MILITARY BASE RE-USE: BASE ACQUISITION AND PLANNING

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1 MILITARY BASE RE-USE: BASE ACQUISITION AND PLANNING by Richard R. Goldberg, Esquire Raymond Takashi Swenson, Esquire Ballard Spahr Andrews & Ingersoll 1735 Market Street, 51st Floor Philadelphia, PA C All rights reserved 1995 Richard R. Goldberg Raymond Takashi Swenson

2 (ltE.AL) MILITARY BASE RE-USE: BASE ACQUISITION AND PLANNING I. LEGISLATIVE BACKGROUND: PRELUDE TO PROPERTY TRANSFER continuing world tensions required the United states to maintain a high level of military preparedness, including a vast array of military equipment and facilities. The decline of the other world superpowers together with the development of terrifying efficiency in weaponry made much of this obsolete. It became obvious that a large number of military bases, supply depots, shipyards, airfields and government owned manufacturing plants were redundant and remaining military forces could be economically combined at fewer locations. In order to effectively make the process non-partisan and to shield the political process from the negative effects of divestiture of facilities and the concomitant impact on communities and counties where the bases provided the economic impetus, Congress and the President in 1988 established the Base Closure Commission whose job it became to recommend the military bases and locations which would be eliminated. l The Commission establishes a list of facilities after receiving recommendations from the Defense Department and is the final arbiter. The list is sent to congress and the President. However, the only available option is to embrace or reject the entire list. It was no longer possible for a powerful member of Congress to "roll the Richard R. Goldberg is a partner in the Philadelphia Office of Ballard Spahr Andrews & Ingersoll. Formerly Vice President and Associate General Counsel of the Rouse Company, Mr. Goldberg is past President of the American College of Real Estate Lawyers, the current Chairman of the Anglo-American Real Property Institute and lectures and writes extensively on the Real Estate SUbject. Raymond Takashi Swenson is of counsel in the Salt Lake City Office of Ballard Spahr Andrews & Ingersoll. Lt. Colonel Swenson, USAF (Retired), served as Air Force Regional Counsel for the western U.S. and has handled military real property, environmental and base closure matters for some 50 military bases. He lectures and writes extensively on the subjects of base closings and redevelopment. 1 Defense Authorization Amendments and Base Closure and Realignment Act of 1988, P.L , codified at 10 U.S.C note.

3 pork barrel" and protect the constituent community's military installation. The process for disposing of military facilities prior to 1988 was substantially the same as that of disposing of any surplus federal real and personal property. The Federal Property and Administrative Services Act of 1949 (the "FPASA") vests disposal power over government surplus property in the General Services Administration. 2 This was only slightly modified by the 1988 Act and the Defense Base Closure and Realignment Act of 1990 (lithe 1990 Act") which delegated disposition duties regarding military property to the military departments and the Defense Department.' The 1988 and 1990 Acts also require an environmental impact analysis under the National Environmental Policy Act prior to the ultimate conveyance of any military real estate. The FPASA remains a significant consideration in the governance of military base re-use and redevelopment. The priorities accorded thereunder continue in effect. FPASA provides that in transmitting excess property first consideration be given to transfers to other federal agencies. Next priority is accorded to transfers for non-profit public uses such as governmental facilities, recreational sites, schools and airports. These conveyances, which occur at no cost, are commonly known as public benefit conveyances and are usually made to municipalities, counties, states, or other local governmental agencies. Additional priorities under the FPASA are given to Indian Tribes which assert claims of ancient ownership or treaty rights. Thereafter, military land may be sold at fair market value through a bidding process to the public or as a negotiated sale for reuse to a local government. Adding to the mix is the priority afforded to agencies providing shelter to the homeless. Under the terms of the McKinney Homeless Assistance Act, federal surplus property must be reviewed for potential use by organizations assisting the homeless. 4 While these claims are directly competitive with those of local governments, as noted later, subsequent legislation has ameliorated the effect of these claims. In an attempt to make the base re-use process more rational, Congress adopted the 1993 Pryor Amendments to the 2 40 U.S.C. S471 et seq. 3 Defense Base Closure and Realignment Act of 1990, P.L , codified at 10 U.S.C U.S.C et seq.

