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DoD News Briefing: Kenneth H. Bacon, ATSD PA

Presenters: Kenneth H. Bacon, ATSD PA
May 08, 1995 2:00 PM EDT

Monday, May 8, 1995, 2 p. m.

(NOTE: Other participants in this briefing are Secretary of Defense William J. Perry; Joshua Gotbaum, ASD Economic Security; Sergeant Major of the Army Richard A. Kidd; Master Chief Petty Officer of the Navy John Hagan; Chief Master Sergeant of the Air Force David J. Campanale; and Sergeant Major of the Marine Corps Harold G. Overstreet)

Mr. Bacon: Welcome to our briefing on the new housing initiative.

Secretary Perry will start with an opening statement and explain what we are doing and why. Unfortunately, he will not be able to take questions because he has another appointment.

After that, Josh Gotbaum will give you the details of the plan and be around to answer questions. We also have the senior enlisted representatives from the services here to talk to you about housing problems if you have questions, and we have some people from the Army as well.

Thank you.

Secretary Perry?

Secretary Perry: Thanks, Ken.

Today I believe the United States has the most capable military force in the world. We've demonstrated this in Desert Storm, in Haiti, in our deployments to the Gulf again last fall.

The primary responsibility I face as Secretary of Defense is to keep our forces the world's best. In doing this, I have to first understand why it is we have this superior quality. It is certainly true that we have the best weapon systems in stealth and smart weapons, tactical intelligence systems. But the foundation of our military capability is the quality of our people.

I see that clearly as I meet with military forces -- both U.S. and foreign all over the world. Many of my counterparts -- military leaders of foreign nations -- have also told me they believe the U.S. has the most capable military force because of the training and capability of its military personnel. They comment particularly on the unique quality of our NCO corps.

So the question that I face is, "What can we do to maintain this people quality?" To over-simplify a complicated question, there are two parts to this -- training and retaining. Training and retaining. The training is obvious enough. We have in our FY95 and FY96 budgets fully funded an extensive training program, for example, that includes brigade rotations to the National Training Center every 18 months.

Just last month I visited the National Training Center, participated in some live firing exercises there. I'm telling you we have probably the greatest training facilities in the world. The National Training Center is just one of them. Certainly a comparable facility [is] at Nellis Air Force Base for the Air Force. But this training under simulated combat conditions and live ammunition is the most effective, I think, in the world.

But this investment in training is lost if we cannot retain the people that we train. To put it in simple terms, if we can't retain then we have to retrain at a great expense and a loss of quality.

Also, I observed that the skills needed in the modern military take years of constant training to develop. Whether you're talking about a tank platoon commander or a senior technician, we're talking about five, ten, fifteen years of training to be ready to do that job adequately. Indeed, it took us more than a decade to recover from the hollow force of the '70s which occurred after the Vietnam War. So from the time you decide you have a problem to the time you have it fixed, if the problem is losing this experienced quality people, we're talking about 10 or 15 years -- not a few years.

Having said that, I now want to conclude that good housing is the key to retention. I have a chart here to try to illustrate the point. The goal is readiness. Readiness consists, of course, of superior weapons. It also is training and retaining.

In retaining, the key is quality of life. The saying in the Army is you enlist soldiers, you reenlist families. The quality of life is what influences that mostly. Of the quality of life -- of the several factors involved here -- housing is perhaps the most crucial. So I'd like to point out to you that there is an iron logic of housing to readiness. They are not in opposition to each other. The objective of improving our housing is because we're trying to maintain high levels of readiness.

Having said this, let me tell you that the military housing we have today is in terrible shape. I know this from my own eyes and ears in visiting bases all over the country, indeed, all over the world. I know it from the feedback from the senior enlisted personnel who, all year long, are out visiting bases and talking with the enlisted personnel at these bases.

We have the senior enlisted with us today. Let me point them out on our right here. They have been an amplification of my eyes and ears, trying to get an assessment of the problems affecting readiness in the force, particularly the problems affecting morale and the problems affecting retention.

Another eyes and ears that I have are the DACOWITS -- the Defense Commission of Women in the Service -- who travel around bases, talk with military personnel -- talk with families in particular and bring back that feedback to me.


