Rental Housing Programs: Excluding Servicemembers' Housing	 
Allowances from Income Determinations Would Increase Eligibility,
but Other Factors May Limit Program Use (31-JUL-06, GAO-06-784). 
                                                                 
Although the Department of Defense (DOD) pays active-duty	 
servicemembers who do not live in military housing a Basic	 
Allowance for Housing (BAH) to help them afford private market	 
residences, expected growth at some military installations has	 
raised concerns about whether nearby communities will have enough
affordable rental housing for incoming personnel. In response to 
a congressional mandate, GAO assessed (1) how excluding BAH would
affect servicemembers' eligibility to apply for federal rental	 
housing programs and (2) factors that could affect their use of  
the programs in selected communities gaining military personnel. 
GAO compared servicemembers' eligibility for the programs as of  
December 2005 by including and excluding BAH from income	 
determinations and examined factors affecting potential program  
use near four growing military installations.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-784 					        
    ACCNO:   A57701						        
  TITLE:     Rental Housing Programs: Excluding Servicemembers'       
Housing Allowances from Income Determinations Would Increase	 
Eligibility, but Other Factors May Limit Program Use		 
     DATE:   07/31/2006 
  SUBJECT:   Eligibility determinations 			 
	     Federal aid programs				 
	     Housing						 
	     Housing allowances 				 
	     Housing programs					 
	     Income statistics					 
	     Military bases					 
	     Military pay					 
	     Military personnel 				 
	     Military policies					 
	     Rental housing					 
	     Fort Benning (GA)					 
	     Fort Bliss (TX)					 
	     Fort Drum (NY)					 
	     Fort Riley (KS)					 
	     HUD Housing Choice Voucher Program 		 
	     HUD Section 8 Housing Assistance Program		 
	     RHS Section 521 Rental Assistance			 
	     Program						 
                                                                 
	     USDA Section 515 Program				 

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GAO-06-784

     

     * Report to Congressional Committees
          * July 2006
     * RENTAL HOUSING PROGRAMS
          * Excluding Servicemembers' Housing Allowances from Income
            Determinations Would Increase Eligibility, but Other Factors May
            Limit Program Use
     * Contents
          * Results in Brief
          * Background
               * Military Compensation Incorporates Basic Pay, Allowances,
                 and Bonuses
               * More Than 100 Installations Will Gain Personnel through the
                 2005 BRAC Process
               * Many Federal Rental Housing Programs Include BAH in Income
                 Determinations
          * Excluding BAH When Determining Income Would Extend Eligibility to
            More Servicemembers, Assuming No Additional Household Income
               * Most Junior Enlisted Members and Some Senior Members Would
                 Have Been Eligible if Military Pay Were Their Sole Source of
                 Income
               * Excluding BAH, More Servicemembers with Families of All
                 Sizes Would Have Been Eligible, Especially Larger Families
               * Additional Household Income Would Reduce the Number of
                 Eligible Servicemembers
          * Eligibility Aside, Lack of Demand and Other Factors Could Limit
            Servicemembers' Use of Federal Rental Housing Programs
               * Servicemembers May Not Need Programs because BAH Rates Cover
                 Median Costs and Are Adjusted for Changing Rents
               * Ability of the LIHTC Program to Produce Needed Housing Could
                 Be Affected Not Only by Servicemembers' Eligibility, but
                 Also by the State Allocation Process and Market Conditions
               * Waiting Time and Scarcity of Larger Units May Preclude
                 Servicemembers from Renting Existing Units through HUD and
                 USDA Programs
          * Conclusions
          * Matter for Congressional Consideration
          * Agency Comments and Our Evaluation
     * Objectives, Scope, and Methodology
          * Objectives
          * Scope and Methodology
     * Office of the Under Secretary of Defense
     * GAO Contact and Staff Acknowledgments

Report to Congressional Committees

July 2006

RENTAL HOUSING PROGRAMS

Excluding Servicemembers' Housing Allowances from Income Determinations
Would Increase Eligibility, but Other Factors May Limit Program Use

Contents

Tables

Figures

July 31, 2006Letter

The Honorable Christopher Bond Chairman The Honorable Patty Murray Ranking
Minority Member Subcommittee on Transportation, Treasury, the Judiciary,
Housing and Urban Development, and Related Agencies Committee on
Appropriations United States Senate

The Honorable Joe Knollenberg Chairman The Honorable John W. Olver Ranking
Minority Member Subcommittee on Transportation, Treasury, and Housing and
Urban Development, The Judiciary, District of Columbia, and Independent
Agencies Committee on Appropriations House of Representatives

As a result of base closings and realignments and other restationing
actions, some military installations will be experiencing growth in the
next several years, raising concerns about whether the nearby communities
will have an adequate supply of affordable housing for incoming military
personnel or whether communities can develop such housing. To help make
housing affordable to servicemembers, and in keeping with its policy of
relying on the private market as the primary source of housing for
servicemembers, the Department of Defense (DOD) pays a Basic Allowance for
Housing (BAH) to servicemembers stationed in the United States who do not
live in military housing. In fiscal year 2005, DOD made about $11.6
billion in BAH payments to approximately 850,000 active-duty
servicemembers. DOD sets the housing allowance amounts annually to cover
the median cost of rent, including utilities and renter's insurance. The
housing allowance amounts vary according to the location and rank (pay
grade) of each servicemember, and also vary depending on whether the
servicemember has any dependents. Servicemembers may choose to spend more
or less than their allowance amounts on their actual housing expenses.

Although BAH is intended to allow servicemembers to acquire suitable
housing in the private market, some community leaders and housing
developers have argued that federal rental housing programs also offer the
potential to help provide affordable housing for servicemembers relocating
to growing installations. The federal programs include the Low-Income
Housing Tax Credit (LIHTC) and tax-exempt multifamily housing bond
programs, which are administered by the Internal Revenue Service (IRS) of
the Department of the Treasury (Treasury) and the states and support
development of rental housing.1 Other programs, including public housing
and programs that subsidize tenants' rents, are administered by the
Department of Housing and Urban Development (HUD) and the Department of
Agriculture (USDA).2 To be eligible to apply for these programs,
households must have incomes at or below a specific limit, generally 50
percent or 60 percent of the median household income for their area,
adjusted for family size. (These programs are not entitlements, however,
and not all eligible households receive assistance.) To help
servicemembers meet these income eligibility restrictions, proponents of
using federal programs to address the military's housing needs have
proposed excluding BAH from servicemembers' incomes when determining
eligibility for the programs.3

Noting concerns about the availability of affordable private housing for
servicemembers, particularly in rural areas with growing installations,
the conference report accompanying the fiscal year 2006 Transportation,
Treasury, Housing and Urban Development, the Judiciary, the District of
Columbia, and Independent Agencies Appropriations Act directed us to
report on the potential effect of excluding BAH from income when
determining eligibility for federal rental housing programs.4 Accordingly,
this report discusses (1) how excluding BAH from income determinations
would have affected the eligibility of servicemembers receiving BAH as of
December 2005 and (2) programmatic and market factors that could affect
eligible servicemembers' participation in the programs in selected
communities gaining military personnel.