4 Defense have Authorization Act' (sponsored by Senator Pryor of Arkansas) and the Base Closure Community Redevelopment and Homeless Assistance Act of 1994 (lithe 1994 Act") which added two important new concepts to the process. 6 The 1993 Amendments established an Economic Development Conveyance to local governments (termed Local Redevelopment Authorities or LRAs), allowing land and improvements to be transferred at less than fair market value for the purpose of permitting economic development and job creation. The EDC requires the submission of a detailed market and feasibility analysis, demonstrating the job-creating impact of contemplated use in order to determine the discounted purchase price. The 1994 Act significantly altered the impact of the McKinney Act. Communities in the 1995 base closure process, and communities in earlier processes if they so elect, may eliminate the absolute homeless agency priority. In lieu thereof, communities are required to conduct outreach to homeless agencies, to notify them of the existence of facilities on the base and to thereafter negotiate an allocation of facilities, substitute facilities or, in lieu of real estate, provide funding to acquire alternative housing. If federal agencies, the homeless and local agencies not opted to acquire the facilities, then the Defense Department, through the various real estate arms of the services, may negotiate a fair market sale to the private sector. In summary, the priority for eligibility for conveyance of military facilities are as follows: First, to any federal agency claiming the land as necessary for its needs, including Indian tribes which claim the land as a matter of right under rights of ancient ownership or treaty rights; Second, to agencies providing shelter to the homeless to the extent that (1) an LRA has not elected to utilize the provisions of the 1994 Act or (2), to the extent an LRA has utilized the 1994 Act and HOD has determined that the Reuse Plan does not adequately deal with the requirements of the agencies providing shelter to the homeless; 5. Public Law , title XXIX, 10 U.S.C note. 6 Base Closure Community Redevelopment and Homeless Assistance Act of 1994, S.2534, amending 52905(b) of Title XXIX, P.L , codified at 10 U.S.C note and 5501 of the McKinney Act, 42 U.S.C

5 Third, public benefit conveyances to LRAis and others, including conveyance to Indian tribes over land not subject to ancient ownership or treaty rights but over which the tribe may have migrated; Fourth, to LRA's as an Economic Development Conveyance; Fifth, to LRA's or others by negotiated sale or public auction at fair market value. At this juncture, legislative authority for further base closures has expired. The closures, which occurred every two years, ceased with the 1995 list of facilities. It is not clear whether there will be further reauthorizations of the Commission or the procedures. The four Commissions of 1989, 1991, 1993 and 1995 have closed a total of over a hundred major military installations acroas the U.S., each encompassing an average of several thousands of acres. II. REOSE PLANS: IMPLICATIONS AND EFFECT Prior to any acquisition without regard to the nature of the acquiring entity, the Defense Department will require, and provide funds for, the development of a comprehensive Reuse Plan for redevelopment of the site. The sole authority for development of the Reuse Plan is vested in the LRA and is subject to approval by DOD, EPA and its state counterparts, and HUD for the purpose of concurring with the component of the plan which deals with the agencies providing services to the homeless. The following discussion illustrates the requirements for conveyance for which the Reuse Plan is a legal prerequisite as well as the utilization of the plan by an LRA as a tool to satisfy other important and necessary Objectives in realizing the benefit of any conveyance for which it is eligible., The Reuse Plan acts as the trigger for a number of activities that the military departments must perform prior to the disposition of surplus real estate. A. Blse Reuse Plan IS a-legal prerequisite The federal laws governing the transfer of federal land all require the completion of a Reuse Plan for the DOD to consider before implementing the transfer, either by long term lease or warranty deed. 4

6 Environmental Impact statement. The National Environmental Policy Act of requires every federal agency, including DOD, to research and analyze the environmental consequences of a proposed action. If the proposed criteria may result in a significant environmental impact, the applicable agency must also identify reasonable alternatives to the proposal. The use of NEPA to delay base closings was sufficiently so successful that, when Congress passed the 1988 and 1990 base closure laws, it specifically exempted the selection of bases to be closed from NEPA. However, the requirement to analyze proposals for base reuse continue to be subject to the NEPA provisions. In fact, the Pryor Amendments require that, upon presentation by an LRA of a Base Reuse Plan, DOD must produce an Environmental Impact Statement analyzing the Base Reuse Plan within 12 months after the Reuse Plan was published. Until the Base Reuse Plan is approved, no long-term lease or major transfer of land title can be executed. Interim leases, for a period of usually five years, can be based on an environmental assessment and a finding of no significant impact. In states such as California which have independently required local governments to do impact analyses, the DOD is usually willing to collaborate on a joint document with the LRA which satisfies both federal and state laws. When the EPA Record of Decision is published, designating the type of proposed use for each portion of base property to be conveyed, opponents have 60 days to bring a lawsuit challenging the Plan. However, if the Reuse Plan undergoes major changes, a strict interpretation of NEPA would require the DOD to determine whether the EIS needs to be revised or supplemented to reflect the new plan. Conforming to Air Pollution standards. The 1990 Clean Air Act Amendments created a new requirement in Section 7506 which is similar to NEPA in its application but much more draconian in its consequences'. Federal agencies which contemplate a major action that may negatively affect air quality in regions where that quality is below EPA standards must analyze the air pollution which may be caused by the proposed action. If the impact is negative and significant, the proposed federal action may not proceed. The EPA regulations implementing the statute are in two parts: first, a section governing federally funded building of highways; and second, a section governing all other federal U.S.C et seq. 5

