United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on Government Management,

Information, and Technology, Committee

on Government Reform and Oversight,

House of Representatives

October 1998 MILITARY BASE

CLOSURES

Questions Concerning

the Proposed Sale of

Housing at Mather Air

Force Base

GAO/NSIAD-99-13

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-280226 

October 8, 1998

The Honorable Stephen Horn

Chairman, Subcommittee on Government Management,

 Information, and Technology

Committee on Government Reform and Oversight

House of Representatives

Dear Mr. Chairman:

This report responds to your request that we review the proposed

negotiated sale of 1,271 surplus family housing units at Mather Air Force

Base, California, to the Sacramento Housing and Redevelopment Agency

(SHRA). Specifically, you asked whether

• the Air Force’s attempts to obtain competition satisfy requirements of

section 203(e)(3)(H) of the Federal Property Act to obtain “such

competition as is feasible under the circumstances”;1

• the disposal at Mather meets the test of a public benefit given that SHRA

plans to transfer ownership immediately to a private developer;

• the Air Force, contrary to General Services Administration (GSA) policy

and applicable laws, disclosed the appraised value of the family housing

property to prospective purchasers;

• the Air Force allowed a developer’s representatives to participate in

negotiations between the Air Force and SHRA; and

• there is evidence that the property has a higher fair market value than the

proposed sale price.

On June 22, 1998, we briefed you and Representative Richard W. Pombo

on the results of our work. This report summarizes the information we

provided at the June 22 briefing.

Background The decision to close Mather Air Force Base, located near Sacramento,

California, was made during the 1988 base realignment and closure (BRAC)

round, but the actual closure occurred in September 1993. Since then, the

Air Force has been working with Sacramento County and with other local

interests to dispose of property it considers surplus to the needs of the

federal government. The 1,271 housing units at Mather have been vacant

since 1993 and are in varying degrees of disrepair.

1

The Federal Property Act refers to the Federal Property and Administrative Services Act of 1949, as

amended. Section 203(e)(3)(H) is codified at 40 U.S.C. 484(e)(3)(H).

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B-280226 

In 1996 we expressed concern about the amount of time that was being

taken to dispose of excess BRAC property and specifically cited the Mather

housing as an example. We recommended that the Secretary of Defense

establish reasonable time frames for concluding negotiated sales of

surplus real property and that when practical, the services rent

unoccupied surplus housing and other facilities as a means of preserving

property pending final disposition. Situations such as that encountered at

Mather reinforce the need for actions by the Department of Defense (DOD)

and the services along the lines we previously recommended.2

Results in Brief During the long period of time it took to complete the Mather housing sale,

the property deteriorated and lost value. Nevertheless, the Air Force acted

within existing authority in negotiating the proposed sale, and the sale

price matches the latest appraisal approved by the GSA.

3

 Following is a

summary of our findings:

• The Air Force’s decision to pursue a negotiated sale with SHRA rather than

compete the sale publicly was made early on and was documented in the

Air Force’s 1993 official record of decision regarding the disposal of the

Mather property. The SHRA, as the authorized representative of Sacramento

County,4

 was the only governmental entity authorized to deal with the Air

Force and to express an interest in acquiring the Mather housing. Under

these circumstances, competition was not possible and, therefore, the Air

Force satisfied the requirement of the Federal Property Act to obtain

“such competition as is feasible under the circumstances.”

• Applicable law and regulation do not define public benefit. In the Mather

case, the proposed public benefit was the sale of at least 30 percent of the

housing units to low- or moderate-income families and the creation of a

stable home ownership community. Available documents indicate that

neither the Air Force nor GSA, which was assisting in the sale, questioned

this proposed public benefit as a reasonable basis for conducting a

negotiated sale. Moreover, SHRA has entered into an agreement with a

private developer (who was selected competitively and will obtain

ownership of the property) that establishes conditions designed to protect

and promote this public benefit. SHRA further agreed to accept and require

2

Military Bases: Update on the Status of Bases Closed in 1988, 1991, and 1993 (GAO/NSIAD-96-149,

Aug. 6, 1996).

3

GSA is responsible for administering the Federal Property Act, which governs the sale of surplus

government property.

4

Sacramento County had been designated as the local redevelopment authority in conjunction with the

closure of Mather under the BRAC process.

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B-280226 

the developer to adhere to both an excess profits clause and a windfall

profits clause.

• GSA policy, but not law, prohibits the disclosure of the government’s

appraisal because disclosure makes it more difficult for the government to

negotiate a higher price. Records and discussions with the parties involved

indicate that the Air Force disclosed the value of the property in the first

GSA-approved appraisal. On the other hand, SHRA’s appraisal was much

lower. This difference caused prolonged negotiations and disagreements

over the value of the property.

