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BAH is based on geographic duty location, pay grade, and dependency status. The intent of BAH is to provide uniformed service members accurate and equitable housing compensation based on housing costs in local civilian housing markets, and is payable when government quarters are not provided.

Eligible members will receive one monthly dollar amount for BAH, in place of separate Variable Housing Allowance (VHA) and Basic Allowance for Quarters (BAQ). A grandfathering provision, known as rate protection, will keep individuals from experiencing reductions in housing allowances, as long as their status remains unchanged. Practically speaking, this means individuals will be entitled to the 1 January, published BAH rate, or the amount of housing allowance they were being paid 31 December, whichever is larger. Rate protection continues until the member incurs a change in status, defined as 1) a PCS move, 2) a decrease in grade, or 3) change in dependency status. Promotions are specifically excluded in the definition of a change in status. Like BAQ, BAH distinguishes between with-dependents and without-dependents, but not the number of dependents. BAH rates are computed as whole dollar amounts, rounding to the nearest dollar.

A primary reason for the new BAH allowance was the awareness that the old VHA/BAQ housing allowance system was unable to keep up with housing costs, and members were being forced to pay larger out-of-pocket costs than originally intended. With BAH, increases are indexed to housing cost growth instead of the pay raise, thus protecting members from any further erosion of housing benefits over time.

The new BAH is designed to be inherently fair because the typical service member of a given grade and dependency status, arriving at a new duty station, will have the same monthly out-of-pocket dollar amount regardless of the location. For example if the out-of-pocket cost for a typical E-5 with dependents is, say, $100, the typical (median) E-5 with dependents can expect to pay $100 out-of-pocket for housing if assigned to Miami, New York, San Diego, Fort Hood, Camp Lejeune, Minot, ND, in fact at all duty locations in the U.S.. Once the member arrives, rate protection applies, and the member will receive any published increase, but no decrease in housing allowances. For members at a given duty station when new BAH rates take effect, rate protection guarantees that typical out-of-pocket may be less, but never more, than when they arrived.

So much for the typical member-what about individuals? For a given individual, the actual out-of-pocket expense may be greater or lower than the typical, based on the actual choice of housing. For example, if a member chooses a bigger or more expensive residence than the median, that person will have larger out-of-pocket expenses. The opposite is true for an individual who chooses to occupy a smaller or less expensive residence. Only for the member with median costs, do we say out of pocket expense is the same for a given pay grade and dependency status any location in the United States.

The BAH employs a civilian-based method of measuring comparable housing costs that is superior to the old VHA housing survey that measured members' spending on housing. First, members don't have to put up with the hassle of the annual VHA surveys. More importantly, BAH eliminates the so-called, "Death Spiral." Under VHA/BAQ, members who scrimped on housing, and then reported low housing expenditures, only reinforced, or drove down, already low allowances. This mainly occurred among the most junior members, whose limited disposable (after-tax) income may have forced them to accept inadequate housing and then report low costs on the member survey. The Services also recognized that the VHA/BAQ created a similar, but opposite, bias for some senior officer/enlisted grades. Under the old system, if a member opted to use a greater share of disposable income for bigger or more expensive housing, relative to the local market, and reported this expenditure on the VHA survey, it tended to "inflate" reported costs and thus allowances. Basic Allowance for Housing eliminates both these low-end and high-end biases. In computing BAH, we include local price data of rentals, average utilities and insurance. We collect the data annually, in the spring and summer when housing markets are most active. Our data include apartments, townhomes/duplexes, as well as single family rental units of various bedroom sizes. We recognize the paramount importance of accurate data and make every effort to obtain maximum reliability. For example, In selecting specific units to measure, we employ a multi-tiered screening process to ensure that the units and neighborhoods selected are appropriate. The first screen considers reasonable commuting criteria, generally defined as 20 miles or 1 hour during rush hour, eliminating units that fall outside these limits. Next we check to see that the selected unit is in a neighborhood in which our members would choose to reside. Using the Defense Enrollment eligibility Reporting System (DEERS) data, as a key to where members live, we focus on those neighborhoods in which the top 80% of our members live. The idea here is to avoid sampling slum, high-crime, or undesirable neighborhoods that members have already avoided. Finally, we use an income screening process, to identify appropriate neighborhoods. For example, in pricing 3 and 4 bedroom single-family units, (senior enlisted/officers) we know that member income in these grades is between $60 and $100 thousand, so we select 3 and 4 bedroom single family units in neighborhoods where the typical civilian income is in this range. When we price 1 bedroom apartments (junior single enlisted) we focus on neighborhoods where the typical civilian income is consistent with the $20 to $30 thousand income level that is typical for these grades. For comparison purposes, civilian salary equals the sum of military basic pay, average BAH, BAS plus tax advantage.

The DoD obtains current data from multiple sources, employing a "checks and balances" approach to ensure reliability and accuracy. Current residential vacancies, identified in local newspapers and real estate rental listings, are an important source of data. Vacancies are selected at random, and subjected to the screening process, described above. Telephone interviews establish the availability and exact location of each unit sampled. They designed the sample to obtain a statistical confidence level of 95% or higher. We also contact apartment and real estate management companies to identify units for rental pricing. It is not uncommon for the DoD to consult real estate professionals in a locality to obtain confirmation and additional sources of data. Where available, they contact fort/post/base housing referral offices, to tap local military expertise and gain insights into the local concerns of our members. Finally, DoD and the Services conduct on-site evaluations at various locations to confirm and ensure reliability and accuracy of the cost data. Future enhancements include examining potential uses of the internet as well as housing data available from other government agencies.

They employ Runzheimer International to collect the nation-wide housing cost data that we use to compute BAH. Founded in 1933, Runzheimer is a recognized leader in the field of collecting cost of living data in the United States and around the world. Currently Runzheimer serves over 2000 businesses and governments worldwide and is renowned for its accurate and reliable research. Runzheimer's private sector clients include over 60 percent of the Fortune 500 companies. Runzheimer's government clients include the Department of Defense (DoD); the General Services Administrations (GSA); the Department of State; the Office of Personnel Management (OPM); the Internal Revenue Service (IRS); and the Federal Deposit Insurance Corporation (FDIC).




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