Congress, DoD Should Shore Up Financially Troubled Armed Forces Retirement Home, Watchdog Says

Two federal retirement communities for disabled enlisted veterans and some officers face uncertain financial futures unless Congress and the Defense Department take steps to address budget shortfalls, the Government Accountability Office has found.

The Armed Forces Retirement Home, or AFRH, system, which operates senior living facilities in Washington, D.C., and Gulfport, Mississippi, is on a trajectory to deplete its trust fund by 2042 without intervention, according to a report published earlier this month by the watchdog agency.

The system, founded in 1991 to manage the former U.S. Soldiers' and Airmen's Home in Washington and the U.S. Naval Home in Gulfport, has the capacity to house up to 1,120 residents, but had just 611 as of September 2022.

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A declining funding stream, gaps in residential rates versus cost of care and capital improvements have led to financial struggles, according to the GAO.

"AFRH has not achieved its goals to raise its declining occupancy or to implement its other proposals. Also, AFRH faces further financial risks from costly repairs to deteriorating facilities," GAO analysts wrote. "AFRH may continue to face financial shortfalls that in the future could affect its ability to fulfill its mission."

The homes are financed by residential fees; a 50-cent mandatory payroll deduction from active-duty enlisted service members, warrant officers and limited-duty officers; the fines and forfeitures of personnel charged with disciplinary violations; donations; and interest off the AFRH trust fund.

But the payroll deduction has not kept up with inflation and revenues from fines and forfeitures have dropped, the GAO noted, as the number of courts-martial and disciplinary actions in the services has declined.

Investment interest income also is down as a result of trust fund balances that have declined since 2010 with the opening of a new Gulfport campus following Hurricane Katrina and the complete overhaul of a residential building in D.C., according to the GAO.

"If no actions are taken, the projections show that AFRH trust fund balance is likely to continue to decline -- even if the general fund transfers are provided at the current rate into the future," the report said.

Those responsible for AFRH had sought to stabilize its financial outlook by striking a deal with private companies to redevelop 80 acres of the Washington, D.C., campus for mixed use, with more than 3,000 residential units, retail stores, offices and open space.

The deal was quashed in October, however, as the result of "rising interest rates, inflation, supply chain challenges and a struggling office market in D.C.," according to John RisCassi, AFRH's chief operating officer.

"It was clear that the financial benefit to the Home was now significantly diminished and the terms of the long-term lease were riskier to AFRH," RisCassi said in a press release.

To make ends meet, Congress has provided AFRH with general funds transfers for the past eight years. In making recommendations for the system's future financial solvency, the GAO recommended that Congress continue to support AFRH by transferring $25 million to the system over the next 20 years.

It also recommended that Congress and the Department of Defense:

• Raise the military contribution rate, which has not increased since 1977, from $.50 to $1.00.
• Require Reserve and National Guard members, who became eligible for AFRH in 2021, to pay the military contribution.
• And increase occupancy levels at both campuses.

The report also recommended that the system be reimbursed by Tricare and Medicare for health care, since nearly all residents are eligible for medical treatment through the military treatment facilities or the Department of Veterans Affairs.

The system also could benefit from having a functional advisory council, GAO auditors noted. According to the report, AFRH has not had an active council since at least 2015, even though it is required by law to have an advisory board with at least one financial management expert.

In a 13-page response, RisCassi and AFRH Chief Executive Officer Stephen Rippe said they appreciated the GAO's oversight and agreed that bolstering the system's trust fund balance is necessary.

They noted a number of achievements AFRH has made in the past five years, such as increasing the trust fund balance by 62%, raising the operating budget to attract talented staff, and increasing revenues by entering into leases with nearby medical facilities.

They said adjusting the service member contribution for inflation could help bolster income, as would increasing the average fee paid for those in independent living, especially in Washington, where one of the major facilities is about to undergo an extensive renovation.

Rippe and RisCassi also noted that, in discussing the occupancy rates, the GAO did not address the COVID-19 pandemic, which reduced facility admissions, or the pending renovation, which has forced AFRH to reduce capacity and start a waiting list.

"In the coming years, we look forward to resolving the decades-long impasse over pay deductions supporting the Home; instituting new health records systems that will improve health care coordination for our residents and better facilitate reimbursement for covered services performed on site; developing an updated capital investment plan for facilities and equipment; and executing a new strategy to secure a long-term revenue stream from the Home's substantial real estate assets," they wrote.

To be eligible for the AFRH, residents must be at least 60 years or older; have spent more than half their military service as an enlisted member, warrant officer or limited-duty officer; have an honorable discharge, a service-connected disability or military retirement; and be ambulatory and able to take care of themselves at the time of admission.

Residents pay a fee depending on the level of care and monthly income, beginning at the independent living level, at a cost of nearly 47% of income, for their residences, meals, health care and amenities.

Fees rise with the level of care: Those requiring memory care services pay 70% of their income, according to the GAO.

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