• A representative of the developer did participate as a partner of SHRA in

negotiations with the Air Force. Though not inconsistent with law or

regulation, this action is contrary to the policy in GSA’s Excess and Surplus

Real Property Handbook. On the basis of GSA advice, the Air Force initially

objected to the representative’s participation in negotiations but ultimately

allowed it. SHRA officials said that they considered it appropriate for the

representative of the developer to participate because he was representing

the joint interests of SHRA and the developer.

• There is no concrete evidence that the property has a higher fair market

value than the proposed selling price. The proposed selling price matches

the appraised value of the most recent GSA-approved appraisal. While other

private developers contend that a previously proposed public sale would

have brought a higher price, this sale was not completed, and it is

unknown what private developers would bid for the property in its current

condition. According to SHRA and its developer, the sale price is reasonable

because there is substantial financial risk in developing the property.

Appendix I gives a history of the negotiations between the Air Force and

SHRA. Appendix II gives more detailed answers to the questions we

addressed. Appendix III gives a complete description of our scope and

methodology.

Agency Comments

and Our Evaluation

We provided opportunities for DOD, GSA, and SHRA to review and comment

on a draft of this report. Written comments were provided by DOD and GSA

and are included in appendixes IV and V, respectively. SHRA provided oral

comments.

The Assistant Secretary of the Air Force (Manpower, Reserve Affairs,

Installations and Environment), in responding for the DOD, concurred with

a draft of this report without further comment. The Commissioner of GSA

did not indicate either agreement or disagreement with the report but did

reiterate GSA’s perspective on a variety of issues involving negotiated

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B-280226 

versus public sales, public benefit, pass through sales, public release of

appraisal information, and impact of prolonged negotiations on sales

value. These issues are discussed in our report. Nevertheless, we have

included GSA’s comments and our evaluation of them in appendix V. SHRA

representatives generally agreed with the report but provided some

technical clarifications, which have been incorporated where appropriate.

We are sending copies of this report to the Chairmen of the Senate

Committees on Appropriations and on Armed Services and of the House

Committees on Appropriations and on National Security; the Secretaries

of Defense and the Air Force; and the Director of the Office of

Management and Budget. We are also providing a copy of this report to

Representative Richard W. Pombo. We will make copies available to

others on request.

Please contact me at (202) 512-8412 if you or your staff have any questions

concerning this report. Major contributors to this report are listed in

appendix VI.

Sincerely yours,

David R. Warren, Director

Defense Management Issues

Page 4 GAO/NSIAD-99-13 Military Base Closures
Page 5 GAO/NSIAD-99-13 Military Base Closures
Contents

Letter 1

Appendix I 

History of

Negotiations Over

Mather Housing

8

Federal Property Disposal Requirements 8

Negotiated Sale 8

Appraisals and Negotiations 9

Appendix II 

Detailed Answers to

Questions on the

Proposed Negotiated

Sale of Mather Family

Housing

11

Appendix III 

Scope and

Methodology

19

Appendix IV 

Comments From the

Department of

Defense

22

Appendix V 

Comments From the

General Services

Administration

23

Appendix VI 

Major Contributors to

This Report

28

Page 6 GAO/NSIAD-99-13 Military Base Closures
Contents

Abbreviations

AFBCA Air Force Base Conversion Agency

BRAC Base Realignment and Closure

DOD Department of Defense

GSA General Services Administration

LRA Local Redevelopment Authority

SHRA Sacramento Housing and Redevelopment Agency

Page 7 GAO/NSIAD-99-13 Military Base Closures
Appendix I 

History of Negotiations Over Mather

Housing

Composed of 5,716 acres and 970,000 square feet of buildings and auxiliary

facilities, Mather Air Force Base included a 11,300-foot runway and a

parallel 6,100-foot runway, 4 aircraft hangars, office and industrial

structures, 18 dormitory buildings, an 18-hole golf course, parkland, and

1,271 single-family housing units. Since the base was closed in

September 1993, most of this property has already been transferred to

civilian ownership or use through sale or lease arrangements. The major

exception involved the 1,271 family housing units, which have been the

subject of lengthy negotiations.

Federal Property

Disposal

Requirements

Surplus federal government real estate is not automatically sold to the

highest bidder at a public sale. Rather, the Federal Property Act specifies a

screening process for exploring the transfer of the property to states or

local governments for specified public benefit purposes such as education,

public health, recreation, airports, wildlife conservation, and historic

monuments. Any property remaining after these transfers may be disposed

of through public sales or, in specified instances, through negotiation

procedures. In addition, 1993 amendments to the base realignment and

closure (BRAC) legislation authorize the transfer of surplus real property at

less than full market value to local redevelopment authorities (LRA) under

economic development conveyances for economic development and job

creation purposes.1

 The Air Force used a number of these authorities to

dispose of various parcels or real property on Mather Air Force Base. For

example, the airport and schools were transferred to Sacramento County

through no-cost, public benefit conveyances. Other parcels, like the family

housing units, golf course, and chapels, were sold through either public or

negotiated sales. Sacramento County was the LRA responsible for Mather

Air Force Base.

