Military Base Closures: Observations on Legislative Proposal for No-Cost
Transfer of Surplus Property (Testimony, 07/01/99, GAO/T-NSIAD-99-215).

Pursuant to a congressional request, GAO discussed the proposal to amend
the 1988 and 1990 base closure laws, focusing on the: (1) likelihood
that the proposed legislation would expedite the property transfer
process; and (2) expected financial consequences to the Department of
Defense (DOD).

GAO noted that: (1) the proposed legislation provides an opportunity to
expedite the economic development conveyance (EDC) process; (2) it would
likely alleviate the frustration and burden communities and DOD
experience in negotiating agreements; (3) in some instances, the
elimination of lengthy negotiations over fair market value issues might
have expedited property transfers; (4) however, it is not clear to what
extent the legislation would uniformly shorten the timeframe for
property transfers; (5) GAO's prior work also shows that other factors,
such as communities' abilities to accept property transfers in a timely
fashion and environmental cleanup considerations, are the primary
factors that determine the pace of property transfers; (6) the
legislation would impact 23 pending or anticipated EDCs; (7) however,
the amendment would also allow up to 26 existing EDCs to be renegotiated
if certain conditions are met; (8) DOD will lose revenue if the proposed
amendment is enacted; (9) DOD would likely forgo revenue from the 23
EDCs that are either in the negotiating stage or expected to be
submitted on or after April 21, 1999; (10) the extent of lost revenue
for these properties would not be known until final agreements are
reached; (11) the proposed legislation would also allow the Secretary of
Defense to approve changes in prior agreements based on determinations
of changes in economic circumstances; (12) DOD estimates that it would
lose about $218 million between fiscal year (FY) 2000 and 2043 if all
agreements are renegotiated as no-cost conveyances; (13) approximately
$87 million, or 40 percent, of this revenue would be lost between FY
2000 and FY 2005, and the remaining revenue would be lost between FY
2006 and FY 2043; and (14) the Department projects the legislation will
avoid about $12 million in costs that otherwise would be incurred in
maintaining the closed bases prior to transfer.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-NSIAD-99-215
     TITLE:  Military Base Closures: Observations on Legislative
	     Proposal for No-Cost Transfer of Surplus Property
      DATE:  07/01/99
   SUBJECT:  Land transfers
	     Base closures
	     Fair market value
	     Military bases
	     Economic development
	     Cost effectiveness analysis
	     Proposed legislation
	     Property disposal
	     Base realignments
	     Surplus federal property
IDENTIFIER:  DOD Base Realignment and Closure Account

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Rev-LG logo.eps GAO United States General Accounting Office

Testimony Before the Subcommittee on Military Installations and
Facilities, Committee on Armed Services, House of Representatives

For Release on Delivery Expected at 2: 00 p. m., EDT Thursday,
July 1, 1999

MILITARY BASE CLOSURES

Observations on Legislative Proposal for No- Cost Transfer of
Surplus Property

Statement of David R. Warren, Director, Defense Management Issues,
National Security and International Affairs Division

GAO/T-NSIAD-99-215

Page 1 GAO/T-NSIAD-99-215 Military Base Closures

Mr. Chairman and Members of the Subcommittee: We are pleased to be
here today to discuss a proposal to amend the 1988 and 1990 base
closure laws. The proposal would promote economic redevelopment of
affected communities by transferring property to them without
consideration. Under the proposed legislation, affected
communities receiving property under an economic development

conveyance (EDC) could receive that property at no cost if certain
conditions are met. 1 Currently, EDCs are available at or below
fair market value and at no cost for rural communities. The
proposal involves a

trade- off between recouping the value of surplus property and
providing communities opportunities to enhance economic recovery.
The trend in recent years regarding BRAC- related properties has
been to move toward

the latter. Your office asked that we comment on (1) the
likelihood that the proposed legislation would expedite the
property transfer process and (2) the expected financial
consequences to the Department of Defense (DOD).

Before discussing our specific observations, we would like to
summarize our key points.

