GAO

United States General Accounting Office

Testimony

Before the Subcommittee on Military Installations and 

Facilities, Committee on Armed Services, House of 

Representatives

For Release on Delivery 

Expected at 

2:00 p.m., EDT 

Thursday, 

July 1, 1999

MILITARY BASE 

CLOSURES

Observations on 

Legislative Proposal 

for No-Cost Transfer 

of Surplus Property

Statement of David R. Warren, Director, Defense 

Management Issues, National Security and International 

Affairs Division

GAO/T-NSIAD-99-215

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

Mr. Chairman and Members of the Subcommittee:

We are pleased to be here today to discuss a proposal to amend the 1988 

and 1990 base closure laws. The proposal would promote economic 

redevelopment of affected communities by transferring property to them 

without consideration. Under the proposed legislation, affected 

communities receiving property under an economic development 

conveyance (EDC) could receive that property at no cost if certain 

conditions are met.1

 Currently, EDCs are available at or below fair market 

value and at no cost for rural communities. The proposal involves a 

trade-off between recouping the value of surplus property and providing 

communities opportunities to enhance economic recovery. The trend in 

recent years regarding BRAC-related properties has been to move toward 

the latter. Your office asked that we comment on (1) the likelihood that the 

proposed legislation would expedite the property transfer process and 

(2) the expected financial consequences to the Department of Defense 

(DOD).

Before discussing our specific observations, we would like to summarize 

our key points.

Results in Brief The proposed legislation provides an opportunity to expedite the EDC 

process. It would likely alleviate the frustration and administrative burden 

communities and DOD experience in negotiating agreements. In some 

instances, the elimination of lengthy negotiations over fair market value 

issues might have expedited property transfers. However, it is not clear to 

what extent the legislation would uniformly shorten the time frame for 

property transfers. Our prior work also shows that other factors, such as 

communities’ abilities to accept property transfers in a timely fashion and 

environmental cleanup considerations, are the primary factors that 

determine the pace of property transfers. The legislation would impact 

23 pending or anticipated EDCs. However, the amendment would also 

allow up to 26 existing EDCs to be renegotiated if certain conditions 

are met.

DOD will lose revenue if the proposed amendment is enacted. DOD would 

likely forgo revenue from the 23 EDCs that are either in the negotiating 

1

An economic development conveyance is a method used to transfer surplus DOD property to 

communities for the purpose of promoting economic development of the property.

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

stage or expected to be submitted on or after April 21, 1999. The extent of 

lost revenue for these properties would not be known until final 

agreements are reached. The proposed legislation would also allow the 

Secretary of Defense to approve changes in prior agreements based on 

determinations of changes in economic circumstances. DOD estimates 

that it would lose about $218 million (net present value) between fiscal 

year 2000 and 2043 if all agreements are renegotiated as no-cost 

conveyances. Approximately $87 million, or 40 percent, of this revenue 

would be lost between fiscal year 2000 and 2005, and the remaining 

revenue would be lost between fiscal year 2006 and 2043. Finally, the 

Department projects the legislation will avoid about $12 million in costs 

that otherwise would be incurred in maintaining the closed bases prior 

to transfer. 

Background Under special legislative authorities, DOD conducted four BRAC rounds 

between 1988 and 1995 to reduce its infrastructure and free up funds for 

future defense programs, such as weapons modernization. To fund the 

closures and realignments, Congress established special BRAC accounts to 

pay for numerous activities, such as relocating personnel and equipment, 

constructing new facilities at receiving bases, and performing 

environmental cleanup. According to DOD data, when all BRAC actions 

from these rounds are completed by the end of fiscal year 2001, DOD will 

have reduced its domestic military basing structure by about 20 percent, 

generated net savings of about $14 billion, and created recurring annual 

savings of about $5.7 billion. We have previously reported that these 

numbers are only a rough approximation of savings rather than a precise 

amount.2

While our prior work indicated that DOD was essentially on track in closing 

and realigning facilities and expected to finish these actions by the end of 

fiscal year 2001 as required, progress in transferring unneeded property to 

other users has progressed at a much slower pace and will extend beyond 

2001.3

 Under federal law, once property is no longer needed by a federal 

agency, the property is declared excess and is offered to other federal 

2

Military Bases: Review of DOD’s 1998 Report on Base Realignment and Closure (GAO/NSIAD-99-17, 

Nov. 13, 1998).