Negotiated Sale Proposals for reusing the Mather properties, the related environmental

impact analyses, and public comments on the proposals were documented

in the Mather Air Force Base Environmental Impact Statement prepared

by the Air Force.2

 For Mather, the approved statement specifically

envisioned a negotiated sale of the housing units to the local housing

authority.

1

A local redevelopment authority is an entity established by state or local governments and recognized

by the Secretary of Defense. In the context of BRAC, it is the entity responsible for developing or

directing implementation of a reuse plan for the closed or realigned military base or installation.

2

An environmental impact statement is required by the National Environmental Policy Act of 1969, as

amended, 42 U.S.C. 4321 et seq. A Record of Decision summarizes the statement and documents the

final agency decision.

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Appendix I 

History of Negotiations Over Mather

Housing

Sacramento County designated some county agencies to conduct reuse

planning of some Mather parcels and to serve as its representative in

dealing with the Air Force. For example, the Sacramento Housing and

Redevelopment Agency (SHRA) was the only agency authorized to

represent Sacramento County in efforts to acquire the Mather family

housing units. Because it wanted to provide low cost housing, SHRA asked

the Air Force to convey the property to the county through a negotiated

sale.

The Air Force agreed to conduct a negotiated sale subject to the Federal

Property Act, which requires that the property be sold for its fair market

value. This decision, along with disposal decisions for other Mather

properties, was documented in the Air Force’s March 31, 1993, Record of

Decision concerning planned disposal of the property. Subsequently, the

Air Force Base Conversion Agency (AFBCA)3

 and SHRA began negotiations

that continued through late 1994. The two sides failed to reach agreement

primarily because they differed on the fair market value of the property.

Appraisals and

Negotiations

Four Mather property appraisals were completed between May 1993 and

August 1995. The first was approved by the General Services

Administration (GSA). The second, completed in September 1993, was

funded by SHRA to support its negotiations with the Air Force. A third

appraisal was completed in September 1994 after the Air Force and SHRA

continued to disagree over the property’s value and the assumptions used

in making the appraisals. Disagreements centered on the amount of time

that it would take for the housing units to be renovated and sold to the

community (known as the absorption period), contractor fees, and

average unit sale price. The third appraisal was jointly funded by SHRA and

the Air Force. A fourth appraisal, approved by GSA, was completed in

August 1995 and became the basis for the ultimate agreement on the sale

price.

Between the first and third appraisals, the Air Force reduced its asking

price by about 50 percent, while SHRA’s offer remained firm. Consequently,

AFBCA terminated negotiations with SHRA and in January 1995 asked GSA to

dispose of the housing units via a public sale. GSA advertised the property

3

The Air Force Base Conversion Agency was created by the Air Force to manage the disposal of

BRAC-related property. The Agency is responsible for ensuring that purchasers or lessees of BRAC

properties comply with contract provisions such as those limiting excess profits and windfall profits.

When we completed our fieldwork, the Agency was in the process of developing an automated

portfolio management system to help it carry out these responsibilities for many parcels of BRAC

property it has sold or leased.

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Appendix I 

History of Negotiations Over Mather

Housing

in late February 1995, asking interested parties to submit sealed bids by

April 18, 1995.

The day before bids were to be opened, the Federal District Court in San

Francisco issued a temporary restraining order halting the public sale. The

restraining order was issued because: (1) interested bidders had not had

enough time to prepare their bids and (2) providers for the homeless had

not been given the opportunity to request the property through a public

benefit conveyance. According to GSA officials, at least seven bidders were

interested in the property—two bids had been received by mail and on

April 18, 1995, at least five additional bids were brought to GSA by either

bidders or couriers. GSA returned the two bids unopened and did not

accept the other five.

Before the temporary restraining order was resolved, the Air Force

decided to cancel the public sale and reopen negotiations with SHRA. Due

to this cancellation, the litigation was dismissed and the restraining order

was declared moot in August 1995. After the fourth appraisal was made in

August 1995, the Deputy Assistant Secretary (Installations) of the Air

Force took over negotiations with SHRA.

4

 Agreement was soon reached on

price, but other details took longer to negotiate. The Air Force and SHRA

finally reached agreement on the sale terms in August 1997. SHRA signed

the agreement and gave the Air Force until August 30, 1998, to obtain

approval for the sale. Following the completion of our work, we were

notified by the Air Force that it had signed an acceptance of sale on

July 10, 1998, and that it would transfer title of the family housing units to

Sacramento County on September 14, 1998.

Because of the continued deterioration of the housing units, SHRA and its

development partner now question the economic viability of rehabilitating

the units. They point out that, as directed by the Sacramento County

Board of Supervisors, they had always intended to demolish the 414

duplexes and replace them with single-family homes. They now believe

that many of the remaining single-family units might also have to be

demolished and replaced. This decision will be made on a unit-by-unit

basis, depending on whether renovation or demolition and reconstruction

is more economical.

