The Trump administration wants to recruit a new kind of private to the U.S. army: private equity. According to the Financial Times, Army Secretary Dan Driscoll and Treasury Secretary Scott Bessent are requesting “clever financing models” from some of the largest private equity firms, including Apollo, Carlyle, Cerberus, and KKR, to monetize underutilized military assets, construct data centers, and improve Army facilities — all to close a $135 billion funding gap. There’s just one problem: the United States has gone down this privatization path before — and it was a failure.
In the 1990s, the Department of Defense faced a similar massive backlog of construction and repairs for housing. At the time, the Pentagon estimated that it would take four decades and $20 billion to address on its own. In response, Congress passed legislation authorizing the Military Privatized Housing Initiative, allowing the DOD to enter into decades-long contracts with private developers to develop and manage housing for service members and their families. In return, these developers received rental payments from service members using their Basic Allowance for Housing, ensuring them a stable revenue stream. To further attract private investment, the Pentagon could even provide developers with subsidized loans.
At the time, officials optimistically estimated that private capital could eliminate the housing backlog by 2010 without increasing federal spending and with substantially lower upfront costs. Yet, like many things that sound too good to be true, it was. The Defense Department’s privatization of military housing came at a great cost, with a higher bill for the taxpayer, lower quality for service members and their families, and less accountability across the entire system.
This experience should serve as a cautionary tale as Secretaries Driscoll and Bessent consider further privatizing critical military assets in ways that disproportionately benefit politically-connected private equity firms.
Private Capital Costs More than Public Funding
The typical argument in favor of privatization is that private firms can deliver infrastructure improvements more cheaply and efficiently than the government can through public financing. This belief justified the Defense Department’s transfer of control of almost all military family housing to private developers by 2009.
In the case of privatized military family housing, however, the predicted savings failed to materialize. As early as 1998, the Government Accountability Office questioned the Defense Department’s projections of cost savings. The Congressional Budget Office later concluded that privatizing housing ultimately cost the government more than directly constructing and managing the housing itself. Initial cost models had not accounted for long-term liabilities and indirect expenses, with total government contributions to privatized military housing projects exceeding $28 billion by 2024.
Developers are not charities. As Government Accountability Office noted, “Privatization is essentially a business venture, and like any business, it carries inherent risk.” The question for any of these endeavors is who assumes that risk. In the case of the privatized military family housing, developers often structured a deal whereby they captured the upside regardless of outcome. Many rental contracts include provisions that adjust rent to account for any increases in the housing allowances. To avoid overbuilding, developers sometimes say they will only build if the government financially guarantees the project. But when the government reduces the housing allowances or installation personnel numbers and project revenues drop, developers shift much of this cost burden onto the government and service members. Some developers claim they can no longer afford to maintain the properties and, in some cases, even ask the services to reassume responsibility for infrastructure projects they can no longer sustain.
This is not an empty threat. In 2018 and 2019, through photos and testimony, military families revealed homes plagued by mold, leaks, shoddy repairs, lead paint, and other hazards that compromised health and quality of life. Two years later, Balfour Beatty Communities, a large United Kingdom-based contractor managing more than 40,000 on-base homes, pleaded guilty to one count of major fraud against the United States for falsifying repair records to claim performance bonuses. The company was sentenced to pay over $33.6 million in criminal fines and more than $31.8 million in restitution. In 2022, Hunt Companies, Inc., another major housing developer, refused to admit fault but agreed to a $500,000 settlement with the U.S. government following similar allegations.
While military families suffered, the companies profited handsomely. The year that Balfour Beatty pleaded guilty to major fraud, its Chief Executive Officer reported higher-than-expected returns. In 2018, when stories of true conditions in housing were starting to emerge, Balfour Beatty announced a pre-tax profit increase of ten percent. Other major developers have similarly brought in huge profits while the government assumed risk and housing stock decayed.
The recent proposal to engage private equity firms raises its own unique risks. First, private equity firms operate on very high expected returns to compensate their investors and generate substantial transaction and management fees–targeting an annualized financial return of 20 percent, compared to U.S. Treasuries, which yield 5 percent. The desire to generate high returns may exacerbate the problems seen in housing. Second, these firms invest with the expectation of flipping their investments in a four- to seven-year period. The incentives to make a quick buck are often not aligned with society’s long-term interests. Private equity investment in hospitals, water systems, and parking meters have a far from perfect track record, not to mention the fact that many private equity firms are funded with capital from foreign investors. A data center financed and operated by private equity on a military installation, for instance, would raise immediate concerns about access, dependency, cybersecurity, and cost.