7 actions, including the transfer to the Federal Aviation Administration to convert military airfields into civilian airports 9 After much debate within the federal government, EPA agreed to exempt actual transfers of federal land from the analysis requirement. However, most leases of federal land to private parties still leave the federal government in control sufficiently to trigger the "conformity" analysis. The analysis must evaluate the air pollution generated by the reuse activities projected in the LRA's Base Reuse Plan. If the plan is unrealistically large in scope, within an area of high existing air pollution, the DOD conformity analysis may actually prevent DOD from leasing property to the LRA, or transferring an airfield to the FAA, to carry out the Reuse Plan. Cleaning Up contamination. Federal installations, including military ones, which have areas of soil and groundwater contamination are governed by a special section of the Superfund Cleanup Law, Section Under Section 120 (h) (3), a deed to federal land cannot be issued unless the federal government gives a warranty that all necessary cleanup has been accomplished, and that the DOD will pay for any future cleanup that is caused by DOD prior action. Thus, unlike private land sales where contaminated property can be sold with costs and risks allocated through site investigation, adjustment of price, purchase of insurance, and indemnifications, DOD can only sell clean land. That means it must be either investigated and certified as already clean, or investigated, cleaned up, and then certified as clean. The analysis process is called an "Environmental Baseline survey" or EBS, similar to a Phase I or Phase II environmental site assessment in the private sphere. The certification is called either a Finding of suitability to Lease (FOSL) or Finding of Suitability to Transfer (FOST). The Reuse Plan affects the cleanup process in two ways. First, it can guide the EPA and the DOD in selecting which sites to cleanup first. While traditional site cleanup by EPA is based on the philosophy of cleaning the most dangerous sites first, or "worst first," the timely implementation of the Base Reuse Plan requires that the parcels of land that have the greatest commercial potential be cleaned up and made available first, a "best first" principle of prioritization C.F.R. parts Sl and U.S.C , Comprehensive Environmental Response, Compensation and Liability Act of 1980(CERCLA), as amended by the Superfund Amendments and Reauthorization Act of 1986 and the community Environmental Response Facilitation Act of

8 The second way the Reuse Plan can affect cleanup is by determining cleanup standards. If the Reuse Plan designates an area for heavy industry, there is no point in trying to clean that site up to residential standards of contamination. While this principle still needs to be formally adopted into the Superfund statute, it is already being used in most EPA site cleanup decisions. There is a particular risk that a business which moved into the base early in the cleanup process, perhaps through an interim lease, may find that cleanup remedies will interfere with the business's use of the premises. LRAs should seek to be included in the cleanup decisions which are most intimately tied to the Base Reuse Plan. One method of involvement is participation in the local Restoration Advisory Board CRAB), which provides an opportunity for representative citizens of the neighborhoods near the base to learn about, and comment upon, the course of the base cleanup. Another is for the LRA to insist that it be allowed to participate in decision meetings of the DOD, EPA, and state concerning site cleanup. Both of these requests are often met with resistance by local DOD or military departmental officials. Economic Development Conveyance. When the 1988 and 1990 base closure laws were enacted, the only two ways an LRA could obtain title to property from DOD were by purchase at full market value, or by a free "public benefit" transfer which restricted the use to educational, public recreational or welfare, and public airport activities. The Pryor Amendments enacted in late 1993 created a new authority to transfer federal lands, a below-market-price for the purpose of creating jobs. Regulations implementing this option were issued by DOD in final form in July To obtain DOD land and structures at less than market value, the LRA must submit an application, which includes the Base Reuse Plan as its core component. The LRA is asked to show how it plans to use the property to create jobs. The LRA must include an analysis of the market feasibility of the Reuse Plan as a creator of jobs. Mcxinney HOJIISless Assistance Act Amendments. The final process in which the Base Reuse Plan plays a mandatory role is in connection with requests for use of base facilities by organizations which provide services to the homeless. These "homeless organizations" were originally given higher priority than the LRA through the McKinney Homeless Assistance Act, which requires all federal agencies to offer suitable surplus property to these "homeless organizations," on a repeating 6-month C.F.R. parts 90 and 91. 7

