As Congress finalizes the first cut to the military's tax-free housing allowance in a generation, defense officials will have to hammer out the details of precisely how much cash will come out of individual service members' pockets.
This year's defense final bill calls for scaling back the Basic Allowance for Housing by 1 percent, meaning that the monthly BAH checks for 2015 will be calculated to cover 99 percent of the estimated cost of local housing. That's a notch below the current policy that requires BAH to cover 100 percent of the estimated cost of local housing.
It's a smaller reduction than the one Pentagon leaders asked for in March, which sought to make service members pay 5 percent of their housing costs with out-of-pocket money. And it's far from a return to the 1990s policy, when BAH only covered about 80 percent of estimated housing costs.
Nevertheless, the reduction is the first of its kind in years and could shave about $200 million from the total BAH checks paid out to the roughly 1 million troops who live off post.
Pentagon officials declined to publicly discuss implementation plans until the final bill is signed into law, which is likely to occur later this month.
Military officials will have to address several questions that remain unresolved by Congress.
It's not likely that military officials will simply crop 1 percent from every individual BAH check because that would result in a disproportionately large impact on troops assigned to high-cost-of-living areas.
For example, an E-8 with dependents at Malmstrom Air Force base in rural Montana this year receives a monthly BAH check for $1,398, so a 1 percent cut would require that service member to pay about $170 per year out of pocket.
Yet in a high-priced location like Camp Pendleton in southern California, that same E-8 receives a monthly BAH of $2,598, meaning a 1 percent reduction would translate into about $311 out of pocket each year.
Military officials do not want to create a new incentive for troops to prefer rural areas over costly urban ones, so it is likely that the Pentagon will calculate some sort of single across-the-board cut for all BAH checks.
For example, they might take the average of all 1 percent reductions nationwide and use that to determine a single dollar amount to shave from every BAH check. For example, regardless of the location and actual BAH rates, each service member may face a reduction of about $200 a year.
Another question for the Pentagon is whether to extend the individual rate-protection policy to protect troops from a real-dollar, year-over-year drop in BAH.
Rate protection became an important policy after 2007, as real estate prices nationwide began to fall. In many locations, the Defense Department's annual surveys of housing rental costs showed a dramatic drop, which in turn resulted in a drop in the BAH rate for that location.
Yet the individual rate-protection policy has assured that troops who are already living in a particular location will not see their housing allowance fall, presumably because they have signed a multi-year lease based on the prior year's costs.
That means that falling rates only apply to service members who are transferring into that area and presumably looking for housing for the first time under the current housing market conditions.
About 250,000 service benefited from the rate-protection policy in 2014.
While it remains unclear how the Pentagon will officially respond to the new law, it is likely that rate protection would be expanded to ensure troops who are not changing duty stations will not personally see a drop in their BAH checks even if there is a drop in the final BAH calculation for their location.
According to one official familiar with the discussions, it's likely that the individual rate protection will continue to apply to all troops, meaning the new law cutting BAH this year will only directly apply to service members who are either moving to a new location or living in a place where BAH rates rising along with local rental prices.