3

Military Bases: Status of Prior Base Realignment and Closure Rounds (GAO/NSIAD-99-36, 

Dec. 11, 1998).

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

agencies to satisfy their requirements. Figure 1 shows the process used to 

screen unneeded property under BRAC. 

Figure 1: DOD’s Usual Procedures for Transferring Property

Source: GAO.

Excess property that is not selected by federal agencies is declared surplus 

to the federal government. At that point, surplus property can be 

transferred to nonfederal activities by various transfer mechanisms noted 

above. Appendix I further highlights the types of public benefit transfers 

and other conveyance mechanisms that may be used to transfer surplus 

property. 

Although DOD data indicate that DOD will retain a substantial portion of 

the BRAC property or transfer it to other federal agencies, over 150,000 

acres are to be transferred to nonfederal entities. Our December 1998 

report on the status of prior BRAC rounds shows that about 75,000 acres of 

the planned nonfederal transfers were expected to occur through EDCs, 

and most of the remaining acreage through public benefit conveyances and 

sales. This contrasts with the early years of implementing the 1988-93 

BRAC rounds, when DOD expected to rely on market sales and projected 

much higher revenues from such sales than it is now experiencing. While 

DOD originally projected about $4.7 billion in revenue from the sale of 

surplus BRAC properties, expected sale revenues are recently projected to 

be about $122 million. Land sale revenues are separate from the EDC 

process. Additional revenues are realized through lease agreements 

and EDCs.

The decrease in expected sales revenue is largely attributable to national 

policy changes reflected in legislation that in recent years has given 

increased emphasis on assisting the economic recovery of communities 

Other

defense

activities

Other

defense

activities

Excess

Other

federal

agencies

Other

federal

agencies

Public

benefit

transfers

Public

benefit

transfers

Economic

development

conveyances

Economic

development

conveyances

Negotiated

sale to states

or local

governments

Negotiated

sale to states

or local

governments

Public

sale

Public

sale

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

that were losing bases. In 1993, for example, with the enactment of Public 

Law 103-160, increased recognition was given to the perspective that 

reduced employment caused by an installation closure could result in 

economic hardship to surrounding communities and areas. One means for 

mitigating such hardship was to expeditiously transfer installation property 

to local redevelopment authorities at less than fair market value, if 

necessary, for reuse and stabilization of employment. As a result, 

communities were able to obtain such property through economic 

development conveyances at below fair market value and in the case of 

rural areas at no cost.

The proposed legislation we are discussing today would authorize the 

Secretary of Defense to transfer property at no cost to local redevelopment 

authorities, provided that the property be used for job creation purposes 

and that any proceeds generated from the property be reinvested in 

economic development of or related to the installation. The legislation 

would cover all EDCs approved after April 21, 1999. In addition, it would 

also give the Department the authority to modify EDCs approved prior to 

April 21, 1999, if the Secretary of Defense determines that such a 

modification is necessary as the result of a change in economic 

circumstances. The legislation would not require the return of any 

payments already made to the Department. It also would not change the 

existing requirement to screen property for use by other federal agencies 

and by eligible recipients of public benefit conveyances for such purposes 

as parks, education, ports, and airports. 

Likelihood of 

Expediting the Base 

Property Transfer 

Process

The proposed legislation provides an opportunity to expedite the EDC 

process. However, it is not clear to what extent the legislation would 

uniformly shorten the time frame for property transfers.