To address these objectives, we obtained DOD's personnel data for December
2005 and analyzed 702,975 records of servicemembers who were BAH
recipients at that time to determine their potential eligibility for
federal rental housing programs. We included the following federal
programs: HUD's public housing, Housing Choice Voucher, and project-based
Section 8; USDA's Section 515 Rural Rental Housing Loans and Section 521
Rural Rental Assistance; and IRS's LIHTC and tax-exempt multifamily
housing bonds. We compared potential eligibility for rental housing
programs by including and excluding BAH from income eligibility
determinations. Because data on spousal income and other sources of income
were unavailable, for this analysis we assumed that the primary components
of military pay were the only sources of income for the servicemember
households. We tested the data that we used in our analysis and found it
sufficiently reliable for our purposes. Furthermore, we interviewed and
reviewed relevant documentation from installation officials, rental
housing program officials, and community organization representatives in
the following four communities near installations gaining military
personnel: Fort Benning, Georgia; Fort Bliss, Texas; Fort Drum, New York;
and Fort Riley, Kansas.5 We cannot generalize the information from these
installations to all installations that will gain military personnel. We
conducted our work in and around Washington, D.C., and Junction City and
Manhattan, Kansas, between November 2005 and July 2006, in accordance with
generally accepted government auditing standards. Appendix I contains a
more detailed description of our scope and methodology.

Results in Brief

Excluding BAH from income when determining servicemembers' eligibility for
federal rental housing programs would have substantially increased the
percentage that would have been eligible to apply for the programs as of
December 2005, assuming the primary components of military pay were their
only sources of income. More specifically:

o Using an income limit of 50 percent of the area median, approximately 20
percent of the servicemembers would have been eligible, compared with the
less than 1 percent that were eligible with BAH in income determinations.

o Using a higher limit of 60 percent of area median (which applies only to
some LIHTC and tax-exempt multifamily housing bond properties)
approximately 40 percent of the servicemembers would have been eligible.

o Some increase in eligibility would have occurred at all servicemember
pay grades, but the greatest impact would have been at the lower pay
grades. For example, 65 percent or more of servicemembers in the lowest
pay grades would have been eligible to apply for the federal programs,
whereas very small percentages of senior servicemembers and officers would
have been eligible.

o The increase in eligibility would have affected servicemember families
of all sizes, but those with the largest families (nine or more persons)
would have been somewhat more likely to be eligible because the programs'
income limits increase with family size.

Although we lacked data on servicemember household incomes from
nonmilitary sources, DOD data show that at least 80 percent of the
potentially eligible servicemembers were married; thus, these households
could have had additional income earned by a spouse. Using an income limit
of 50 percent of the area median, we estimated that additional annual
income of about $4,000 would have disqualified half of the married
servicemembers who were potentially eligible for the federal programs,
even if BAH were excluded from income determinations.

In the four communities we examined, programmatic and housing market
factors-for example, a potential lack of demand for the programs among
servicemembers, the costs of developing new housing, and the limited
availability of rental assistance-may limit the extent to which the
federal programs would help developers increase housing supply or help
servicemembers afford existing housing. DOD officials said that
servicemembers would be unlikely to need federal rental housing programs
because BAH payments cover median local housing costs and would adjust
annually to reflect any increases in market rents that resulted from
increased demand for housing near growing installations. Yet, some
community officials cited the LIHTC program as a potential tool to build
more housing for which incoming servicemembers might qualify, but only if
BAH were excluded when determining eligibility so that more lower-income
servicemembers could live in the new tax-credit units. However, even if
more servicemembers were eligible, LIHTC-funded development still might
not occur near the installations because the state agencies that award
available tax credits have a variety of priorities. Furthermore, market
conditions could make developers more or less likely to consider using
LIHTC to finance their projects. For example, developers might be more
disposed to seek LIHTC financing for projects near Fort Riley, Kansas,
because a substantial number of incoming servicemembers likely will be
low-ranking personnel with families-a population that might have more
difficulty affording market-rate units than the more senior
servicemembers. In contrast to the LIHTC program, the HUD and USDA
programs generally do not support production of new housing, but rather
subsidize rents for tenants of existing units. However, because these
programs are not entitlements, the limited availability of assistance may
preclude eligible servicemembers from using them, especially in areas with
long lists of civilian applicants already awaiting assistance, according
to agency and community officials. Finally, to the extent that more
servicemembers applied for these programs, lower-income civilians might
face longer times on waiting lists for rental assistance because of the
larger pool of applicants.

If the primary intent of excluding BAH from income determinations for
federal rental housing programs is to increase the supply of rental
housing that servicemembers with the lowest incomes could afford, Congress
should consider first applying such a change only to programs intended to
stimulate production of such housing, such as LIHTC and tax-exempt
multifamily housing bonds.

We provided a draft of this report to DOD, HUD, IRS, Treasury, and USDA.
DOD, HUD, and IRS provided technical comments, which we incorporated in
the final report as appropriate. USDA and Treasury declined to comment on
the draft report. DOD commented that BAH does an excellent job of
achieving the objective of providing servicemembers with the same quality
and quantity of housing that their civilian counterparts can afford, and
the department noted that in cases of sudden shortages, BAH rates would
increase to allow servicemembers to bid competitively for housing. DOD
also stated that servicemembers should be eligible for federal rental
housing programs under the same terms as their civilian counterparts.
DOD's comments are discussed in the Agency Comments and Our Evaluation
section of this report, and its written comments appear in appendix II.

Background

BAH, one of several components of military compensation, is intended to
provide servicemembers with an allowance to enable them to obtain suitable
housing when military-owned housing is not provided. Accordingly, BAH
payments reflect the cost of housing where servicemembers are stationed,
and the payments change annually in response to increases or decreases in
local housing costs. Still, the most recent base realignment and closure
(BRAC) process, among other restationing actions, will cause movement of
large numbers of military personnel to communities that initially may lack
enough private housing that is affordable to most servicemembers. Several
HUD, USDA, and IRS rental housing programs that are intended to make
housing affordable to low-income households count BAH as income when
assessing the eligibility of active-duty servicemembers.

Military Compensation Incorporates Basic Pay, Allowances, and Bonuses

BAH is one of several elements of regular military compensation.6
Regardless of whether they live in military-owned housing or receive BAH,
servicemembers receive basic pay and a Basic Allowance for Subsistence
(BAS). BAH and BAS are not subject to federal income tax. With the
addition of average BAH payments to the other two pay elements, regular
military compensation in 2006 starts at $26,401 for the lowest-ranking
enlisted servicemembers and culminates at $183,196 for the highest-ranking
officers, excluding consideration of any tax advantage because the
allowances are not subject to federal income tax (see fig. 1).

Figure 1: Military Compensation Ranges, by Pay Grade, 2006

Note: This figure reflects the cash components of regular military
compensation and does not include the value of the tax advantage that
accrues to servicemembers because BAH and BAS are not subject to federal
income tax.

In addition to the primary elements of military compensation shown in
figure 1, servicemembers with duty stations in more than 55 continental
U.S. locations, where nonhousing expenses exceed the national average by
at least 8 percent, receive a cost-of-living allowance. Servicemembers
also may receive other types of pay, allowances, or bonuses, depending on
their professional backgrounds, skills, or duties. For example,
servicemembers may receive special pay for hardship duty or exposure to
hostile fire, allowances when they are separated from their families
because of a change in station or a temporary duty assignment, and bonuses
for enlistment and reenlistment.7

According to DOD officials, in March 2006, about 950,000 personnel lived
in private housing (including privatized military family housing) and
received BAH-including roughly 70 percent of active-duty servicemembers in
the United States, as well as some activated reservists and servicemembers
stationed overseas whose dependents lived in the United States.8 DOD
generally requires enlisted servicemembers in the lowest ranks who do not
have dependents to live on base in furnished living quarters, commonly
referred to as barracks. These enlisted servicemembers do not receive BAH.

