For months, the complexities of a major overhaul of military housing at Fort Detrick occupied the attention of the base's military command, the Frederick Board of County Commissioners, the city of Frederick's Board of Aldermen and attorneys for all sides.
At bottom was a fairly straightforward question: Should local government bestow a tax break on a for-profit company that is building and fixing homes for soldiers while the nation is at war?
Supporters urged granting the tax breaks as a patriotic gesture because the real beneficiaries were military families. Opponents suggested that the private developer was wrapping itself, and a bundle of cash, in the U.S. flag.
Late last month, the county agreed to exempt the housing project from property taxes. The city did so this month.
Last week, however, officials found out that the debate was moot. An obscure Maryland law has exempted the Frederick County military enclave from property taxes since the 1950s, causing Michael L. Cady (R), vice president of the county commissioners, to fume about the ignorance of the developer's attorneys and hours of wasted time.
"So shame on them," Cady said at a meeting Thursday.
Besides aggravating local officials, however, the effort to obtain a tax break that already existed did two things. It delayed the project so long that rising interest rates have reduced the amenities that can be built and might reduce the number of dwellings that will be delivered to the military, said Col. John E. Ball, Fort Detrick's garrison commander. And the matter has provided a peek at a multibillion-dollar program that is reshaping and privatizing housing at military bases across the country.
With the 1996 National Defense Authorization Act, Congress created the Military Housing Privatization Initiative, a program that allows the military and private developers to form partnerships to renovate, build and manage military housing. The idea was to tap private industry's expertise and capital to improve living conditions for soldiers, a significant factor in retaining military families.
Typically, the military guarantees to redirect funds that go into soldiers' housing stipends -- known as the basic allowance for housing -- to the public-private partnerships under lease agreements. These are long-term leases, generally of at least 50 years. The stream of future rent payments in effect becomes future revenue for the developer and collateral that can be used to line up private loans for construction.
Fort Carson in Colorado became the program's first site in 1998. The number of private developers involved in the partnerships is about a half-dozen.
Because Walter Reed Army Medical Center and Fort Detrick operate under the same U.S. Army command and are relatively close to each other, the two installations teamed with a private developer, GMH Military Housing LLC, to build and renovate military housing under their command on properties in the District, Montgomery and Frederick counties and perhaps in Prince George's County. The initial four-year phase of the project at the two installations is estimated to cost $94.3 million.
At Walter Reed, the project involves renovating and managing three historic properties on its main post in the District, as well as razing 211 dwellings at its Glen Haven property in Wheaton and rebuilding 234 dwellings at what will be called New Glen Haven. To meet the projected demand for 609 dwellings, Walter Reed and the developer would build the remaining 375 elsewhere. The cost estimate of Walter Reed's initial phase is $43.5 million.
At Fort Detrick, the partnership intends to remake the northern end of the base into five new clusters of housing, tentatively identified as villages, that would include parks, community centers and recreational facilities. Under the plan, the partnership would provide 354 dwellings -- 191 dwellings would be renovated and the remainder would be new housing. The estimated cost of Fort Detrick's initial phase is about $50.8 million.
GMH's annual profit is projected to be about an 11.7 percent return a year on its $5.5 million investment. Its return is capped at 15 percent. The company won its place in the project through competitive bidding, Ball said.
"It's really not a dollar-and-cents issue. It's really about providing affordable, high-quality housing for junior enlisted" personnel, Ball said.
Eighty percent of the new housing at Fort Detrick, he said, will serve low-ranking enlisted men and women -- privates to staff sergeants whose annual salaries, including housing allowance, are about $35,000 in a county where the median annual household income is slightly more than $60,000.
In 1985, Gary Michael Holloway, a businessman from suburban Philadelphia, founded GMH Associates Inc., a real estate venture focused on niche markets.
To capitalize on the federal government's interest in privatizing military housing, Holloway formed a separate entity, now known as GMH Military Housing LLC. GMH also has been involved in housing projects at other installations, including Fort Stewart-Hunter Army Airfield in Georgia and Fort Eustis and Fort Story in Virginia.
Fort Detrick's existing housing is to transfer to the public-private partnership by July 1, Ball said.
"At the end of the day, the men and women of our armed services deserve affordable and adequate housing, and this is a method to do that," Alderman David G. Lenhart (R) told Ball during a meeting. "And I think it's a pretty interesting structure how you're going to accomplish that."
John L. Thompson Jr. (R), president of the Board of County Commissioners, said he opposed giving a tax break to the developer for several reasons. He said the federal government, which is trying to save money by privatizing military housing, should not pass costs along to local government. In addition, Thompson said, taxpayers should not subsidize a private developer.
"It just increases GMH's bottom line," Thompson said, adding that he would not be surprised if the money found its way to elected officials.
Federal Election Commission records show that Holloway and members of his family have made political contributions of more than $90,000, mostly to Republicans, since 1997. Among the recipients were Rep. Roscoe G. Bartlett (R-Md.), whose district includes Fort Detrick. Holloway gave Bartlett's campaign $1,000 in October, records show.
In interviews and presentations before Frederick County and Frederick city governments, Ball said tax exemptions were necessary for the project because of the involvement of a private developer and the private developer's unusual stance in the partnership. Some 20 other states had ensured that the projects would be free of local taxes, Ball said.
While accepting some risks in the marketplace, the private developers surrender the flexibility of a commercial developer to react to those changes in market conditions. For example, heating or labor costs might rise dramatically, increasing the cost of building or maintaining the properties, but the partnership could not pass along those costs, and its profit is capped.
Further, Ball said, Fort Detrick receives few services from the city or the county, with schools being a notable exception. Ball acknowledged that the federal government, through the Department of Education, pays a per-pupil impact fee that amounts to a fraction of the cost to educate a child. But otherwise, Fort Detrick functions as a self-contained city with its own sanitation, water treatment, police and fire protection. In fact, the base's hazmat unit is the county's first responder.
But Alderman Marcia A. Hall (D), who opposed the tax exemption, said she would have voted to exempt a nonprofit builder but was uneasy about giving a tax break to a private company.
"I did not see this as a patriotic issue at all," Hall said. "It's millions and millions [in] profits to them. I do think any time you drag out motherhood and apple pie, you have a better chance of winning your argument, even if it's not a good argument."
GMH said that if taxes were applied, the developer would reduce the project's scope and the amount and type of housing the soldiers and their families would receive, company spokeswoman Kathleen M. Grim said.
Bartlett was not aware that GMH's founder had donated to his campaign, Bartlett spokesman Lisa Wright said. The donation was made at a fundraiser last fall attended by Sen. John McCain (R-Ariz.), she said, adding that Bartlett's sole concern has been to help provide quality housing for military personnel.
cents issue," says Col. John Ball, garrison commander.