2014 BAH Rates

2014 BAH Rates:  Average Increase, But at What Cost?

by Karina Gafford

On December 17, the Department of Defense released the new rates for the military Basic Housing Allowance for 2014, which will take effect on January 1. Though nationwide, the BAH rate increased an average of five-percent, some parts of the country saw an increase in excess of ten-percent; whereas, other areas saw a decrease in rates. Both increases and decreases do not reflect an across-the-board percentage change. The allotted rate does not represent a static amount at each location, meaning that a 5-percent increase does not translate to an additional 5-percent for everyone stationed at that duty station. Instead, a variety of factors help to determine the rates, namely the location of the assigned base, rank, and family status; therefore, an E-5 at one location may see an increase of six-percent BAH while an O-4 may see a decrease of several percent in BAH. 
Impact of Increases and Decreases in 2014 BAH Rates

An increase in BAH is nothing new. Since 1998, BAH rates have historically risen, and the most dramatic increases occurred when BAH rates soared from covering an average of 78.2-percent of a servicemember’s total off-base housing costs to 100-percent between 2001 and 2005. The amount provided should provide an amount that covers rent, utilities, and renter’s insurance equivalent to that of a civilian in the local economy who earns the same amount. For an E-4 with no dependents, this amount of rent should cover a one-bedroom apartment, an E-6 with dependents should receive an amount that covers those expenses for a three-bedroom townhouse, and an O-5 with dependents should receive an amount that covers expenses for renting a four-bedroom single family detached house.
Military families seeing a decrease in the rate for their status do not need to worry about receiving a lower sum in next month’s LES; in fact, servicemembers received a one-percent base pay increase, so most should see a higher amount in next month’s pay check. According to the Defense Travel Management Office, "Individual rate protection prevents decreases in housing allowances, as long as the status of a service member remains unchanged," so if you received $1,250 for BAH in December, but the DOD BAH Calculator shows that your BAH decreased to $1,210 for 2014, you will still continue to receive $1,250 in January and throughout the year. 
Two-thirds of military family’s reside in off-base civilian housing—both rentals and owned, and those families who already receive the 2013 rate of BAH remain "grandfathered" in to a higher rate if BAH would otherwise decline for their rank, location, and family size. Almost one-quarter of all military families, however, live in privatized on-base housing. Just as with those who receive BAH to live off-base, privatized on base companies, such as Lincoln Family Housing and Hunt Military Communities, maintain the grandfathered higher BAH rate for a servicemember until either his status changes or he relocates, according to the Housing Office on Joint Base Bolling-Anacostia in DC. An E-6 with dependents at JBAB received $2,679 per month for housing in 2013, but that figure drops over $200 a month to $2,439 for 2014. For an O-4 with dependents at the same base, however, the figure drops significantly less from $2,982 to 2,970, reflecting that the cost of living for someone earning the equivalent of an O-4’s base pay showed little change throughout 2013 unlike that of the average cost of living for a civilian in the DC area earning the equivalent of an E-5.  
A BAH Increase is Great for an Off-Base Military Family, But at What Cost Does It Come?
According to Cheryl Anne Woehr, the DOD’s BAH Program Manager, the average BAH increase of five-percent amounts to just under $80 per month, affecting approximately one million servicemembers. While $80 may not seem like much to your monthly budget (though it may help now cover a nice cable television or internet package if you already have your BAH expenses well covered under last year’s lower amount), the cost of $80 increases spread throughout the entire military quickly adds up to a number that is exponentially larger--$20 billion.
Given the fiscal uncertainties of appropriations in Congress in the first month of the New Year, an approximately $20 billion expenditure by the DOD on BAH seems a costly expense. Assuming that most of us do not typically work with such an amount in our budget, to put the additional cost of $20 billion into better perspective, consider that Congress projects the highly contested cuts to COLA for future military retirees under the age of 62 will amount to a savings of approximately $6 billion over the course of the next ten years, beginning in 2015. The expenses all come from different "pots" of money in Congress, which means that a savings of $6 billion in one pot does not necessarily impact a cost increase of $20 billion in another pot. 
To put the DOD’s current financial finagling into perspective yet again, let us consider some basic high school level budgeting. Not that I did particularly well in high school economics, but I do know that if I add $600 to my education savings account and spend $2,000 of my emergency savings account, I will have $1,300 less in my overall accounts. One account will show more money while the other will show less on my statement, so yes, the emergency savings account will not immediately impact my education savings account, but that is only unless I do not refund my emergency account before that money is necessary. If I need to hire someone for maintenance on my rental property, then the money will have to come from somewhere, and given an emergency situation, an investment in future education seems like the likely suspect for an immediate budget cut. Similarly, when it comes to the overall budget cuts and savings necessary to ensure a strong future for America and its military, costs—regardless of where the money comes from in the budget—contributes to an overall higher budget deficit, which in turn weakens the military’s future ability to invest in training and new technologies.      
At the moment, the personnel costs of salaries, retirement, and health care account for almost half of the DOD’s budget. The one-percent base pay raise and average of five-percent BAH raise remain secure for 2014, regardless of whatever happens with the appropriations discussions once Congress resumes in the New Year; however, those small victories for military families may not last for long. With the possibility of another round of Base Realignments and Closures (BRAC) poised for as early as 2015, according to the recent discussions surrounding the bipartisan budget agreement, military families who own rental properties located near bases may find themselves in troubling financial situations. If the Army will downsize by 450,000 troops, for example, the likelihood of consolidating bases presents itself as a viable reality; therefore, a BAH increase this year for those at a base located near a rental property you own may provide you with a positive increase in your account this year, but a closure at that base over the next few years may quickly undue the positive equity earned in that property.    
For military families who have had the good fortune to receive a BAH increase this year, keep in mind the hardships facing the DOD as it prepares to cut $50 billion from its budget over the next decade. If you have concerns about renting or selling your property in the event of the possibility of a BRAC, make sure to contact a real estate agent who specializes in helping military families through MBO’s Business Directory.