4

The Deputy Assistant Secretary said he assumed responsibility for negotiations because of the poor

relationship that had developed between AFBCA and SHRA.

Page 10 GAO/NSIAD-99-13 Military Base Closures
Appendix II 

Detailed Answers to Questions on the

Proposed Negotiated Sale of Mather Family

Housing

Question 1: Did the Air Force’s attempts to obtain competition

satisfy requirements of section 203(e)(3)(H) of the Federal

Property Act to obtain such competition as is feasible under the

circumstances?

The Federal Property Act generally requires that federal agencies dispose

of surplus real property by formally advertising for bids and selling to the

responsible bidder that offers the best price to the government. The act

identifies exceptions, however, where agencies can dispose of real

property through negotiations. One such exception is the disposal to

states, territories, possessions, or their political subdivisions for a public

benefit purpose. Although the act still requires the disposal agency to

obtain “such competition as is feasible under the circumstances,” SHRA was

the only authorized political entity with which negotiations could be held

and the only one to express an interest in the Mather property. Under

these circumstances, competition was not possible and the statute’s

mandate was met.

When the Air Force canceled negotiations with SHRA in early 1995, it did

attempt to hold a public sale. According to GSA officials who were helping

the Air Force with the disposal process, the decision to move to a

competitive sale was probably a good one. Negotiations had broken down,

and it did not appear that the Air Force and SHRA could reach an

agreement. Their only criticism was that the Air Force should have made

the decision sooner rather than after 16 months of negotiations. It is GSA

policy to dispose of excess property as expeditiously as possible, and its

general practice is to hold a public sale within 1 or 2 months if it is unable

to negotiate an acceptable agreement. Holding surplus property longer

than that, in GSA’s opinion, is not in the best interest of the government and

only serves to increase holding costs and problems such as those found at

Mather. GSA officials also questioned the wisdom of the Air Force’s

decision to reopen negotiations with SHRA given its previous experience.

Choosing between a public or a negotiated sale involves a trade-off

between different public policy objectives. Public sales are generally faster

and may foster competition that can maximize the government’s return on

the property. Negotiated sales usually take longer to complete, may be

noncompetitive, and may not maximize the government’s return. Yet they

help maximize the interests of communities affected by base closures by

responding to the communities’ desired plans for the property.

Page 11 GAO/NSIAD-99-13 Military Base Closures
Appendix II 

Detailed Answers to Questions on the

Proposed Negotiated Sale of Mather Family

Housing

Question 2: Does the disposal at Mather meet the test of a public

benefit that is uniquely available in a negotiated disposal to a

public body, given that SHRA plans to immediately transfer

ownership to a private developer?

Negotiated sales to public entities are considered “only when the disposal

agency has made a determination that a public benefit will result from the

negotiated sale which would not be realized from a competitive sale

disposal.”1

 Negotiated disposal procedures also allow a public entity to

purchase surplus property free from competition with private enterprise.

Applicable law and regulation do not define public benefit. Further,

although the term public benefit is cited in the Federal Property Act’s

implementing regulation and Department of Defense guidance, neither of

them define the term.

In justifying a negotiated sale, SHRA’s letter to the Air Force in

November 1992 identified the public benefit objectives of providing home

ownership opportunities for lower-income families and creating a stable

home ownership community. Under SHRA’s proposal, 30 percent (382) of

the housing units would be sold to low-income, first-time home buyers.

Low-income households are defined as those earning no more than

80 percent of the area’s median income. In Sacramento, at the time SHRA

outlined the expected public benefit, 80 percent of the medium income

was $31,750 for a family of four. One-third of the low-income houses, or

10 percent of all the units, would be sold to families earning no more than

70 percent of the median income, or $27,790 for a family of four.

SHRA said that its goal of creating a stable home ownership community can

best be achieved if the homes are occupied by their owners. SHRA fears

that extreme deterioration of the Mather housing units might result if they

were sold to individual developers and subsequently rented. Under this

scenario, according to SHRA officials, the housing area could quickly

deteriorate and require financial assistance to combat problems such as

vandalism, illegal drug use, and other crimes. To guard against this, SHRA

plans to require its development partner to promote owner occupancy of

the units.

While GSA officials do not have a definition of what constitutes a public

benefit, they did state that when a public benefit is determined and

property is transferred to a state or local government, ownership usually

remains with the governmental entity until the public benefit is realized. In

1

41 C.F.R. 101-47.304-9(c).

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Appendix II 

Detailed Answers to Questions on the

Proposed Negotiated Sale of Mather Family

Housing

Mather, SHRA intends to transfer ownership of the housing units to a

private developer (for the same price paid to the Air Force) as soon as it

receives title from the Air Force. This type of pass-through arrangement is

contrary to GSA policy primarily because it passes ownership to entities not

eligible to acquire the property through a negotiated sale. The concern is

that a government entity could negotiate an unreasonably low price for a

property and transfer it to a private entity that subsequently reaps

exorbitant or windfall profits. This concern is somewhat allayed in this

instance because SHRA plans to take action, by agreement and otherwise,

to prevent the developer from obtaining excess or windfall profits for a

6-year period, bind the developer to continue the public purposes until all

units are sold, and retain control over contractor activities.