9 interval l2 An amendment that was part of the Pryor Amendments ensured that, after the homeless organizations took the "first bite" of the base, the LRA could take the "second bite." The 1994 Act amended the process aqain. Now, homeless orqanizations must submit a list of their needed facilities to the LRA, which must incorporate some reasonable accommodation of those needs within the Base Reuse Plan. The Reuse Plan is then submitted not only to DOD, but also to the Secretary of Housinq and Urban Development for approval. If the secretary of HOD is dissatisfied with the allocation of benefits to the homeless orqanizations, it can simply, by fiat, overrule and rewrite the Reuse Plan with reqard to homeless issues. Interim final requlations qoverninq homeless issues are expected to be issued jointly by HUD and DOD by September Some LRAs may want to emulate the "Denver Gambit," which involved usinq a $5 million qrant from HOD to obtain housinq dispersed around the Denver metropolitan area, to offer housinq resources to various homeless orqanizations in exchanqe for the release of their claims under the McKinney Act. Just as many state laws require set-asides of redevelopment funds to support low-income housinq, the LRAs may want to invest funds in_ renovatinq accommodations for the homeless as a way of preservinq rational business use of the rest of the base property, in accordance with the Reuse Plan. B. Ba,e Beu,e Plan Nee4e4 as Information The Sase Reuse Plan is often prepared for the LRA by a team of consultants, with expertise in land use and planninq, landscape architecture, industrial site development, law, marketinq, and in developinq the specific uses which appear reasonable options, such as the conversion of a military airfield into a civilian airport. Most of the cost of Reuse Plan preparation can be funded by qrants from DOD's Office of Economic Adjustment (OBA). Inventory ol Real Property. Preparinq a realistic and effective Reuse Plan is important to most of the other processes involved in base redevelopment. It is not simply a square-filinq exercise. Most larqe military installations are complex and diverse properties, often thousands of acres in size, with areas that include major transportation support facilities (airports, ship docks, rail terminals and hiqhway interchanqes), industrial facilities, warehouses, extensive office facilities, schools and traininq centers (often equivalent in site and facilities to a small colleqe), retail centers, hospitals, residential neiqhborhoods (with all qrades of housinq from extremely poor to 12 Supra, note 4. 8

10 large and historic), recreational (from bowling alleys to softball fields, swimming pools, gymnasiums, and golf courses), open space (used as a buffer for security, airport noise, and field exercises), and utility systems (often equivalent to a complete town, from electrical and heat generation to sewage treatment and waste disposal). While a realistic inventory of these properties is essential to preparing a Reuse Plan, the overall recommendations about neighborhood character, traffic patterns, and rational land use groupings also will affect whether individual facilities and infrastructure are classified for preservation, adaptation or demolition. Anneration, Jurisdiction, Taration & PUblic Services. In the past, some cities have annexed part or all of a military base for various reasons, sometimes to allow the cities to expand on the other side of the installation, or to include the base population in its statistics for purposes of state or federal grants. Since municipal laws do not generally apply to federal activities and property (due to the legal doctrines of sovereign immunity and federal supremacy), such annexation has been a matter of indifference to 000. When a base is selected for closure, however, such annexation usually determines which cities can claim to act as, or participate in, the LRA. While annexation is an assertion of municipal jurisdiction, before the city can actually legislate for base property the obstacle of federal exclusive jurisdiction must be removed. The federal government may acquire property for a military enclave subject to three types of jurisdictions. Prior to 1940, it usually acquired "exclusive federal jurisdiction" over the site. This jurisdiction effectively transformed the base into a federal territory largely outside the boundaries of the encompassing state. Neither state, county nor city is able to enforce criminal or civil law or levy taxes within such areas. Law enforcement and prosecution is fully a federal matter. Thereafter, it acquired real property for military purposes with non-exclusive jurisdiction where both federal and state law would apply. In some isolated cases, jurisdiction remained solely with the state and local authorities.. Most large 'military bases are a combination of areas of exclusive federal jurisdiction and areas where the federal government simply owns the property. Each base has a map showing the approximate boundaries of these areas, based on title searches and records of state relinquishment of jurisdiction. To return or "retrocede" federal jurisdiction to the state usually requires a positive proposal by the 000 and a formal acceptance by the state or its authorized agency. Thus, for example, in California, acceptance is considered by the State Lands Commission, a process which typically takes 6 to 12 months 9

