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The level of funding for military housing allowances, particularly the Variable Housing Allowance (VHA) program, has come under close scrutiny by the Congress, which has considered several proposals for restructuring the housing allowances. Of concern are the overall costs and distributional effects of the various alternatives proposed. This report documents the analysis and briefings examining this issue that the Congressional Budget Office prepared during the summer of 1984 at the request of the Subcommittee on Defense of the Senate Appropriations Committee.

Subsequent to completion of the study, the Congress took action that changes housing allowances. The changes are similar to one of the options described in the paper. This study documents the results of those changes and analyzes other alternatives that could be considered in future deliberations. In accordance with CBO's mandate to provide objective and impartial analysis, the study offers no recommendations.

Marvin M. Smith of CBO's National Security Division prepared the study with the assistance of Jonathan Woodbury, under the general supervision of Robert F. Hale and Neil M. Singer. The author gratefully acknowledges the technical support provided by Maj. G. Richard Creekmore, U.S. Air Force, Maj. Roger W. Alford, U.S. Air Force, Lt. Donald G. Brazelton, U.S. Air Force, David Pomeroy and Roy Samarco, Per Diem Travel and Transportation Allowance Committee, and Douglas McCormick, Defense Manpower Data Center. (Outside assistance implies no responsibility for the final product, which rests solely with CBO.) The report was edited by Francis Pierce.
 

October 1984
 
 

INTRODUCTION

CURRENT LAW AND ALTERNATIVE APPROACHES TO CURRENT LAW

DEFINITION AND COSTS OF ALTERNATIVE APPROACHES

THEIR IMPACT ON MILITARY PERSONNEL

POSTSCRIPT
 

TABLES
1.	COSTS OF CURRENT SYSTEM EXTENDED
2.	COSTS OF PRINCIPAL ALTERNATIVES
3.	COSTS OF ALTERNATIVES WITH DIFFERENTIAL ABSORPTION
4.	COSTS OF ALTERNATIVES WITH HIGHER ABSORPTION
5.	MEDIAN UNREIMBURSED HOUSING COSTS IN FISCAL YEAR 1985 UNDER THE CURRENT SYSTEM WITH CONTINUATION OF CAPS, BY PAY GRADE
6.	MEDIAN UNREIMBURSED HOUSING COSTS IN FISCAL YEAR 1985 UNDER ALTERNATIVE PLANS, BY PAY GRADE

 

INTRODUCTION

Military service involves frequent shifts among duty stations. Most service members are furnished government housing, but some must rely on the private housing market. The cost of private housing would represent a severe burden for many military families if they had to bear all of it themselves. Accordingly, the Congress has established housing assistance for military personnel who cannot be accommodated in government housing.

Legislative History and Intent of Military Housing Allowances

In general, military housing allowances are designed to provide Uniformed Service members and their dependents with nontaxable cash assistance to help defray their expenses in obtaining private housing when they are not assigned adequate government quarters. Three forms of housing allowance have evolved to meet the needs of service members stationed both inside and outside the continental United States (CONUS): the Basic Allowance for Quarters, the "rent plus" program, and Variable Housing Allowances.

The Basic Allowance for Quarters (BAQ), the largest of the current housing allowance programs in both total dollars and number of participants, was enacted in 1949. BAQ rates, which are differentiated by pay grade and dependency status, were initially set at 75 percent of the housing cost of civilians with comparable incomes. In 1971, BAQ rates were increased to their current statutory level of 85 percent of median housing expenses of comparable income groups in the United States. Since 1971, however, BAQ increases tied to changes in military basic pay have failed to keep pace with rising housing costs, with the result that the current BAQ table falls short of the 85 percent figure.

In an effort to counter this adverse trend, the Congress established two additional forms of housing allowances. For members stationed outside CONUS, the Congress enacted the "rent plus" program in 1981 to offset the shortfall in BAQ. Rent plus, in actuality, replaced the station housing allowance (SHA) which had been in existence since 1946. Rent plus reimburses service members overseas for their actual housing costs up to the 80th percentile of rents locally based on surveys of the reported housing costs of military personnel.

For service members assigned to high-cost areas in CONUS, the Variable Housing Allowance program (VHA) was established in 1981 as an entitlement to offset disparities in housing costs. The program specifies that service members eligible for BAQ also receive VHA if they are stationed in CONUS locations where the average monthly cost of nongovernment housing for service members exceeds 115 percent of their BAQ. VHA rates have been based on surveys of service members' housing costs, and vary with pay grade and dependency status.

Congressional Concern over Cost Growth in the VHA Program

Since its inception, the VHA program has grown over 33 percent (from $677 million in fiscal year 1981 to $901 million in fiscal year 1984). This program growth during a period of fiscal austerity has prompted the Congress to impose various budgetary constraints on the program in 1983-1984, and to consider revisions in all military housing allowances for 1985 and beyond.

In response to Congressional concern over VHA, a 1984 Department of Defense joint services study group examined many aspects of the program. The study group recommended, and the Administration endorsed, several changes that would serve as a basis for the restructuring of military housing allowances. Similar changes were subsequently included in House- and Senate-passed versions of the 1985 defense authorization bill.

Plan of the Study

This study focuses on alternatives that were of interest to the staff of the Senate's Appropriations Subcommittee on defense. They included proposals by the Administration and the changes incorporated in the House and Senate defense authorization bills. Included also were several alternative approaches that represent variants of the plans proposed by the Administration and the Congress. Among these alternatives are plans that call for differential treatment of officers and enlisted personnel.

The study assesses each alternative on the basis of two criteria: the total dollars involved and its equity or distributional impact on the service member. Specifically, the study presents the total amounts of BAQ and VHA under each alternative and its overall cost to the government, and also examines the impact of the various alternatives on service members by rank and across areas with differing housing costs.

Housing allowances are, of course, a part of military compensation, which must ultimately be adequate to allow the services to recruit and retain needed personnel. This analysis did not assess the effects of changes in housing allowances on recruiting and retention. Nonetheless, the changes considered should not have significant effects on recruiting and retention, and any adverse effects could be offset by other compensation changes.

Finally, the study does not address changes in the "rent plus" program, although possible changes are currently under consideration by the Administration and may be the subject of Congressional review in future years.

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