by Karina Gafford
Over the last couple of weeks, rumors have circled the blogosphere suggesting that both the Basic Housing Allowance (BAH) and Basic Allowance for Subsistence (BAS) may soon disappear for military families. Given that the New Year brought forth yet another increase in both BAH and BAS, averaging a 5-percent and 1.7-percent increase for rates, respectively. These increases reflect the historical trends in rate increases for both over the past decade; however, recent reports from unnamed officials within the Pentagon suggest that the prospects for continuing this trend do not look as good for 2015.
Both the pre-eminent publication Foreign Policy and Military Times have each cited reviews of compensation within the Pentagon as well as a recent Rand Corporation study of housing compensation commissioned by the Department of Defense in their claims that BAH and BAS may not remain a part of military pay. Fortunately, however, both have suggested that the DoD has an intent to replace the two aspects of compensation with a single locality allowance.
According to The Military Times, the proposal to eliminate BAH and replace it with a locality allowance was, "…outlined in a confidential recommendation that the Defense Department drew up last year for the Military Compensation and Retirement Modernization Commission." As this document remains confidential, the exact details are still unclear. The only statement on their webpage that even suggests a review of compensation exists is a simple one sentence, "The Commission welcomes your input as we review military compensation and benefits."
What Role Do BAS and BAH Compensation Play in the Budgets of Military Families?
For those who rent to military families, it is important to understand the important role that BAS and BAH play in the compensation package. Both BAS and BAH provide servicemembers with a non-taxable benefit that comprises a significant portion of their compensation package. Should these items disappear without a replacement, such as the aforementioned locality allowance, then military families would see a huge impact to their monthly budgets that could have a directly negative impact on both retention rates and on the communities surrounding military bases. If you find that this change in entitlement amounts will negatively affect your family, make sure to contact a MilitaryByOwner partner who specializes in helping military families with real estate options.
BAS serves to provide servicemembers with a monthly allotment for food that they can purchase at any location they choose. BAS is included in the monthly direct deposit amount that each Servicemembers receives, and though it is delineated on the monthly Leave and Earnings Statement (LES) as the specified amount for food, servicemembers can choose to spend the money however they wish. Unlike with BAH, the BAS does not change regardless of whether an individual has dependents or not; the only difference in BAH rates is between enlisted and officers, with the former receiving a slightly higher monthly amount. In 2014, enlisted personnel received $357.55 each month for BAS; whereas, the rate for officers remains lower at $246.24, which is in line with its historical trends. The average annual increase has varied widely over the past few years from a high of 7.9-percent in 2012 to a low of 1.09-percent in 2013, despite an annual recommendation of a 3.4-percent increase.
Let’s take the example of Chris, a married E-5 with 6 years of service, who earns a base pay of $2,735 per month in 2014. If stationed at MCB Quantico, Chris will earn a monthly BAH of $1,812 in addition to BAS of $357.55, bringing his total untaxable monthly earnings to $2,169.55, an amount which represents almost 80-percent of what Chris earns in base pay. Meanwhile, Sarah, a married O-6 with 22 years of service, receives a monthly taxable base pay of $9,878. If Sarah is also stationed at MCB Quantico, her military family will receive a monthly BAH of $2,700 in addition to her BAS of $246.24, bringing her total untaxable monthly earnings to $2,946.24, an amount which represents approximately 30-percent of the amount she earns for her base pay. An impact to BAH amounts, in particular, would clearly have a larger immediate impact on Chris’ budget than on Sarah’s, though whether the impact is either negative or positive remains to be seen.
Despite representing a significantly lower percentage of her pay than of Chris’, Sarah’s BAH and BAS amounts still represent a significant tax-free benefit that remains written into law as part of the compensation package for military families. On average, the BAH and BAS combined compensation amounts represent between 30 and 50-percent of the budget of an enlisted military family, depending on location and whether there are any dependents; meanwhile, the BAH and BAS for an officer’s family typically amount to an average between 15 and 20-percent. Only an act of Congress can make any change to these entitlements, which makes the prospect of a replacement of both with a locality allowance that much more interesting. Given that the past year has shown that Congress finds financial planning rather challenging, expecting them to intervene and pass legislation over such a significant budgetary item for the DoD would seems humorous, if not for the fact that the long-term planning of military families and those who rent to military families rests in their hands.