11 Transfer of jurisdiction allows full imposition of state and local tax laws on the former base property and business activities within it. It also triggers, for the first time, the application of zoning, building, and utility safety codes. These code requirements will make any adaptation of existing buildings more costly than would be the case if the facility were still within an active base. Retrocession of jurisdiction is also a prerequisite to the operation of local police forces on the base. While the DOD may desire the LRA, under a caretaker cooperative agreement, to use its police forces to replace DOD security forces, ironically the DOD is prohibited by opinions of the comptroller General from paying for police and fire services ll However, language in the Pryor Amendments seems to authorize DOD to purchase from the LRA these services after the date 180 days before the planned full closure of the base. Zoning & General Plan. The Base Reuse Plan is frequently the heart and soul of a comprehensive amendment to the local government general plan and zoning map. The consortium of developers who are investing in the renovation of Hamilton Air Force Base in Marin County, California (which was closed in 1974), have observed that land has no value until its zoning and range of permissible land uses is well defined. They should know, since their predecessor developers, who attempted to reuse Hamilton Field for several years, were frustrated by local government opposition to the site of their project. It was not until the public bodies finally decided on the full plan that any portion of Hamilton could be developed. In the modern base closure process, where local governments become the master developer, they have sometimes used their zoning authority to frustrate competing proposals from private businesses who have bid to purchase higher value properties at a base, such as a golf course. Redevelopment Areas. Many LRAs have sought to adapt existing redevelopment area authorities to the process of base redevelopment. Since federal property was never subject to local taxation of property or sales, the "tax increment" includes all revenues realized from civilian business and ownership within the former base boundaries. since most military bases are too well maintained to be considered "blighted" under traditional definitions, states have passed laws creating a presumption of this condition to empower 13 Municipal fire fighting services rendered at government reservation within city limits - payment liability, 24 Compo Gen. 559 (1945); States fire fighting services - government reimbursement liability, 53 Compo Gen. 410 (1973). 10

12 jurisdiction over the former bases, as well as much adjoining territory that was often dependent on the base for its economy. In some states, legislatures have been unable to pass general laws on the subject and have resorted to the use of special laws on an area-by-area basis. Once implemented, these redevelopment areas can provide a mechanism to finance investment. in infrastructure that is essential to attracting businesses as tenants or purchasers of the base property. Incidentally, some states plan to use public bond issues to fund a bank which will provide grants and loans to LRAs for base redevelopment. Many of the base-specific redevelopment laws include requirements for preserving or replacing much of the low-tomoderate income housing which exists on military-bases. A recent California statute has deferred these requirements for LRAs, to allow initial investment which will attract employers rather than home buyers. ~ransfer of utilities. The lifeblood of any Reuse Plan is the utilities which provide energy, communications, water, and sewer services to ultimate reusers. Unfortunately, the DOD is unwilling to provide utilities for an indefinite period. The military services press LRAs to take over operation of the utilities through a caretaker cooperative agreement, and will continue to press to find someone to assume full ownership of the systems. There is usually no argument that local governmental units, such as special service districts or cities, are the appropriate instrumentality to take over water supply, sewer, storm sewer and solid waste management functions. The more difficult issues arise with electricity, natural gas, telephone and cable television. While investor-owned, publicly-regulated utility companies have a general obligation to provide service to all customers, they are hesitant to assume ownership of base utility systems. This is for several reasons. First, while these utility companies have generally been the main or sole supplier of these services for the base for decades, and received revenue commensurately, they had in the past only supplied services to a single point at the base boundary, while maintenance and operation of internal distribution systems was conducted by the military. Accordingly, before a private facility can provide the services for all the base, it must purchase the internal distribution system. The question of valuing the military systems for sale to utilities is not easily resolved. Second, since the military systems were never subject to state regulation, they often do not conform to state standards 11

13 Second, since the military systems were never subject to state regulation, they often do not conform to state standards for performance or safety. The new owners will eventually have to bring them up to code. Third, the utility companies view civilian uses at a base as "new" and thus require that the LRA and its business tenants fund all the new infrastructure that may be required for either code compliance or simply changing the system to meet the new demands of the tenant. For example, meters will have to be installed for the first time at each building used on the base. The utility companies feel that the public utility commissions of each state will bar them from distributing these "connect" costs to the ratepayers generally, and their stockholders will object to bearing the burden of that particular benefit. Faced with the reluctance of the utility companies on the one hand, and the need to assure potential tenants and buyers of adequate utility service, many LRAs have bitten the bullet and contemplated or instituted a municipal utility entity to own and operate the systems on base. The costs and risks which are often too great for the utility companies are now being assumed by cities of less than 100,000 population l The ability to issue bonds to obtain the necessary funds for such a venture can be vital to its success. The Reuse Plan can be a guide to an LRA's investment in utilities infrastructure. For example, the Inland Valley Development Agency, in San Bernardino, CA, designed a main trunk road to improve access to and through the former Norton Air Force Base, and incorporated in its design the trunk lines of all major utilities that will support the gradual redevelopment on either side of the base. Local governmental agencies which assume the more traditional utilities such as water and sewer frequently find themselves in similar dilemmas to private utilities. Although the water and sewer systems utilized at DOD facilities must comply with EPA and state standards where those systems interface with state and local ones, the internal utilities on bases are frequently obsolete and out of compliance. Therefore, the acquiring entities could be required to expend significant amounts of money in order to update and bring into compliance the vital water and sewer systems required for redevelopment. 14 The small cities have no choice since privately held utilities will condition the assumption of service upon the payment of capital cost by the city or the consumer. If the cities undertake to perform these services, they are able to use bonding authority to provide the required infrastructure. 12

