THOMAS L. GARTHWAITE, M.D.
DEPUTY UNDER SECRETARY FOR HEALTH
DEPARTMENT OF VETERANS AFFAIRS
COMMITTEE ON GOVERNMENT REFORM, SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, SUBCOMMITTEE ON ECONOMIC DEVELOPMENT, PUBLIC BUILDINGS, HAZARDOUS MATERIALS AND PIPELINE TRANSPORTATION
FEDERAL REAL PROPERTY MANAGEMENT
US HOUSE OF REPRESENTATIVES
April 29, 1999
Mr. Chairmen and members of the subcommittees, I am pleased to appear before you this morning to provide you with an overview of the Department of Veterans Affairs’ real property management program, with a primary emphasis on our recent innovations in planning, budgeting and management of our diverse assets.
The Department of Veterans Affairs (VA) is the second largest of the fourteen Cabinet departments and operates nationwide programs of health care, assistance services and national cemeteries. The Department’s capital portfolio currently consists of over 22,000 acres of land and 5,300 buildings (almost 1,700 of which are historic buildings), and 140 million square feet of owned or leased space. This inventory is spread over nearly 1200 locations, in all 50 states, the District of Columbia, Puerto Rico, Guam, and Samoa. A large percentage of the Department’s capital assets are devoted to providing healthcare to the nation’s veterans.
VA Healthcare Operational Transformation
Before discussing our efforts to plan for and manage capital assets, it is important to recognize how our capital asset needs have been impacted by the unprecedented transformation of VA health care that has occurred during the past four years. As you know, powerful forces are rapidly transforming American health care. Prominent among these forces of change are: market-based restructuring of healthcare which includes the rise of managed care; the explosive growth of knowledge with technological advances that are dramatically expanding the ability to treat illness and injury; unprecedented developments in information and data management; and the changing demographics and aging of America.
Since 1995, we have made significant progress in transitioning from a disease-oriented, hospital based, professional discipline focused health care system to a system that is patient centered, prevention oriented, community based and which has universal primary care at its foundation.
To accommodate this transformation, VHA established 22 Veterans Integrated Service Networks (VISNs) at the beginning of FY 1996. Each VISN forms a fully integrated health care system that provides a continuum of health care services to veterans who reside in a geographical area rather than a collection of individual facilities providing episodic services to veterans who come to those facilities.
VA’s transformation is still in process but results have already been achieved. The following accomplishments illustrate this change:
Many of our facilities were originally acquired from the military, and are not sited near veteran population centers. Likewise our physical infrastructure was developed at a time when the dominant method of providing healthcare required inpatient admissions and relatively long lengths of stay. Further, the standards to which these facilities were designed and built decades ago are, in many cases, no longer considered appropriate or acceptable for modern medical care. For example, in some locations, basic life safety standards including seismic safety criteria have mandated changes in physical plants, up to and including the replacement of complete hospital facilities. These changes and other continuing rapid changes in health care technology have significantly impacted our physical infrastructure needs.
Capital Assets Realignment for Enhanced Services
To align our physical infrastructure to more effectively support the current healthcare needs of the Department, we are in the process of implementing an improved strategic planning process. To provide oversight and direction for this planning, each VISN will establish a Capital Assets Realignment for Enhanced Services (CARES) Steering Committee including membership representing veterans, the state, our affiliates, and our various missions. The CARES committee will develop semi-annual plans aimed at realigning any imbalance between VA capital assets and veterans needs. CARES plans will itemize historical, current and projected utilization and demand for healthcare services, describe current assets, and critically review the match of assets to the VISN’s current and projected future demands. The plans will further consider alternatives to current service delivery modes, and will make recommendations as to proposed reuse or reconfiguration of capital assets to more efficiently provide services to veterans.
Capital Asset Planning
Following strategic review, any proposals for capital investments must be documented in a Capital Asset Plan, following the principles in the OMB "Capital Programming Guide." Proposed investments must answer three questions: 1) Does the proposal support core missions of the Department that must be performed by the government; 2) Is there no other government or private sector source that can do it better or cheaper; and 3) Have current work processes already been optimized?