Then we have established just a few months ago the Quality of Life Task Force under Jack Marsh. Jack is here today as the Chairman of that Task Force. He and his very experienced Task Force have given me valuable input on this question.

Let me give you some dimensions of the problem. As it affects family housing I would point out to you that in the early '60s, 40 percent of our military personnel were married. Today, it's 60 percent. So we have had a major increase in the requirements of family housing without a comparable increase in the family housing in fact. Indeed, the consequence of this most of our families -- two-thirds of our families -- today are not living in military housing, they're living off base. Sometimes that's a satisfactory solution. Many times it is not.

Most of our single enlisted people are living in barracks -- the great majority of which are just plain inadequate. Indeed, our sailors today when they are in port generally live on the ships -- on the bunks in the ships because we do not have adequate dormitories for them in their port facility.

I believe that in today's professional all-volunteer service, people deserve a home and not just a bunk.

From this chart that I presented to you then, I would conclude that we have got to fix this housing problem because of this iron logic from readiness to retention to housing. Therefore, when we set up the Quality of Life Initiative late last year and added an extra $2.5 billion to the budget, the bulk of this money went to housing. With that addition, the military will be spending about $750 million a year on new housing construction and renovation. That's with the increment addition. But at that rate it's going to take somewhere between 30 and 40 years to fix the housing problem. I consider that entirely inadequate.

The challenge, then, that I gave to my staff was to come up with a program that would fix this problem in ten years or less. We cannot buy our way out of this problem -- it's too expensive. We cannot divert enough appropriate funds to solve this problem. We have to marshal private capital to meet military housing needs.

A point that is clear: housing is not a unique military product like a tank or a sub. It's something that private industry designs, builds and finances every day. Indeed, many colleges and universities already tap private capital markets to finance dormitories. We want to do the same thing. So we have been working with the Congress to devise a plan that will allow us to meet our housing needs by attracting private capital. We're going to propose new legislation which we're calling the Military Family Housing Revitalization Act of 1995. It's an example of reinventing government and tapping into the $500 billion private mortgage market to meet public needs.

We built much of our housing in the '50s and '60s with private capital, but today that is impossible under the current laws. So we're proposing a pilot program to amend the legislation to allow us to apply a wide variety of programs using private capital and using private development to build housing and barracks for military personnel. I'm confident that this program will help us build the housing we need to attract and retain the world's best military force.

There's not a single silver bullet in what we're proposing here. It is a complex set of legislative authority which will allow us to use the techniques best suited to the area in which the housing is needed. I've asked Josh Gotbaum to come up and explain this program to you so you can get some better insight into what it is we are proposing.

Mr. Gotbaum: The Secretary has already noted that we have about 350,000 housing units on base, and that almost two-thirds of those are considered sub-standard -- too small, too old, lacking amenities, just plain dilapidated.

The first point I want to make is that this did not happen overnight. This was 30 years of other priorities. When the Secretary charged us, saying that this is something which needs to be addressed and reversed but which we cannot do all at once, he essentially said "is there a way to use private capital up front and then, in effect, pay for it over time?" Because using our current level of military construction and our current understanding of the housing deficit, it would take us

-- simply to bring up to standard what we already have -- $20 billion. At current appropriation levels, that is a little over 30 years.

So we reviewed both past history from the government and current private sector practice and came up with a set of techniques which we are proposing and asking the Congress for authority to do.

I should make a couple of points just to give you a sense of order of magnitude. Last year according to the National Association of Homebuilders, the average house sold for $159,000 and had 2,100 square feet gross. Last year, the Department of Defense, which already owned the land, spent about $135,000 for each family home. So when you add in an estimate for land costs, we ended up spending about the same; but our homes were, on average, 1,440 square feet. It costs us more, it takes us longer, and we build homes smaller than the private sector.

The other thing we did is we reviewed what the history and experience had been in the past. There had been private sector experience. Over 200,000 DoD family housing units were built through private sector capital. The Wherry Program in the '50s, the Capehart Program in the '60s, the Build-to-Lease Programs and the Rental Guarantee Programs, there on. So we had some experience.

