|
|
|
 |
 |
 |
 |
 |
 |
 |
|
Foreign Policy Articles Base
Closure Alternative September 2002, Armed
Forces Journal International Moreover, shutting down bases will deprive the armed forces of valuable, revenue-generating assets. If managed properly, they could be leveraged into a perpetual income stream for base commanders struggling to address the maintenance backlogs on their facilities with ever-diminishing resources. This, at least, is the conclusion of a number of studies conducted over the past several years by PricewaterhouseCoopers (PwC), the US Army Cost and Economic Analysis Center, the General Accounting Office (GAO), the US Army Audit Agency (AAA), and the Pacific Northwest National Laboratory (PNNL). Each has closely examined the innovative facilities-management approach adopted by the Army's Operations Support Command (OSC) toward its 16 Government-owned, Contractor-operated (GOCO) ammunition plants, and pronounced it both sound and effective economic policy. Enacted into law by Congress in 1992, the Armament Retooling and Manufacturing Support (ARMS) Initiative (P.L. 102-484) brings commercial businesses onto Army facilities, where their lease payments, purchases of services, and paid use of government utilities help to offset the cost of facility ownership. Under this plan, revenue generated through the private sector, not the taxpayer, is used to pay for the overhead of government installations. ASSETS, NOT LIABILITIES Since its creation, ARMS has brought more than 191 business tenants onto government ammunition plants, resulting in over $40.8 million in annual savings to the Army and a cumulative return, to date, of some $236 million. Army projections are for these savings to continue to accrue indefinitely. What is needed is for the Secretary of Defense and his planning staff to recognize that US military installations are assets, not liabilities, with a value and a utility that in many cases transcends their original purposes. Of the 519 domestic military installations, the Secretary believes that approximately 25 percent are no longer needed by the military. Instead of rushing to dispose of these so-called excess properties, the Department could be putting them to work, and in the process generate the revenue desperately needed for the recapitalization of military real estate. Doing this could save American taxpayers the tens-of-billions of dollars that otherwise would be lost if unwanted defense assets are simply consigned to the wrecker's ball or transferred to local reuse authorities. The 11 September terrorist attacks on New York and Washington only underscore the complexity of the issue. With the nation now focused on the problem of homeland security as never before, many in Congress and the US military establishment are asking whether a wholesale rush to dispose of excess installations is really prudent in these uncertain times. This caution certainly was reflected in the National Defense Authorization Act for Fiscal Year 2002, which approved the President's request for another round of base closures but postponed any decisions until 2005. The House-Senate conferees agreed to the delay in an effort to spare an already weakened economy further shocks. In addition, it was felt the President needed to review the nation's force-structure requirements in light of recent events before proposing additional installations for disposal. A report is due to Congress by February 2004. What is becoming clear to many in the defense community is that a broader, more comprehensive definition of "military value" is needed when speaking of bases, their economic viability, and the role they might be expected to play in the future defense of the nation. In describing the new approach taken by Congress, the House Armed Services Committee noted that military value is to be "defined in detail to ensure that valuable training land, air, and sea space are not sacrificed for short-term budgetary pressures, and that military readiness, strategy, and training requirements are protected." Moreover, "DoD and the BRAC Commission must consider the extent and timing of costs and savings, the impact of potential environmental remediation costs, and the impact on existing communities in the vicinity of military installations when making closure and realignment decisions." This is the ARMS philosophy writ large. For nearly a decade, proponents of the ARMS program have argued that satisfying all of these objectives is only possible through sustainable development of military installations. This means the establishment of public-private partnerships empowered to use the marketplace to harness the full value of military assets. Time and again, ARMS has proven that it can breathe new life into an old infrastructure, much of it dating to World War II. In the process, the model has transformed local economies, served as an incubator for new industries, and provided a secure home to businesses as diverse as specialty machining and rocket motor assembly to fish farming and textile processing. THE ARMS VISION As originally envisioned by Congress, ARMS was to serve as a reuse model not only for Army ammunition plants, but for infrastructure across the Department of Defense to include depots, arsenals, shipyards, air logistics centers, historic properties, laboratories, and military housing. One of the most successful adaptations of the ARMS model can be found in Huntsville, AL, the home of Army aviation. Here, an innovative