VISN capital asset plans contain two sections. One describes the linkage of the capital acquisition to VA/VHA/VISN mission, goals, management strategies and performance goals. The second is a Baseline Assessment that describes the extent that existing capital assets are helping the network to achieve goals, management strategies, operating strategies, and performance goals. The difference between current and projected performance, which cannot be met with existing assets, is the performance gap. In this section of the plan, VISNs explain options considered for closing the perceived gap, including non-capital options such as sharing and contracting. If asset acquisition is thought to be the best option, the network plan identifies the asset that is uniquely suited for closing existing performance gaps. In addition, in this section, the network plan explains why the capital asset investment is the best alternative of all the available options, including non-capital alternatives.
The result of these efforts is a VISN specific Capital Asset Plan. Network Capital Asset Plans are not submitted to HQ in total. Only those proposals exceeding the established threshold ($4.0 million for construction) are provided to VA Headquarters as part of the Network Strategic Plan submission. Analyses for capital asset expenditures not exceeding the threshold are conducted at the VISN level to facilitate their decision making. The justification includes the basis for selecting the project; a cost-effectiveness analysis; an analysis of alternative options and an analysis of the full life-cycle costs.
From the 22 Network strategic plans, a major construction project inventory is compiled. Projects are then reviewed by the VA Capital Investment Board (VACIB) for budget consideration.
The VACIB was created to foster a "One VA" approach to the use of capital funds (including construction, information technology, and equipment) and to ensure all major capital investment proposals are based upon sound economic principles and are fully linked to strategic planning, budget, and performance goals. The VACIB includes senior management officials from across the Department. The VACIB reviews proposals that have high risk, national visibility or exceed dollar thresholds ($4.0 million for construction). The Board provides an analysis to the Secretary about each proposal’s viability for inclusion in the VA Capital Plan and VA budget request to OMB.
The major criteria used to select capital construction investments are prioritized and weighted by the Capital Investment Board members. The criteria for FY 2000 included:
One-VA Customer Service
Return on Taxpayer Investment
High Performing Workforce
Using the criteria approved by the Board, all investments including major construction projects are scored and prioritized. The VACIB recommends a list of investments to the VA Resources Board for approval. Approved major projects are submitted to OMB as part of VA’s request for budget and authorization consideration.
To manage its capital holdings, the Department uses all of the traditional legal authorities available to federal agencies for managing and disposing of its assets. However, in many instances, these traditional practices do not adequately address problems encountered by our medical centers in trying to maximize the efficiency of their facilities requirements. For instance, a parcel of land or a building, landlocked in a VA complex, is not likely to be sold or transferred for obvious reasons, even though the VA activity may not have a direct need to occupy the property, nor have the financial resources to fully use it. Because of these limitations combined with increasing budgetary constraints, asset management and revenue generation programs have become increasingly important in the Department’s activities. These efforts to achieve cost reductions and alternative funding sources directly benefit VA’s healthcare program. Three efforts in this regard are outleasing of underutilized property, enhanced-use leasing authority, and the proposed pilot authority for disposal.
38 U.S.C. Section 8122(a)(1) provides authority to the Secretary to lease, for a term not to exceed three years, lands or buildings, or parts or parcels thereof, belonging to the United States and under his control. Proceeds from such leases (except for expenses for maintenance, operation, and repair of buildings leased for living quarters) must currently be deposited into the US Treasury as miscellaneous receipts. From a VA perspective, there is currently little incentive to local VA activities to consider such leasing alternatives as the VA facility involved would be assuming financial responsibility for administering the lease but is unable to defray expenses or retain the proceeds.
The Department’s Enhanced-Use leasing program, which is unique among Federal agencies, is an integral part of the Department’s management of its assets. This program has recently been recognized in a General Accounting Office report (GAO report GAO/GGD-99-23, Public-Private Partnerships: Key Elements of Federal and Building Partnerships) as an example of a key element in an efficient and effective federal property management program.
The Department has used this authority to consolidate operations and dispose of unneeded facilities, collocate Veterans Benefits Administration (VBA) office space onto VA Medical Center grounds, obtain child care services, expand parking facilities for veterans and employees, and re-direct operational funds from managing golf courses into direct medical care. In doing so, these leases have achieved significant cost savings, have enhanced employee recruitment, added substantial private investment to the Department's capital assets, provided new long-term sources of revenues, and created jobs and tax revenues for the local economies. An overview of VA’s first Enhanced-Use project at Houston, Texas, which was described in the GAO report, and summaries of two recently awarded projects at Portland, Oregon, and Atlanta, Georgia, illustrate the utility and versatility of this authority.