We reviewed that experience and we found certain lessons. First of all, that where things had not been successful it was because they tried "one-size-fits-all." Our housing problems are not all the same. The housing problems we have in San Diego, where costs are high and land is rare, are different from those we have at Fort Hood where we are the major game in town. But the net the Secretary laid out remains the same, which is, can we find a way to use private sector finance; can we encourage the development and the use of private management maintenance and ownership -- in some cases on base and in some cases off base; and then provide a return in the future, either from payments from DoD or housing allowances? Having done so, that led us in fact to seek changes in legislation.

Why changes in legislation? The answer was because our authorities right now, although they do exist, are limited; [and] because they don't let us use commercial standards. Let me give you a for instance, if I may.

Right now we have the authority... If the Congress had authorized the construction of a family housing unit in San Diego -- let's say 300 units and a building in San Diego, 300 units, came on the market. We have the legal authority right now to say rather than waiting and building it, if we can buy that building for less, why not buy it? That's an authority we have today. But if that building has room sizes that are above the statutory limits, we can't do it. We can't use commercial standards.

Similarly, we can use lease transactions which major corporations use all over the world to get real estate. But when we enter into a lease transaction we have to put a clause into the contract that says, "We won't pay unless and until the Congress specifically appropriates money each year for that project." As you might expect, not a whole lot of developers are willing to rely on that good will.

Furthermore, in a lot of cases where we already have land -- where we would like to contribute land to reduce the cost of a project that would help us that requires special legislation. The results of these combinations of authorities, well intentioned though they are, was to mean that we were slower; that we were not on a commercial time table; that we were not consistent with commercial practices; and that developers simply found other, more attractive opportunities.

So what we're proposing here in principle is to broaden the existing authorities and to seek some additional tools and the ability to use them in combination. That's the basis of this.

Let me describe for you the kinds of authorities we're talking about here. The ability of the Department of Defense to provide guarantees. Saying to a developer, if you spend $1 million to develop a housing unit near our base, and, if we go away -- or the base closes, or whatever -- in that instance, we will make you whole. We will guarantee rental levels or we will guarantee payments on your mortgage. We'll find a way to put backup insurance on that.

Commitments to future payments; leases; and other fixed payments; or, in some cases, co-investments of land and cash. Let me go specifically on each one.

Right now, we have the authority to guarantee rental levels under Section 802, but that authority, too, is limited by annual appropriation. What we're proposing here is to broaden that authority: to say, let the Department of Defense be able to provide guarantees or insurance for mortgage payments, or rental or occupancy levels, either generally, or in instances that are particularly within the government's control -- whether it be a base closure or a major deployment or whatever.

There are places where housing allowances are sufficient that a developer ought to be able to be willing to build, relying on the traffic; but there are also places where people are afraid that we might just go away. We might continue our downsizing or we might shift, whatever. In such places, we may be able to get developments based on allowances alone plus a residual guarantee.

That is not the majority of cases, however. In the majority of cases, allowances are not sufficient -- both BOQ and BAQ -- to cover the cost of housing. Therefore, on base we pay for the full freight. In this case what we're looking for is authority -- broadening the authority we already have now -- to provide some kind of fixed, ongoing payment. Right now we have authority to make lease payments. Again, it is limited. When we're proposing to broaden it, to make the terms capable of being commercial. Also, we're looking for authority to say to a developer, I know that housing allowances aren't enough to cover your ongoing costs, but we're willing to commit for a period of 15, 20, 25 years -- whatever it takes -- to a fixed payment to cover part of the differential. Therefore, the combination of the differential payments plus allowances ought to be enough to make projects that wouldn't be economic.

Notwithstanding what I said about our purpose here being to try to bring in private sector capital to provide housing and then have us pay for it over time, there are instances where it makes sense to provide investment up front. For example, we have land. There are places in which that land is extremely valuable, and where, if we could contribute it in a way that doesn't require special legislation for each piece of land to do so, we could, in fact, encourage development. Similarly, there are cases in which some form of up-front cash might be enough to take a project which was not economic and make it economic.

We already have the authority to contribute land now when we get special legislation. The Navy has the authority right now to make up-front investments in the form of limited partnerships. But what we're proposing here is, again, to broaden the authority -- to make it usable on commercial terms -- and to combine it with the other authorities in a set of viable projects on an experimental basis.

