Unable to reduce surplus property without BRAC, the Pentagon has a revitalizing option

One of the most successful examples of government-driven restorative development in the United States has been the BRAC (Base Realignment and Closure) program, as documented in Storm Cunningham‘s 2008 book, Rewealth (McGraw Hill Professional).

BRAC was a process used by a federal government commission to increase Department of Defense efficiency by planning the closure and reuse (usually by local communities, but sometimes by private redeveloeprs) of surplus military properties following the end of the Cold War. Over 350 installations were closed in five BRAC rounds: 1988, 1991, 1993, 1995, and 2005.

Still struggling to pay the upkeep on unneeded installations, the Pentagon has tried for six years to convince a do-nothing Republican-led Congress to revive the BRAC program. They have offered decades of proof as to the massive savings to the federal budget. They have shown the spectacular economic growth achieved by communities that have benefited from the program, from San Francisco, California to Alexandria, Virginia. But to no avail: Congress has become highly resistant to facts and science in recent years.

Defense Secretary James Mattis testified to Congress in October of 2017 that almost 20 percent of the Pentagon’s real property is surplus and a burden, but still the 2019 defense budget proposal didn’t request a new BRAC round.

So, the Pentagon is now pursuing a new strategy. Instead, Defense Department Comptroller David Norquist suggested in February of 2018 that he would be looking for new ways to work with jobs-conscious lawmakers, and for new ways to repurpose, renew and reconnect—the increasingly popular 3Re Strategy—the excess property (military properties are usually shut off from surrounding communities).

Fortunately, the Pentagon does not have to look far to find a viable alternative strategy that will fly politically. It’s call “Enhanced Use Leases”. These are deals with private redevelopers that gie them access to federal property. They were created in the 1990s and have been used successfully ever since.

Defense leaders and lawmakers should embolden the military services to seek out more of these win-win opportunities.

The Pentagon and Congress should also go a step further to identify areas—include entire installations—where communities and the private sector could purchase unneeded military land, fully titled.

While there are many benefits to leasing, some opportunities require a complete transfer of property for the deal to have a sound business case.

The Enhanced Use Lease (EUL) is a method for funding construction or renovations on federal property by allowing a private developer to lease underutilized property, with rent paid by the developer in the form of cash or in-kind services.

Currently, EULs are used by the Department of Defense and the Veterans Administration. Temporary authority has also been granted to the General Services Administration (GSA) and the National Aeronautics and Space Administration (NASA).

EUL authority is derived from Congress and is specific to each agency (e.g. 10 USC 2667 for the DoD). Here is some insight as to how it applies specifically to military bases.

Granted a ground lease (the term may vary by agency or project), the developer is able to make improvements to the property which can be leased at market rents to any interested tenants. Under EUL, the U.S. government retains control over the leased property, the EUL developer (lessee) retaines a lease interest only.

Since the agency can issue enhanced use leases only on land that is unneeded, the improvements must not be directly tied to any programmatic requirements of the installation.

  • The advantages to the developer include prime secure convenient locations on military installations, and the opportunity to provide sole-source services and products in lieu of rent for the ground lease.
  • The advantages to the federal agency include the possibility of fast-tracking alterations, repairs or new construction so that the improved space becomes available for lease. In-kind considerations or cash to no less than the fair market value of the property is provided in return by the developer.

The enhanced use lease became a very popular tool under BRAC, but can be used in the absence of a BRAC program. The use of EULs mushroomed with the expanded authority of Title 10 USC, Section 2667, of the National Defense Authorization Act.

It remains to be seen whether this form of privatization will create increased financial, security or environmental risks. Legal complications that have emerged include how EUL-encumbered property will be treated when an installation is targeted for closure under BRAC (for example, Building 40 at the closed Walter Reed Army Hospital property in Washington, DC).

Featured photo shows Cameron Station, a residential redevelopment of a closed military base (thanks to BRAC) in Alexandria, Virginia. Some call it “the nicest neighborhood in Alexandria.”

Read article by Norton A. Schwartz and Kenneth Fisher in Route Fifty.

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