Each year, DOD sets BAH rates (i.e., the allowances servicemembers receive
monthly) that are based on the median local monthly cost of housing,
including current market rents, utilities, and renter's insurance. The
amounts that servicemembers receive also are based on their pay grades and
whether they have dependents. To calculate BAH rates for different pay
grades, DOD uses six standard categories of housing-ranging from an
one-bedroom apartment to a four-bedroom, single-family detached house-that
are intended to match the housing normally occupied by civilians with
comparable incomes. DOD applies separate categories to servicemembers with
and without dependents, but the number of dependents does not affect the
BAH amount.

BAH rates have increased since 2000 as DOD implemented an initiative to
reduce servicemembers' out-of-pocket housing costs. Prior to 2005, the BAH
rate for each area and pay grade was the local median monthly housing cost
minus a percentage of the national median monthly housing cost. That
deduction represented the amount that servicemembers would have to pay out
of pocket if their actual housing costs exactly matched the median local
housing cost for their pay grade. In 2000, the deduction was 19 percent of
the national median housing cost. DOD gradually reduced the deduction so
that, by 2005, BAH rates equaled the median housing cost for each area and
pay grade. Furthermore, while the housing allowance is calculated on the
basis of the rental market, servicemembers may choose to apply their
allowance toward purchasing a home, and they are free to spend more or
less than their allowance on housing.

We reported in April 2006 that the increases in BAH rates had made it
possible for more servicemembers to afford private housing in the local
market, thus reducing the need for privatized housing at installations.9
This has recently contributed to lower-than-expected occupancy rates at
some privatized housing projects. If some privatized projects persistently
experience lower-than-expected occupancy rates, they could encounter
financial difficulties or, at worst, failures. To avoid such concerns in
future privatization projects, we recommended that DOD determine how
increased BAH rates would affect installations' housing requirements and
provide guidance on how the services should incorporate this information
into their assessments of the need for privatized family housing.

More Than 100 Installations Will Gain Personnel through the 2005 BRAC
Process

The National Defense Authorization Act for Fiscal Year 2002 authorized a
new BRAC process in 2005. This was the fifth such process in the last two
decades, but the first since 1995.10 As in previous processes, Congress
enacted the legislation to close unneeded bases and realign others. On
November 9, 2005, Congress accepted in their entirety the most recent BRAC
recommendations for base closings and realignments. DOD has 6 years, or
from 2005 until September 15, 2011, to implement these recommendations.

The 2005 BRAC process affects a substantial number of communities
surrounding installations that are expected to experience considerable
growth in military personnel. While scores of installations will gain or
lose military personnel, more than 20 installations each are expected to
gain between 2,000 and 21,000 military, civilian, and mission-support
contractor personnel.11 For the most part, installations with the largest
gains are located in predominantly urban counties. However, some
installations are in rural areas that may have less housing available,
raising the possibility that incoming personnel initially could face a
shortage of nearby housing that is affordable to them.12 The installations
that will gain the most personnel through BRAC are Department of the Army
installations, with their gains attributable to actions such as the
consolidation of various activities and the return of personnel from
overseas locations under DOD's integrated global presence and basing
strategy. In addition to shifts related to BRAC, the Army is realigning
personnel as it changes its force structure.

Many Federal Rental Housing Programs Include BAH in Income Determinations

Various HUD, USDA, and IRS rental housing programs are intended to make
housing affordable for lower-income renters. None of the federal agencies
that administer these programs maintain data on the number of
participating servicemembers. The programs either support the production
of new or rehabilitated rental housing for eligible families or subsidize
tenants' rents to make existing units affordable (see table 1).
Specifically:

o Among the production programs, LIHTC and Section 515 Rural Rental
Housing Loans require property owners to restrict the rents that eligible
tenants pay. The rent on each tax-credit unit generally cannot exceed 30
percent of the applicable income limit, adjusted for the number of
bedrooms. Tenants pay 30 percent of their adjusted incomes toward the rent
on Section 515 units. The tax-exempt multifamily housing bonds program
requires units to be set aside for eligible families, but the rents on
these units generally do not have to be restricted.

o Rental assistance programs make payments to property owners to make up
the difference between an eligible tenant's rent contribution (generally,
30 percent of adjusted monthly income) and a unit's total rent. The
Housing Choice Voucher program offers tenant-based rental assistance that
tenants can use to rent privately owned apartments or single-family homes,
and that they can transfer to new residences if they move. In contrast,
the project-based Section 8 and Section 521 Rural Rental Assistance
programs offer project-based rental assistance, which is attached to
specific properties and is available to tenants only when they are living
in units at these properties.

o Public housing also subsidizes tenants' rents. However, rather than
making rental assistance payments to owners that are keyed to tenants'
rent payments, HUD provides public housing agencies with annual operating
subsidies that are based partly on the property's projected overall rental
income.

Table 1: Federal Rental Housing Programs That Support Housing Production
or Subsidize Tenants' Rents

                                        

Federal      Program       Program type            Description             
agency                                  
HUD     Housing Choice     Rental       Provides tenant-based rental       
           Voucher            assistance   assistance for households with     
                                           extremely low; very low; and, on   
                                           an exception basis, low incomes    
           Public housing     Rental       Provides subsidized housing        
                              assistance   operated by public housing         
                                           authorities for households with    
                                           extremely low to low incomes       
           Project-based      Rental       Provides project-based rental      
           Section 8 rental   assistance   assistance in multifamily          
           assistance                      properties for households with     
                                           extremely low, very low, and (in   
                                           certain properties) low incomes    
IRS     Low-Income Housing Production   Through the allocation of federal  
           Tax Credit                      tax credits by state agencies,     
                                           provides an incentive for          
                                           investment in development of       
                                           multifamily housing that sets      
                                           aside a portion of units for       
                                           households with very low incomes   
                                           or incomes at or below 60 percent  
                                           of the area median income          
           Tax-exempt         Production   Allows government entities to      
           multifamily                     issue tax-exempt bonds whose       
           housing bonds                   proceeds finance private rental    
                                           properties that set aside a        
                                           portion of units for households    
                                           with very low incomes or incomes   
                                           at or below 60 percent of the area 
                                           median income                      
USDA    Section 515 Rural  Production   Makes loans for the construction   
           Rental Housing                  and rehabilitation of rural        
           Loans                           multifamily properties for         
                                           households with very low to        
                                           moderate incomes                   
           Section 521 Rural  Rental       Provides project-based rental      
           Rental Assistance  assistance   assistance to tenants with very    
                                           low and low incomes in Section 515 
                                           and other USDA-financed            
                                           multifamily properties             

Sources: GAO, HUD, IRS, and USDA.

All of these federal programs use a common definition of income as set out
in a HUD regulation.13 Under this definition, incomes of servicemember
households include all regular pay, special pay, and allowances (including
BAH) of the servicemember, except special pay to servicemembers who are
exposed to hostile fire. Each program determines households' eligibility
to apply by comparing their incomes with an income limit, expressed as a
percentage of the area median.14 The income limits are adjusted for family
size, with higher limits for larger families. In addition, the HUD and
USDA programs use tenant income (with certain adjustments) to determine
how much of a unit's rent the tenant will pay.