Those are the authorities. Then the question is, "How do you implement them?" Because these are techniques which are not customarily done in the Department of Defense, we felt it very important that we test them out, that we find, for a limited period of time on a pilot basis, which techniques work where. Where can you use guarantees? Where do you have to provide land? Where can a limited differential payment or a subsidy be sufficient -- plus allowances and where do you need full leasing? What we're proposed to the Congress as of today is that there be an initial test period for this authority. That that authority be sunsetted -- that it be limited within the law to five years. And that it be limited in budget authority to $1 billion in budget authority over the five years. But that within those limits, that we would test a range of sites: a range of conditions, places where we are the only game in town, and places where we are, unfortunately, too small a part of the game in town. That we would test on a pilot basis sites at all services and that we would rely primarily in picking sites on those locations that are already recognized by the Congress and the Department of Defense as in need of attention. Because the primary source of sites and funding for this pilot project is going to be already appropriated MilCon projects -- things that have already been through and have already been recognized as mattering.

What we hope to do within the first year or so is do perhaps a couple of thousand units, a dozen projects plus or minus. And in that same period of time on a joint basis, working with all the services -- and all the services have agreed to contribute personnel and to permit us to hire the kind of expertise we would like -- is to develop templates, procedures, new forms of leasing and new forms of procurement procedures that can enable us to rely on private sector practices and commercial practices.

What we hope to do in the first year is really to do two things. One is to start a set of projects; and, two, is to provide the basis to build literally hundreds of thousands more.

In the legislation -- what we have said to the Congress is... We would propose that before the five-year period is up, that the Secretary of Defense be required legally to come forward and say what worked, what didn't; what makes sense, what doesn't; what kind of authorities would work on the long term; and how could this be done on a permanent basis. What we do know is that some of these will succeed, some will be less successful. At the end of the day, what we would like is, for each service in the exercise of its ordinary authority, to be able to implement private sector financing techniques and use private sector techniques on its own. What we hope to do by using the extraordinary range of expertise that is out there... Just to give you a for instance, about half a trillion dollars worth of mortgages were originated in 1994, $500 billion. The Department of Defense spent a little less than $1 billion. So there's a lot of expertise and a lot of development out there that we can rely on.

What we hope is to tap into that expertise and to develop ways to do it so that, in fact, we can really take a problem which wouldn't be solved in a generation and solve it within a decade.


That is the proposal. I'm happy to answer questions on the details.

Q: Why do you need $1 billion when basically what you're looking for is private capital. I'm not sure I understand why you need... The magic of this is you're going to commercial sector lenders, right?

A: Two things. One is that we are looking to leverage government commitments, and when we make those commitments, we need actually to reserve for them. We need budget authority for them. This is the problem that is generally described as scoring.

Let me give you a for instance. Let's suppose a developer says I'm willing to spend $1 million on a housing project in exchange for your paying me rent, your signing a lease with me for $50,000 a year for 20 years. In order to be able to sign that lease, we're making a commitment for over 20 years, a million dollars. We need to have the budget authority. Not that we'll be spending that, but we need to have the budget authority to do so.

So what we're really saying here is that we hope that a billion dollars of budget authority will leverage several billion dollars of private capital over time.

Q: To follow that, if you've got a five year sunset on this and you're talking about making commitments over 15 to 25 years, how could you do that?

A: Excuse me. We're proposing that the authority to make new commitments expire at the end of five years. The commitments we would make under this program would be lasting. As you know, nobody's going to play in your party if you can't stick by your rules.

Q: Right now the Public Works Departments on bases maintain and care for a lot of the family housing units. Any provision in what you're proposing that would allow private sector maintenance type companies to do that?

A: An important question. Yes, sir. We have asked the Congress specifically for authority to include maintenance as part of this process. So that we can say to a developer, not just that you will build and leave us the housing and if you didn't build up to standards, it's our tough luck, but you can build, you will retain ownership, you will retain maintenance, and you will continue to be responsible for the value of that housing.

Q: If you hope to solve the problem in ten years but the pilot portion of the program takes five years, how is that time table going to work out?

A: What I hope and expect is that a long time before five years we will have learned enough to learn how these authorities should be expanded and where they should be used. What we're saying with the five year period is let's give ourselves enough time so that we are certain that we can test the techniques. But what we hope to do and expect to do is, in fact, to beat that.

