The Army’s latest round of restructuring, designed to shrink the service’s end strength from 490,000 to 450,000 soldiers by the end of fiscal 2018, could pose a long-term risk for military housing bonds (MHB), Fitch Ratings said last week.
The 8 percent reduction in Army personnel will not present a short-term risk, however, because, only five of the installations affected secure Fitch-rated bonds, according to a press release. Four of the five posts are slated to lose about 5 to 6 percent of their military personnel. The fifth is set to experience a slight gain in population.
“Changes of this magnitude are unlikely to affect Fitch’s MHB ratings in the short run,” the release said.
Several factors reduce military housing P3s’ sensitivity to moderate changes in an installation’s military population, Fitch explained. For one, a portion of the personnel at any installation live off-post. Also, the projects were sized to meet only one-third of the potential demand for on-base housing. And some of these projects have fewer homes than had been available previously, Fitch reported.
“However, we expect cuts to continue into the longer term,” Fitch added. “Their magnitude could compound over time and put some military housing bonds under pressure.”
The release noted that the Pentagon wants to conduct another round of base closures. The Army already has said it will be forced to draw down its active-duty end strength by an additional 30,000 soldiers by the end of FY 2019 if the statutory spending caps remain in place.
“The impact of any type of reduction will vary across bond issuance as the changes will likely be concentrated at some bases more than others and as the Army plan evolves,” Fitch stated.
The health of housing projects also could be impaired by a cost-cutting reform imposed this year permitting the basic allowance for housing to cover only 99 percent of service members’ rental and utility costs, the company noted.