The Deals Both Require and Erode State Capacity
Perhaps the government should have structured a better deal that shifted more risk to the private sector. But effective contract management of complex financial partnerships requires highly skilled negotiators and managers in the government to ensure that the American taxpayer is protected. Even before the recent reductions in its civilian workforce, the Defense Department almost assuredly lacked the in-house skills at the service or installation-level necessary to administer such programs proposed by Secretary Driscoll responsibly.
Paradoxically, these arrangements are also likely to degrade the very capacity their effective management requires. When the military privatized family housing, base housing management offices were downsized, and personnel with operational and contractual expertise were lost to streamlining, budget cuts, and private-sector competition. Over the subsequent decades, inconsistent and inadequate oversight of these projects has been a persistent source of concern across the services. The Navy’s experience is similar. As it privatized shipbuilding, it shed most of its naval architects and engineers, weakening its ability to supervise contractors and contributing to long-term design and cost problems. The Defense Department’s broad outsourcing of information technology functions likewise left it unable to effectively procure, integrate, or even evaluate software and digital systems.
If the Army now turns to private financing and management for data centers, arsenals, depots, and who knows what else, it will again require robust, sustained, and technically literate oversight–yet such partnerships often siphon off or justify the elimination of precisely the personnel needed to perform it. Without deliberate reinvestment in public expertise, the result will be a self-reinforcing decline in institutional capacity, leaving the Army increasingly dependent on, and vulnerable to, the very private partners it seeks to manage.
Public Assets, Once Privatized, are Hard to Recover
Despite fierce public criticism from a Senate investigation and numerous congressional hearings, these contracts remain seemingly impossible to unwind once they are in place. As the Project on Government Oversight has reported, the complex financing structures used in these deals involve third-party lenders and long-term bond obligations that limit the ability of the Defense Department to extricate itself.
The result is an enduring accountability gap. As recently as September 2025, the Department of Defense Inspector General concluded that the military services still provide inadequate oversight of privatized housing maintenance and continue to lack both the guidance and resources necessary to protect service members and their families. Yet, when Balfour Beatty built poor housing, the Defense Department neither amended nor terminated Balfour Beatty’s contracts (in fact, it expanded their footprint), effectively ensuring private rent extraction from public assets in perpetuity.
History offers repeated lessons on the risks of surrendering control of critical assets. Each time the military has ceded authority over essential infrastructure, whether arsenals, depots, or shipyards, it has weakened its ability to produce and maintain what it needs, when it needs it. Private owners, bound by fiduciary duty to investors or shareholders rather than the public interest, operate under an inherently different incentive structure.
Why Monetize the Army?
Increasing funding for infrastructure and modernization is both necessary and proper, and should be a priority for any administration committed to readiness and quality of life for service members and their families. But against this historical backdrop, the logic of Secretary Driscoll’s proposal to court private equity firms is difficult to defend.
The only plausible advantage of turning to private equity for financing is speed of financing. Secretary Driscoll has argued that the Army faces a $150 billion infrastructure requirement over the next decade but has only $15 billion in available funds. But this framing is misleading: the Army’s military construction budget is not an arbitrary or static constraint. For fiscal year 2026, the administration requested approximately $2.1 billion for Army military construction projects. If that level is insufficient, the appropriate remedy is to work through the administration’s budget proposal process and then with Congress to increase appropriations.
The solution is not to bypass Congress’s fiscal powers, undermining the public appropriations process and committing taxpayers to hidden long-term fees and costs. Decisions of this magnitude must occur transparently, through established budgetary channels, and with the explicit consent of Congress. Especially given the potential conflicts of interest — for instance, Deputy Secretary of Defense Steve Feinberg is co-founder and former chief executive officer of Cerberus Capital Management — it is essential to ensure that the Trump administration is not just treating the army as another piggy bank for billionaire friends. Anything less represents not innovation, but abdication of democratic accountability.
