A New Industry?
The U.S. federal government may become a major consumer of real estate outsourcing services if pending legislation is adopted. Private entities could manage non-excess government property for up to 50 years. Lands held in trust, Indian reservations, national parks, forests and wildlife refuges and lands under jurisdiction of the Bureau of Land Management would not be eligible. In general, under one such bill, the goals would be, through use of private contractors, “to improve real property management decisions, reduce costs, and maximize portfolio performance, which plan shall address, at a minimum, life cycle planning and preservation of asset value.” In the case of another bill, the goal would be to provide life-cycle management for federal lands.
I. The “Public Private Partnership Act of 2003,” H.R. 2573, 108th Cong., 1st. Sess.
The “Public Private Partnership Act of 2003,” H.R. 2573, 108th Cong., 1st. Sess., would add a new chapter to the United States Code on “Federal Real Property Development” that allows private entities to manage non-excess government property for up to 50 years. The private management of public lands would be “to improve real property management decisions, reduce costs, and maximize portfolio performance, which plan shall address, at a minimum, life cycle planning and preservation of asset value.” The legislation would not cover private management of any other federal government activities.
Eligible Federal Properties. Lands held in trust, Indian reservations, national parks, forests and wildlife refuges and lands under jurisdiction of the Bureau of Land Management would not be eligible.
Terms and Conditions. Under the “Public Private Partnership Act of 2003,” H.R. 2573, proposed legislation, landholding governmental agencies would need to follow several contractual guidelines. Each agency would need to ensure that each agreement under the proposed law would:
(1) have as its primary purpose enhancing the value of the real property to the United States;
(2) provide that any obligation of an agency under the agreement is subject to the availability of appropriated funds or the availability of receipts authorized by subsection (h);
(3) be for a term that is not longer than 50 years;
(4) be negotiated pursuant to such procedures as the Administrator considers necessary to ensure the integrity of the selection process and to protect the interests of the United States;
(5) support the goals and objectives set forth in a plan to be developed by the landholding agency to improve real property management decisions, reduce costs, and maximize portfolio performance, which plan shall address, at a minimum, life cycle planning and preservation of asset value;
(6) possibly provide a lease option to the United States, to be exercised at the discretion of the Administrator, to occupy any office, storage, or other space in a facility covered under the agreement that may be suitable for use by one or more Federal agencies;
(7) not provide, unless specifically determined otherwise by the Administrator, that ownership of a facility covered under the agreement be transferred to the United States at or shortly after the expiration of any lease of the facility to the United States, but may provide that ownership of the facility be transferred to the United States before the expiration of the agreement;
(8) describe the consideration, duties, and responsibilities for which the United States and the non-Federal entity are responsible;
(9) provide–
(A) that the United States will not be liable for any action, debt, or liability of any entity created by the agreement; and
(B) that the non-Federal entity may not execute any instrument or document creating or evidencing any indebtedness unless such instrument or document specifically disclaims any liability of the United States under the instrument or document; and
(10) include such other terms and conditions as the Administrator considers appropriate.
II. “Federal Property Asset Management Reform Act of 2003,” H.R. 2548, 108th Cong., 1st Sess.
Under the proposed “Federal Property Asset Management Reform Act of 2003,” H.R. 2548, 108th Cong., 1st Sess., the terms and conditions would be slightly different. The approach would focus on “life cycle” methodologies. Thus each contract would need to include the such elements as asset management principles, performance measurement and a database of all federal property.
Management Principles.
The Administrator of General Services, in consultation with the heads of Federal agencies and the Director of the Office of Management and Budget, would establish and maintain current management principles to be applied by Federal agencies where appropriate to covered real and personal property assets.
Terms of “Outleases” of Property.
Leases to private operators of public property would need to include the following principles:
(A) Under no circumstances shall the liability of the Federal Government arising from an arrangement with a nongovernmental entity or from the operation of any partnership, cooperative venture, limited liability company, corporation, trust, or other business arrangement created as the result of an agreement with a nongovernmental entity exceed the amount of the Federal Government’s capital contribution or equity contribution.
(B)
(i) Such projects may only be undertaken if the Federal asset is not developed to its highest and best use and the project is economically viable.
(ii) For purposes of this subparagraph, determination of economic viability would include, among other relevant economic factors, the internal rate of return of the investment to the Government (with preference given to higher rates of return) at leaseback rates not exceeding market rates.
(C) Such projects may only be undertaken if the market conditions are favorable to development and full occupancy by government and private tenants.
Performance Measurement Benchmarks.
The GSA Administrator, in consultation with the heads of landholding agencies, would establish performance measures to determine the effectiveness of Federal real property management. The performance measures would monitor and assess the following:
A) The disposal of real property assets.
(B) The reduction in vacant Federal space.
(C) The realization of equity value in Federal real property assets.
(D) The value added to Federal agency missions through cooperative arrangements with the commercial real estate community.
(E) The enhancement of Federal agency productivity through an improved working environment.
The performance measures would have to be designed to–
(A) enable the Congress and heads of Federal agencies to track progress in the achievement of property management objectives on a Government-wide basis; and
(B) allow for comparing the performance of Federal agencies against industry and other public sector agencies.
III. New Opportunities or New Quagmire?
These bills attempt to establish some guidelines for improving the administration of federal lands. The guidelines may be helpful as such, but the details of implementation would undoubtedly involve extensive assessment and analysis of opportunities, as well as issues of fairness in the selection process. Such legislation would enable private sector developers and property managers to improve the economic benefits of use of federal lands. However, such legislation also raises the question of environmental protection and uses that benefit a broad range of users.
We are optimistic that legislative debate will address such issues, but the legislation in its present stage appears too vague to be helpful to the administrative agencies that will be charged with responsibility for implementation.