Friday, November 02, 2007

Salvage Operation

Stung the recent failure of four privatized base housing project, the Air Force is trying to breath new life into the ventures, scaling back on their size in hopes of getting them restarted.

According to Air Force Times, the service is looking for a new contractor to finish the four projects, launched more than three years ago at Moody AFB, GA; Hanscom AFB, MA; Patrick AFB, FL and Little Rock AFB, AR. The Air Force now plans to build or renovate a total of 1,767 homes at the four installations, compared to nearly 3,000 under the original proposal.

Contracts for the larger developments were awarded in 2004 to American Eagle Communities, a partnership between a Connecticut firm (Carabetta Enterprises, LLC) and the Shaw Group, based in Baton Rouge, Louisiana. Work on those projects was halted earlier this year after American Eagle fell hopelessly behind schedule, and private developers halted financing.

A plan for salvaging the failed developments was outlined earlier this week during a town hall meeting at Little Rock AFB. During that forum, the commander of Little Rock's host wing, Brigadier General Rowayne Schatz, announced that his installation's privatized housing project would be sold to another firm, which would resume work on the development sometime next year.

“We think right now the best way, the fastest way, to get these projects moving again is through a sale to another developer who has a more proven track record in military family housing projects,” said Brig. Gen. Rowayne Schatz, the commander at Little Rock.

Schatz said three developers visited the four bases in late October, and all three developers seemed interested in bidding on the project.

He said he hopes a sale can be completed by the end of the year so construction could be restarted early next summer. But he called that timeline “optimistic.”

General Schatz also told the Times that the service and private financiers are leaning toward bundling the failed projects into a single package, making it more attractive for a new developer. That approach would (at least theoretically) allow work on all four developments to resume at the same time.

Meanwhile, the service has also determined that base housing needs at three of the installations have declined, allowing a reduction in the overall scale of the project. A recent survey calculated that Little Rock needs only 659 units (compared to 1,200 in the original estimate). The requirement at Patrick has dropped from 552 homes to only 164 units, and the need at Hanscom is declined from 784 to 459. The survey also determined that Moody needs at least 600 new and renovated housing units, a total similar to the original estimate, calculated in the late 1990s.

The dramatic drop in the number of housing units needed at those three installations underscores an obvious fact--the private sector can often do a much better job in serving the market than the "hybrid" approach tried by the Air Force. Rather than give up their housing allowance and move into dilapidated, 50-year-old quarters, many Air Force families opted for home ownership.

As we've noted in previous posts, median home prices in two of the markets--Valdosta, GA and Jacksonville, AR--are well below the national average, putting homes within the reach of many military families. We still wonder if a program encouraging home ownership could have prevented the privatization debacles at Moody, Patrick, Hanscom and Little Rock.

While some privatized developments have been successful, that success has come at a price, allowing developers to "define" military communities, and putting corporate profits ahead of unit morale and cohesion. Those points were eloquently stated in a recent Air Force Times op-ed, authored by the service's Deputy Judge Advocate General (JAG), Major General Charles Dunlap, Jr.

The timing of Dunlap's op-ed is clearly no accident, nor is its contents. We still believe that General Dunlap's concerns are shared by other flag officers, who are worried about the long-term consequences of privatized military housing.

Safe, affordable housing is a key quality-of-life issue, particularly for young enlisted families that are often squeezed in high cost-of-living areas. For the sake of those families, the four failed projects should be salvaged. But, their continuation should come with a couple of caveats. First, there must be an investigation into how a financially-shaky firm (American Eagle) accumulated $3 billion in DoD housing contracts, and proceeded to bungle them badly.

Secondly, the Pentagon needs to show Congress--and taxpayers--why privatization is a better deal than providing incentives for home ownership. If DoD can't make that case, then it's time for a new approach in military housing, based on genuine, free-market solutions and not the government/corporate mix that failed so badly at those four Air Force installations.


Eric said...

"We still wonder if a program encouraging home ownership could have prevented the privatization debacles at Moody, Patrick, Hanscom and Little Rock.

While some privatized developments have been successful, that success has come at a price, allowing developers to "define" military communities, and putting corporate profits ahead of unit morale and cohesion."

'splain something. How does encouraging people to buy homes off base, scattered among the civilian community contribute more to "unit morale and cohesion" than having a contractor build base housing that concentrates the military community, even if it apparently might also have some civlian renters among it?

Also 'splain: I believe the privatized development contains at least 38 projects, with some projects covering as many as five bases. And only four are in trouble? Why does it work at the others and not these four? These four are essentially one problem -- called "American Eagle." Why is this then a problem with the privatization concept?

Also, is the JAG general (and you) willing to build housing on all bases and require everybody to live on base so as to promote "unit morale and cohesion?" Remember that the reason this was done in the first place was to get some private $$ flowing into it, since it was not likely the government was going to fund all that housing itself.

I suspect the root problem was picking a contractor that didn't have the right stuff, and putting four eggs into that basket. At least in the case of private contractor companies, when they fail you can fire them and find some new guys.

Given there is apparently only one problem (American Eagle) affecting four bases out of 38 projects, I smell a hidden agenda of some sort behind the complaints about "privatization."


Unknown said...

Encouraging people to buy homes off-base doesn't necessarily build unit morale and cohesion; it does, however, encourage them to invest in the American Dream.

The concerns about privatized housing, which Gen Dunlap outlined in his op-ed, focus on bringing non-military renters into a military housing project. Let's assume that the typical military renter is paying less than he would in a wholly commercial development. Then, the developer of the military project can't charge more to his civilian tenets than he can to his military clients, without inviting lots of lawsuits and litigation. So, who does he wind up with--people looking for a bargain, and those who can't afford something nicer. And with that demographic comes increased crime, drug use, and other factors that would impact unit morale and cohesion.

Also, I think we're just seeing the tip of the iceberg with these developments and their financial problems. In addition to its four AF projects, American Eagle also had at least one Navy contract. Why has it been successful when the AF developments have failed? Is the Navy project in financial trouble as well? It's hard to imagine the developer could run one project successfully, while the others are up for sale.

I think we'll see more reports of these developments in trouble in the coming months. If you'll notice, the services are saying little about them, other than the residents are "happy" and occupancy rates are satisfactory. How about quantifying that. Also, how many "civilian" renters have been brought in to sustain these occupancy rates?

As the Air Force JAG, I believe that Dunlap has reviewed these "deals" and believes they are flawed, to say the least. Along with concerns about "defining" the community, you've also got contracts that are long (50 years in some cases). Additionally, I'm concerned about who might wind up owning these companies. DoD was embarassed to learn that the ChiComs are buying a chunk of L3 Communications, a major defense contractor. What's to keep a Chinese holding firm from buying up these developers and (possibly) putting DoD over a barrel, in terms of providing base housing.

I think that the privatized housing is symbolic of the entire A-76/Outsourcing process. A lot of savings were promised, but the results have been less-than-impressive. Privatized housing is probably a good idea in high cost of living areas, but in places where homes are affordable, the service would be better off by encouraging home ownership.

The privatization concept makes sense in Boston, Washington, D.C. SoCal, and other areas where rent and mortgage payments have hit the stratosphere. But using that approach in an area where the average home costs $117,000 was just plain dumb. Even dumber was awarding $3 billion in contracts to a firm with a history of financial problems.