Results in Brief The proposed legislation provides an opportunity
to expedite the EDC process. It would likely alleviate the
frustration and administrative burden

communities and DOD experience in negotiating agreements. In some
instances, the elimination of lengthy negotiations over fair
market value issues might have expedited property transfers.
However, it is not clear to what extent the legislation would
uniformly shorten the time frame for property transfers. Our prior
work also shows that other factors, such as

communities' abilities to accept property transfers in a timely
fashion and environmental cleanup considerations, are the primary
factors that determine the pace of property transfers. The
legislation would impact 23 pending or anticipated EDCs. However,
the amendment would also

allow up to 26 existing EDCs to be renegotiated if certain
conditions are met. DOD will lose revenue if the proposed
amendment is enacted. DOD would likely forgo revenue from the 23
EDCs that are either in the negotiating

1 An economic development conveyance is a method used to transfer
surplus DOD property to communities for the purpose of promoting
economic development of the property.

Lett er

Page 2 GAO/T-NSIAD-99-215 Military Base Closures

stage or expected to be submitted on or after April 21, 1999. The
extent of lost revenue for these properties would not be known
until final agreements are reached. The proposed legislation would
also allow the Secretary of Defense to approve changes in prior
agreements based on determinations of changes in economic
circumstances. DOD estimates that it would lose about $218 million
(net present value) between fiscal year 2000 and 2043 if all
agreements are renegotiated as no- cost conveyances. Approximately
$87 million, or 40 percent, of this revenue would be lost between
fiscal year 2000 and 2005, and the remaining

revenue would be lost between fiscal year 2006 and 2043. Finally,
the Department projects the legislation will avoid about $12
million in costs that otherwise would be incurred in maintaining
the closed bases prior to transfer.

Background Under special legislative authorities, DOD conducted
four BRAC rounds between 1988 and 1995 to reduce its
infrastructure and free up funds for future defense programs, such
as weapons modernization. To fund the

closures and realignments, Congress established special BRAC
accounts to pay for numerous activities, such as relocating
personnel and equipment, constructing new facilities at receiving
bases, and performing environmental cleanup. According to DOD
data, when all BRAC actions from these rounds are completed by the
end of fiscal year 2001, DOD will have reduced its domestic
military basing structure by about 20 percent,

generated net savings of about $14 billion, and created recurring
annual savings of about $5. 7 billion. We have previously reported
that these numbers are only a rough approximation of savings
rather than a precise amount. 2 While our prior work indicated
that DOD was essentially on track in closing

and realigning facilities and expected to finish these actions by
the end of fiscal year 2001 as required, progress in transferring
unneeded property to other users has progressed at a much slower
pace and will extend beyond 2001. 3 Under federal law, once
property is no longer needed by a federal agency, the property is
declared excess and is offered to other federal

2 Military Bases: Review of DOD's 1998 Report on Base Realignment
and Closure (GAO/NSIAD-99-17, Nov. 13, 1998). 3 Military Bases:
Status of Prior Base Realignment and Closure Rounds (GAO/NSIAD-99-
36, Dec. 11, 1998).

Lett er

Page 3 GAO/T-NSIAD-99-215 Military Base Closures

agencies to satisfy their requirements. Figure 1 shows the process
used to screen unneeded property under BRAC.

Figure 1: DOD's Usual Procedures for Transferring Property

Source: GAO.

Excess property that is not selected by federal agencies is
declared surplus to the federal government. At that point, surplus
property can be transferred to nonfederal activities by various
transfer mechanisms noted above. Appendix I further highlights the
types of public benefit transfers and other conveyance mechanisms
that may be used to transfer surplus property. Although DOD data
indicate that DOD will retain a substantial portion of the BRAC
property or transfer it to other federal agencies, over 150,000

acres are to be transferred to nonfederal entities. Our December
1998 report on the status of prior BRAC rounds shows that about
75, 000 acres of the planned nonfederal transfers were expected to
occur through EDCs, and most of the remaining acreage through
public benefit conveyances and

sales. This contrasts with the early years of implementing the
1988- 93 BRAC rounds, when DOD expected to rely on market sales
and projected much higher revenues from such sales than it is now
experiencing. While DOD originally projected about $4. 7 billion
in revenue from the sale of surplus BRAC properties, expected sale
revenues are recently projected to be about $122 million. Land
sale revenues are separate from the EDC

process. Additional revenues are realized through lease agreements
and EDCs. The decrease in expected sales revenue is largely
attributable to national policy changes reflected in legislation
that in recent years has given increased emphasis on assisting the
economic recovery of communities

Other defense activities

Other defense activities Excess

Other federal agencies Other

federal agencies

Public benefit transfers

Public benefit transfers

Economic development conveyances

Economic development conveyances

Negotiated sale to states

or local governments Negotiated

sale to states or local governments

Public sale Public

sale Surplus

Page 4 GAO/T-NSIAD-99-215 Military Base Closures

that were losing bases. In 1993, for example, with the enactment
of Public Law 103- 160, increased recognition was given to the
perspective that reduced employment caused by an installation
closure could result in economic hardship to surrounding
communities and areas. One means for

mitigating such hardship was to expeditiously transfer
installation property to local redevelopment authorities at less
than fair market value, if necessary, for reuse and stabilization
of employment. As a result, communities were able to obtain such
property through economic development conveyances at below fair
market value and in the case of rural areas at no cost.

