Military miscalculated housing subsidy payments by more than $1 million in several cases, report finds

By ROSE L. THAYER | STARS AND STRIPES Published: January 26, 2021

AUSTIN, Texas — The military needs to improve how it determines housing allowances for service members and subsidies for private housing companies after a government report found the Pentagon doled out payments miscalculated by more than $1 million in some cases.

The Government Accountability Office report released Monday delved deep into the Defense Department’s process for collecting data to determine the monthly allowance each service member should receive for housing. The allowance varies based on a service member's geographic location, rank and number of dependents and the report found using incomplete or old data could have resulted in service members receiving miscalculated allowances.

“Until [the Defense Department] develops ways to increase its sample size, it will risk providing housing cost compensation that does not accurately represent the cost of suitable housing for service members,” according to the 64-page report titled “Military Housing: Actions Needed to Improve the Process for Setting Allowances for Service Members and Calculating Payments for Privatized Housing Projects.”

In fiscal year 2019, the Pentagon spent $20 billion on basic allowances for housing, known as BAH, making it one of the largest components of cash compensation for military personnel, according to the report.

Senate lawmakers requested the GAO review the process after a 2018 Center for Naval Analyses report found BAH rates were increasing quicker than the cost of housing in most locations.

“Based on these findings, the committee is concerned that the underlying BAH rate determination process is ineffective in achieving an ‘accurate correlation’ of allowance payments and local housing market costs,” the Senate Armed Services Committee wrote in the National Defense Authorization Act of Fiscal Year 2020, which included the request for the GAO review.

The report recommends the Defense Department assess the process for collecting data and determine ways for local housing offices to better collect all the data needed. It also recommends the department review and update BAH guidance and implement a process for consistently monitoring data and ensuring timely remediation of any problems.

The current process involves amassing data each year on housing costs in 301 military housing areas throughout the United States – a task that is aided by contractors and local military housing offices seen as having an expertise on their location.

While there is a process that is broadly designed to collect what’s needed, it’s falling short, the report found. The guidance given to the local offices and the limited amount of time to do so are hindering the process. The personnel often didn’t know how much data was needed or the full importance of meeting the goal.

In 44% of the cases examined, the Pentagon failed to collect enough data to properly calculate the rates, according to the report.

While conducting interviews for the report, some personnel noted a lack of transparency in the calculations “contributes to concerns and questions about the BAH, such as the variance in BAH rates that can occur.”

Some base housing offices said they had even tried to replicate calculations on their own to reach the Pentagon’s allowance rates for their region, but couldn’t because even they were unaware of the additional adjustments conducted at the Pentagon to determine final rates.

The rates in 2020 ranged from a $585 monthly allowance for a junior enlisted service member living in the Fort Chaffee-Fort Smith, Ark., area to a $6,162 allotment for general officers with dependents in Santa Clara County, Calif., according to the report.

“Until [the Defense Department] reviews and updates key information in its guidance, DOD’s BAH rate-setting process will lack full transparency and service members and others internal and external to DOD may not understand how rates are set,” according to the report.

About two-thirds of service members live in civilian housing off their assigned base. But for those who chose on-base housing, their allowance often goes directly to a private housing company contracted to manage the properties, making it a key source of revenue for those companies.

The military decided in 2014 to go back to a pre-9/11 mindset that service members should have some cost responsibility for housing, which became a 5 percent reduction in the allowance. It began in 2015 and Congress required a gradual approach -- 1 percent annually for five years.

However, service members who live in privatized housing on base are not expected to share the housing cost and, therefore, do not pay more than the BAH rate, according to the report. Therefore, housing companies received less in revenue for on-base housing when the Pentagon began these reductions.

Many officials at privatized housing companies have cited that reduction in BAH for creating financial constraints that led to the problems with base housing exposed in news reports four years later. A Reuters news report in 2018 highlighted the sometime dangerous conditions military families experience in base housing, including lead paint, pest and rodent infestations and exposure to mold caused by water damage and leaks. The public revelations caused Congress to intervene and a number of measures have been created to increase the military’s oversight on the contracts and improve maintenance standards.

“I hear about the drawdown, I hear about the reduction in the BAH rates and how that put pressure on the ability to deliver quality,” said Rep. Anthony Brown, D-Md., during a December 2019 hearing for the House Armed Services Committee subpanel on readiness, which included testimony from top officials at private housing companies. “What concerns me is that it took the courage of military spouses to come to Congress. The Pentagon didn’t come to Congress and say, ‘We have a problem.’ You didn’t come to Congress and say, ‘We have a problem. The framework, the model, the formulas that we based these agreements on years ago doesn’t work because of a changed environment.’”

Ultimately, Congress decided in 2019 that the military should subsidize the loss of revenue for companies. However, the GAO report found the method required by Congress to calculate payments distorted the data and caused some service branches to overpay subsidies and others to underpay.

While the report does not identify the individual privatized housing companies or locations that were paid too much or too little and the exact amounts, the report does provide the amount of subsidies that each service branch paid in 2019.

The Army and Air Force both underpaid companies, by $3.4 million and $3.5 million, respectively. The Navy overpaid by $9 million and Marine Corps by $2.7 million.

When calculating how to reduce the BAH that service members receive, the Pentagon used a national average to reduce rates at all locations by the same amount. But when calculating how much in subsidies should go to the private housing companies, the Pentagon used a local rate calculated for individual locations, which was based on a congressional mandate, said Elizabeth Field, the report’s author.

“It’s the difference between the national and local rate where distortions happened,” she said. “Locations in lower cost areas were hurt more than [those] in higher cost areas by this distortion.”

The report recommends Congress revisit this issue and mandate using a national rate to be consistent with the way allowance reductions are calculated.

Twitter: @Rose_Lori