The programs generally target various categories of households, defined
according to the relationship between a household's income and the local
area median income (AMI): extremely low (household income is no more than
30 percent of AMI), very low (no more than 50 percent of AMI), low (no
more than 80 percent of AMI), and moderate (no more than $5,500 above 80
percent of AMI). In addition to these categories, the LIHTC and tax-exempt
multifamily housing bond programs can target households with incomes that
are no more than 60 percent of AMI. For purposes of this report, we
focused on the 50 percent and 60 percent of AMI limits because they
generally apply to new applicants for the two largest federal rental
housing programs, Housing Choice Voucher and LIHTC.15

The federal rental housing programs are not entitlements and, as a result,
do not assist all households that HUD has identified as having housing
needs-that is, households with very low incomes that pay more than 30
percent of their income for housing, live in substandard housing, or both.
According to HUD data for 2003, federal rental housing programs assisted
an estimated 4.3 million households, or 27 percent of all renter
households with very low incomes.16 Over 9 million renter households with
very low incomes (about 59 percent) did not receive federal assistance and
had housing needs. Of these 9 million households, over 5 million had what
HUD terms "worst case" needs-that is, they paid over half of their income
in rent, lived in severely substandard housing, or both.

Excluding BAH When Determining Income Would Extend Eligibility to More
Servicemembers, Assuming No Additional Household Income

Assuming that the primary components of military pay were the only sources
of servicemembers' household incomes, excluding BAH payments from income
when determining servicemembers' eligibility for federal rental housing
programs would have substantially increased the percentage that would have
been eligible to apply for the programs as of December 2005. Specifically,
most junior enlisted members would have been eligible for the programs, as
would have much smaller percentages of senior servicemembers. In addition,
although few in number, servicemembers with the largest families (nine or
more persons) would have been somewhat more likely to be eligible for the
programs than those with smaller families. However, to the extent that
servicemembers' households had income from nonmilitary sources, fewer of
them would have been eligible for the federal programs. We lacked data on
servicemember household incomes from nonmilitary sources, but at least 80
percent of the potentially eligible servicemembers were married, and
income earned by spouses would likely have disqualified many of these
households.

Most Junior Enlisted Members and Some Senior Members Would Have Been
Eligible if Military Pay Were Their Sole Source of Income

Assuming that the primary components of servicemembers' military pay were
their only sources of household income in 2005, we found that by excluding
BAH from income determinations, 19.9 percent of servicemembers of all
grades would have been eligible for federal rental housing programs that
used an income limit of 50 percent of AMI,

compared with less than 1 percent of servicemembers with BAH included.17
Similarly, at the 60 percent of AMI limit, 39.3 percent of the
servicemembers would have been eligible if BAH were excluded when
determining income, compared with 4.8 percent if BAH were included (see
fig. 2).18 At both income limits, most junior enlisted members (for our
purposes, E-1 through E-4) would have been eligible for the programs if
BAH were excluded.19 Specifically, at the 50 percent of AMI limit,
substantial majorities of E-1s (92.4 percent), E-2s (78.7 percent), and
E-3s (65.2 percent) would have been eligible. At the 60 percent of AMI
limit, virtually all E-1s (99 percent) and E-2s (97.6 percent) and
substantial majorities of E-3s (90.2 percent) and E-4s (64.6 percent)
would have been eligible.

Figure 2: Servicemembers' Potential Eligibility, by Pay Grade, for Federal
Rental Housing Programs at the 50 Percent and 60 Percent of AMI Limits, as
of December 2005

Note: This figure shows the potential eligibility to apply for federal
rental housing programs among servicemembers who were receiving BAH as of
December 2005, based on the payments they received that month for basic
pay; BAS; BAH; and, where applicable, a cost-of-living adjustment for
servicemembers living in high-cost areas. These data were from DOD's
Active Duty Pay and Active Duty Military Personnel Master File systems.
This analysis assumes that the primary components of military pay were
servicemembers' only sources of income; income from other sources would
reduce the percentage of eligible servicemembers.

In addition, using the same assumption that household income included only
the primary components of military pay, some senior enlisted members and
officers would have been eligible for the programs if income
determinations excluded BAH. Specifically, at the 50 percent of AMI limit,
19.2 percent of E-5s and 9.4 percent of E-6s would have been eligible, as
would have very small percentages of servicemembers in pay grades E-7
through E-9 (see fig. 2). The percentage of eligible officers also would
have been very small, as follows: 1 percent using the 50 percent of AMI
limit, and 2 percent using the 60 percent of AMI limit.

Excluding BAH, More Servicemembers with Families of All Sizes Would Have
Been Eligible, Especially Larger Families

Again assuming that the primary components of military pay were the only
sources of household income, by excluding BAH from income determinations,
considerable percentages of servicemembers with families of all sizes
would have been eligible for the programs, using either the 50 percent or
60 percent of AMI limit. However, because the programs' income limits
increase with family size, servicemembers with larger families (although
relatively few in number) generally would have been more likely to be
eligible than those with smaller families (which were much greater in
number). For example, with BAH in income determinations, 6.6 percent (59)
of the largest families (those with nine or more persons) would have been
eligible for programs using the 50 percent of AMI limit, compared with 0.5
percent (866) of the smallest (two-person) families (see fig. 3).20 With
BAH excluded, 40.6 percent (361) of the largest families would have been
eligible, compared with 23.7 percent (45,262) of the smallest families.
The same general pattern held true for programs using the 60 percent of
AMI limit. For example, 63.8 percent (568) of the largest families and
44.5 percent (84,999) of the smallest families would have been eligible if
BAH were excluded from income determinations.

Figure 3: Servicemembers' Potential Eligibility, by Family Size, for
Federal Rental Housing Programs at the 50 Percent and 60 Percent of AMI
limits, as of December 2005

Note: This figure reflects the potential eligibility of servicemembers to
apply for federal rental housing programs as of December 2005, assuming
that the primary components of military pay were the only sources of
household income.

Additional Household Income Would Reduce the Number of Eligible
Servicemembers

To the extent that servicemembers had additional sources of household
income, their actual eligibility for the federal rental housing programs
would have been less than the percentages shown in our analysis.
Additional sources of household income could include income on assets
(such as savings accounts or mutual funds), employment of other household
members, or types of military pay that we did not include in our
analysis.21 For example, figure 4 shows that-at both program income limits
and with BAH included in or excluded from income determinations-at least
80 percent of the potentially eligible servicemembers were married and,
thus, could have had additional income earned by a spouse. In addition, at
least 9 percent of the potentially eligible servicemembers received other
types of military pay.

Figure 4: Percentage of Servicemembers Potentially Eligible for Federal
Rental Housing Programs That Were Married or Received Other Military Pay,
as of December 2005

Note: Although we knew the percentage of servicemembers that received
other military pay in December 2005, we excluded such payments from our
analysis because we lacked a reliable method to estimate the total amount
of other military pay received in 2005 using data from a single month.