14 c. Processes Parallel to the Base Reuse Plan While creation of the Reuse Plan is essential in determining the ultimate disposition of base property, much can be done to mitigate the economic impact of base closure while the Reuse Plan is being prepared. IdentiLying the Local Redevelopment Authority. The first and most important step for the community adjoining a closing military base is to identify or create a local government entity which will serve as the "local redevelopment authority" or LRA under federal law. The Defense Department wants to deal with one and only one local government entity when it is arranging the transfer of its property to civilian hands. Disagreements between cities or between cities and counties over how much control each will exercise over redevelopment may simply put the process on hold. If the military base is wholly within an unincorporated area of a county, or is wholly within an incorporated city, those local government units will generally become the LRA. The governments may, in turn, create special corporations to exercise some of their duties. Where portions of the base are within or _ adjacent to several local jurisdictions, the governments affected have generally joined to create a Joint Powers Authority or other entity having municipal powers, either through delegation from the constituent governments or by virtue of state statute. In some cases, a special statute creates the entity, while some states have formally enabled the creation of joint government Base Reuse Authorities. These municipal powers usually include the authority to issue bonds to finance base redevelopment. The LRA will be dealing with several facets of the federal government. Until cessation of military operations, there will be the base commander and his or her staff, who are knowledgeable about the resources under their command and generally willing to support the LRA's requests for information. In addition, each of the military services has a branch which manages base redevelopment and property transfer. For the Army, it is the Corps of Engineers, through its Division and District offices. For the Navy and Marine Corps, it is the Naval Facilities Engineering Command (often abbreviated NavFac), which operates through several regional division offices or subordinate Engineering Field Activities (EFAs). Unlike the other services, which had existing real estate management a~s, the Air Force had to create a new agency, the Air Force Base Conversion Agency, which has small offices on each closed installation and a large support staff in Arlington, VA, that is organized internally by geographic regions. These agencies include real estate, environmental, legal, and other specialists, with whom the LRA will negotiate in each of the processes of redevelopment 13

15 The Defense Department has its own ombudsman, called a Base Transition Coordinator, serving each community as a means of getting information and expressing concerns outside formal service channels. DOD also provides grants to LRAs through the regional offices of the Office of Economic Adjustment, to pay much of the cost of preparing the Reuse Plan and other essential steps of redevelopment, including non-litigation legal counsel fees. OEA even made these planning funds available to the communities which have just been proposed for closure in Other federal agencies, such as the Departments of Commerce, Housing and Urban Development, Labor, and Transportation administer grant programs to aid LRAs. These grants include millions of dollars which can be combined with locally obtained funds to build or upgrade infrastructure, such as new roads and utilities systems, or affordable housing. The Federal Aviation Administration can tap into its trust fund to support conversion of military airfields to civilian airports. Federal Agency Property Requests. Once the LRA has been established and officially recognized, it is entitled to be consulted by the Department of Defense (DOD) on requests by other federal agencies for surplus property at the installation. In many cases, the LRA will support these requests, since they will bring jobs onto the base. For example, the Forest Service is moving its regional headquarters from downtown San Francisco to Mare Island Naval Shipyard, in Vallejo, in the northeast corner of the Bay. In other cases, however, the LRA may wish to voice its opposition. For example, the Bureau of Prisons in the Department of Justice may need expanded facilities, or the Department of the Interior may wish to transfer the property to an Indian tribe in order to foster the tribe's economic development, in both cases potentially depriving the LRA of potential property tax revenues, even though they create jobs. The Fish & Wildlife Service may claim hundreds of acres to protect endangered species; thus, the entire runway complex at Naval Air Station Alameda, in eastern San Francisco Bay, may be reserved to protect an existing colony of least terns. Interim Leases and SUbleases. Possibly the most important role the LRA will have before the Reuse Plan is completed is the n~gotiation of interim leases from 000. DOD has used interim leases to provide revenue for its natural resource management programs, accommodate services such as banks or credit unions, and to house its contractors. LRAs can sublease existing facilities, with their equipment, to businesses, and pay a portion of the subtenant's rent to 000. Interim leases allow rapid insertion of new employers into bases, even before they are fully closed, and the federal law allows the LRA to tax the possessory interest of the subtenant, even before ownership or jurisdiction are transferred out of DOD. These lease revenues 14

