If we continue to ignore them, they will impair retention and readiness. Last year, working with the services, the secretary developed his quality of life initiative. In announcing it, Secretary Perry said, "People are our most important resource. No weapon system is better than the people who operate and maintain it. It is crucial that we put people first."

The quality of life initiative has several components:

 

  • Increased funding.

Over the next six years Secretary Perry has proposed an additional $2.7 billion for various quality of life improvements. $450 million of that was added to the services' FY [fiscal year] 96 budget requests. These additional funds are designed to improve compensation, housing allowances, living accommodations, and community and family support.

 

  • Compensation.

In the area of compensation the plan calls for a new cost-of-living allowance to aid military members living in communities identified as high-cost areas -- those over 109 percent of the national cost-of living average. The increases, which could boost some military paychecks by as much as $167 per month ($40 average), will help offset living expenses in such areas as New York, Long Island, Detroit, Dallas, Houston, Los Angeles and San Francisco.

The plan also calls for an increase in the Basic Allowance for Quarters to defray the costs of off-base housing for military members. Congressional intent has always been for service members living in the local community to absorb up to 15 percent of their housing costs with the remainder offset by BAQ and Variable Housing Allowances. The reality today is service members have had to defray an average of 20 percent of those costs.

By incrementally increasing BAQ payments up to $120 monthly over the next six years, Secretary Perry's plan hopes to bring the share of housing costs back in line for more than 700,000 military members and their families. A total of $60 million of FY 96 funds will be reallocated to cover these compensation and housing allowance initiatives.

 

  • Community and family support.

In the area of community and family support, the plan looks to increase FY 96 funding by $94 million. Funds are targeted towards increasing child care support from the current level of half of the eligible families to two-thirds of those needing the service -- a move that could affect 38,000 families. The money will also be used to improve recreation centers, reduce surcharges on the use of other recreational goods and services and strengthen preventive and counseling programs aimed at the prevention of family violence.

 

  • Housing refurbishment.

Secretary Perry's plan for better living accommodations begins by immediately upgrading 2,500 homes currently threatened by closure for lack of maintenance funds. Quarters for singles are being addressed in the form of improvements in privacy and other amenities to 1,200 dormitory (barracks) spaces.

A total of $274 million was reallocated in the FY 96 budget for housing and barracks improvements as part of this initiative. Because the cost of providing suitable housing is greater than the department will ever be able to afford, Secretary Perry allocated another $22 million for partnership ventures with private investors. The purpose here is to attract private sector capital to help us solve our housing problems more quickly. We call this the housing finance initiative, and I will have more on that later.

 

  • Additional FY 96 budget increases.

As the department finished putting its FY 96 budget request together, additional funds for family housing construction, revitalization and maintenance and barracks construction totaling over $360 million were added to the service budgets. Secretary Perry's commitment represents a 25 percent increase in funding for the family housing and barracks programs over that requested by the services -- clearly an important commitment.

 

  • The Quality of Life Task Force.

Increased funding is only part of the secretary's quality of life initiative.

In December Secretary Perry established a task force of distinguished individuals to conduct a review and provide recommendations on how to improve the quality of life of active and reserve component military personnel, their families and civilian employees of the Department of Defense. The task force is chaired by the Honorable John O. Marsh Jr., former secretary of the Army. Its members include retired flag officers and senior enlisted advisers, former defense officials, other federal and state governmental officials and members with extensive backgrounds in both public and private sectors.

Secretary Perry charged the task force with three objectives: improving the way we house our people, improving the way we deliver community and family services, and improving the way we manage our people to reduce personnel turbulence.

He has asked the task force for its views on resource allocation priorities among the three. The task force was also asked to identify actions that can improve quality of life, explore setting DoD-wide standards for components of quality of life and identify high-leverage items for use of appropriated funds to improve quality of life.

The housing committee of the task force is co-chaired by RADM Roberta Hazard (Ret.), former commander of the Naval Training Center at Great Lakes, [Ill.], and Mr. Kim Wincup, former assistant secretary of both the Army and the Air Force. They are joined by a number of other individuals with long and distinguished experience in both public and private housing development and management.

In the housing area I anticipate the task force will look into issues such as the following:

 

  • What do service members want? What are their priorities?
  • The state of on- and off-base housing.
  • Housing assignment policies.
  • Housing allowance determination procedures, especially variable housing allowance calculations and eligibility.
  • Construction standards for barracks and family housing -- what's appropriate and how to contract for it.
  • Privatization of the housing function -- looking at ways to use private sector expertise to manage our housing function.

The secretary established within the department an executive committee to assist the task force and to oversee DoD's efforts in this area. I chair the housing subcommittee of the executive committee.

The task force will deliver an interim report to Secretary Perry in July 1995 and a final report in September 1995. We will, of course, provide the results of the Quality of Life Task Force to the Congress when they become available. Obviously the support of this subcommittee will be critical to any success in this area. I am sure you will give it the same high priority that we do.

Our housing problem cannot be solved using traditional military construction methods. DoD spends on average about $6,700 per year (including about $2,000 for utilities) to maintain and operate our old, inefficient houses; that figure is rising. To build new on-base housing we spend around $135,000 per unit. These costs are substantially above private industry averages. At current funding levels and acquisition cycle times it would take 30 to 40 years to correct our housing deficit. We must find a better way.

