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STATEMENT BY

MR. PAUL W. JOHNSON
DEPUTY ASSISTANT SECRETARY OF THE ARMY
(INSTALLATIONS AND HOUSING)
OASA(I&E)
BEFORE THE
SUBCOMMITTEE ON MILITARY INSTALLATIONS
AND FACILITIES
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
FIRST SESSION, 107^TH CONGRESS
ON FAMILY HOUSING PRIVATIZATION

3 MAY 2001

Mr. Chairman and members of the subcommittee, it is a pleasure to appear before you to discuss housing privatization in the Army.

First, I should note that the President's Fiscal Year 2002 budget includes funding to cover our most pressing priorities, but that the funding level for Army family housing, like other Army programs, may change as a result of the Secretary of Defense's strategy review, which will guide future decisions on military spending. The Administration will determine final 2002 and outyear funding levels only when the review is complete. I ask that you consider my comments in that light. Second, let me add that the President's priority on military housing is most welcome. My comments do not reflect the impact of the additional funding the President has proposed for housing. At this time, we do not know how much of this funding will be allocated to the U.S. Army.

No single quality of life issue is as important as adequate housing for soldiers and families. The Army's family housing program provides a major incentive that is necessary for recruiting and retaining dedicated individuals to serve in the Army. Yet, adequate housing continues to be a major concern to soldiers when we ask them about their quality of life. We have long waiting lists at nearly all of our major posts in the United States, and out-of-pocket expenses for soldiers living off post are approximately 15 percent of the total cost of their housing. Maintaining and sustaining safe, attractive and convenient housing for our soldiers and families is one of the Army's continuing challenges.

          The Army's housing privatization program, called the Residential Communities Initiative (RCI), offers a way for the Army to leverage the value of its assets into resources for installation maintenance and improvement. The RCI program offers a way for us to provide quality Army housing and residential communities that are sustainable over time.

          The Army supports the DoD goal to eliminate all inadequate family housing by Fiscal Year 2010, using a combination of Military Construction (MILCON), Basic Allowance for Housing (BAH), and the housing privatization authorities provided by the 1996 Military Housing Privatization Initiative (MHPI) legislation. At the end of Fiscal Year 2000, over 70% of Army Family Housing (AFH) were classified as inadequate - these units need replacement, major renovation or repair. This equates to a $6 billion funding requirement. Although at current funding levels the Army's Family Housing Master Plan meets the DoD goal by 2010 in foreign areas, but we will not be able to eliminate inadequate housing in the United States until 2014, even with our projected utilization of the MHPI authorities. 

THE PROBLEM

Today's soldiers are pursuing careers, instead of minimum mandatory obligations. They are well-educated professionals and focused on the long term. Unlike their predecessors, most of them have families. According to one recent study, approximately 62 percent of Army personnel have family housing requirements.

The expectations of our soldiers are similar to the expectations of their civilian counterparts. Civilian contemporary living standards consider more than square footage and bedroom count. Private sector experience shows that interior features, such as quality kitchens and well-finished interiors, along with exterior enhancements such as landscaping, site placement and neighborhood facilities, are decisive factors in determining customer satisfaction. Families need more than "quarters;" they need a place to call "home" in communities that are safe, modern, convenient, affordable and attractive.

About 35 percent of our military families live on post in military housing. The Army currently manages approximately 120,000 government-owned and leased houses. This inventory is aging and often does not provide amenities that are now considered the norm, such as adequate square footage, number of baths, storage space and garages. In many housing neighborhoods, the infrastructure (heating and electrical systems and water and sewer lines) is "vintage 1950s" with inefficient technology and obsolete plant and equipment. Although we may have built housing that, at the time, met the standards of the day, we have not had the funds to sufficiently upgrade this housing to bring it up to today's standards.

          Quality installations are the foundation of readiness, but in our pursuit of near-term readiness we have mortgaged the future. Our organization has downsized much faster than our installations, leaving us with significant excess infrastructure. These two factors have combined to practically halt maintenance spending on our posts. As a result, our installations are falling apart. Older infrastructure is deteriorating and needs to be replaced. What we are building today will be in the same situation in another decade or two if maintenance and repair funding does not improve. With an annual funding gap in the housing program, we have no choice but to look outside the Army for help. This is especially true since the Army Transformation will place new demands on installations and require new, better, more effective and efficient facilities.

In addition, our procurement, construction and management practices have become increasingly rigid. The lead time required to follow all the specialized procedures can delay a project for years. We believe that these rigid requirements and government-invoked processes cause many private investors and developers to ignore government projects, or to increase their bids to compensate for their additional time, effort and frustration in coping with the procedures.

          Even though our housing inventory is deteriorating, there are long waiting lists at many installations for soldiers awaiting assignment to government housing. Soldiers and their families often prefer to live in "unsuitable" on-post housing because of better security, a more stable environment, less commuting time, proximity to support services and facilities, familiarity and camaraderie. Commanders also prefer on-post housing to increase unit cohesion and morale, as well as operating efficiency.

Cost is an even more important factor for military members who prefer housing on our installations. Families who currently live off post in private sector housing pay an average of 15 percent more than they receive in housing allowances. Families on the installation do not incur this additional expense.

           While many families prefer to live on the installation, the fact is that approximately 65 percent of our families reside in the private communities surrounding their installations. This is consistent with Defense policy. We look to the private sector off post as the primary source of housing for our personnel. Where sufficient suitable and affordable housing is available and commuting time is not a problem, many families are satisfied living outside our installations.

Our traditional methods of managing, operating, acquiring and renovating housing cannot address the critical housing needs of America's soldiers and their families. Current and anticipated appropriations are not sufficient to revitalize and properly maintain the existing housing stock.