Q: An area like in California where you own extremely expensive land, and you propose perhaps turning it over to developers, would your demand and response, in return for that, certain rent guarantees, that kind of thing?

A: Yes. The idea here is that we're trying to procure housing on commercial bases, so whatever we put in, we're expecting to get a return, and that return is housing.

Q: You mean at the end of a certain period of time the land would then go to the developer as long as they are...

A: In some cases yes, and in some cases no. What we've done here is we've asked for authority in some cases to say we will give a land lease. In other words, we will keep the land but let you use it for a long period of time. In other cases, to say let us divest the land as part of the project.

Q: What is happening to the 350,000 units, 200,000 of which you say are in such poor condition? Is this all directed towards new housing or...

A: No. If I've given that impression then I've not communicated well.

A large part of our housing problem is, in fact, the refurbishment of existing housing units. Now refurbishment ranges. In most cases, refurbishment is not, as these gentlemen will tell you, just a coat of paint. In some cases refurbishment means new walls, new roofs, and in some cases it means leveling a house down to the slab and building up. But we have designed these authorities and we requested the authority from Congress broadly enough so that in fact we can do the full range from serious renovations to new construction -- both on base and off base.

Q: What is the per unit need for service? How many units does the Army need, how many does the Air Force need?

A: I'll tell you that right now each service has a different standard by which it judges family housing, and therefore, I don't think we can give you numbers that are comparable. We're happy to provide them and we'll get them to you, but you should understand that the services have in fact measured the quality of their housing in different ways for a long time.

Q: In the process of building new housing on base are you planning to change the percentage of military families that live on base? Increase the number of families living on base?

A: In this proposal we have not really addressed that issue. That is one of the questions I will tell you that the Secretary of Defense has asked Secretary Marsh as part of the Quality of Life panel to consider, which is what are the right balances between on base and off base.

What we are trying to do here, frankly, is to develop a set of tools so that we can refurbish what we have, and then in that context make judgments in the future about how much ought to be off base with allowances and on base.

Q: Could we ask one of the senior enlisted, perhaps Sergeant Major Kidd, would you step up and tell us a little bit about what the view is from the front line? Secretary of Defense Perry said... We're not going to dismiss you, Mr. Gotbaum, but... (Laughter) What does this mean to particularly the average enlisted person, and how is this going to be received do you think?

Sergeant Major Kidd: I can tell you by using probably one example that I've used in several different forums, and that is talking to a young soldier, married sergeant, down in Guantanamo Bay who has been in the service for four years. Spent three years overseas on six different deployments. When I asked him how his wife and family felt about the deployments he said, "As long as I have a decent place for them to live, a secure place for them to live, good services to look after them, and a method of communicating and making sure that we're aware of one another, I am ready to go, sir, and do what the nation wants me to do, on ever how many deployments."

Also, every single forum that I sit in on -- we have the Army Family Action Program for married personnel, we have the Better Opportunities for Single Soldiers for single soldiers -- every single one of them brings up as one of the five top issues -- billeting and housing as one of their major concerns. So it is critical to them to consider the military as their profession and as their career. Of course we want them to do that because quality soldiers is what will ensure readiness, and readiness will ensure our nation's peace and freedom and so forth.

Q: Mr. Gotbaum, you've been discussing this with the Congress. Have you got any co-sponsors or is it just going to be...

A: The truth is that the Office of Management and Budget sometime this morning finally cleared the legislation, so we have just literally, just within the last hour or so, sent the proposal up to our authorizing committees. So I would say in this case, there is much interest and much concern. This is a problem which is well recognized. It's recognized in our authorizing committees. It's recognized in our appropriating committees.

Secretary Marsh: There's clearly widespread interest on the Hill, from both parties in both houses, to be responsive to legislation proposed to address what is perceived to be, and is, a real critical need. I think you're going to find the Congress will be very responsive to this overture.

Q: What are the test sites, and what kind of oversight will there be for the project? You can get snookered pretty easily on housing projects. Private industry gets snookered all the time with developments that never pan out, or aren't finished and so forth. So what are the test sites and what kind of oversight...

A: Since we don't even yet have the authority, I will tell you we certainly don't have the test sites. What we have said to various military departments is start thinking about what makes sense.

