■A presentation by developer/owner on how prop-
erty asset management including debt compliance
is to be handled.Unaccompanied Housing Privatization Criteria
The MHPI, which allows for the privatization of
family housing, also allows for the privatization of
housing for unaccompanied personnel. The unac-
companied housing program poses unique risks
that distinguish it from the family housing pro-
gram. Most importantly, is the risk of deployment.
Deployment would terminate the lease for a certain
class of (lower-ranked) personnel, causing cash flow
to cease.
In family housing, this risk is mitigated by the
continuation of BAH payments following deploy-
ment as long as the family of the deployed service
member continues to occupy the home, which is
typically the case. Second, construction risk is
potentially different than family housing, as these
transactions may not involve the conveyance of
existing units and the generation of cash flow from
existing units, during the initial development peri-od. As a result, Standard & Poor’s may use an out-
side consultant to review the construction of these
developments, and determine if the mitigants to
potential construction and lease up delays are suffi-
cient in the structure of the transactions.
Finally, in the event of a base closure, the alter-
nate use of the real estate is not clear as the existing
and proposed units appear like student housing so
may not be marketable to the general public, regard-
less of the strength of the local housing market and
depth of demand, in the event of a base closure.Key Credit Considerations And Major Risks
■Standard & Poor’s will analyze military essential-
ity using the same methodology as for the family
housing program.
■Deployment history for each base will be ana-
lyzed to determine the potential impact of future
deployment on the occupancy.
■Construction risk can potentially be different
than family housing, as units may not be on line
during the initial development period. In these
cases it is important to determine the level of riskHousing280 Standard & Poor’s Public Finance Criteria 2007
On Jan. 1, 1998, the Department of Defense (DOD) initiated a new housing allowance system for all members of the Armed Forces.
The new system, entitled the Basic Allowance for Housing (BAH), replaced the previous system that combined the Basic Allowance
for Quarters, plus Variable Housing Allowance. Implementation of the new system provides for much fairer housing allowances for
service members stationed in high cost areas but can result in lower overall housing allowances in areas with lower housing costs.
The BAH is a single, price-based system that establishes housing allowances based on local housing costs by paygrade and family
status. Growth in the DOD overall housing allowance budget is tied to the growth in a weighted average of national housing costs.
The BAH allowance is computed by outside contractors who will perform surveys of housing costs in areas where military personnel
are stationed. The consultants base their studies on one-two bedroom apartments, two-three bedroom townhouses, and three-four
bedroom detached houses within zip codes near bases where 80% of off-base service members live, and which have a mean family
income of within a certain band. The BAH system incorporates a “save pay” provision that ensures that no service member will incur a
reduction in housing allowances until they move to a new station and are paid according to the BAH rate at that new location.
The BAH is paid monthly in cash to service members with families only if they do not live in military housing. Any Armed Forces
members who live in military provided housing generally forfeit their housing allowance on a monthly basis and do not receive the
housing allowance in cash. Service members have the right to have their BAH sent directly to a third party via DOD direct deposit
or allotment.
The housing allowance is considered a major component of the compensation of members of the Armed Forces. The Current
Structure of U.S. Armed Forces military pay originated centuries ago when countries and individuals temporarily raised armies to wage
war. When raising an army, the sponsor had to provide not just pay, but food and shelter for the soldiers. This food and shelter gradual-
ly evolved into a system of non-taxable food and housing allowances. These allowances were provided in cash to the Armed Forces
member if the government did not supply food and shelter. The allowance was withheld from the Armed Forces member’s pay
if the government did not provide food and shelter.
The legal authority to pay housing allowances to service members is subject to annual appropriation by Congress just as is military
base pay. The legislative history for paying Armed Forces members on a timely basis is excellent. The rationale for paying Armed
Forces members pay and allowances on a timely basis is strengthened by the fact that all enlisted members or the Armed Forces
and many officers serve under enlistment contracts that can be terminated early only subject to special congressional legislation or
disciplinary action. In addition, now that the military is an all-volunteer force, the DOD must structure adequate pay and allowances
to be attractive for recruiting and the retention of existing Armed Forces members.
While the payment of housing allowances is subject to annual congressional appropriation, the essential function of national
defense, the long legislative history of paying military personnel pay and allowances on a timely basis, and the need to attract and
retain Armed Forces members makes the housing allowance a strong ratable income stream.Evaluating The Basic Allowance For Housing