To illustrate how additional sources of household income could affect
eligibility for the federal rental housing programs, we calculated the
amounts of additional income it would take to disqualify married
servicemember households that would have been eligible on the basis of
their military incomes alone. We found that, among the married
servicemembers who were potentially eligible with BAH included in income
determinations, income from even part-time, minimum-wage work by their
spouses likely would have disqualified many from the federal programs. The
same was true even if BAH were excluded from income determinations. For
example, with BAH included, spousal income of $2,004 would have been
enough to disqualify half of the married servicemembers that were
potentially eligible for programs using the 50 percent of AMI limit (see
table 2). With BAH excluded, spousal income of $4,044 would have been
enough to disqualify half of the married servicemembers that were
potentially eligible. At the 60 percent of AMI limit, $3,108 in spousal
income would have disqualified half of the potentially eligible married
servicemembers with BAH included in income determinations, compared with
$6,180 if BAH were excluded. As shown in table 2, these amounts represent
part-time work of 24 hours per week or less at the federal minimum wage.

Table 2: Amount of Additional Income That Would Have Disqualified Half of
the Married Servicemembers, as of December 2005

                                        

Income limit   BAH included in or         Income that would have Hours per 
                 excluded from income      disqualified half of the   week at 
                    determinations          married servicemembersa   minimum 
                                                                        wageb 
50 percent of Included                                    $2,004         8 
AMI limit     Excluded                                     4,044        16 
60 percent of Included                                     3,108        12 
AMI limit     Excluded                                     6,180        24 

Sources: GAO and DOD.

aFor married servicemembers who were potentially eligible at each income
limit, we calculated the median amount of additional income (such as
spousal income) that would have disqualified them. This table presents the
amount of spousal income that would have disqualified half of the married
servicemembers.

bWe calculated the hours per week (assuming 50 weeks of work per year at
the federal minimum wage, that is, $5.15 per hour) needed to earn the
additional income that would have made half of the married servicemembers
ineligible.

Eligibility Aside, Lack of Demand and Other Factors Could Limit
Servicemembers' Use of Federal Rental Housing Programs

Agency officials and representatives from the four communities we examined
described factors that may limit the role of federal rental housing
programs in increasing the supply of housing or helping servicemembers
afford existing housing, regardless of how BAH affects their eligibility.
DOD officials said that servicemembers would be unlikely to need federal
rental housing programs because BAH rates cover median local housing costs
and would adjust annually to reflect any increases in market rents that
resulted from increased demand for housing near growing installations.
Yet, some community officials said that the LIHTC program could be used to
build more affordable housing if more servicemembers were eligible.
However, states would have to award tax credits to projects in these
communities, and housing market factors-such as the financial feasibility
of building market-rate units with rents that low-ranking servicemembers
could afford-could affect developers' interest in using the LIHTC program.
Furthermore, although HUD and USDA programs could help some eligible
servicemembers rent existing units, the programs are not entitlements; the
limited availability of this rental assistance may preclude servicemembers
from using the programs. Also, if more servicemembers applied for these
programs, eligible lower-income civilians might face longer times on
waiting lists.

Servicemembers May Not Need Programs because BAH Rates Cover Median Costs
and Are Adjusted for Changing Rents

According to DOD officials, servicemembers would be unlikely to need
federal rental housing programs to obtain affordable housing near growing
installations because BAH rates cover local housing costs and would adjust
for any increases in market rents that resulted from personnel gains. As
of 2005, BAH rates fully cover the median local cost of housing at each
installation. Officials noted that DOD's recent initiative to reduce
servicemembers' out-of-pocket housing costs had resulted in substantial
increases in BAH rates nationwide, including at the four selected
installations we reviewed (Forts Benning, Bliss, Drum, and Riley). In
addition, the officials said that, if increased demand for housing near a
growing installation caused upward pressure on housing costs, DOD would
adjust BAH rates upward as part of the annual rate-setting process,
allowing servicemembers to obtain market-rate housing without additional
federal assistance. However, if vacant units were not available in the
communities immediately surrounding a growing installation, DOD officials
acknowledged that some servicemembers might have to seek housing in
outlying communities until the private market responded with new
construction closer to the installation.

Furthermore, the National Defense Authorization Act for Fiscal Year 2006
authorized the Secretary of Defense to prescribe temporary increases in
BAH rates in disaster areas or areas that contain one or more
installations that are experiencing a sudden increase in the number of
servicemembers assigned to the installation.22 Specifically, a temporary
increase in BAH rates would be based on the amount by which area housing
costs increased because of the disaster or influx of service members and
would apply until new rates for the next calendar year took effect.
According to DOD officials, no installations had requested an increase in
BAH rates because of installation growth, and the Secretary had not used
this authority as of June 2006. If an installation requests a temporary
increase in BAH rates because of installation growth, the officials said
that DOD would review local market conditions to determine whether an
increase was warranted.

Ability of the LIHTC Program to Produce Needed Housing Could Be Affected
Not Only by Servicemembers' Eligibility, but Also by the State Allocation
Process and Market Conditions

To varying degrees, officials in the four communities (near Forts Benning,
Bliss, Drum, and Riley) that we examined described a need to build more
private housing for incoming servicemembers. Some officials indicated
that, under certain conditions, the LIHTC program could help address their
anticipated housing needs.

According to officials at the selected installations, expected gains in
military personnel ranged from about 4,500 at Fort Benning to about 19,500
at Fort Bliss (see table 3). The rural installations-Fort Drum and Fort
Riley-expected more substantial growth relative to their existing supply
of housing than did the urban installations. The communities generally did
not yet have precise data on the expected number of servicemembers that
would be most likely to seek private housing (servicemembers with families
and those in higher pay grades who do not have dependents) or required to
live in barracks (servicemembers in junior pay grades who do not have
dependents). However, community officials in the Fort Riley area estimated
that at least 9,000 more housing units would be needed, considering both
the estimated number of incoming military personnel and the expected
growth in the civilian employment at the installation. Similarly,
community officials near Fort Drum estimated the need for approximately
2,000 additional units. Community officials in the Fort Benning and Fort
Bliss areas had not developed such estimates, but they also anticipated
that some new construction would be necessary to accommodate installation
growth as well as other population increases.

Table 3: Expected Growth in Military Personnel at Four Selected
Installations

                                        

Installation     Primary    Urban Pregrowth  Expected  Area's  Growth as a 
                   counties     or    military growth in private   percentage 
                               rural personnel  military housing   of private 
                                               personnel  units,        units 
                                                            2002 
Fort Benning, Muskogee and  Urban   15,000a    4,500a  81,500           6% 
Georgia       Chattahoochee                                   
Fort Bliss,   El Paso       Urban     9,500    19,500 232,000            8 
Texas                                                         
Fort Drum,    Jefferson     Rural    11,000     6,000  54,500           11 
New York                                                      
Fort Riley,   Geary and     Rural    11,500   6,500 -  36,000      18 - 21 
Kansas        Riley                             7,500         

Sources: GAO, U.S. Census Bureau, and selected installations.

Note: The installations are gaining servicemembers as a result of the BRAC
process, the restationing of servicemembers from overseas, the Army's
initiative to change its force structure, or a combination of these
initiatives. We determined whether an installation was rural or urban
using the Rural-Urban Commuting Area codes developed by USDA's Economic
Research Service and the Office of Rural Health Policy, Department of
Health and Human Services. We compiled the most recent Census estimates of
the total number of private housing units in the primary counties within
each installation's Army-defined market area. We considered a county to be
primary if most of its land area fell within the market area. We present
the installations' growth as a percentage of the primary counties' housing
units only to illustrate the relative magnitude of each installation's
growth. This table is not intended to suggest the number of servicemembers
that would seek private housing, the number of existing units that might
be available for rent or purchase, or the number of existing units that
the Army considers suitable for servicemembers.

aThe figures for Fort Benning exclude its military student population
because these personnel generally live on base and, thus, would not seek
private housing.

