the judicious use of maintenance contracts can provide tangible effectiveness and cost advantages through the introduction of an element of competition and through the ability of a contractor to vary the size and composition of its work force. Of course, there are inherent difficulties in the administration of such contracts, such as evaluation of the value of effort received for the amount spent. Also we must assure that specifications are precise enough to assure that bids are reasonable and not heavily weighed with contingencies. Such precision is now becoming possible because of 18 months' experience in collecting detail cost accounts of each installation. Adequate cost controls must be developed if we are to evaluate the cost of inhouse maintenance and contractor maintenance if both are used at the same installation or, if not, to develop measures for comparison of installations of similar size. The development of such controls is currently being pursued by the military departments. A defense policy position which would require the use of contract maintenance when an economic study indicates an advantage to the Government is finalized and has been coordinated with the military departments. We expect to have a policy formally issued for implementation by July 1. We are continuing an investigation of the possibility and desirability of prepayment of Capehart and Wherry mortgages, refinancing at lower interest rates, changing methods of payment, and other means of reducing these expenditures. The subject of refinancing the mortgages at lower interest rates was discussed by the Secretary of Defense's Advisory Panel on Military Family Housing Policies and Practices. It was their consensus that refinancing would afford little, if any, benefit to the Government since long-term borrowing rates are currently about the same as the interest rates being paid on the mortgages. In investigating the prepayment of the mortgages we have found that a substantial portion of the Capehart mortgages contain a 20-year restriction on prepayment. Of those Capehart and Wherry contracts permitting prepayment, many provide for a prepayment charge, generally applicable during the first 15 years. Although we have not yet completed a thorough study of this subject, and even disregarding the economic impact of the Federal budget absorbing the prepayment of this debt, it is beginning to appear that prepayment is probably not economically advantageous to the Government. Changing the method of payment is also being studied. It appears that some administrative savings could be possible if yearly or quarterly payments were substituted for the present monthly payment system. We expect that all investigations will be completed by July at which time a Department of Defense position can be formulated on this subject for the benefit of the committee. The Department of Defense is paying the Federal Housing Administration some $5 million a year in mortgage insurance premiums on Capehart and Wherry housing projects. Some question has been raised about the requirement for continued payment of such premiums. I should like to say that we generally share this view. We feel that there is no possibility of future losses to FHA on the mortgages for the Capehart and acquired Wherry project and, therefore, that the premiums should be eliminated or sharply reduced. We have held meetings with FHA on this subject, most recently on March 20, 1961, but have not yet reached an agreement. FHA takes the position that although there is no real possibility of future losses on Capehart projects, they cannot be so sure about acquired Wherrys. FHA would like a DOD guarantee of future mortgage payments on acquired Wherrys, similar to that which DOD has given on Capehart projects. Our counsel says DOD is, in fact, required to make the payments, so no guarantee is necessary. We feel that this point can be resolved with FHA without particular difficulty. FHA further holds that they must consider not only Wherry and Capehart, but other DOD-connected programs-section 809, section 810, and section 222 (inservice loans). They anticipate future losses on unacquired Wherry projects, as well as on the 809, 810, and 222 programs. Losses on this last program have been particularly high. As an insurance organization operating on a businesslike basis, they feel they must hold reserves adequate to cover the most extreme eventualities. Although they now hold some $53 million in accumulated mortgage insurance premiums paid in on these programs, they contend that sound actuarial practice would require reserves of some $81 million and they are, therefore, $28 million short. Our estimated payments for mortgage insurance premiums for fiscal year 1964 are as follows: Wherry and Capehart, $6,671,000; section 222, $4,405,000. We feel these payments can and must be reduced. We shall continue to press for a reasonable solution to this problem, and as soon as we are able to reach an agreement with FHA we shall discuss it with the appropriate congressional committee. We recognize that we are requesting a very large sum of money to support the military family housing program during fiscal year 1965. The total of $711 million, including almost $223 million for the construction of 12,500 units of new housing, has been carefully reviewed by the Department and is considered a reasonable request for this purpose. The needs in human terms, the morale factor associated with adequate family housing, and the resultant effect in increasing the retention rates of trained personnel have all been stated to this committee in the past. As General LeMay told this committee last year, housing is a good investment if only viewed as a way to reduce personnel training costs by decreasing the amount of retraining caused by low reenlistment rates. While we consider the human aspect of the housing problem to be the most important, there is another economic view that is worth your consideration. The Congress has established the eligibility of military personnel to receive a basic allowance for quarters. This allowance is forfeited while Government quarters are occupied; such forfeitures will amount to approximately $503 million in fiscal year 1965. The forfeitures are theoretical income to the family housing program and in large part offset the new funds requested for authorization. As a matter of fact, if the requested 5-year new construction program of 12,500 units annually were approved by the Congress, the housing program would reach a self-sustaining basis in fiscal year 1968. That is, the BAQ income would exceed expenditures for O. & M., debt interest, and leasing, plus a depreciation allowance to amortize the inventory value of existing units. This business-type analysis serves, in our opinion, to show the economic advantages of a program which is predicated principally upon the human factors. We appreciate this opportunity to present to this committee our fiscal year 1965 military family housing program. Representatives of the three military departments are present to discuss their respective portions of the housing program, and we are all available to attempt to answer your questions on any phase of the legislation. Thank you. (The attachments previously referred to follow :) ATTACHMENT 1 Reimbursements... Total___. Family housing, Defense-Source and application of funds, fiscal year 1965 Source of funds: (estimate) Family housing appropriation__. Thousands $711,000 8, 367 719, 367 ATTACHMENT 2 Location: Naval Facility, Antigua, the West Indies. Cost: $105 per month, including utilities. wife, three children. Problem: Only available housing is delapidated, lacks sanitation, and utility facilities. House is termite ridden. No provision for hot water. Drinking water must be boiled. No Government housing on the island. Location: ASA location 12. Cost: $70 per month, including utilities. wife, 3 small children. Problem: In more than 8 years of service, this family has lived in adequate on-post housing for only one tour of duty. This soldier is an electronics specialist engaged in sensitive communications work. The substandard quarters were converted from temporary Korean war billets. No central heating; no thermostatic control. Kitchen equipment is not furnished. Approximately 21 months' waiting time for public quarters. Have been living more than a year in substandard off-post housing. Location: Aberdeen Proving Ground, Md. Cost: $100 per month, including utilities. Occupied by: Specialist 4 wife, three children. Problem: Returning to family from separation in Korea, serviceman lives in old Lanham house. Tiny quarters for family of five, virtually no storage space. Poor structural condition. Family remained in unit when disposed by Government to private owner despite rent increase. Location: Cannon Air Force Base, N. Mex. Cost: $60 per month, including utilities. Occupied by: Staff sergeant wife, two children. Problem: "I would not have remained in service if I had known I would have to live in this type housing." Chronic noise problem next to railroad tracks. Two blocks from stockyard, which creates offensive odor most of the year; in wet season almost unbearable. Substandard wiring and plumbing. Poor area drainage adds to above to create health hazard. Cost: $74 per month, including utilities. wife, 3 small children. Problem: Parachute rigger says of his home: "I am afraid of the electric wiring; there are loose wires and overloaded circuits." The house is a converted chicken coop, divided into two apartments. Poorly fitted doors and windows create continual drafts; tenant's efforts at weatherstripipng ineffectual. Only heat from one gas heater, which warms only 5-foot radius. Airman feels children missing school because of excessive sickness. Left previous home in area because well went dry. |