The proposed legislation we are discussing today would authorize
the Secretary of Defense to transfer property at no cost to local
redevelopment authorities, provided that the property be used for
job creation purposes and that any proceeds generated from the
property be reinvested in economic development of or related to
the installation. The legislation would cover all EDCs approved
after April 21, 1999. In addition, it would also give the
Department the authority to modify EDCs approved prior to April
21, 1999, if the Secretary of Defense determines that such a
modification is necessary as the result of a change in economic
circumstances. The legislation would not require the return of any

payments already made to the Department. It also would not change
the existing requirement to screen property for use by other
federal agencies and by eligible recipients of public benefit
conveyances for such purposes as parks, education, ports, and
airports.

Likelihood of Expediting the Base Property Transfer Process

The proposed legislation provides an opportunity to expedite the
EDC process. However, it is not clear to what extent the
legislation would uniformly shorten the time frame for property
transfers.

Service officials we interviewed generally stated that no- cost
EDCs for job creation and economic development would eliminate
often frustrating and contentious property valuation negotiations
and enhance DOD and community relations. In some instances, no-
cost transfers could expedite

decision- making leading to property transfers or lease agreements
in anticipation of transfers, but in other instances, they would
not necessarily result in faster transfers. It should be noted
that use of no- cost EDCs does

not mean that title to the property is immediately transferred.
Transfer may initially occur under a lease agreement, pending
completion of required environmental remediation actions that
could delay title transfer.

Page 5 GAO/T-NSIAD-99-215 Military Base Closures

According to service officials, the key determinants affecting the
pace of property transfers have been each community's readiness
and ability to take control of the property and the time it takes
DOD to perform necessary environmental cleanup of contaminated
sites. They told us that the pace of property transfers is not
driven primarily by the appraisal

process or time spent in value negotiations for which the
legislation would offer relief. The proposed legislation does not
affect these issues because no- cost conveyances are just as
vulnerable to these problems as any other

conveyance. While the legislation might eliminate the time
previously required for appraisals and negotiations over fair
market value, these actions have generally overlapped other steps
in the process. Regarding future transfers, Army officials
expressed concern that if prices were not negotiated, the
services' leverage in other aspects of the negotiations over
property transfers could be reduced. For example, local
communities using zero as their starting baseline may seek to have
the services pay for demolition of unwanted buildings or for
asbestos and lead paint removal, which the services do not usually
pay for but rather consider

as part of the discount from the property's fair market value.
Communities have been eligible for federal grants and other
funding to facilitate base reuse planning and property transfer.
We recently reported that such funding totaled $1. 1 billion
through fiscal year 1997. Further, prior negotiated agreements
could be revisited under the modification provision of the
proposed legislation. Because most of DOD's nonrural EDCs from the
prior four base closure rounds have already been negotiated, a
primary concern is how the legislation might affect these
agreements. If, for example, no- cost EDCs were granted across the
board,

service officials expect that communities with prior negotiated
costs would seek relief on the basis of changed economic
circumstances.

Financial Consequences of Adopting the

Amendment DOD will lose revenue if the proposed amendment is
enacted. Under the proposed legislation, the Department likely
would forgo revenue from all EDCs entered into on or after April
21, 1999. However, we could not estimate the extent of lost
revenue because negotiations over financial

terms for these conveyances have not been finalized. In addition,
the legislation allows the Department to modify EDCs in effect
before April 21, 1999; as a result, DOD could lose $218 million
(net present value). On the other hand, with the legislation, the
Department projects it would avoid about $12 million in costs that
otherwise would be incurred in maintaining

the closed bases prior to transfer.

Page 6 GAO/T-NSIAD-99-215 Military Base Closures

The Department likely would lose revenue from 23 nonrural EDCs
that are currently pending or anticipated. 4 Service officials
stated that agreements for 5 of the 23 locations are nearing
completion and the estimated revenue

ranges from $350, 000 to $70 million. However, service officials
said the payment terms for these agreements would not be final
until they were signed. Therefore, we could not determine when the
Department would expect to realize this revenue.