Officials in some of these communities indicated that, under certain
conditions, the LIHTC program could help address their anticipated housing
needs. In particular, officials in the rural communities surrounding Fort
Drum and Fort Riley said that the LIHTC program could help them build more
affordable housing in response to installation growth, but only if more
servicemembers would qualify to live in tax-credit units (see

sidebar).23 Assuming that the primary components of military pay were the
only sources of household income, modest percentages of servicemembers at
Fort Drum and Fort Riley in December 2005 might have qualified for
tax-credit units using the 60 percent of AMI limit even under the
program's existing income definition, but much larger percentages (about
37 percent and 26 percent, respectively) would have been eligible if BAH
were excluded from income determinations (see fig. 5). In contrast, almost
none of the servicemembers at Fort Benning and Fort Bliss would have been
eligible under the existing income definition, and modest percentages
(about 14 percent and 10 percent, respectively) would have been eligible
if BAH were excluded from income determinations. The variation in
servicemembers' eligibility across installations reflected differences in
the percentages of servicemembers in the lowest pay grades.

Figure 5: Servicemembers Potentially Eligible for Tax-Credit Units at the
60 Percent of AMI limit, as of December 2005

Note: This figure reflects the eligibility of servicemembers at selected
installations as of December 2005, assuming that the primary components of
military pay were the only sources of household income. Our analysis does
not take into account anticipated gains in the number of servicemembers at
these installations.

Although these data, which pertain to personnel already located at these
installations as of December 2005, do not indicate how many incoming
personnel might be eligible to live in tax-credit units, they suggest that
substantial percentages of those at the rural installations might become
eligible if BAH were excluded from income determinations. In light of that
possibility, community officials near Fort Drum and Fort Riley stated that
excluding BAH could create opportunities to use the LIHTC program.
Specifically:

o Community officials near Fort Drum indicated that some developers were
interested in building new rental housing but faced obstacles in financing
projects because of an estimated gap between current market rents, which
incoming junior enlisted personnel likely could afford, and the higher
rents that developers would need to charge to make new apartments
financially feasible without government subsidies. The officials had been
working with developers to seek financing assistance through state
programs, including New York's low-income housing tax credit program,
which serves households with incomes up to 90 percent of AMI. However,
because the state programs are relatively small, the officials said that
increasing servicemembers' eligibility for the larger federal LIHTC
program would provide more financing options for developers.

o Community officials near Fort Riley noted that servicemembers make up a
substantial portion of the current and expected future rental market in
the area, particularly in the community of Junction City just outside of
the installation. They said that while some developers of tax-credit
projects have expressed interest in building more units in the area, they
would only do so if the pool of potential tenants included more incoming
servicemembers, because the demand for additional tax-credit units among
civilian families is limited.

However, even if BAH were excluded from income when determining
eligibility and if developers proposed building tax-credit units,
LIHTC-funded development might be limited near growing installations
because the state agencies that award available tax credits have a variety
of

priorities.24 By law, each state must prepare an annual plan that
identifies its criteria for distributing its allocation of credits among
proposed developments. A state would have to weigh how a proposed property
would address the housing needs near growing installations against the
state's priorities and selection criteria. States must give preference to
projects serving the lowest-income tenants and projects that would serve
qualified tenants for the longest periods of time. The states' selection
criteria also must include other considerations, such as tenant
populations with special housing needs. For example, the priority housing
needs in Kansas's plan for allocating tax credits in 2006 include projects
in communities with populations of fewer than 5,000; preservation of
housing with Section 8 or Section 521 project-based rental assistance;
projects for special-needs populations, such as the homeless or people
with disabilities; and projects whose units would offer below-market-rate
rents. Projects addressing these priorities would receive extra points in
the scoring process used to evaluate proposals.

Furthermore, officials in the four communities described market factors
that could influence whether developers would try to use the LIHTC program
to build housing near growing installations.25 In general, developers
would have limited incentive to compete for tax credits if conditions for
building market-rate housing were favorable, such as in areas having a
higher-income population. Generally, market-rate housing allows developers
to charge whatever rents the market will bear, without other restrictions.
In contrast, applicants for tax-credit financing must agree to limit the
rents charged for tax-credit units for at least 30 years and must comply
with other federal requirements for 15 years or risk losing the right for
investors to claim the tax credits. Thus, developers might be less likely
to propose new tax-credit units near a growing installation that expected
to receive more senior servicemembers with relatively high incomes than
near one that expected more junior members with relatively low incomes.
For example:

o Aside from military students who would live on base, most of the
incoming military personnel at Fort Benning are associated with the
planned realignment of a training school with primarily senior-ranking
personnel. Community officials said that because these personnel likely
could afford to pay market rates for housing, they did not expect
developers to focus on providing new housing through the LIHTC program.

o In contrast, on the basis of preliminary estimates from Fort Riley
officials, roughly 45 percent of the servicemembers that would eventually
be stationed there might be married members in pay grades E-1 through E-6.
As of early 2006, the communities near Fort Riley had substantial
market-rate development under way or in the planning stages. However,
community officials anticipated that enough additional low-cost housing
would be needed for servicemembers in these lowest pay grades to justify
building tax-credit units for them (assuming they were to become
eligible).

In addition, developers might be more disposed to seek LIHTC financing in
areas where the cost to build new housing was high relative to the incomes
of junior enlisted members. For example:

o Whereas officials in the Fort Benning area expected that developers
could build new market-rate housing within the price range that incoming
servicemembers could afford, officials in the rural Fort Drum and Fort
Riley areas stated that increasing construction, labor, and infrastructure
costs could make new market-rate units too expensive for junior enlisted
members or could make it difficult to secure financing for market-rate
units.26 For example, the cost of bringing materials and, perhaps, workers
into a rural area can contribute to relatively high development costs.

o Near Fort Bliss, El Paso city officials said that the LIHTC program
might be an attractive financing alternative for developers if they could
not otherwise build housing that servicemembers with the lowest incomes
could afford. However, the officials did not yet know whether developers
might need subsidies. They planned to study the issue by considering the
expected incomes of servicemembers who would be arriving at Fort Bliss,
the supply and price of existing housing, and the development costs and
rents that would be charged for new market-rate housing.

Waiting Time and Scarcity of Larger Units May Preclude Servicemembers from
Renting Existing Units through HUD and USDA Programs

Even if more servicemembers were to become eligible for HUD and USDA
rental housing assistance programs, waiting lists for units and the
limited availability of large units might limit servicemembers'
participation in these programs, according to officials from HUD, USDA,
and the four selected communities.