SOLVING THE PROBLEM

Privatization is an essential element in solving our acute family housing problem. The Army's housing privatization program, known as Residential Communities Initiative (RCI), currently includes four pilot projects that are well underway and will provide a quantum leap in quality of life for our Army families. These projects have demonstrated that the RCI process is effective at attracting leading developers to partner with the Army. When the four pilots are complete, about 16,000 units will be renovated, replaced or built. Through the RCI process, these projects will dramatically increase the well-being of our soldiers and their families within just a few years.

Since the MHPI legislation was passed in 1996, we have awarded the largest privatization project in the Department of Defense at Fort Carson, Colorado. The contract was awarded in September 1999, and the developer, the Fort Carson Family Housing Limited Liability Corporation, will renovate all existing base housing and construct 840 additional units within a five-year period.     The Fort Carson privatization effort is on track and shows great promise. As of April 2001, we have moved 74 families into new houses, out of 840 to be built under the agreement. The developer is constructing 20 new houses and renovating 40 houses per month.   

Throughout the RCI program, we are using lessons learned from each of the pilot projects to improve the overall process. The lessons learned have helped the Army to save time, lower delivery costs and maximize opportunities for interchange between developers, the local community and the Army in the follow-on projects. For example, to improve the procurement process, the RCI program switched to a Request for Qualification (RFQ) process to provide greater flexibility than the Request for Proposal (RFP) process that was used at Fort Carson. In addition, a much greater emphasis is being placed on identifying and resolving issues with key stakeholders such as local governments, school districts, businesses, employees, and soldiers and their families. We continue to reduce the amount of time required to complete follow-on projects and reduce the RCI government and consultant costs both at Army Headquarters and at each of the RCI project locations. Like any pilot or development program, costs are higher in the initial stages of the process and then level off.

The follow-on projects at Fort Hood, Texas; Fort Lewis, Washington; and Fort Meade, Maryland have been developed and solicited using the Request for Qualifications (RFQ) process. The RFQ process is a concept well proven in industry and government. It demonstrates and implements our philosophy of partnering -- not just outsourcing - with the private sector. It allows the government to select a private developer based on their qualifications and experience. Once selected, the developer and the Army jointly develop a Community Development and Management Plan (CDMP) and negotiate an agreement to implement that plan. The RFQ procurement process, as compared to the Request for Proposal (RFP) Process provides more flexibility to develop projects that meet the needs of all concerned parties. Throughout the RFQ process, the emphasis is on partnering with the private entity to develop residential communities in consultation with all "stakeholders," including the Congress.   

At Forts Hood, Lewis and Meade, we have competitively selected experienced development partners to work closely with the Army and affected stakeholders to prepare the Community Development and Management Plans (CDMP). Upon approval, we will implement each Plan through a lease, contract or limited partnership-type agreement with the partners. 

          The RCI Integrated Process Team (IPT) plays a vital role in successfully implementing this new initiative and achieving the Army's family housing goal. Members of the IPT include senior Army military and civilian leaders. The purpose of the IPT is to provide a comprehensive, detailed "systems based" approach to the RCI program that integrates near- and long-term policy oversight of the CDMP process. It serves as an organizational tool to resolve policy issues and help structure the housing privatization program.

Army consultants are a major component of the RCI program. As a result of limited personnel resources and the lack of certain core competencies within the Army, consultant services are utilized to assist with the development of RCI projects. The RCI team consists of government employees at the headquarters, major commands and installations who manage the privatization projects with support from our consultants. 

Consultants provide the core competencies and complete range of expertise not available from within the government. Because of the magnitude of these projects, our consultants are critical to the success of the RCI program. They provide extensive private sector expertise in the areas such as real estate, finance and property management. Because of the complexity of RCI projects, the private sector supports the Army by providing advice and expertise in the areas of due diligence, real estate financial modeling, and negotiating and structuring large real estate transactions.

          Through the RCI program we have turned the corner in shifting the Army's institutional philosophy toward managing installations as strategic assets. Rather than looking at thousands of individual assets, we have instituted a portfolio approach. This broader vision has also led us to focus on developing and managing communities, as opposed to simply constructing houses, and to embrace comprehensive planning and execution, as opposed to piecemeal projects. We have introduced life-cycle economics that take a 50-year view of the program and how every building fits with every aspect of the community plan. The RCI program will provide us the opportunity to provide better homes and communities to Army families much sooner than traditional methods.

Pending OSD and Congressional concurrence, the Army will finalize implementation plans for the Fiscal Year 2002 RCI projects in our efforts to provide timely and quality housing to soldiers and their families. We will ensure the Department is obtaining new or renovated housing with the least liability to the Federal Government and with the least amount of Department resources and guarantees. Utilizing lessons learned from all the privatization projects, we will continue to reduce the amount of time required to complete a project and the cost of consulting services per project.    
         
           In summary, the Army is pleased that Congress extended the authorization for the MHPI through December 2004. The Army plans to use a combination MILCON, BAH increases and privatization initiatives to alleviate the housing shortages and rapidly improve the condition of existing housing at our installations. Because privatization authorities are not available in Europe and Korea, we intend to reach the OSD goal in those theaters by funding AFH programs and revitalizing inadequate housing through traditional MILCON means, and by returning unneeded units to host nations.

          We believe the privatization authorities that Congress gave to us in 1996 provide the tools we need to provide quality housing to our soldiers and their family members. We look forward to meeting with you and your Committee on a regular basis regarding the status of the ongoing and future RCI projects.

            Mr. Chairman, this concludes my statement. Thank you.

 

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