partnership has developed between the Army and a private contractor, resulting in the establishment of the Logistic Support Facility (LSF), an integrated maintenance hub that can repair and overhaul military airframes faster, better, and cheaper than comparable government centers. ARMS also has inspired the Army to explore new and creative ways to recapitalize its aging infrastructure. With well over 12,000 historic properties in its care, the Army has begun experimenting with ways in which it can enlist the private sector to meet its preservation obligations. In a recent 2002 study entitled "Turning Liabilities Into Assets," the Army was advised that the ARMS model "could be used for the benefit of Army historic properties as it has been used to offset the cost of ownership of Army industrial sites." Similar initiatives modeled after the ARMS program are taking place throughout DoD, including the Air Force's City-Base project at Brooks Air Force Base and the Arsenal Support Program Initiative (ASPI). With ingenuity and imagination, the Army has demonstrated that its installations have market value whether they are active, inactive, or slated for disposal. Their commercialization not only contributes to overall force sustainment, but also has helped the Army reduce the manufacturing cost of certain ammunition types by more than 18 percent by lowering applied overhead costs. Central to ARMS is the practice known as facility-use contracting, a method that employs a contractor to serve as the interlocutor between commercial tenants on an installation and the Army. The government grants the facility contractor the right to maximize the revenue-generating potential of an installation in exchange for a proportional share of the proceeds. At the same time, the contractor is bound to maintain the installation in a fit and ready state. In this way, ARMS not only harnesses DoD infrastructure for the benefit of the nation's peacetime economy, but it also serves as a national insurance policy in the event the country should ever require the commercialized installations for wartime use. As a direct result of ARMS, scores of critical defense skills have been preserved, ensuring their availability in the event of emergency mobilization. For tenant companies, access to the government's vast reserve of plants and equipment is a boon to their bottom line, saving them both setup time as well as a large portion of the capital cost needed to finance a new or expanded business. Loan guarantees and bridge funding are available through ARMS to further encourage commercialization. Over time, the value created through commercial reuse has been leveraged to attract over $160 million in private investment on these Army facilities, helping the service not only to maintain its ammunition plants, but also to assist in their modernization and environmental remediation. Today, as a result of ARMS, six government ammunition plants have operated at zero cost to the Army, the first time in modern history that the overhead of a federal facility has been completely self-financed. According to PricewaterhouseCoopers, over 3,400 jobs have been created as a direct result of ARMS, generating over $110 million in salaries and over $3 billion in regional economic output since 1993. Between 1996 and 2000, ARMS revenue increased by at least 15 percent per year, a stunning achievement given a limited marketing budget and the small Army staff administering the program. During the first seven years of the program this has translated into savings of $134 million to the government and $160 million to the Army. Since 1994, the number of tenant employees attributable to ARMS has grown at the astounding rate of 23 percent per year. For what surely is an unusual accomplishment for a government program, each incentive dollar invested in ARMS is fully repaid within six years. Moreover, less than one percent of annual ARMS program funding is used to administer the program. For installation commanders, perhaps the most laudable feature of ARMS is the way in which it ensures that all revenue raised at a facility remains with that facility and is not transferred either to Army headquarters or returned to the general Treasury. This practice is known as "consideration for use." Under this arrangement, the Army receives a dollar-for-dollar credit from the facility contractor up to the amount of profit raised by the contractor on the installation. These credits can then be applied against work performed at the site by the contractor or a subcontractor. In this way, no funds are exchanged between tenants and the Army, eliminating the need for cash. A commander is then free to requisition services from the facility contractor at his discretion, addressing maintenance and repair needs as they arise and avoiding the cumbersome, time-consuming task of processing even minor requests through headquarters. For the Army staff, the advantages of this system are clear. Facility contracting, coupled with consideration-for-use, lessens a military commander's reliance on scarce Military Construction appropriations by increasing the potential for on-site revenue generation. This is truly "the revolution in business affairs" envisioned by a succession of defense reformers over the past two decades. TRANSFORMING DOD Secretary Rumsfeld is one who has made the transformation of the Department of Defense one of his top priorities. This means not only realigning military force structure