Rather than financing new rental housing near growing installations, HUD's
Housing Choice Voucher, public housing, and project-based Section 8
programs and USDA's Section 515 and Section 521 programs primarily would
help servicemembers rent existing units if they obtained the programs'
assistance, typically by making up the difference between their required
contribution (generally 30 percent of adjusted monthly income) and a
unit's total rent.27 However, these programs are not entitlements, and
many of the HUD, USDA, and community officials said that the limited
number of units or limited supply of rental assistance may deter eligible
servicemembers from applying for these programs, especially in areas with
long lists of applicants already awaiting assistance. If they did join the
programs' waiting lists, servicemembers might find other private,
military-owned, or privatized housing; relocate to a different
installation; or become ineligible for the program because of a promotion
before they rose to the top of a list. In all four of the communities we
reviewed, the Housing Choice Voucher and public housing programs had
waiting lists, with times ranging from a few months to 2 years, according
to officials from HUD field

offices and the housing authorities that maintain the lists.28 For
example, in Columbus, Georgia, near Fort Benning, the waiting list for
vouchers was long enough that it was closed as of March 2006 and was not
expected to open to new applicants until 2008.

In addition, servicemembers with large families may face obstacles to
using rental assistance programs because of the limited availability of
units with three or more bedrooms, according to some HUD, USDA, housing
authority, and installation officials.29 In the four communities,
properties with project-based Section 8 assistance and public housing
developments offered relatively few units with three or more bedrooms,
thereby limiting the options for families of five or more persons. For
instance, in the Fort Drum area, of 690 project-based Section 8 and public
housing units intended for families, 172 had three bedrooms and 43 had
four bedrooms; the remaining 475 had fewer than three bedrooms. Similarly,
although voucher recipients can seek housing in the broader private rental
market, some of the HUD field office officials noted that larger families
could have a hard time finding a sufficiently sized apartment or house
that would meet the program's quality and cost standards.

If servicemembers did join the programs' waiting lists, HUD headquarters
and field office officials noted that housing authorities could adopt
preferences that would reduce servicemembers' wait for vouchers or public
housing, but some officials said that such a step could be controversial.
The housing authorities that administer vouchers and public housing
developments may establish local preferences for selecting families from
waiting lists, on the basis of local housing needs and priorities.
However, HUD and housing authority officials said that such
preferences-for example, for victims of domestic violence or a single
homeless person-have sometimes met opposition from those who would face
longer waits because they did not qualify for these preferences.

Similarly, some HUD officials said that increasing servicemembers'
eligibility for the programs or giving them preference on waiting lists
could create tensions with lower-income civilians who might have to face
even longer waiting periods for rental assistance as a result. On the
basis of the 2006 pay rates for the primary elements of military
compensation, servicemembers in all pay grades would have substantially
more income than most existing Housing Choice Voucher recipients, even
without their BAH payments (see fig. 6).30 In light of that difference in
incomes, some of the officials also cited potential concerns about
balancing any advantages for servicemembers with the programs' current
emphasis on targeting assistance to households with extremely low
incomes.31

Figure 6: Income Ranges of Housing Choice Voucher Recipients and
Servicemembers in Selected Pay Grades, 2006

Conclusions

As some military installations gain servicemembers, nearby communities
face opportunities for growth as well as potential challenges in providing
an adequate supply of housing that incoming servicemembers can afford.
Many of these incoming personnel may not have problems finding housing
they can afford-for example, junior enlisted members without dependents
generally live in barracks; DOD has the ability to raise BAH rates for
other servicemembers to reflect any increases in housing costs near the
growing installations; and many servicemembers may have additional
resources, such as spousal income, that they can put toward housing costs.
Where communities lack enough housing for incoming personnel or where
rents are expensive for married junior personnel, federal rental housing
programs might help provide affordable housing for servicemembers through
the production of additional housing or through rental assistance for
existing housing. By excluding BAH from servicemembers' incomes when
determining eligibility, many of the lowest-ranking servicemembers could
qualify to apply for these programs.

However, the effects of such a change are uncertain and could involve
trade-offs that warrant attention. For example, the LIHTC program (or,
similarly, tax-exempt multifamily housing bonds) could help increase the
supply of affordable rental housing for incoming servicemembers, if more
of the members were eligible to live in tax-credit units. However, even if
more servicemembers were eligible, the extent to which the LIHTC program
would play a role in increasing the supply of affordable housing near
growing installations would depend on local housing market conditions, the
income distribution of incoming servicemembers, and the decisions of state
agencies regarding whether to allocate tax credits to projects near
growing installations or to projects that might address other state
housing priorities. Furthermore, the rental assistance programs are not
entitlements and already do not assist all eligible households. While some
servicemembers might be deterred by the prospect of a lengthy wait from
applying for HUD and USDA rental assistance for existing units, those who
did apply would expand the pool of those waiting for a limited supply of
available assistance. Thus, making more servicemembers eligible by
excluding BAH from income determinations could cause these programs to
serve more servicemembers at the expense of eligible civilians.

Matter for Congressional Consideration

If the primary intent of excluding BAH from income determinations for
federal rental housing programs is to help increase the supply of rental
housing that servicemembers with the lowest incomes could afford, Congress
should consider first applying such a change only to programs intended to
stimulate production of such housing, such as LIHTC and tax-exempt
multifamily housing bonds.

Agency Comments and Our Evaluation

We provided a draft of this report to DOD, HUD, IRS, Treasury, and USDA
for their review and comment. Treasury and USDA did not comment on the
draft report. DOD, HUD, and IRS provided technical comments, which we
incorporated where appropriate. DOD also provided comments in a letter
from the Acting Deputy Under Secretary for Military Personnel Policy (see
app. II).

DOD commented that BAH does an excellent job of achieving the objective of
providing servicemembers with the same quality and quantity of housing
that their civilian counterparts can afford. However, DOD also noted that
servicemembers may have difficulty finding adequate housing if there are
substantial changes in the supply of or demand for housing in a local
area, at least until the private market has had time to adjust to the
changing conditions. DOD also observed that servicemembers with large
families, who seek larger housing than an average size family, may have
difficulty finding adequate housing using their BAH payments alone and may
apply for federal rental housing programs. However, DOD also stated that
servicemembers should be eligible for federal housing subsidies under the
same terms as their civilian counterparts. Furthermore, DOD commented that
excluding BAH from income determinations might transfer existing scarce
resources from low-income civilians to the military and generate ill-will
among civilians toward the military. Finally, DOD stated that, while our
draft report showed that excluding BAH from income determinations might
not have the desired effect of increasing the supply of rental housing for
servicemembers, there might be other ways in which the government could
assist the private market in responding to housing shortgages. Our draft
report discussed the particular difficulties of large families-even those
receiving rental assistance-in finding suitable housing. The draft report
also addressed the potential role of existing programs, particularly the
LIHTC program, in stimulating production of affordable housing near
growing installations. However, examining other possible federal
strategies for increasing the supply of private housing was beyond the
scope of this study.

We are sending copies of this report to other interested congressional
committees; the Secretaries of the Departments of Agriculture, Defense,
Housing and Urban Development, and the Treasury; and the Commissioner of
Internal Revenue. We will make copies available to others upon request.
This report will also be available at no charge on GAO's Web site at
http://www.gao.gov.

Please call me at (202) 512-8678 if you or your staff have any questions
about this report. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this report.
See appendix III for key contributors to this report.

David G. Wood Director, Financial Markets and Community Investment

Objectives, Scope, and MethodologyAppendix I

Objectives

Our objectives were to determine (1) how excluding the Basic Allowance for
Housing (BAH) from income determinations would have affected the
eligibility of servicemembers receiving BAH as of December 2005 and (2)
programmatic and market factors that could affect eligible servicemembers'
participation in the programs in selected communities gaining military
personnel.

