The Washington Times - Mr. President: You'd Sell 14,000 Buildings; I'd Use Them

By T.J. O'Hara

The House of Representatives passed H.R 1734 last week without much fanfare. Its purpose was to reduce the "red tape" that has been inhibiting the President's plan to dispose of about 14,000 Federal buildings that have been designated as "excess." For the purpose of this discussion, please do not ask how the Federal Government was able to amass 14,000 "excess" buildings; just accept the fact that this is indicative of their core competency.

To quote the White House: "These properties range from sheds to underutilized office buildings and empty warehouses. Many of these assets will be disposed through demolition and transfers."

The expressed intent of this political solution was to eliminate the maintenance expense associated with the properties and to recapture equity in any properties that were sold rather than demolished.

The President first announced his plan to address this "excess inventory" a little over a year ago. He even proposed putting together a civilian board of experts to accelerate the process of liquidating the facilities.

A little more than a year later, the President's new budget reintroduced his earlier proposal of creating a civilian board of experts. Also a little more than a year later, the House of Representatives passed H.R. 1734 to try to overcome some obvious obstacles to the plan's success.

In the Federal Government, this passes for progress.

Of course, there is some additional "red tape" to which the President and H.R. 1734 has been non-responsive. It's called the economy.

Let's connect the dots.

The President's plan calls for demolishing or selling 14,000 buildings to potentially eliminate $190 million in operating costs and recapture some equity. On the surface, that sounds reasonable.

Doing turnarounds in the private sector taught me to look below the surface. You learn how to ask questions. For example:

Relative to Demolition

What are the criteria for determining which buildings qualify for demolition?
What are the associated EPA and other regulatory issues pertaining to the demolitions that might be waived for the Government (but that are not waived for the private sector)?
Who pays for the demolition? (You already know the answer.)
What is the disposition or utilization strategy for the land that remains after demolition?
Relative to Sale

In today's economy, are the viable buildings likely to sell "high" or "low?"
How many buyers are interested in purchasing unoccupied buildings?
How many financial institutions would even consider financing the purchase of unoccupied properties?
If buyers require any additional economic incentives to close, who absorbs the cost? (You already know the answer to that question as well.)
So, what are the alternatives?

What if the Federal Government redeployed those facilities that are operationally sound in a way that stimulated job growth and economic expansion? Allow me to explain.

One of the few things to which the Parties seem to agree is that small business is the true economic engine of our country. Having run small businesses, one of the challenges lies within finding affordable space within which to conduct business.

Since entrepreneurial start-ups particularly lack a "track record," they are generally required to enter into secured leases. This practice is designed to protect landlords from tenant defaults. It also creates what I call a "non-performing asset" from the entrepreneur's perspective.

Let's say that a three-year lease will cost $1 million over the 36 month period. The entrepreneur must place $1 million in an account to secure the lease. Then, he or she must pay another $1 million over the term of the lease before the $1 million account is released and the money returned.

If the Federal Government was to redeploy its "excess inventory" of buildings to create rent-free entrepreneurial centers, an interesting thing happens.

In the example above, the entrepreneur no longer has to pay $1 million in rent nor does he or she have to leave another $1 million on the sidelines for three years. As a result, $2 million dollars is freed to create jobs, invest in product development, and accelerate time to market. Translated: that means job growth and economic expansion.

The entrepreneurial enterprises would still have to pay for utilities and insurance on the property just as they would otherwise have to do. This would insulate the Government from any additional operating costs as well as the risk of property loss, and all of this would transpire at no cost to the taxpayer.

Of course, there shouldn't be a "free ride" forever. So, the incubation period would be restricted to the earlier of five years or two consecutive years of profitability sufficient to offset the lease abatement.

Now, let's assume that the Federal Government had a remaining inventory of suitable properties. What could we do with those buildings?

We could offer them, under identical terms (other than the length of occupancy restriction), to charities that provide services that the Government might otherwise provide (many times without the Constitutional authority to do so). This would allow the charities to more fully leverage their donations.

Under this scenario, there would be no need to use donations to make lease payments. Instead, the money could be redirected to assist more people in need. Over time, this would shift a higher percentage of social services to the private sector where they belong.

What else could be done with the Government's "excess inventory" of buildings?