to meet changing threats, but also retooling the Department's acquisition process to bring it in line with contemporary business practice. If this vision is to be successful, it must be coupled with the recapitalization of DoD real estate, a process intended to make Pentagon holdings not only affordable but, where practical, self-sustaining as well. ARMS helps make this possible by lessening the dependency of DoD installations on annual appropriations and transforming them, instead, into activity-based profit centers and regional centers of excellence. Joining the Rumsfeld approach to the proven benefits of the ARMS model can be a powerful catalyst for change in the military. As a former businessman and chief executive, the Secretary understands the importance of reinvesting in infrastructure as a way to improve efficiency. He also appreciates the need to make the Department accountable to its shareholders-the American public-by ensuring that the best value is returned for each investment dollar. Today, in a rapidly growing America, government land is an increasingly precious commodity. This is particularly true for the military, which finds itself squeezed by local communities anxious to return high-value acreage to civilian use. Meanwhile, DoD planners remain chronically short of space for activities as diverse as industrial manufacturing, testing and training, basing, storage, process, housing, and large-scale unit maneuvers. Once government property is subdivided, it is unlikely that it can ever be reconstituted, even in an emergency. Unlike past wars, the conflicts of the future will leave us no time to clear land and develop complex infrastructure. They will be "come as you are" affairs. Readiness will be measured in days and weeks rather than months or years, as in the past. Under the current plan, the value of large, well-maintained, contiguous tracts of integrated workspace and pristine green zones will be largely destroyed. Their ongoing contributions to the nation will be lost forever. It seems both tragic and shortsighted for the government to dispose of property that it could just as easily retain at little or no cost for the benefit of future generations. Moreover, if Secretary Rumsfeld is being advised that base closures will help address his budget woes, he is not getting the whole picture. There are high deaccession costs that attend all base closures and that can last for decades. Unfunded pension liabilities, environmental remediation costs, job retraining, transfer payments to local communities, and inevitable legal expenses all impose high outlay costs on a Defense budget that already is severely under-funded. The ARMS model avoids these problems. LOCATION, LOCATION, LOCATION! If "location, location, location" is one measure of property value, then most military installations are prime real estate. Many are easily accessible by major road, rail, air, and inland waterway transportation routes that criss-cross North America. Others are located within easy reach of major population and industrial centers. Typically, military sites have well-developed infrastructure, an abundance of secure manufacturing and storage space, and environmental permits already in place for industrial use. If managed properly, this land could be a financial bonanza for the Department of Defense and an economic engine for the local communities that have long depended upon the bases' existence for their survival. The problem is that the accounting systems of the DoD do not recognize the residual value of service property. It has neither depreciated value nor are its improvements viewed by service property managers as having wide marketability. Instead, military real estate is treated by most installation commanders as simply a drain on already scarce operation and maintenance dollars. The same pot of dollars used to train, supply, feed, clothe, and fuel our nation's armed forces also is used to fund the upkeep of buildings, repair roads and bridges, maintain utilities, pay for environmental compliance activities, preserve historic structures, and mow the grass. For those charged with day-to-day force readiness, maintaining combat skills and caring for the quality of life of soldiers always will take precedence over the less-immediate concerns of bricks and mortar. Yet, in a resource-constrained environment, this means that infrastructure suffers, repairs are deferred, and a DoD maintenance backlog-today totaling in the tens-of-billions of dollars-will continue to grow. The ARMS model resolves many of these difficult choices by helping to finance base infrastructure out of commercial rental income, the marketing of government services, and asset sales. It is a smart idea with wide application across the Department of Defense. Secretary Rumsfeld, committed to bringing a fresh business approach to DoD operations, will find that ARMS is just the approach he has in mind.
Rand Fishbein, Ph.D. is President of Fishbein Associates, Inc., a public-policy consulting firm based in Potomac, Maryland (www.fishbeinassociates.com). He is a former Professional Staff Member (Majority) of both the U.S. Senate Defense Appropriations and Foreign Operations Appropriations subcommittees. Dr. Fishbein also served as a Special Assistant for National Security Affairs to Senator Daniel K. Inouye (D-HI). Dr. Fishbein received his Ph.D. from the Paul H. Nitze School of Advanced International Studies of The Johns Hopkins University. |
