As discussed in Chapter II, the Defense Department traditionally gives housing allowances to certain service members when on-base military family housing is not available. Service members then exercise their own discretion in purchasing or renting accommodations, in the surrounding community, that fit their budget and needs. BAH is funded through the annual Military Personnel (MILPERS) appropriation.
a. History and Purpose of Housing Allowances
In 1949, the Career Compensation Act established the Basic Allowance for Quarters (BAQ) as a permanent fixture in the military compensation system. While the eligibility criteria to receive BAQ changed over the years, the system’s premise has not changed. Recognizing its inability to provide MFH to all who qualified for it, DoD instituted BAQ as the formal solution to the MFH gap. Congress authorized variable
housing allowance (VHA) in 1980 as a rental supplement for high cost -of-living areas. VHA improved the housing allowance system, but problems and complaints persisted.
At the Defense Department’s request, Congress overhauled the housing allowance system, re-labeling it Basic Allowance for Housing (BAH) and instituting the new system in fiscal year 1998. DoD and the service components designed the Basic Allowance for Housing program to provide more accurate housing allowances by basing them on the market price of rental housing (rather than member -reported rents). This new method ensured a better correlation between allowance payments and rental prices.
The purpose of the Basic Allowance for Housing (BAH) program is to provide uniformed service members accurate and equitable housing compensation, based on housing costs in the local civilian housing market s near installations, and is payable when government quarters are not provided or available. Since the goal is to help members cover the costs of housing in the private sector, rental-housing costs in the private sector are the basis for the allowance. DoD determines the correct housing allowance to enable members to afford suitable rental housing within a reasonable distance of their duty location. For BAH purposes, “reasonable commuting distance” is defined as generally within 20 miles or one hour driv e with rush hour traffic. The allowance amount is based on geographic duty location (by installation zip code), service member pay grade, and dependent status. (BAH Primer, 2002)
b. BAH Data Collection and Rate Setting
DoD employs a private contractor to collect the data annually for approximately 400 Military Housing Areas (MHA) in the United States, including Alaska and Hawaii. DoD and the Services define these MHAs by sets of ZIP Codes. Data collection occurs in the spring and summer when housing mar kets are most active. Rental costs are collected on apartments, townhouses/duplexes, and single -family rental units of varying bedroom sizes. Price data collected includes the cost of rental housing, utilities, and renter’s insurance. In each MHA, the contractor contacts the major local utility provider and collects their service fees and utility rate data. They gather data rate information for both the current season and the most extreme heating and cooling seasons for each MHA, as well as scheduled rate increases. The renter’s insurance portion of
selected incomes and dwelling types. (BAH Primer, 2002) This data set, along with DoD policy guidance regarding target Out-Of-Pocket expenses percentage, forms the basis for determining BAH rates, which are readjusted annually.
c. Out-of-Pocket (OOP) Expenses
BAH is designed to be fair for all service members in all locations in the United States. Although housing costs and BAH rates vary by location, average out -of- pocket costs are designed to be the same for members of the same rank with typical rental expenses. The typical service member in a given grade and dependent status who arrives at a new duty station will have the same monthly out-of-pocket costs regardless of the location. For example, if the out-of-pocket cost for a typical E-5 with dependents is $106, the typical (median) E-5 with dependents can expect to pay $106 out-of-pocket for housing if assigned to Mia mi, New York, San Diego, or any duty location in the United States. (BAH Primer, 2002)
However, for a given individual, the actual out-of-pocket expense may be higher or lower than the typical. For example, a service member who chooses a bigger or more costly home than the median will spend more out-of-pocket. The opposite is true if a service member chooses to occupy a smaller or less costly home. Only for the member with median costs do we say that out-of-pocket expense is the same for a given pay grade and dependent status in any given location. (BAH Primer, 2002)
In his fiscal year 2002 Management Agenda, published by the Office of Management and Budget (OMB), President Bush proclaimed, “The Administration is committed to reducing to zero by 2005, the average out-of-pocket expense of military families living in private housing in local communities. This will enable more military families to leave inadequate government housing and rent quality private -sector housing in the local communities around DoD’s installations.” (President’s Management Agenda, 2002) OOP expenses peaked at 22% of total housing costs prior to instituting the BAH system. The planned OOP expense ratios are 15% for FY-01, 11.3% for FY-02, 7.5% for FY-03, 3.5% for FY-04 and zero by FY-05. (BAH Primer, 2002)