What Does a Replacement of BAH and BAS Mean for Military Families?
With so little in the way of stability for most military families, the two tax free compensation benefits have offered at least the security of knowing that they will always have a sufficient amount allotted for food and shelter.
Updated annually, BAH rates remain directly tied to the actual costs that servicemembers have for renting housing according to the rank and dependent status. An O-3 with dependents, for example, receives an amount that should comfortably cover the average rent payment for a three bedroom townhouses; whereas, an O-4 with dependents receives an amount that should cover the rent for a three bedroom single family home. The BAH also covers average utility costs; however, it does not cover the amount for either a mortgage or for items considered unnecessary, such as internet, phone, cable, or pet rent, the latter of which is often in the realm of $50-100 per pet per month in major cities.
The proposal for the locality allowance, meanwhile, plans to tie rates directly to the cost of living in a particular area rather than actual costs. This plan troubles many military families as, even though the "actual costs" provided may not cover the rent for the home they would like to live in, it does at least provide the security of an amount based on solid figures. The "cost of living" plan, however, appears more ethereal, causing many to worry that their current lifestyle may exceed what the DoD perceives as their cost of living, meaning that they may no longer be able to sustain their rental home.
If, however, the Pentagon did choose to replace BAS and BAH within the next year, military families should not immediately worry about covering the cost of their current rental. The Pentagon does have a pretty solid track record of grandfathering in those already in a certain payment amount or system, as evidenced by their continued practice of retaining the higher BAH levels for those already living in an area when the annual BAH rate update would otherwise lower their rate.
But Why Is the DoD Making Yet Another Change to Military Compensation?
As a result of Sequestration, the DoD has to cut $500 billion from its budget over the next decade in addition to the $500 billion that it voluntarily cut prior to Sequestration. In an effort to achieve these inordinate budget cuts, the DoD has cut military pensions and training programs, planned large-scale personnel reductions in each of the respective branches, and suggested yet another round of Base Realignment and Closures (BRAC) to begin in 2015. Given these massive cuts, it seems likely that a replacement of BAS and BAH with a locality allowance represents yet another aspect of the budget cuts, which in turn would suggest that military families should expect to receive a lower monthly housing and food allowance.
Given that the recent increase in BAH amounted to a cost of approximately $20 billion, according to Cheryl Anne Woehr, the DOD’s BAH Program Manager, it further seems that the DoD would likely see at least the housing allowance budget as one ripe for cuts. However, the unnamed sources from the Pentagon deny that the replacement of the housing and food allowances are a part of the DoD’s efforts to curb the budget. Instead, they suggest that the replacement plan is simply to help provide for more fair compensation; the "with dependents" portion of BAH would no longer exist under this plan, making housing options for both single and married servicemembers more equitable. Who knew that the DoD was so concerned with being fair?
Conclusion
In light of the current challenges facing military families in terms of pension cuts, personnel reductions, and the possibility of yet another round of BRACs, the prospect of a locality allowance having negative implications for military families seems only a remote possibility. Given the unlikelihood that a locality allowance will negatively affect your family’s budget, it is time to quiet your inner Chicken Little and let him know that, for today at least, the sky is not falling.
If, however, your family is negatively impacted, or may be negatively impacted, by one of the other many challenges facing military family homeowners right now, please take advantage of MilitaryByOwner’s Business Directory where you can find a wealth of individuals with experience in working with the unique challenges facing military families. If a reduction in your pension, loss of service employment, or the possibility of a BRAC in your area may affect your ability to continue to pay your mortgage, speak with one of our mortgage partner specialists or real estate agents.