United States General Accounting Office

GAO Report to the Secretary of Energy

December 1995 ENERGY

DOWNSIZING

Criteria for Community

Assistance Needed

GAO/RCED-96-36

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-270358 

December 27, 1995

The Honorable Hazel R. O’Leary

The Secretary of Energy

Dear Madam Secretary:

Since the end of the Cold War, the Department of Energy has been

downsizing and realigning its facilities. As part of this effort, Energy closed

the Pinellas plant, located on a 96-acre site in Largo, Florida. This facility

had been used to manufacture components for the nation’s nuclear

weapons program. In 1995, Energy transferred the facility to the Pinellas

County Industry Council1

 to help minimize the adverse economic effects of

the closing on the surrounding communities. Energy has also provided

funding to mitigate the effects of the closing.

Because Energy will likely dispose of additional facilities as it continues to

downsize and realign its facilities, this report examines the criteria Energy

used to (1) identify and evaluate the economic effects of closing the

Pinellas plant and (2) decide what types and amounts of assistance were

appropriate to help offset these effects.

Results in Brief Energy’s policy guidance supports economic development to minimize the

impact on displaced workers and affected communities of closing the

Department’s former defense nuclear weapons facilities. However, Energy

has not established specific criteria for identifying and evaluating the

impact of the closings; nor has it established specific criteria for deciding

what types and amounts of assistance are appropriate to help offset that

impact. Such criteria are important because Energy’s downsizing will

likely continue for years and will cost millions of dollars.

Background As part of the nationwide effort to downsize, realign, or close defense

nuclear weapons facilities, on September 8, 1993, the Secretary of Energy

authorized the termination of defense production activities at the Pinellas

plant in Largo, Florida. This decision was designed to reduce the cost of

operating facilities that make components for the nation’s nuclear

weapons complex. On December 14, 1993, Energy notified the Pinellas

plant’s employees and the affected communities that the plant would be

closed over the next several years as activities were consolidated at other

1

The Council is chartered by the state to, among other things, develop the county’s industrial base.

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B-270358 

Energy locations. On May 27, 1994, Energy issued a Workforce

Restructuring Plan identifying the actions it would take to minimize the

impact of the closing on the displaced workers. Energy also developed an

Economic Development Plan in conjunction with representatives of the

affected communities to identify the actions it would fund to minimize the

impact of the plant’s closing on the surrounding communities.

Section 3161 of the National Defense Authorization Act for Fiscal Year

1993 (P.L. 102-484) requires Energy to develop a plan for restructuring the

workforce at defense nuclear weapons facilities affected by a change in

nuclear weapons production. The objectives of the plan should include

identifying the types of assistance to displaced workers and affected local

communities that Energy will provide to minimize the social and economic

effects of its decisions to terminate nuclear weapons production

operations.

The Pinellas plant is operated under contract by Lockheed Martin

Specialty Components, Inc. The plant employed 1,132 personnel on

March 25, 1994. On March 7, 1995, Energy transferred the Pinellas plant to

the Pinellas County Industry Council to help mitigate the economic impact

of the plant’s closing on the surrounding communities. The plant consists

of about 96 acres of land and over 750,000 square feet of office and plant

space. Two appraisals were performed to determine the value of the

property, land, and facilities. The appraised values were $2.6 million and

$5.1 million. The site was sold to the Council for the lower appraised value

of $2.6 million. As part of the sale, Energy agreed to finish cleaning up

environmental pollution at the site. To accomplish this task, Energy is

leasing the site back from the Council for up to 31 months at a rate of

$120,331 a month. The monthly lease payments are being credited against

the sale price. After 22 months, the lease payments will have offset the sale

price, and Energy will begin paying rent to the Council.

Pinellas County, the most densely populated county in Florida, is located

in the Tampa Bay metropolitan statistical area, which is Florida’s largest

metropolitan market. Pinellas County has a high percentage of

high-technology and manufacturing jobs. However, tourism, real estate,

and retail sales are the staple industries of the county’s economy, and

growth is occurring in manufacturing, international trade, health care, and

biotechnology. When the workforce’s restructuring began in 1994, the

Pinellas plant was the 21st largest employer in Pinellas County.

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B-270358 

Energy Lacks Criteria

for Identifying and

Mitigating the Impact

of Downsizing

Energy has issued policy guidance on the responsibilities of Energy and

contractor officials for (1) mitigating the impact on communities of

reductions in contractors’ employment at Energy’s facilities and

(2) supporting communities’ transition and economic development

activities. However, this guidance does not establish specific criteria either

for determining the economic effects of Energy’s downsizing or for

funding communities’ economic development activities.

Energy Is Providing

Assistance to Mitigate the

Effects of Closing the

Pinellas Plant

Energy has relied on the local communities to help determine the types

and amounts of assistance needed to mitigate the economic impact of

closing the Pinellas plant and has not performed analyses to determine the

extent of the impact and the amounts of assistance needed. However,

Energy is providing over $20.5 million in financial assistance. The Director

of Energy’s Office of Worker and Community Transition told us that

Energy is further trying to mitigate the economic effects of the closing on

the communities by seeking to convert defense technology to produce

commercial goods and services. Energy’s guidance indicates that such

commercialization will create jobs for former employees and enhance

economic development. According to a Transition program official at

Energy’s Pinellas Area Office, Energy is providing $10.75 million for

economic development activities to facilitate workers’ and the

communities’ transition. In addition, Energy provided $9.75 million for

alternative-use activities at the facility and technology transfer initiatives

with Lockheed Martin Specialty Components, Inc. Finally, the Department

of Defense is providing $6 million for technology development. The

financial assistance has been provided to

• plan and organize the local community organization;

• identify replacement job opportunities for the Pinellas plant’s employees

by creating new businesses, attracting businesses to the area, and

expanding existing businesses;

• identify potential replacement occupants for the Pinellas plant;

• develop criteria for evaluating, ranking, and commercializing technologies;

and

• establish a technology deployment center to make the Pinellas plant’s

equipment, technical expertise, production capability, and service

functions available for new economic and business development.