Despite registering concern about the pass-through arrangement, Air

Force officials said they accepted it for three reasons. First, SHRA had to

acquire and develop the Mather housing units without cost to the county

because Sacramento County would not finance the purchase and

development cost on its own. Thus, SHRA had to forge a partnership with

someone who would provide financing but still be bound by the county’s

public benefit goals. If the Air Force were to negotiate an agreement with

SHRA, accepting this partnership was a prerequisite. Second, SHRA selected

the contractor competitively, thus giving the Air Force some assurance

that the contractor and the county were independent of one another.

Finally, SHRA agreed to accept and enforce on the developer both an excess

profits clause and a windfall profits clause. According to the Air Force, the

excess profits clause requires SHRA and the developer to return to the Air

Force all profits in excess of allowable costs during the first 3 years. The

windfall profits clause covers the following 3 years and requires the return

to the government of 60 percent of any windfall profits.

Because of the documented lack of low- and moderate-income housing in

Sacramento County, neither the Air Force nor GSA questioned the

proposed public benefit as a reasonable basis for conducting a negotiated

sale. Both agreed that the Air Force complied with the regulatory

requirement when it accepted SHRA’s proposal. According to GSA officials,

this acceptance implies that the Air Force had decided that a negotiated

sale was necessary to achieve the public benefit.

Developers who intended to bid on the property during the proposed

public sale had a different perspective. On the basis of the expected selling

price of the housing units (between $65,000 and $86,000 per unit), the

three developers we interviewed said that most of the Mather housing

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Appendix II 

Detailed Answers to Questions on the

Proposed Negotiated Sale of Mather Family

Housing

would be targeted to low- and moderate-income families and that it would

be easy for any developer to meet the 30-percent goal. These developers

said they were willing to bid more for the property than SHRA was offering

at the time of the public sale and would adhere to any low- or

moderate-income goals the county might have. Whether they would have

done so can never be known with certainty. There are no official records

of the bids because when the temporary restraining order was issued, GSA

returned the unopened bids it had received and did not accept others.

Furthermore, the government’s invitation for bids would not require the

successful bidder to comply with SHRA’s public benefit goals because

public sales, according to GSA officials, do not place limitations or

restrictions on the use of property. SHRA also pointed out that it had

included certain public benefit goals in the partnership agreement that it

could not have imposed on a private developer. One of these goals is a

provision for a good faith effort to contract with minority firms. Another is

an obligation to keep SHRA informed of applications for home purchase

from public housing and Section 8 housing tenants and to market to those

tenants.2

Question 3: Did the Air Force, contrary to GSA policy and applicable

laws, disclose the appraised value of the family housing property to

prospective purchasers?

GSA’s Excess and Surplus Real Property Handbook (June 29, 1994) states

that the government’s appraisal information should not be disclosed.

Disclosure, however, is not contrary to law. According to GSA officials,

keeping the appraised value confidential is a common-sense negotiating

technique that helps the government maintain its negotiating position.

Because the appraised fair market value is the minimum the government

can accept during negotiations, disclosing the information limits the

government’s ability to negotiate the highest possible price for the

property.

The first of the four appraisals (completed in May 1993) was the basis for

AFBCA’s initial negotiations with SHRA. SHRA officials told us that SHRA did

not have access to this appraisal. Documents show, however, that soon

after negotiations began, AFBCA officials made statements that allowed

SHRA to compute the appraisal’s estimated fair market value for the

housing units. GSA officials who were helping AFBCA in the negotiations

2

The Section 8 housing program is a federal rent subsidy program operated by the Department of

Housing and Urban Development in Washington, DC.

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Appendix II 

Detailed Answers to Questions on the

Proposed Negotiated Sale of Mather Family

Housing

confirmed that AFBCA officials indirectly disclosed the appraised fair

market value during the first negotiation session with SHRA.

Later, when negotiations began to stall, AFBCA officials disclosed the

property’s appraised fair market value in a letter to SHRA. The two sides

also discussed the assumptions and methodologies used in the initial

appraisal, including the planned selling prices of the housing units,

absorption rates, and financing costs. This was done so that both parties

could better understand the differences between their negotiating

positions and to help reach agreement on the selling price.