Scope and Methodology

The federal rental housing programs in our scope include the Department of
Housing and Urban Development's (HUD) public housing, Housing Choice
Voucher, and project-based Section 8 programs; the Department of
Agriculture's (USDA) Section 515 Rural Rental Housing Loans and Section
521 Rural Rental Assistance programs; and the Low-Income Housing Tax
Credit (LIHTC) and tax-exempt multifamily housing bond programs, which are
jointly administered by the Internal Revenue Service (IRS) of the
Department of the Treasury (Treasury) and the states.1

To determine how excluding BAH would have affected the eligibility of
active-duty servicemember households receiving BAH as of December 2005, we
compared the incomes of servicemembers who received BAH in December 2005
with the federal rental housing programs' income limits in effect at that
time.2 We obtained personnel and pay data from the Department of Defense's
(DOD) Active Duty Personnel Master and Active Duty Pay files for December
2005.3 We analyzed data on 702,975 active-duty servicemembers who received
BAH payments that month. We calculated servicemembers' annual incomes on
the basis of their December 2005 payments for basic pay; BAH; Basic
Allowance for Subsistence; and, where applicable, a cost-of-living
adjustment for servicemembers in certain high-cost areas. We assumed that
these elements of military pay were servicemembers' sole sources of
household income because data on other income sources, such as spousal
income, were unavailable.4 However, we analyzed how other sources of
income might have reduced servicemembers' eligibility by calculating the
median additional annual income needed before married servicemembers'
families would have exceeded the income eligibility limit.5

To assess the reliability of the data used in our analysis, we interviewed
DOD officials who were familiar with the data, reviewed relevant
documentation, and tested the data for missing and apparently erroneous
values. DOD provided data on 708,548 active-duty members of the
Departments of the Army, Navy and Air Force and the Marine Corps. On the
basis of our tests of these data, we excluded 5,573 (about 0.8 percent)
records because we could not match the servicemembers' zip codes to the
geographic areas for which income limits were defined, because data on
family size were missing, or because anomalies in the monthly pay data
prevented us from calculating an annual income amount.6 As a result, our
servicemember population was 702,975 for this analysis. We concluded that
these data were sufficiently reliable for our purposes. Nonetheless, our
analysis was limited because it provided a snapshot of servicemembers'
potential eligibility to apply for the programs on the basis of their
incomes in December 2005. We could not predict the effects of a future
change in income determinations, because potential changes in
servicemembers' incomes or duty locations and annual adjustments to
programs' income limits would also affect eligibility.

To determine the programmatic and market factors that could affect
eligible servicemembers' participation in the programs in selected
communities gaining military personnel, we interviewed and reviewed
relevant documentation from military installation officials; rental
housing program officials (including officials from HUD and USDA field
offices, public housing authorities, and state housing finance agencies);
and local government or community organization representatives in four
communities near installations that will gain military personnel as a
result of the 2005 base realignment and closure (BRAC) process or other
military initiatives. We selected Fort Benning, Georgia; Fort Bliss,
Texas; Fort Drum, New York; and Fort Riley, Kansas. We selected these
installations on the basis of their expected net gains of military
personnel and preliminary information indicating that the surrounding
communities had initiated planning to address the housing needs of
incoming servicemembers.7 We also sought a balance between urban and rural
locations. Our selection of four Army installations reflects that this
service generally expected the largest personnel gains. We visited the
Fort Riley, Kansas, area and contacted the other areas by telephone. We
cannot generalize the information from these four installations to all
installations that will gain military personnel. In addition to our local
contacts, we also discussed factors that affect the use of federal rental
housing programs with headquarters officials at the Army, DOD, HUD, USDA,
IRS, and Treasury.

We conducted our work in Washington, D.C.; Arlington, Virginia; and
Junction City and Manhattan, Kansas, between November 2005 and July 2006,
in accordance with generally accepted government auditing standards.

Office of the Under Secretary of DefenseAppendix II

GAO Contact and Staff AcknowledgmentsAppendix III

David G. Wood, (202) 512-8678 or [email protected]

In addition to the contact named above, Steve Westley, Assistant Director;
Julianne Stephens Dieterich; Alison Martin; Bettye Massenburg; John
McGrail; John Mingus; Marc Molino; David Pittman; and Barbara Roesmann
made key contributions to this report.

(250264)

www.gao.gov/cgi-bin/getrpt? GAO-06-784 .

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact David G. Wood at (202) 512-8678 or
[email protected].

Highlights of GAO-06-784 , a report to congressional committees

July 2006

RENTAL HOUSING PROGRAMS

Excluding Servicemembers' Housing Allowances from Income Determinations
Would Increase Eligibility, but Other Factors May Limit Program Use

Although the Department of Defense (DOD) pays active-duty servicemembers
who do not live in military housing a Basic Allowance for Housing (BAH) to
help them afford private market residences, expected growth at some
military installations has raised concerns about whether nearby
communities will have enough affordable rental housing for incoming
personnel. In response to a congressional mandate, GAO assessed (1) how
excluding BAH would affect servicemembers' eligibility to apply for
federal rental housing programs and (2) factors that could affect their
use of the programs in selected communities gaining military personnel.
GAO compared servicemembers' eligibility for the programs as of December
2005 by including and excluding BAH from income determinations and
examined factors affecting potential program use near four growing
military installations.

What GAO RecommendsThis report contains a matter for congressional
consideration stating that if the primary intent of excluding BAH from
income determinations for federal rental housing programs is to increase
the supply of affordable rental housing for servicemembers, Congress
should consider first applying such a change only to programs that
stimulate housing production. DOD commented that servicemembers should be
eligible for federal rental housing programs on the same terms as their
civilian counterparts.

Excluding BAH from income determinations for federal rental housing
programs would have substantially increased the percentage of
servicemembers eligible to apply for the programs as of December 2005,
assuming military pay was their only income. To be eligible to apply for
rental assistance programs of the Departments of Housing and Urban
Development (HUD) and Agriculture (USDA), or to live in units produced by
the Internal Revenue Service's (IRS) Low-Income Housing Tax Credit
program, households must have incomes at or below a specific limit,
generally 50 percent or 60 percent of the median household income for
their area. At the 50 percent income limit, 20 percent of servicemembers
who received BAH would have been eligible if BAH were excluded from income
determinations, compared with 1 percent with BAH included. Most junior
enlisted members would have been eligible if BAH were excluded, as would
have small percentages of senior personnel. However, at all levels, many
would not have been eligible if their households had even modest income
from other sources.

Agency and community officials cited factors that could limit the role of
federal programs in building housing or helping servicemembers afford
existing units near four installations that GAO examined. DOD officials
said that servicemembers would be unlikely to need the programs because
BAH payments provide for the median cost of market-rate housing. Some
community officials said the tax-credit program, which spurs housing
production, could be useful if more servicemembers qualified. But
developers would have to compete for tax credits, and market factors-such
as the financial feasibility of building units that junior enlisted
members could afford-could limit their interest. The HUD and USDA programs
might help some servicemembers rent existing units, but-because the
programs are not entitlements-servicemembers could face lengthy waits, and
eligible civilians might wait longer for assistance.

Potential Eligibility for Federal Rental Housing Programs, Assuming
December 2005 Military Income Was the Only Household Income
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