Page 3 GAO/RCED-96-36 Energy Downsizing
B-270358 

Energy’s Guidance

Establishes Goals for

Assisting Workers and

Communities

In November 1992, Energy issued policy guidance stating that reductions

in contractors’ employment should be managed to, among other things,

help alleviate the impact of the reductions on affected communities. The

guidance requires cognizant program secretarial officers, heads of field

organizations, and contractors to develop programs to mitigate the impact

of the reductions on the displaced employees and the communities.

In April 1993, Energy’s Office of Worker and Community Transition issued

interim guidance on restructuring the Department’s contractor workforce

to implement section 3161 of the National Defense Authorization Act for

Fiscal Year 1993. This guidance, which was revised in April 1995,

addresses three interdependent processes that Energy considers integral

to support economic development activities: involving local communities,

allocating funding and resources, and identifying uses for Energy’s surplus

real and related personal property. The guidance does not define what

conditions create the adverse economic effects that require the transfer of

Energy’s land and facilities. Although the guidance states that Energy will

prioritize funding for projects, it does not discuss the specific types and

amounts of assistance that should be provided to offset the economic

effects. Because Energy will likely continue downsizing its facilities at

other locations, such criteria are needed to provide for the fair and

appropriate allocation of its resources.

The Director of Energy’s Office of Worker and Community Transition

agreed that the Department does not have specific criteria for identifying

and evaluating the economic effects of closing its facilities and downsizing

or for determining the appropriate types and amounts of assistance to help

offset these effects. However, he told us that determining the

reasonableness of such activities and assistance has involved negotiation

between Energy and community stakeholders.

At the conclusion of our audit work, the Director told us that his office

needs to develop specific guidance on how much Energy should spend to

mitigate the economic effects of downsizing and to develop replacement

technologies.

Conclusions Because the actions at the Pinellas plant are only part of a longer-term

restructuring process at Energy’s facilities, Energy will continue to spend

millions of dollars to mitigate the adverse economic effects of downsizing

on communities. However, without specific criteria for identifying and

analyzing these effects in communities and for making decisions on

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B-270358 

providing financial and other assistance for economic development,

Energy cannot ensure that it is fairly and appropriately allocating its

resources.

Recommendation We recommend that you direct the Director, Office of Worker and

Community Transition, and other cognizant secretarial officers to develop

criteria for Energy to

• identify the adverse economic effects of downsizing or closing its facilities

and

• define the types and amounts of assistance that it will provide for

economic development.

Agency Comments

and Our Evaluation

We transmitted a draft of this report to the Secretary of Energy for review

and comment. Energy’s comments appear in appendix I. Energy generally

agreed with the report’s findings and recommendation. In addition, Energy

outlined its plans for implementing our recommendation and provided

some technical corrections. The conceptual framework outlined by Energy

to implement our recommendation appears reasonable; however, Energy

did not provide time frames for implementation. We believe that

establishing time frames is important because, as Energy noted in its

comments, the impact of future closings may be more severe and a

well-defined program would be the most effective way to minimize that

impact. Energy also explained why it had initiated the program without

specific criteria to identify the adverse economic effects of downsizing or

to define the types and amounts of economic development assistance that

it would fund. We believe that specific criteria are important because they

would help Energy allocate its resources fairly.

Scope and

Methodology

We reviewed Energy’s policies and procedures governing the sale of the

Pinellas plant to the Pinellas County Industry Council. We reviewed

relevant federal regulations, prior GAO reports on sales of property, and a

related audit report by Energy’s Inspector General. We reviewed cost

analyses, property appraisals, financial documents, relevant departmental

policies and procedures, and data on Energy’s transfers of properties

through sales and leases to communities and businesses, as well as on the

recipients’ uses of the properties. We interviewed Energy officials in the

Offices of Worker and Community Transition, Environmental

Management, Field Management, and the Pinellas Area Office. We

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B-270358 

conducted our review from June 1995 through November 1995 in

accordance with generally accepted government auditing standards.

As you know, 31 U.S.C. 720 requires the head of a federal agency to submit

a written statement of the actions taken on our recommendations to the

Senate Committee on Governmental Affairs and the House Committee on

Government Reform and Oversight not later than 60 days after the date of

this letter. A written statement must also be sent to the House and Senate

Committees on Appropriations with the agency’s first request for

appropriations made more than 60 days after the date of this letter.

We are sending copies of this report to your Audit Liaison Division for

distribution within your agency. Copies will also be sent to congressional

committees; the Director, Office of Management and Budget; and other

interested parties. We will make copies available to others upon request.

Please call me at (202) 512-3841 if you or your staff have any questions.

Major contributors to this report were Jeffrey E. Heil and Carrie M.

Stevens.

Sincerely yours,

Victor S. Rezendes

Director, Energy and

 Science Issues

Page 6 GAO/RCED-96-36 Energy Downsizing
Page 7 GAO/RCED-96-36 Energy Downsizing
Appendix I 

Comments From the Department of Energy

Page 8 GAO/RCED-96-36 Energy Downsizing
Appendix I 

Comments From the Department of Energy

(308681) Page 9 GAO/RCED-96-36 Energy Downsizing
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