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The Future of Military Housing Privatization

The Future of Military Housing Privatization. Bob Helwig, Deputy Director Office of the Secretary of Defense Housing & Competitive Sourcing Office PHMA – January 22, 2007. Overview. Reaching the 2007 Goal Privatization After 2007 The Great Privatization Debate

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The Future of Military Housing Privatization

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  1. The Future of Military Housing Privatization Bob Helwig, Deputy DirectorOffice of the Secretary of DefenseHousing & Competitive Sourcing Office PHMA – January 22, 2007

  2. Overview • Reaching the 2007 Goal • Privatization After 2007 • The Great Privatization Debate • Managing the Privatized Portfolio • The Year Ahead

  3. Awarded Privatization Projects 186,000+ 142,000 # of Units Privatized 112,715 68,208 42,163 26,100 4,744 404 1,000 Fiscal Year –Award Date

  4. A Changing Ownership Structure • Over 87% of existing U.S. inventory will be privatized by 2010 • - 90% of families will draw allowances (private sector + privatized) • - 10% of families in government owned or leased housing > 195K Privatized ~ 65K Govt Owned

  5. * 55 Projects- As of January 2006

  6. * 55 Projects- As of January 2006

  7. * 55 Projects- As of January 2006

  8. Privatization After 2007 • Family Housing • Unaccompanied Housing • Lodging • Overseas Housing • Enhanced Use Leasing • Expanding the Use of the Privatization Principles

  9. The Great Privatization Debate • Enactment of MHPI – 1996 • OMB Director Raines Memo – 1997 • Budget Cap Eliminated – 2003 • New OMB Circular A-11 - 2005 • New Credit Model – 2005 • New OMB Director’s Memo – 2005 • The 2007 Goal

  10. Authority Appropriation Development Gap $3M Direct Loan $6M Construction Cost Private Sector Mortgage (based on 400 new units) Conveyed Units None $40M $30M Differential Lease Payments $5M Developer Equity $6M Equity $4M Financial Development Gap

  11. Early Housing Privatization Principles (When Life was Easy) • Ensure Valid Housing Requirements • Leverage Appropriations by 3 to 1 • Long-Term Costs better/equal Milcon • Ensure Competition • Fix Enlisted Problem First

  12. OMB Director’s Memo • A New “Raines Memo” • Issued 2 Aug 05 • Meant to supplement the 25 Jun 97 Raines Scoring Memo • “Guidance on the Use of Limited Liability Partnerships and Corporations in Military Housing” • Applicable to “Co-Owned LLC” Structures • To Complete the President’s Management Initiative: • LLCs Approved until 30 Sep 10 • LLC’s Approved for Barracks Privatization • After 2010 LLC’s Scored Under “Traditional Rules” • “Purely Private” entities scored under Raines • Reporting DOD Privatization Plans to OMB

  13. New Credit Scoring Rules • From One “bucket” to Four • Starting with the FY06 “Cohort” of Credit Deals (Projects Including Direct Loans or Loan Guarantees) • Projects are Evaluated based upon Four Factors (Project Characteristics) • Location • Financial • Occupancy • Housing Quality • Each Project Receives a Numerical Score and is Classified into One Credit Classifications • Each Classification has Risk and Recovery Rates • Adjusted Annually in Credit Model • Complications and Debates

  14. Managing the Privatization Portfolio • Implementing the Financial and Business Structure to move: • From Asset Ownership and Control to Management of Real Property and Contract Interests • From Assignment of Occupants to Referral of Tenants • From Seeking Appropriations in the Budget to Monitoring Investments and Outstanding Debt • From Contracting for Construction Projects to Partnering in Housing and Community Development

  15. The Changing Portfolio • Integrated Projects • Projects at Joint Bases • Projects Expanding due to Realignment or Increased Recruitment • Restructured Projects with Reduced Requirements

  16. Why Project Integration? • Private Sector Business Efficiency • Compliance with the 33% and 45% investment limitations under 10 U.S.C. 2875 • Rich Project, Poor Project Problem • Requires Approval by the Limited Partner • Higher Approval Depends on the Nature and Terms of the Restructuring

  17. Business Process Initiative (BPI) • Identify Roles and Responsibilities • Budget Preparation • Project Approval • Project Funding • Budget Re-Estimates • Accounting and Reporting

  18. DOD and Extra-DOD Oversight • PEP Report and Portfolio Management System • Housing Choices Survey • Office of Management and Budget • Government Accountability Agency • Congressional Committees • New SAC Committee Report Tracking Project Maintenance and Funding in Reinvestment Accounts

  19. The Year Ahead • Meet 2007 Goal • Promulgate Housing Manual • Promulgate BPI • Expand Privatization Principles • Implement Housing Choices Study • Define Barracks Problem and Plan Solution • Enhance Privatization Professionals

  20. Are There Any Questions?

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