We could provide such buildings to community colleges and trade schools under the same terms and conditions as the charities receive. The only qualification would be that the community colleges and trade schools would have to offer training programs that are tied to job-related opportunities in the community or across the Nation.

A collateral benefit of this approach is that it would help bring the training to the people rather than requiring the people to travel longer distances to secure the training. That would not only conserve time, it would also conserve energy.

Additionally, studies suggest that there are approximately 3 million jobs that remain unfilled in the United States today because people lack the specific skills to perform them. Consider the impact this program could have on our current level of unemployment. Rather than trying to force the creation of jobs in politically preferred industries, it would provide a conduit of qualified personnel for existing positions in industries that don't require subsidization.

Then, let's take this latter scenario to another level.

Over the last three years, poverty in the United States has risen about three percent (from approximately 12% to 15%). That means that one in every six or seven people you see is likely to be living at what is considered to be a poverty level in our country.

During that same period, unemployment has risen from five percent to nearly ten before settling recently in the mid-eight percent range.

The political solution to these two problems has been to expand welfare and extend unemployment compensation. Both of these solutions focus upon maintaining a dependence upon government assistance among these groups and neither addresses the root cause of the problem. While it may be politically expedient to create a nexus between certain groups of people and the Government in order to influence their voting behavior, it is morally indefensible.

We should be focused on creating opportunities for these people to escape from the cycle of dependence rather than fostering an environment that thwarts their initiative and lowers their self-esteem. The Clinton Administration had made progress in this regard, but those gains were wasted by the Bush Administration, and they have been further eroded by the Obama Administration.

The training program initiative offers a chance to move in a more positive direction. Those programs, housed rent-free in the Government's "excess inventory" of buildings, could be further leverage with regard to those who are currently dependent upon public assistance or entitlement programs.

Rather than further extending unemployment payments, the Government could use those same funds, up front, to provide relevant training to those who are unemployed so that they may gain new skills that are in demand. This would provide: (1) a higher likelihood of near-term job placement (moving the individuals from the category of "unemployed" to the status of "employed" more quickly); (2) an associated increase in the tax base (rather than fostering a tax drain); (3) a higher probability of long-term employment; and (4) the ability to fill the job-skills void that currently exists in the marketplace and increase GDP.

The same could be done with regard to those who become dependent upon Government assistance outside of the scenario of typical unemployment. Anyone of able mind and body who is receiving public assistance should either contribute some level of service to the Government (i.e., to convert the assistance to earned compensation), or they should be required to attend one of the training programs to acquire a more functional skill-set.

Both of these alternatives would restore a sense of pride and accomplishment that could be built upon to create a better life.

Neither of these solutions would require additional taxpayer funds. In fact, both solutions would contribute to lessening the tax burden over time as the affected individuals would become contributors to the tax base rather than continuing to be a tax liability.

So, let's compare solutions.

The President's solution would: (1) sell taxpayer-owned buildings while the market is down for a one-time gain and the elimination of operating costs; (2) do nothing to directly contribute to job growth and economic expansion; and (3) continue to expand unemployment and Government assistance programs at taxpayer expense.

My solution would: (1) retain the assets (i.e., the taxpayer-owned buildings); (2) eliminate the operating costs; (3) allow us to continue to benefit from the entrepreneurial centers, the charitable organizations, and the training institutes over time; (4) stimulate job growth and economic expansion; (5) replace some Government services through the good works of private sector charities; (6) make progress toward breaking the cycle of dependence upon Government assistance and unemployment compensation; and (7) create a workforce that is more effectively aligned existing market needs. In addition, if we ever chose to sell some of the buildings, we could do it after the real estate market had recovered.

I like my solution better. Which one do you prefer?

In the interest of full disclosure, there's something you need to know. I'm not a Party politician, and I've never organized a community. I've just spent 25+ years doing turnarounds in the private sector.

That often required working with companies that were deeply in debt, were out of ideas, and were suffering from severe organizational disruption. I had to pull the team together and help it define the company's problems, identify the root causes, evaluate the alternatives, and build a consensus around the best solutions so we could implement them as flawlessly as possible. I didn't have a year to put a committee together, and I didn't have any time to waste blaming my predecessor. Let me know if any other situation comes to mind in which my skills might be valuable.

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