The history and development of 10 U.S.C. s. 2667 and its use in managing Air Force real property.
I. INTRODUCTION II. PROPERTY DEFINED A. What Is Property? 1. Property Ownership and Ownership by the United States Government 2. Federal Acquisition of Real Property--Purchase 3. Federal Acquisition of Real Property--Cession B. Distinction between "Ownership" and "Jurisdiction" 1. Mutiny of 1783 and the Need for Federal Land Ownership 2. Jurisdiction on Federally-owned Land C. Fee Title and Leaseholds 1. Leases and Leaseholds 2. Enhanced Use Leases III. HISTORY AND DEVELOPMENT OF THE LEASING STATUTE, 10 U.S.C. [section] 2667 A. Origin of the Military's Authority to Lease Federal Property B. World War II and the Birth of the Leasing Statute 1. Preserving the Military's Industrial Capacity 2. Recalling War-Making Industrial Capacity into Production as Necessary C. The Leasing Statute's Era of Limited Use 1. The Leasing Statute Affirmed by the Courts 2. Broadening the Leasing Statute's Application 3. Eliminating the Leasing Statute's "National Emergency" Requirement D. The Leasing Statute Begins to Be Used More Frequently 1. Using the Leasing Statute for Environmental Management Purposes 2. Authorization to Keep Proceeds of Leases on Defense Department Land E. The Leasing Statute's Use Expands through the BRAC Process 1. Military Base Closure and Consolidation 2. The Leasing Statute Becomes a BRAC Tool 3. Further Refinements of the Leasing Statute to Allow "In-kind" Payments F. Stricter Congressional Oversight of Federal Property 1. Federal Real Property as an Asset to Be Leveraged for the Country's Benefit 2. Leasing Statute Changes Allow Better Utilization of Federal Property 3. Further Congressional Scrutiny of Newly-Granted Authority to the Military 4. Efficiency in Government Initiative Leads to Leasing Statute Changes 5. Heightened Scrutiny Reveals Inappropriate Action on Real Property Leases G. The Leasing Statute and Federal Energy Policy 1. Changes to the Leasing Statute to Achieve Federal Energy Objectives 2. Increased Use of the Leasing Statute by the Military Departments IV. ENHANCED USE LEASE SUCCESSES A. Nellis Air Force and North Las Vegas' Wastewater Treatment Plant 1. Nellis Air Force Base--Background 2. North Las Vegas' Wastewater Treatment Project B. Hill Air Force Base and Falcon Hill 1. Hill Air Force Base--Background 2. Development of Hill Air Force Base's Underutilized Property C. Eglin Air Force Base and Development in Northwest Florida 1. Eglin Air Force Base--Background 2. Okaloosa County's Airport Lease and Wastewater Treatment Plant Lease 3. Okaloosa Island Hotel Project Lease V. CRITIQUE OF AIR FORCE ENHANCED USE LEASES A. Benefits of Enhanced Use Leases B. Potential Problems with Enhanced Use Leases C. Unique Issues with Energy Development and Enhanced Use Leases 1. Energy Development Project at Nellis Air Force Base 2. Changes in the Energy Market VI. RECOMMENDATIONS VII. CONCLUSION
Nearly fifty years ago, Air Force Chief of Staff General Thomas D. White observed that "the mission of the Department of Defense is more than just aircraft, guns, and missiles. Part of the defense job is protecting the land, water, timber, and wildlife--the priceless natural resources that make this great nation of ours worth defending." (1) A key part of General White's definition of natural resources was "land." The Department of Defense is one of the largest land owners in the United States. One of the ways the Department manages its natural resources is by leasing real property to maximize the benefit to the nation's citizens. "Enhanced use leases" have become an important tool in managing its property. Enhanced use leases provide an opportunity to use land that is otherwise underutilized, and they give the Department an additional way to fulfill its overall mission. The statute used to regulate enhanced use leases dates to World War II, and the concept is even older. However, the utilization of enhanced use leases is a relatively recent development. To realize their full potential, several changes are needed. First, Congress should define what constitutes an "enhanced use lease" by statute. Second, Congress should articulate that enhanced use leases are the preferred method for real property leases in the Department of Defense. Third, measures should be taken to ensure that the enhanced use lease process is conducted openly and transparently. Fourth, to the extent that it has not already been done, the enhanced use lease process should be formalized and streamlined within the Department of the Air Force through continuous evaluation of guides and handbooks with updates as needed to maximize the benefit to the Department and to the nation.