Service officials we interviewed generally stated that no-cost EDCs for job 

creation and economic development would eliminate often frustrating and 

contentious property valuation negotiations and enhance DOD and 

community relations. In some instances, no-cost transfers could expedite 

decision-making leading to property transfers or lease agreements in 

anticipation of transfers, but in other instances, they would not necessarily 

result in faster transfers. It should be noted that use of no-cost EDCs does 

not mean that title to the property is immediately transferred. Transfer 

may initially occur under a lease agreement, pending completion of 

required environmental remediation actions that could delay title transfer.
Page 5 GAO/T-NSIAD-99-215 Military Base Closures

According to service officials, the key determinants affecting the pace of 

property transfers have been each community’s readiness and ability to 

take control of the property and the time it takes DOD to perform 

necessary environmental cleanup of contaminated sites. They told us that 

the pace of property transfers is not driven primarily by the appraisal 

process or time spent in value negotiations for which the legislation would 

offer relief. The proposed legislation does not affect these issues because 

no-cost conveyances are just as vulnerable to these problems as any other 

conveyance. While the legislation might eliminate the time previously 

required for appraisals and negotiations over fair market value, these 

actions have generally overlapped other steps in the process.

Regarding future transfers, Army officials expressed concern that if prices 

were not negotiated, the services’ leverage in other aspects of the 

negotiations over property transfers could be reduced. For example, local 

communities using zero as their starting baseline may seek to have the 

services pay for demolition of unwanted buildings or for asbestos and lead 

paint removal, which the services do not usually pay for but rather consider 

as part of the discount from the property’s fair market value. Communities 

have been eligible for federal grants and other funding to facilitate base 

reuse planning and property transfer. We recently reported that such 

funding totaled $1.1 billion through fiscal year 1997.

Further, prior negotiated agreements could be revisited under the 

modification provision of the proposed legislation. Because most of DOD’s 

nonrural EDCs from the prior four base closure rounds have already been 

negotiated, a primary concern is how the legislation might affect these 

agreements. If, for example, no-cost EDCs were granted across the board, 

service officials expect that communities with prior negotiated costs would 

seek relief on the basis of changed economic circumstances.

Financial 

Consequences of 

Adopting the 

Amendment

DOD will lose revenue if the proposed amendment is enacted. Under the 

proposed legislation, the Department likely would forgo revenue from all 

EDCs entered into on or after April 21, 1999. However, we could not 

estimate the extent of lost revenue because negotiations over financial 

terms for these conveyances have not been finalized. In addition, the 

legislation allows the Department to modify EDCs in effect before April 21, 

1999; as a result, DOD could lose $218 million (net present value). On the 

other hand, with the legislation, the Department projects it would avoid 

about $12 million in costs that otherwise would be incurred in maintaining 

the closed bases prior to transfer. 
Page 6 GAO/T-NSIAD-99-215 Military Base Closures

The Department likely would lose revenue from 23 nonrural EDCs that are 

currently pending or anticipated.4

 Service officials stated that agreements 

for 5 of the 23 locations are nearing completion and the estimated revenue 

ranges from $350,000 to $70 million. However, service officials said the 

payment terms for these agreements would not be final until they were 

signed. Therefore, we could not determine when the Department would 

expect to realize this revenue.

As previously noted, the proposed legislation would also give the 

Department authority to modify nonrural EDCs approved before April 21, 

1999, based on a Secretary of Defense determination that there has been a 

change in economic circumstances. Until DOD develops criteria for 

changed economic circumstances, it is difficult to know how many of the 

26 communities will be eligible to renegotiate their existing EDCs. 

However, some service officials expect that the majority of eligible 

communities will want to renegotiate terms of their agreements to obtain 

no-cost EDCs. If all 26 communities renegotiated no-cost EDCs, DOD 

estimates it could lose about $218 million (net present value) in potential 

revenue between fiscal year 2000 and 2043.5

 Our analysis shows that 

$131 million, or 60 percent, of these revenues would have been received 

after fiscal year 2005.