As previously noted, the proposed legislation would also give the
Department authority to modify nonrural EDCs approved before April
21, 1999, based on a Secretary of Defense determination that there
has been a

change in economic circumstances. Until DOD develops criteria for
changed economic circumstances, it is difficult to know how many
of the 26 communities will be eligible to renegotiate their
existing EDCs. However, some service officials expect that the
majority of eligible communities will want to renegotiate terms of
their agreements to obtain no- cost EDCs. If all 26 communities
renegotiated no- cost EDCs, DOD estimates it could lose about $218
million (net present value) in potential revenue between fiscal
year 2000 and 2043. 5 Our analysis shows that $131 million, or 60
percent, of these revenues would have been received

after fiscal year 2005. BRAC land proceeds have historically been
used to offset BRAC costs. We estimate that the services would
collect about $87 million (constant 1999 dollars) from the
existing EDCs between fiscal year 2000 and 2005, which would be
available to offset projected environmental cleanup costs. The
remaining $131 million in projected revenues would be received
between fiscal year 2006 and 2043, when much of the environmental
cleanup would already be completed. If the legislation is enacted
and the communities renegotiate existing agreements as no cost
EDCs, it would eliminate some proceeds that could be used to
offset future budget requirements. As already noted, the amount of
this potential offset depends on when the revenues would have been
realized.

DOD estimates that with the proposed legislation it would avoid
about $12 million in costs. Approximately $10 million, or 83
percent, of this 4 There are 12 pending or anticipated no- cost
rural EDCs that would not be affected by the proposed legislation.
5 DOD used a 5- percent discount rate as specified in Office of
Management and Budget Circular A- 94 to calculate net present
value.

Page 7 GAO/T-NSIAD-99-215 Military Base Closures

amount would result from the avoidance of costs for protection and
maintenance support through the earlier transfer of property.
However, the extent to which the legislation will expedite final
property transfers is not clear. DOD believes that redirecting the
focus of the property conveyance from an adversarial real estate
deal to an effort to facilitate job creation will also

reduce the Department's EDC transaction costs. We note that if the
legislation is adopted, DOD might be in a position to reduce the
amount of resources it currently devotes to managing the EDC
process.

As I said at the beginning of my statement, the legislative
proposal involves a trade- off between recouping the value of
surplus property and providing communities opportunities to
enhance economic recovery. The trend in recent years regarding
BRAC- related properties has been to move toward

the latter. Mr. Chairman, this concludes my prepared remarks. We
would be pleased to answer any questions that you or members of
the Subcommittee may have.

Contacts and Acknowledgement For questions regarding this
testimony, please contact David Warren at (202) 512- 8412.
Individuals making key contributions to this testimony include
Barry Holman, William Crocker, Michael Kennedy, and James

Reifsnyder.

Page 8 GAO/T-NSIAD-99-215 Military Base Closures

Appendix I Surplus Federal Property Transfer Methods Appendi x I

Appendix I Surplus Federal Property Transfer Methods

Page 9 GAO/T-NSIAD-99-215 Military Base Closures

Page 10 GAO/T-NSIAD-99-215 Military Base Closures

Page 11 GAO/T-NSIAD-99-215 Military Base Closures

Page 12 GAO/T-NSIAD-99-215 Military Base Closures

Related GAO Products Military Bases: Status of Prior Base
Realignment and Closure Rounds (GAO/NSIAD-99-36, Dec. 11, 1998).
Letter Military Bases: Review of DOD's 1998 Report on Base
Realignment and Closure (GAO/NSIAD-99-7, Nov. 13, 1998).

Military Base Closures: Questions Concerning the Proposed Sale of
Housing at Mather Air Force Base (GAO/NSIAD-99-13, Oct. 8, 1998).

Military Bases: Lessons Learned From Prior Base Closure Rounds
(GAO/NSAID-97-151, July 25, 1997). Military Bases: Update on the
Status of Bases Closed in 1988, 1991, and 1993 (GAO/NSIAD-96-149,
Aug. 6, 1996).

Military Bases: Environmental Impact at Closing Installations
(GAO/NSIAD-95-70, Feb. 23, 1995). Military Bases: Transfer of
Pease Air Force Base Slowed by Environmental Concerns (GAO/NSIAD-
93-111FS, Feb. 3, 1993).

(709430) Lett er

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