The fourth and last appraisal (completed in August 1995) was carried out

because regulations require that real estate negotiations be based on

appraisals not more than 9 months old. When negotiations reopened in

July 1995, the original GSA-approved appraisal was 2 years old. Officials in

the Office of the Deputy Assistant Secretary of the Air Force for

Installations (which had taken over negotiations with SHRA) and at SHRA

stated that SHRA did not have access to this appraisal. Likewise, we found

no evidence in the files that indicated the Air Force disclosed the

appraised fair market value of the property to SHRA or other parties outside

the Air Force.3

Question 4: Did the Air Force allow a developer’s representative to

participate in negotiations between the Air Force and SHRA?

GSA’s Excess and Surplus Real Property Handbook states that no

representative of developers, contractors, or congressional staff should be

allowed to participate in negotiations of property sales, not even as an

observer. According to the GSA officials we contacted, a negotiated sale is

supposed to be made to a public entity for a public purpose. Having a

representative of a private developer present during negotiations changes

the nature of the negotiations and blurs the distinction between a public

sale and a negotiated sale. Usually, too much emphasis is placed on the

potential profit associated with the sale.

Air Force officials involved in the negotiations clearly did not adhere to

this policy. A lawyer hired by Mather Housing Company, LLC, a California

limited liability company that was SHRA’s private development partner,

participated in most of the negotiating sessions for the Mather housing

units. GSA officials advised AFBCA against this practice early in the

3

The second and third appraisals were completely or partly funded by SHRA. These appraisals and

their supporting documentation were readily shared and discussed throughout the negotiations.

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Appendix II 

Detailed Answers to Questions on the

Proposed Negotiated Sale of Mather Family

Housing

negotiations. In May 1993, AFBCA also wrote to the lawyer informing him

that he should not participate in negotiations, that his participation was

inappropriate, and that any hint that AFBCA was negotiating with a private

party might subject the AFBCA to justified criticism. However, from

documentation in AFBCA files and statements made by Air Force and GSA

officials, the developer’s representative continued to participate in

negotiating sessions after the letter was sent.

SHRA officials acknowledged that the agency had no formal agreement with

the lawyer in question. Nevertheless, documentation indicates that SHRA

thought it was appropriate for him to participate in negotiations because

he was representing the interests of the partnership between SHRA and

Mather Housing Company, LLC. These officials explained that SHRA went

through a competitive process to select Mather Housing Company, LLC, as

its partner and that the partnership is formalized by an agreement that lays

out its objectives, mutual promises, representations, and terms. A key

aspect of this agreement is that SHRA would transfer ownership of the

housing units to Mather Housing Company, LLC, subject to conditions

designed to protect and promote the public benefit for which the property

was acquired.

The Air Force official that handled negotiations for the Deputy Assistant

Secretary of the Air Force (Installations) said that when negotiations

resumed with SHRA in 1995, it was clear that the lawyer was representing

the private developer. The official stressed, however, that because of the

special relationship between SHRA and the developer, the lawyer’s

presence was needed to reach a final agreement. Without his presence, the

meetings would have been repeatedly adjourned while SHRA

representatives conferred with the lawyer outside the meeting room. The

developer’s lawyer, the official added, was only providing advice, and

negotiations were clearly between the Air Force and SHRA.

Question 5: Is there evidence that suggests the property has a

higher fair market value than the proposed sale price?

It appears that the Air Force has obtained fair market value for the

property. According to section 203(e)(3)(H) of the Federal Property Act

and implementing regulations, the Air Force cannot sell the housing units

through a negotiated sale for less than their fair market value as

determined by an approved appraisal. As discussed previously, two

GSA-approved appraisals were carried out in May 1993 and in August 1995.

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Appendix II 

Detailed Answers to Questions on the

Proposed Negotiated Sale of Mather Family

Housing

The Air Force agreed to sell the housing units to SHRA for the appraised

value in the second appraisal.

However, according to documentation in AFBCA files, the property had a

higher appraised value at the start of negotiations. The estimated fair

market value in the first approved appraisal was about $21 million higher

than the second. In explaining this difference, GSA officials told us that GSA

does not certify that the appraised value of the property is accurate.

Rather, its review and approval ensures that an appraisal adheres to

prescribed appraisal standards and methodologies. In this case, GSA

officials said that both appraisals adhered to GSA’s standards and

methodologies and had sufficient documentation to support their

assertions and assumptions.

GSA officials explained that estimating the value of a large parcel of

property such as the Mather housing units takes 60 to 90 days; and,

according to an AFBCA official, it requires professional judgment. As

already indicated, differences in assumptions can result in significant

differences in fair market value estimates. For example, appraisal analyses

show the major difference between the two appraisals is the estimate of

the amount of time needed to renovate the housing units and absorb them

into the community. The first appraisal was based on an absorption period

of 4.5 years while the second assumed 8 years. The longer absorption

period significantly increases project costs, which in turn reduces the

estimated fair market value of the property. Other assumptions that can

affect the estimated fair market value concern the average retail value and

rehabilitation costs of the units, costs to replace or improve infrastructure

(i.e., roads, sidewalks, electrical distribution lines, water and gas lines, and

sewers), discount rates, marketing and sales costs, and profits.