How can we make sure this is done as professionally as possible?

Q: You said you didn't have the expertise.

A: Right. A couple of things. First of all, this is going to get, as you can tell, a lot of relatively senior attention in the Department. I have not said so, but sitting behind you are members from all of the military departments who worked on the team, the Housing Finance Tiger Team that developed this proposal. Also sitting behind you are their bosses who are responsible for installations and housing management for the military departments. So the first point is, it's going to get a lot of attention.

Second of all, it is very clear that the Department of Defense is, in fact, going to have to retain expertise. We're going to have to hire lawyers with experience in real estate finance. Probably as a former investment banker I should not use the euphemism, but financial advisers, and other forms of expertise on a consulting basis. And then the last point is when you talk about committing large amounts of the people's resources, frankly, a responsibility comes with that, a responsibility which we think we will carry out.

Q: Your first priority is going to be renovating existing housing, yet the 200,000 or so units you've identified are substandard, applying, if this is approved, applying these principles, these tools to that, and then build new housing either on or off base, is that correct?

A: We are going to, if Congress gives us the authority, use these tools for both. What the military departments have told us in most cases is that their biggest problem right now is in fact renovation or replacement of on-base housing. So when you ask the senior enlisteds, when you ask the civilians, and they say my biggest problem is renovation of on-base housing, the one thing we're going to do is make sure that that's a problem we can address.

Q: This is not going to replace the Quality of Life Initiatives you talked about last November, though.

A: No. This is a part of the Quality of Life Initiative that the Secretary of Defense announced last November. Part of the funding, for example, that we proposed to use here was funding that the Secretary announced last year would be used for private sector finance initiatives. What we concluded on reflection, though, that the amount of money that we proposed to use last year was by itself not sufficient for a fair test and a real test. So what we have proposed to the Congress is, let us fund the existing MilCon slate and from the existing MilCon budget, expand this process.

Q: Are you still planning to spend the amount of money that you identified last November...

A: Yes, sir. And to leverage it.

Q: In developing the legislative proposals, did you consult with home builders, different trade groups, individual companies? And what was their... Were they receptive to this idea? Did they point out particular barriers of...

A: Yes. We actually started out this process, I'm not sure how many months ago, but some time like November or January. At our request the Urban Land Institute convened a meeting of about a dozen people -- developers, housing financiers, etc., and a dozen people from the Department of Defense, really to talk about the problems and the range of possible solutions, etc. I will tell you the first day they spent simply learning what the terms meant in the other person's language. But the answer is yes, we have consulted. I will also tell you that Secretary Marsh has on the Quality of Life Panel a number of people with quite extensive experience in either housing development or housing finance, and we have been consulting with them in that regard. So the answer is we have done some consultation thus far. We hope to do a lot more, and we clearly are going to need a fair amount of private sector advice in order to implement this.

Q: Dr. Perry mentioned that there are thousands of single enlisted people in the Navy who basically, when ships are in port, live on ships. Is an objective of this program to provide housing for them, or would they continue to live aboard ship?

A: One thing that is not in this proposal is housing for single enlisted personnel, and that is not because it is not of great concern to the Secretary of Defense or to senior military leadership or the senior civilian leadership. It is. But we have for this proposal, for this piece of legislation, focused on family housing because we have a particular set of appropriations and budgetary regimes under which we do family housing.

I fully expect, as a matter of fact, I will tell you that the Secretary of Defense has directed that fairly soon thereafter we develop a similar application for similar kinds of private sector techniques for barracks housing for single enlisted.

Q: What's different today that makes this proposal feasible as opposed to the last 30 years? Why wasn't this done sooner?

A: I think a couple of things are different, and I'm going to steal a note from Secretary Marsh's book. It is very important to recognize that today's military is a different force from the force of primarily draftees and single people that existed 30 years ago. This is largely a volunteer force. This is a force of professionals. These guys are here, they expect to be treated as professionals. That means you need to house them in a way that you would house professionals. What's different from 30 years ago? We now have a professional force. What's different from 30 years ago? Housing standards have changed dramatically in 30 years. When you look at the houses of Levittown and you look at the houses today, you will notice a lot of changes. The men and women of the armed forces are professionals who expect to be housed in accordance with contemporary standards.