Almost every other institution in our nation obtains housing or facilities using private capital. Individuals and families purchase homes by mortgage lending. Even major corporations with vast resources frequently lease space that is owned, constructed and maintained by others. At a time when the department must reconcile a smaller budget to a growing housing problem, it seems natural to look for private sector help. Such up-front investments would leverage our limited appropriated funds and then be repaid by DoD or the service member over time.

DoD's housing is but a small fraction of the nation's total. The National Association of Home Builders reported the total value of mortgage originations for just three months of 1994 to be $158 billion. By comparison, DoD spent less than $1 billion on housing investments for all of 1994. NAB reported over 1 million new homes were sold or on the market in the last quarter of 1994; by comparison, in the entire year DoD renovated, replaced and constructed less than 7,000 houses.

Even for our own servicemen and women the private market provides most of our housing. Two-thirds of our military families live off-base, in local communities, where the supply of housing responds to market forces.

Early this year Secretary Perry asked me to form a group to identify and develop techniques -- tools, if you will -- for using private capital to construct or revitalize housing. The housing finance "tiger team" began full-time operation in early February. It includes full-time personnel contributed by all the military services and by OSD [Office of the Secretary of Defense]. The team is focused in these areas:

 

  • Identifying possible tools. The team is reviewing both historical and new approaches to provide private capital in support of military housing. These range from sale/leaseback (Section 801) and rental guarantee (Section 802) to various forms of mortgage support (guarantees, contingent payments, etc.). ...
  • Application to current base housing problems. The team selected four locations, each with a different array of housing conditions: San Diego; Keesler Air Force Base, [Miss.]; Fort Hood [Texas]; and Camp Lejeune, [N.C.]. The team visited each base and met with both base personnel and local developers to identify local housing possibilities and the terms under which private developers might undertake them. They are now modeling possible approaches to see which approaches are feasible and what the financial and budgetary requirements might be.
  • Legislative initiatives. As a result of the two efforts described above, the team will develop legislative proposals to refurbish existing housing finance authorities as well as to create new ones.
  • Simplifying procurement. Much of the reason that military construction of housing is so time consuming and difficult results from specifications that differ from commercial practices and unnecessarily cumbersome contracting procedures. The team is reviewing commercial procurement practice to determine whether and to what extent changes in solicitation or management is appropriate. Changes in legislation may be appropriate here as well.

Consideration of private capital for DoD housing is not new. There has been a range of approaches and some very notable successes.

The Wherry and Capehart housing programs were instituted during the 1950s and 1960s to facilitate the acquisition of military family housing. These programs permitted the construction of such housing using private sector financing rather than appropriated funds.

The Wherry housing program ran from about 1950 through 1955; the Capehart program from then through the mid-1960s. From 1950 through 1966 two-thirds of the current inventory -- approximately 200,000 units -- were constructed under these two authorities. Many of these homes are currently in need of revitalization or replacement, but the success of the Wherry and Capehart programs is undeniable.

More recently, other legislative authorities have been provided and used to acquire military family housing in cooperation with the private sector. These include:

 

  • Build-to-Lease Program (Section 2835, Title 10, referred to as Section 801). DoD would lease back housing for 20 years built under this authority.
  • Housing Rental Guarantee Program (Section 2836, Title 10, referred to as Section 802). DoD would guarantee occupancy of houses built under this authority.
  • Leases, Nonexcess Property (Section 2667, Title 10). DoD would contribute land to a housing development, then lease or rent back the houses.

These approaches ... have had some success. To date the services have leased about 12,000 housing units under the Build-to-Lease (Section 801) Program. The Navy has found that this program produced housing much faster than the traditional military construction process. However, only one rental guarantee (Section 802) project has been completed, at Kaneohe Bay Marine Corps Air Station [Hawaii]. The Army has successfully outleased property for military family housing projects at Fort Ord under Section 2667, the only use of this authority for housing.

Unfortunately, none of these housing finance authorities are viable today. Changes to budget scoring rules or to the legal authorities now make these approaches unattractive to financiers and/or the government.

For example, in order to avoid the requirement that all continuing lease payments by the department under Section 801 be scored up front, the law requires that such payments be "subject to annual appropriations." The result was a much smaller budget problem, because thereafter no developer had any confidence that the department could or would live up to its commitments, and so none would enter into any lease agreements. There are also legal concerns surrounding DoD's ability to use Section 2267 authority for housing as the section is currently drafted.

In order to effectively leverage our limited appropriations and make use of private capital, we must recognize the private sector's practices and requirements and adapt to them. If DoD wants the private sector to use more of its own funds to build or renovate housing and to work with us in leveraging our scarce funds, we must be prepared to plan, program, budget and execute projects like a private entity. This means DoD must consider:

 

  • Providing sufficient commitments or financial support for a developer to have confidence in the project's commercial viability. This could include loan or mortgage guarantees, mortgage insurance, rental or occupancy guarantees, or other assurances that the customer (the military) will be there for the long term.
  • The ability to use commercial specifications, standards and local building codes. When private developers are faced with specifications, standards and housing sizes different from industry or local practices, they have one of two choices: raise the costs to accommodate military specifications or don't compete at all.