We also spoke with three developers in the Sacramento and San Francisco

area who had prepared bids in anticipation of an April 1995 public sale of

the housing units. They told us they were prepared to pay between

$9 million and almost $20 million for the property at that time. These

developers said that despite the deterioration and vandalism that has

occurred, the property is as valuable today as it was a few years ago,

primarily because the Sacramento housing market is stronger now than it

was in 1995. If the housing units were to be offered again for public sale,

these developers claimed they could purchase the property (for between

$9 million and $20 million), make the necessary infrastructure

improvements, renovate the shells of the housing units, and still make a

Page 17 GAO/NSIAD-99-13 Military Base Closures
Appendix II 

Detailed Answers to Questions on the

Proposed Negotiated Sale of Mather Family

Housing

reasonable profit. They did concede, however, that their claims would

require a more detailed assessment of the property’s current condition.

On the other hand, the second and third appraisals (not commissioned by

GSA) estimated the property’s value at about $3 million to $4 million, much

closer to the agreed sale price. SHRA and Mather Housing Company, LLC,

believe these are more accurate estimates of the property’s value. They

also believe the sale price is reasonable because there is substantial

financial risk in developing the property, especially considering the

deterioration and vandalism that has occurred, the unknowns associated

with renovating the infrastructure, and the asbestos and lead paint

contamination in the housing units. Nevertheless, to prevent SHRA and/or

Mather Housing Company, LLC, from reaping significant profits from this

project, both are subject to the excess and windfall profits clauses

discussed earlier in this appendix.

Page 18 GAO/NSIAD-99-13 Military Base Closures
Appendix III 

Scope and Methodology

To respond to the Subcommittee’s questions, we met with all the parties

involved in the negotiated sale of the Mather housing units, selected

developers who had expressed an interest in a public sale of the units, and

government officials responsible for administering policies and regulations

governing the disposal of federal property. These included

• the Office of the Deputy Under Secretary of Defense (Industrial Affairs

and Installations), the Office of the Deputy Assistant Secretary of the Air

Force (Installations), and the AFBCA, Arlington, Virginia;

• the GSA, Region 9, San Francisco, California;

• SHRA, Sacramento, California;

• Lewis Homes Management Corporation, Sacramento, California

(representing Mather Housing Company, LLC);

• Law Offices of Gregory D. Thatch, Sacramento, California;

• Burlingame Realty, Foster City, California;

• Excelsior Export Company, San Francisco, California;

• H. Herbert Jackson, Attorney, Sacramento, California; and

• RAMCO Enterprises Corporation, Sacramento, California.

At meetings with representatives from each of these organizations, we

discussed issues related to the sale of the Mather housing units and, when

applicable, requested documentation that supported the statements and

assertions made during the meetings. We also reviewed laws, regulations,

and policies pertaining to negotiated and public sales of excess

government property. At AFBCA, we obtained documentation on the

decision-making process in the disposal of Mather Air Force Base

properties. This included documentation on the various negotiations with

SHRA, property appraisals, and analyses of the appraisals.

To examine the public benefits associated with the proposed sale and

whether they supported the decision to negotiate only with SHRA, we

reviewed the Mather Air Force Base Environmental Impact Statement and

the Air Force Record of Decision for disposal of Mather properties. We

also reviewed documentation prepared by SHRA to justify a negotiated sale

of the housing units and discussed with SHRA how it plans to ensure that

the public benefit would be realized once it resells the property to a

private developer. We requested and obtained documentation supporting

this plan.

To examine the Air Force’s attempts to obtain competition and determine

whether those attempts satisfy requirements of section 203(e)(3)(H) of the

Federal Property Act, we identified the governmental entities that were

Page 19 GAO/NSIAD-99-13 Military Base Closures
Appendix III 

Scope and Methodology

authorized to negotiate with the Air Force for the Mather housing units.

We discussed with AFBCA the extent to which it relied on Sacramento

County’s plan for using or redeveloping the Mather

properties—particularly the housing units. We also discussed with AFBCA,

GSA, and others the circumstances surrounding AFBCA’s decision to conduct

a public sale and its rationale for terminating that sale to reopen

negotiations with SHRA.

To determine whether the Air Force improperly disclosed the appraisal to

prospective purchasers of the Mather family housing property, we

questioned AFBCA officials and GSA officials about their efforts to maintain

the confidentiality of the appraisals, reviewed correspondence pertaining

to negotiations between AFBCA and SHRA, and questioned GSA officials about

the procedures they used to protect the bids submitted for the public sale.

To determine whether a developer’s representative participated in

negotiations between the Air Force and SHRA, we reviewed

correspondence in AFBCA files and questioned Air Force, GSA, SHRA, and

Mather Housing Company officials and a private attorney. In particular, we

inquired about the role played by the private attorney representing Mather

Housing Company, LLC.