VA’s first Enhanced-Use project provided for the lease of 20 acres on the Houston VA Medical Center campus to a local developer, for the construction of a new 140,000 SF Houston Veterans Benefits Administration Regional Office (VARO). Using its lease-purchase authority at the time, VA purchased the VARO for $11.5 million -- a 33% savings from the amount appropriated by Congress for traditional acquisition. VA granted the developer development rights on the balance of the leased site. In return, the developer agreed to provide, at a discounted rate, long term operations and maintenance services for the building, as well as other benefits to VA including financial participation in all proceeds resulting from private development of the leased site. These portions of the project generate an annual income to VA. This project received Vice-President Gore’s HAMMER Award.
The VA Medical Center in Portland entered into an Enhanced-Use lease with a local authority for the development of a "Single Room Occupancy" Facility on available property at its Vancouver Division. In return for the lease, the VAMC will have access to one-half of the 120-unit facility for its use in connection with its own homeless programs at no cost. Occupancy is scheduled for this summer. The present value of the cost savings to the VAMC is estimated at $8 million.
The Department used the Enhanced-Use leasing authority as a means to co-locate its Veterans Benefits Office with the VA’s Atlanta Medical Center. Using this authority, the Department entered into innovative arrangements with a local development authority for the necessary financing and with a developer for the construction and operation of the development. Construction is now underway for the office building and the associated parking facility. When completed, the average annual VA rent over the term of the lease for office space, parking, furnishings, and associated data and telecommunication equipment, will be approximately $11.00 per square foot as compared to the market rate of $20.00 to $26.00 per square foot for comparable office space alone. Finally, the Department will also obtain revenues from non-VA users in the development.
Other Enhanced-Use initiatives currently underway include medical and research facilities, additional VBA regional office collocations, assisted and specialty housing, child development centers, energy plants and parking garages.
While the program has achieved some level of success, it has limitations; namely market demand, compatibility issues and VA mission requirements. By understanding its strengths and constraints the Department is moving toward further application of this authority as an important tool in its capital asset program.
Pilot Asset Disposal Program
The Department is proposing a pilot program to significantly improve its management of capital resources by encouraging and streamlining the process of converting properties we no longer need into active assets. This proposal would allow the VA to dispose of these properties (including land, structures or any equipment associated with the property) by sale, transfer, or exchange, and to reinvest the bulk of the proceeds to support it’s healthcare program. The pilot would be restricted to thirty dispositions over its 5-year life.
Disposal is currently a cumbersome and lengthy process with limited benefits to VA. For example, to dispose of property with an estimated value over $50,000, the asset must first be reported to Congress in an annual budget submittal. Then VA must transfer the surplus property to GSA for disposal. Before GSA can attempt to sell the asset to the private sector, they must offer it to other federal agencies, then to State, local and qualifying non-profit organizations. Disposals must also comply with the Stewart B. McKinney Homeless Assistance Act that requires that excess property be offered to homeless organizations at no cost. GSA is also authorized to offer discounts of up to 100% to public and non-profit institutions. Any proceeds realized by VA after covering GSA’s expenses of the disposal are deposited into the Nursing Home Revolving Fund. These monies can then only be used to build nursing homes -- currently not a VA priority need.
We propose to establish a Capital Asset Fund. All net proceeds of disposals will be reinvested into the system’s capital requirements. Allowable deductions would include all costs of disposing of the asset such as site preparation, demolition, administrative expenses etc. This fund will have a cap of $50 million, with excess proceeds to be transferred to the minor construction program.
The pilot would raise the threshold for reporting disposals in an annual budget document from $50,000 to an amount equal to the cost of a major medical facility project (currently $4 million). For disposals under this threshold a notice of intent would be provided to the local community and the congressional committees.
We also propose an innovative approach to supporting the homeless by requiring that 10% of the proceeds from these disposals, after expenses, be transferred to the Department of Housing and Urban Development to be directed to local homeless assistance groups, which would include support for veterans. Homeless assistance groups would continue to benefit from the disposal of VA surplus property, consistent with the spirit and intent of the McKinney Act.
Because of the resources that will directly benefit VA programs, the Department will move quickly to establish procedures to implement this authority, as an additional tool in our overall Asset Management program.
Mr. Chairman, our objective is to ensure that VA capital assets are utilized in ways that bring the greatest value to the Department at the lowest cost. We believe the areas that I have discussed here this morning illustrate the Department’s efforts to continue to move forward in this area. This concludes my opening statement and I would be pleased to answer any questions you or the members of the committee may have.