16 can successful form an initial revenue stream to supplement federal grants and support the LRAs base reuse efforts. If the LRA is constituted as a redevelopment agency over the base, the tax revenues will be part of the tax increment which can be tapped to repay public bonds. Caretaker Cooperative Agreements. Another important activity for the LRA in these initial stages is to consider negotiating a "cooperative agreement" with the military service, under which DOD pays the LRA to carry out DOD's duties for operation and maintenance of the base, its utilities, roads, and infrastructure. While this is viewed as a "break even" proposition, with DOD paying over its own budget for these services, the community may be able to reap some economies. For example, many DOD units will pay inordinately high amounts for certain utilities, because as an accounting mechanism the overhead goes to support other DOD units acting the role of utility providers. If the LRA steps into the shoes of DOD, it can realize a profit in such a case. The assumption of control over utilities is an important function, since DOD is generally reluctant to operate and maintain utilities after its operational mission ceases, even though the process of maintenance of the closed facility obviously requires continued supplies of power and water, even if for no other reason than fire safety. Personal Property Inventory. Early in the process the LRA should inventory all the personal property, furnishings and equipment held by DOD and not needed at other installations. This property is available to the LRA at little or no cost for use in interim leasing to businesses, for use in its activities under the cooperative agreement, and for inclusion with buildings at final transfer of ownership. Thus, tenant businesses can get cranes and lathes, office equipment and computers, and the LRA can get fire engines and supplies. III. SPBCIFIC ISSUES IN NEGOTIATING INTERIM LEASES AND TRAHSFBRS Once an LRA adopts a Reuse Plan, the arduous process of obtaining control of 'the facility from the DOD and its constituent military departments begins. It is at this level that the process distinguishes itself from private sector real estate transactions, since those transactions frequently follow the typical "deal" process whether done parcel by parcel or to a master developer. The following are some of the more important issues which require resolution as part of the base redevelopment process. Since there have only been a few completed and transfers, this list is by no means exhaustive 15

17 Lease Conditions and Length of Term. Because of the requirement previously discussed that DOD deliver clean real property as a prerequisite to conveyance, a series of lease agreements must be entered into in order to effectuate a timely reuse implementation. Prior to the issuance of a NEPA Record of Decision, the 000 is authorized only to enter into interim leases of its facilities. The difficulty of this process is that the typical service interim lease is not designed to accommodate the long term use of real estate. In particular, the lease document does not recognize the requirements of the private sector in making long term investment and financing those requirements. Recent regulations promulgated by the 000 have established the interim lease term at five (5) years. While 000 sources have indicated a willingness to increase the term, that information has not filtered down to the local level where all of the practical negotiations occur. The five (5) year term is usually much too brief for serious businesses to risk the making of necessary long term improvements at the premises under consideration. There is also a lack of clarity about the willingness of the federal government to grant appropriate lender protective_ provisions such as cure rights or the right to receive a new lease in the event of tenant default. Although the federal government is authorized to lease directly to the private sector, most transactions contemplate leases to anlra which will in turn sub-let to the private sector. (This may be the most desirable course of action since 000 has greater flexibility in discounting rents when the LRA is the primary tenant.) The 000 has so far refused to extend non-disturbance protection in the event that the LRA defaults. Although such default is considered unlikely, the private sector is not yet ready to replace non-disturbance with the catch phrase "I'm from the government and I'm here to help you". Additional provisions which have given the private sector pause include the requirement that the government retain a right of cancellation in the event certain circumstances occur. The government will require cancellation in the event of national emergency or in the event of a final reuse decision which conflicts with the interim lease use. If the government would agree that these cancellations require compensation, much of the turmoil would be avoided. However, the best that will be provided as of the writing of this paper is an agreement to provide "what the law allows", a much too vague rubric for the taste of most interim lessees. since the ultimate cleanup process is not determined at the time of the interim lease, the government is often desirous of retaining control of the real property so that the least expensive cleanup procedure may be followed. This 16

