The Mess at Moody Continues

It’s been a while since we’ve reported on the housing woes at Moody AFB, Georgia. As you’ll recall, the installation was part of a DoD program to “privatize” base housing, which was aimed at saving money and providing better quarters for military personnel and their families.

Back in 2004, the Air Force awarded a contract to American Eagle Communities to build 605 housing units at Moody. The Connecticut-based developer accumulated more than $3 billion in military housing contracts--mostly at Army and Air Force installations—despite the firm’s history of financial problems. American Eagle was supposed to complete the Moody project before the expected arrival of 2,000 additional airmen (and their families) by 2009.

To no one’s surprise (save the Air Force contracting community), American Eagle’s housing projects quickly fell behind schedule and ran into severe financial problems. By early 2006, the developer was in default on the contract. Local contractors never received payment for their work; bond holders for the development grew nervous, and a Georgia judge ordered the project shuttered. To date, American Eagle has produced only four new housing units for Moody AFB.

Making matters worse, the Air Force was apparently lax in its oversight of the failed project. Georgia Senator Saxby Chambliss criticized the service last week for not taking “decisive action” when the housing effort faltered.

Mr. Chambliss noted that Army and Navy installations had similar problems with American Eagle, but those issues were addressed within months. He said the Air Force didn’t respond to the Moody crisis until last year—almost 18 months after the developer defaulted on its contract. As Air Force Times reports:

Chambliss, who spoke during a hearing of the Senate Armed Services readiness and management support panel Wednesday, said his research indicated American Eagle was in technical default of the contract in March 2006, but the Air Force did not notify anyone that there were problems until the latter part of 2007. He referred to the project as a “disaster.”

[snip]

William Anderson, assistant Air Force secretary for installations, environment and logistics, noted that bond holders were told about the problems early on, but said he would have to get back to the senators with an exact timeline.

“It appears actions were taken at the appropriate time,” he said.

“I’ll have to respectfully disagree with you on that,” Chambliss said. “To allow something like this to happen, where the developer goes 3½ years without performing, accumulates $30 million in debt, and owes $7 million to contractors ... and doesn’t deliver a single home ... seems to me that either the process we have on the part of the Air Force is either defective, or the process was not followed.”

As we’ve noted before, privatized housing effort is but one part of the “out-sourcing” mania that’s gripped DoD since the late 1990s. Under the guise of saving money, the Pentagon has hired contractors to perform services and functions once handled by the military. In some cases, out-sourcing has been a success, but other attempts at privatization have been disastrous.

To be fair, some private housing projects have been a success, particularly in high-cost-of-living areas where young military personnel can’t afford steep rent or mortagage payments. Under those circumstances, privatized housing can be a godsend, allowing troops and their families to live in new quarters, at a cost equal to their monthly housing allowance.

But in terms of living costs, Valdosta, Georgia hardly compare with Southern California, the Washington, D.C. area, or Manhattan’s Upper West Side. In fact, the median home price in Valdosta (located eight miles from Moody) is only $117,000. It would have been far cheaper to provide incentives for incoming airmen to buy a home. Even junior enlisted members can afford the average monthly payment on a $120,000, 30-year mortgage ($719.00 a month).

Instead, the Air Force plowed ahead with the wrong solution in the wrong location, and at the wrong time. At last report, the service was trying to restart its failed housing projects, by attracting new developers and contractors. But that takes time, and there’s no way the Moody project will be ready for the expected influx of newly-assigned airmen.

Instead of throwing more money down the drain, the Air Force (and its members) would be better-served by encouraging home ownership with a buy-back guarantee when the member moves on. A similar program already exists for civil service employees, and there’s no reason that type of approach wouldn’t work at Moody, and other bases where housing privatization has failed, and failed badly.

In the interim, Senator Chambliss—and the taxpayers--deserve a better explanation as to why the Air Force was slow to react when the Moody project went belly up.

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.