Another thing that has changed very significantly is that today's armed forces are primarily married. The majority of our people, in fact, are in family housing, not in barracks -- family housing or off base allowances.

So we think a couple of things have changed. We think the nature of the force has changed; we think the nature of the problem has changed. Also I will say, I've seen this, because I came to the Department of Defense as an outsider, not from Defense, there is a far greater willingness now in the Department to rely on private sector expertise where it is clear that that is an expertise, and in housing, it clearly is an expertise.

Q: A detail on the actual soldier/sailor getting paid during the month. Do you envision that they will write checks to a mortgage company? Does the government get involved in taking money away from them? How does the mechanics of dealing with this versus the kind of military housing they currently live in? Is there a difference?

A: There may be a difference. Right now in some cases we do the following. In some cases we pay soldiers, sailors, airmen and women allowances and they write checks to some landlord. In some cases that will stay.

Q: On the economy?

A: Yes. In some cases, we pay allowances but we, in the same way that you have direct deposits, we have what are called allotments and we pass those allowances directly to the landlord, the mortgagor, etc. We have asked for authority to experiment with that in this legislation as well. In some cases right now we pay the full freight in checks from DoD. One of the things we've asked for here is to say let us split that in some cases. Let us provide a check from DoD and you'll have to rely on a housing allowance. Or renting to some other party out of the military, in other cases.

Q: You spoke of the difference in standards for military housing versus what's typical on the outside. Will you be adjusting standards in the military upward so that they're more in line with what someone, the size house that someone buys in the private sector or rents in the private sector?

A: There are actually a couple of movements within the Department of Defense to recognize that housing standards have changed. One of them is that the Department is considering an upgrade in its barracks standards for single enlisted personnel. In this legislation what we have asked for is the ability to acquire and use, without regard to the legislative standards, housing according to local commercial standards. So the answer is yes, we're going to work along those lines and experiment along those lines.

Q: Why have military housing? Why not just pay people more and let people get housing on the economy? Is this sort of a Cold War thing, or are we moving to a new era and let people just do it themselves?

A: Let me point out a fact which, again, coming from outside the Department I found it very important, which these gentlemen understand intuitively.

The Secretary of Defense has already told you that two-thirds of our on-base housing is substandard by some measure, and yet what these gentlemen will tell you is almost universally throughout the United States, there are waiting lists to get in on base housing. Part of the reason is that we pay full freight. But there are plenty of other reasons as well. On-base is secure. On-base is close to community support, other friends and family, etc. On-base means I may not need a second car to do my job. So there are plenty of reasons for us to provide housing on base.

The issues that we're raising as part of this legislation is do we have to own all of that housing, do we have to operate all of that housing? Can we, in fact, try and use private sector expertise and private sector capital to refurbish it and manage it?

Q: Have you identified any particular places where there's a particular need? Any base, any region where you really need housing? What are the two or three worst places right now?

A: We've identified dozens of places where we'd like to use this.

Q: Give me some examples. The toughest.

A: I can't assert the toughest. Maybe I should defer to you gentlemen. Do you want to nominate from each service one genuinely miserable place for the record? (Laughter)

Sergeant Major Kidd: Fort Hood, definitely, because of all of the changes that have taken place down there, the number of people that have been put on the installation, the inability at the present time for the local community to support the BRAC changes and so forth.

Sergeant Major Overstreet: I think if you look at the folks that are eligible to live [aboard the base], those that probably have the capability to live aboard the base, then you look what the capability of the base will support for a place like Camp LeJeune, for those that are eligible to live aboard the base, we can only have 22 percent of that population.

Master Chief Petty Officer Hagan: For the Navy, San Diego definitely high cost housing, there's a need for the middle grade sailors.

Chief Master Sergeant Campanale: In the Air Force, our biggest problem today is Keesler Air Force Base, Mississippi, simply because of cost of living increases in a resort area.

Mr. Gotbaum: I would like to make one comment. You should know that the Housing Finance Task Force, those people who are sitting behind you who have worked so hard to produce this legislation and this proposal, have visited all four of those bases; talked not only to the base commander and the base engineer, but to local developers to say what kind of projects would make sense? What kind of tools would work? So we've started.

Thank you very much for your time.

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