To determine whether there is evidence that the property has a higher

value than the current sale price, we reviewed the four appraisals made

between May 1993 and August 1995 and comparative analyses of these

appraisals made by a GSA official, the Navy’s Facilities Engineering

Command, and the appraisers. We reviewed the comparative analyses to

identify the assumptions and factors that contributed to the differences in

appraised value. We also discussed with AFBCA officials their decision not

to insist on the value estimated in the initial appraisal in their negotiations

with SHRA.

We also obtained from GSA the names of private developers who either

submitted a sealed bid for the property or appeared in person to submit

bids when the property was advertised for public sale. We attempted to

contact the five developers/entities that were interested in the property

and were able to meet with three of them. We discussed their views on the

value and marketability of the housing units at the time of the public sale

in April 1995 and again in April 1998, the effect that deterioration and

vandalism have had on renovation cost, the expected costs of purchasing

vacant property with infrastructure in place in the Sacramento area, and

the costs and efforts needed to mitigate problems caused by the presence

Page 20 GAO/NSIAD-99-13 Military Base Closures
Appendix III 

Scope and Methodology

of asbestos and lead-based paint. We were not able to verify the claims the

private developers made about property values.

Finally, we discussed with GSA officials their review and approval of

appraisals and the extent to which this review and approval verifies the

accuracy of the appraised fair market value.

We performed our work from April to June 1998 in accordance with

generally accepted government auditing standards.

Page 21 GAO/NSIAD-99-13 Military Base Closures
Appendix IV 

Comments From the Department of Defense

Page 22 GAO/NSIAD-99-13 Military Base Closures
Appendix V 

Comments From the General Services

Administration

Note: GAO comments

supplementing those in

the report appear at the

end of this appendix.

Page 23 GAO/NSIAD-99-13 Military Base Closures
Appendix V 

Comments From the General Services

Administration

See comment 1.

See comment 2.

See comment 3.

See comment 4.

Page 24 GAO/NSIAD-99-13 Military Base Closures
Appendix V 

Comments From the General Services

Administration

See comment 5.

See comment 6.

Page 25 GAO/NSIAD-99-13 Military Base Closures
Appendix V 

Comments From the General Services

Administration

The following are GAO’s comments on GSA’s letter dated September 17,

1998.

GAO Comments 1. As our report points out, there were several bidders who had either

submitted or were ready to submit a bid when the Mather property was

offered for public sale. Consequently, it does appear that a sufficient

competitive environment existed to support a public sale. We also point

out, however, that the Air Force ultimately decided to return to a

negotiated sale with SHRA, which was within its prerogative under

authorities delegated by GSA. While this action might have resulted in a

lower selling price than that which could have been received through a

public sale, it represents an effort by the Air Force to respond to the

community’s plans for the property.

2. Our report notes that there were questions about whether the project’s

public benefits might also have been achieved through a public sale. The

report further notes, however, that Sacramento County has a shortage of

low- and moderate-income housing, and neither the Air Force nor GSA

questioned the proposed public benefit as a reasonable basis for

negotiating solely with SHRA. It also points out that, according to GSA

officials, public sales do not include limitations or restrictions on the use

of property. Therefore, a successful bidder would not be bound by SHRA’s

public benefit goals.

3. Our report discusses the concerns with pass-through sales and notes

that they are contrary to GSA policy. Without condoning this action, we

explain the Air Force’s rationale for accepting the arrangement and note

that the Air Force imposed excess profits and windfall profits clauses to

mitigate any undue advantage accruing to SHRA’s private sector partner.

4. Our report notes that Air Force officials indirectly disclosed the initial

appraised fair market value of the Mather property during negotiations

with SHRA. While this is contrary to GSA policy, we are not sure it had a

significant impact on the Air Force’s negotiating position. In this instance,

SHRA had its own appraisal of the property, which showed a much lower

fair market value. SHRA’s reluctance to accept a higher value became the

basis for prolonged negotiations with the Air Force.

5. Our report notes that permitting a representative of the developer to sit

in on negotiations between SHRA and the Air Force was contrary to

guidance in GSA’s Excess and Surplus Real Property Handbook. We point

Page 26 GAO/NSIAD-99-13 Military Base Closures
Appendix V 

Comments From the General Services

Administration

out, however, that the Air Force and SHRA considered it appropriate in this

instance because the individual represented the interests of the

partnership between SHRA and the developer.

6. We agree and our report notes that the extended negotiations and the

lack of maintenance resulted in significant deterioration of the Mather

housing property and its subsequent loss of value. We have also previously

cited the need for DOD to take steps to avoid such situations in disposing of

base closure properties.

Page 27 GAO/NSIAD-99-13 Military Base Closures
Appendix VI 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Barry W. Holman

Bonita Page

Chicago Field Office James Hatcher

James Fuquay

San Francisco Field

Office

Gary Ulrich

(709340) Page 28 GAO/NSIAD-99-13 Military Base Closures
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