BRAC land proceeds have historically been used to offset BRAC costs. We 

estimate that the services would collect about $87 million (constant 1999 

dollars) from the existing EDCs between fiscal year 2000 and 2005, which 

would be available to offset projected environmental cleanup costs. The 

remaining $131 million in projected revenues would be received between 

fiscal year 2006 and 2043, when much of the environmental cleanup would 

already be completed. If the legislation is enacted and the communities 

renegotiate existing agreements as no cost EDCs, it would eliminate some 

proceeds that could be used to offset future budget requirements. As 

already noted, the amount of this potential offset depends on when the 

revenues would have been realized.

DOD estimates that with the proposed legislation it would avoid about 

$12 million in costs. Approximately $10 million, or 83 percent, of this 

4

There are 12 pending or anticipated no-cost rural EDCs that would not be affected by the proposed 

legislation.

5

DOD used a 5-percent discount rate as specified in Office of Management and Budget Circular A-94 to 

calculate net present value.
Page 7 GAO/T-NSIAD-99-215 Military Base Closures

amount would result from the avoidance of costs for protection and 

maintenance support through the earlier transfer of property. However, the 

extent to which the legislation will expedite final property transfers is 

not clear. 

DOD believes that redirecting the focus of the property conveyance from 

an adversarial real estate deal to an effort to facilitate job creation will also 

reduce the Department’s EDC transaction costs. We note that if the 

legislation is adopted, DOD might be in a position to reduce the amount of 

resources it currently devotes to managing the EDC process.

As I said at the beginning of my statement, the legislative proposal involves 

a trade-off between recouping the value of surplus property and providing 

communities opportunities to enhance economic recovery. The trend in 

recent years regarding BRAC-related properties has been to move toward 

the latter.

Mr. Chairman, this concludes my prepared remarks. We would be pleased 

to answer any questions that you or members of the Subcommittee may 

have.

Contacts and 

Acknowledgement

For questions regarding this testimony, please contact David Warren at 

(202) 512-8412. Individuals making key contributions to this testimony 

include Barry Holman, William Crocker, Michael Kennedy, and James 

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

Appendix I

Surplus Federal Property Transfer Methods ApendxIi
Appendix I

Surplus Federal Property Transfer Methods

Page 9 GAO/T-NSIAD-99-215 Military Base Closures
Page 10 GAO/T-NSIAD-99-215 Military Base Closures
Page 11 GAO/T-NSIAD-99-215 Military Base Closures
Page 12 GAO/T-NSIAD-99-215 Military Base Closures

Related GAO Products

Military Bases: Status of Prior Base Realignment and Closure Rounds

(GAO/NSIAD-99-36, Dec.11, 1998). Letter

Military Bases: Review of DOD’s 1998 Report on Base Realignment and

Closure (GAO/NSIAD-99-7, Nov. 13, 1998).

Military Base Closures: Questions Concerning the Proposed Sale of

Housing at Mather Air Force Base (GAO/NSIAD-99-13, Oct. 8, 1998).

Military Bases: Lessons Learned From Prior Base Closure Rounds

(GAO/NSAID-97-151, July 25, 1997).

Military Bases: Update on the Status of Bases Closed in 1988, 1991, and

1993 (GAO/NSIAD-96-149, Aug. 6, 1996).

Military Bases: Environmental Impact at Closing Installations

(GAO/NSIAD-95-70, Feb. 23, 1995).

Military Bases: Transfer of Pease Air Force Base Slowed by Environmental

Concerns (GAO/NSIAD-93-111FS, Feb. 3, 1993).

(709430) Letr
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the 

following address, accompanied by a check or money order made 

out to the Superintendent of Documents, when necessary, VISA and 

MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address are 

discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 37050

Washington, DC 20013

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000

or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and 

testimony. To receive facsimile copies of the daily list or any list 

from the past 30 days, please call (202) 512-6000 using a touchtone 

phone. A recorded menu will provide information on how to obtain 

these lists.

For information on how to access GAO reports on the INTERNET, 

send an e-mail message with “info” in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at: 

http://www.gao.gov
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Mail

Postage & Fees Paid

GAO

Permit No. GI00