18 reservation will include a demand for the right to move or shut down existing interim lease uses for extended periods. This position, which must be negotiated out of the lease, frequently causes significant delays in consummating the interim leases. After the NEPA Record of Decision, the DOD has indicated a willingness to enter into fifteen (15) year leases in contemplation of conveyance. The leases will provide for terms which should last until cleanup activities are completed. However, it is not clear that the previous problems as recited will be eliminated from the long term lease. Cleanup Priorities. The military has performed cleanup requirements at military bases on the basis that the most contaminated areas should be remediated at the earliest opportunities. However, this does not take into consideration the exigencies of the redevelopment process which will require that the best real estate be cleaned up regardless of the extent of contamination. The best re-use candidates often require marginal remediation and will be delayed until less desirable sale candidates are finished. Of course, the delay in sale of the most attractive More important, however, is that the loss of cash flow from the more valuable portions of the portfolio may well defeat the financing plan adopted by local governments. real estate may well frustrate the program. Retrocession of Jurisdiction. The base closure and reuse process is marked by a lack of intrinsic funding to accomplish the necessary economic redevelopment which is supposed to be the direct result of the entire process. Because the federal government suffers from a lack of funds (exacerbated by the current congressional mandate to further cut budget expenditures), the federal government desires that financial responsibility for the closed facilities be transferred as quickly as possible to the local governments. On the other hand, local governments frequently lack the funds to implement all of the programs that retrocession would require. Much focus has been given to the provision of fire and police protection as a consequence of retrocession. The strain placed on existing services has to be funded in the face of a mismatch of tax revenue because the reuse areas will not be productive. The federal government adds to the problem by strictly interpreting the line of comptroller General decisions which prohibit payments for such services to local governments after retrocession". 15 Supra, note

19 compounding the problem is the immediate applicability of local and state building, zoning and health codes to retroceded areas. For example, in the state of California much of the construction on military bases (even new construction) does not conform to state and local earthquake requirements. without additional funding or a pre-emptive congressional solution to the retrocession problem, local governing bodies will be faced with the difficult dilemma of selective enforcement and increased taxes. Historic Designations and Bndangered pecies. Military bases, because of their size and location, have frequently become the home of protected flora and fauna under the Endangered Species Act 16 since the U.s. Fish and Wildlife Service has priority over local governments, some of the best land for redevelopment has been claimed. Unless the Act is amended to provide more flexibility for landowners, this problem will persist. More pervasive and troublesome is the designation of large portions of military bases as historic sites. Of course, many of these designations have validity. For example, much of Admiral's Row at Mare Island Naval shipyard are homes of great distinction and the base, which was the first military post acquired on the West Coast in the 1850's, retains the oldest extant military chapel with fine stained glass windows and other amenities. Much of Fort Sheridan, Illinois (located between the cities of Highland Park and Lake Forest, two of Illinois' most affluent communities) was designed by the architectural firm of Holabird and Root as their first commission and contains unique structures exemplifying the best of late 19th century architecture. However, the designator of historic significance at military bases is not a blue ribbon commission of noted architects and historians. Rather, non-expert DOD employees make these designations, in cooperation with state Historic Preservation Officers. Frequently, the sole guideline is age of the facility which hardly is the sole criterion of architectural significance. The result of a historic designation results in the inability of a re-use transferee to make needed changes to the exterior of buildings or to certain interior spaces. If the designation is inappropriate, the process is robbed of potential value or, at the very, least time U.S.C et seq. 18

20 IV. CONCLUSION The military base closure, reuse and redevelopment process is still in its early stages. Although the first closure list was announced in 1988, few bases have completed environmental remediation and have been transferred. There have been some successful closures. However, these have typically involved adaptive reuse of facilities which have not required dramatic retooling. For example, closed air force bases which have been converted into municipal or private airports have been successfully completed. However, many major facilities (and many attractive small military-owned manufacturing plants) await final disposition. The early economic promise seems at present to be bogged down in a bureaucratic morass of unfavorable DOD interpretation and lack of unwillingness to accommodate to the needs of the private sector. Some assistance may be forthcoming because of the recognition by Congress and DOD policy makers of the urgent need for reform. However, without certain legislative and policy changes, the base reuse process will continue to be time consuming and somewhat frustrating to the private sector 19

21 SE\T BY:BS.U : B ;11:26~~ ; ;# 41 4 Comment on Federal Agency Claims* r Base Reuse Plan I Reuse Plan Needed for: Invcntary &. Classlfy Rea] Property Annexation. Rcttoceasion of Federal Juri.sc6cd0ll. Taxation &. Publlc Services ReIfse Plan Required by Lawfon EDYiroDmmlta1Imp1ct Statcmcat* ClcaD Air Act 176(c) Conformity". ZoDina &: 0eDeral Plan Redevelopment Areas & Public F'm.aac:c* Trusfer Utilities Ownership. Markctiq CERCLA 120 Contamination CleaDup. Bcoaomic DevelopmeDl Cooveymce Applicaliou t McKiDDey Homeless A.uJ.staIlce N:.t 1994 AIneDdmcDts Lei" CouDIeI Needt.d Land Conveyance Contract " LODI Term~ o BalLud SpIbr ADdreWl4: JnpnoUl995