We need to contract with far greater flexibility so that builders can offer the houses and pricing they know how to provide. We should be able to procure unit sizes that reflect the government's resources and local market practice, not a legislative standard that is unaffordable in some areas and inappropriate in others.

 

  • A streamlined budget and appropriations process that reduces the long delays in authorization and appropriation. Under current procedures, projects can easily take eight to 10 years from concept to completion. Many private developers with alternatives will choose not to wait. And our servicemen and women shouldn't have to. DoD's practices and procedures must change. Most builders refuse to become government specialists. To attract them, contracting should be simple, direct and swift. The private sector gets quality housing at lower costs within months, not years. We could, too.
    There is no single "magic bullet" to this problem. In real estate one size does not fit all. Each location, each project, the terms of each deal will vary in many respects: market conditions, market penetration, land cost and availability, developer capabilities and our housing renovation or construction requirements. Approaches that work in one location can fail dismally at another. Therefore, the department will need a "kit bag" of tools and flexibility in the way we use them to respond and take advantage of each installation's unique circumstances.
    We are looking at a broad range of possible approaches. For example:
  • Selling existing on-base housing and renting it back after renovation or replacement. This would involve modification of existing 801 authority.
  • Encouraging investment by insuring private investors against changes in personnel levels or stationing. Depending upon the particular formulation, DoD could provide insurance on mortgages for these projects or a backup commitment to private financial institutions for doing so. These could also take the form of modified rental guarantees under a revised 802 program.
  • Exchanging government-owned land for housing.
  • Co-investing with private investors to create joint military/commercial housing projects. The department received limited partnership authority to make such investments this year under certain conditions. We are considering both where the existing authority might work and what modifications to it would be useful.

Our housing problems were not created overnight, and they will not be solved overnight. But without major changes in how we budget, contract and manage our housing, they won't get solved at all -- they will get worse.

To authorize these tools will require new legislation. This committee has been supportive in the past, and we have already begun discussions on the staff level. We hope and expect to have concrete proposals within the month. Thereafter we will do whatever we can to work with you to develop, improve and enact them this year.

There is no easy fix here. Each installation, each piece of property, has its own geographic, customer and market requirements. Having a kit bag of different tools will allow DoD to structure an arrangement in each separate case that works for both the military and commercial communities.

We also hope the Congress will recognize the need for new budget procedures. To be effective, the department needs flexibility; yet we recognize that to fulfill its own constitutional oversight and funding responsibilities the Congress needs accountability. Both are possible.

We believe there is ample room for streamlined procedures, combined with improved after-action execution reporting. In that regard, I believe our recent experience with BRAC [base realignment and closure] budgeting is instructive. Together we have found a way for DoD to get an annual "BRAC block grant," which gives the DoD critical flexibility while at the same time giving the Congress sufficient program detail and long-range financial plans so it can exercise proper oversight.

I am confident we can find a way to do something similar for housing, perhaps by focusing on total housing requirements at each base. We have begun work with our colleagues in the DoD comptroller's office to build a workable set of procedures and will bring those forward for your consideration soon.

On procurement, thus far it appears that our frequently cumbersome procedures for housing are largely self-inflicted. Therefore, we don't foresee a need for significant acquisition legislative changes at this time. However, if in reviewing our own procedures we find that changes in acquisition law make sense, I will bring those forward also.

We hope that the Congress will put the new authorities and the new procedures in place, at least on a pilot basis this year, so we can use them to meet FY 96 housing requirements. Our goal is to be able to implement the new programs broadly in FY 97.

Ultimately, the greatest change must be in our own practices. DoD will have to develop new housing procurement practices and work diligently to implement them, as well as resist the temptation to overly specify (for example, the size of each closet, window insulation, etc.). We must begin to act like a commercial entity to take advantage of opportunities as and when they present themselves. Of course, this will not be easy. We are not accustomed to delegating authority and relying on contractors. Learning to do so will itself be a major effort.

But if we can, the rewards will be enormous. With these changes, we will be able to remedy our housing deficiencies both faster and less expensively than would ever be possible under MILCON [military construction]. If Congress grants DoD the authorities we will be seeking and maintains a committed level of housing investment funding, we could solve our problem, not in 30 to 40 years, but in as little as 10 years.

In closing, Mr. Chairman, I would like to thank you and the subcommittee members for providing me this opportunity to describe our housing goals and Secretary Perry's quality of life initiative.

We can develop practical and cost-effective tools to make use of private capital -- but only with your help. We will need strong congressional support, not only to legislate new authorities, but also to streamline executive and congressional budgeting and appropriations practices that will work within the flexibility and schedules of the private sector. With your support, we can gain access to billions of dollars of private capital and the extraordinary depth of private expertise. Together, we can improve the quality of life for hundreds of thousand of service members and their families.

This challenge will not be easy, but it is critical, and our troops deserve our best. We know that you share our goals and look forward to working with you to achieve them.

 

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