Section II will analyze property generally and the rights associated with property ownership, including the distinction between jurisdiction and ownership. This will include a discussion about how property ownership includes the right to grant leaseholds or "leases." It will also introduce "enhanced use leases" as the term is used in military applications. Section III will present the history and development of 10 U.S.C. [section] 2667. This statute is the legal authority for most enhanced use leases between the Department of Defense and other entities, although the words "enhanced use lease" are not expressly defined by the statute. Section IV will discuss three separate examples where the Department of the Air Force entered into enhanced use leases with other parties for successful development projects. (2) Section V will be a critique of these projects, highlighting factors that could have led to their failure. It will also include brief observations about energy development, a new and potentially rich subject of future enhanced use leases. Section VI, will include recommendations of how the enhanced use lease program can be successfully used in the future.
II. PROPERTY DEFINED
To understand the concept of federal property ownership and the legal arrangements that can be made regarding that property, it is important to understand several concepts. One concept is the notion of "property" itself. Another concept is the "ownership" of property. A third concept is "jurisdiction." A final concept is the relationship between the rights associated with property ownership and the way those rights may be transferred to another.
A. What Is Property?
"Property" is "the domination which is rightfully and lawfully obtained over a material thing, with the right to its use, enjoyment and disposition." (3) It is not merely the actual object. "[Instead, it] ... denote[s] the group of rights inhering in the citizen's relation to the physical thing, as the right to possess, use, and dispose of it...." (4) In this thesis, "property" is limited to "real property" or a tract of land. Regarding that parcel, "[t]he modern conception of the meaning of property is the dominion over or right of use and disposition which one may lawfully exercise ... generally to the exclusion of all others...." (5)
The second concept to understand is property "ownership." "One who is the 'owner' of property possesses] the fullest extent of rights and privileges regarding that property as recognized by the owner's jurisdiction...." (6) In this context, ownership is commonly referred to as the "bundle of privileges," (7) or "sticks in the bundle of rights" (8) with "[e]ach stick representing] one of the total number of possible interests in sum of rights, powers, privileges, immunities and liabilities." (9) Several rights associated with ownership of property include the right to "the undisturbed occupation and enjoyment of the property;" (10) the right to exclude others from property; (11) the rights to use and enjoy property, including all the rights to sell and transmit; (12) and the right to dispose of property. (13) The rights associated with property ownership can be transmitted through easements, tenancies, and leases, among other methods.
1. Property Ownership and Ownership by the United States Government
The next important factor to understand is the development of ownership of the land itself. (14) Generally speaking, the Anglo-Saxon tradition held that the Sovereign owned real property and granted property to others by royal prerogative. When English settlers came to North America, companies often claimed land on the basis of royal warrants and charters. (15) Over time, the presumption of royal ownership of all land receded, especially after the American Revolution. By that time, Americans also began an inexorable push west to claim land across the entire continent.
2. Federal Acquisition of Real Property--Purchase
Notwithstanding the presumption that pursuit of and possession of property was an inalienable right of Americans, the Framers of the Constitution recognized a need for the newly-created federal government to own land itself. For this reason, the United States Constitution expressly authorized the federal government to acquire land from the states not just for "Forts, Magazines, Arsenals, and dock-Yards," but also "other needful Buildings." (16) Purchase became one of several methods by which the federal government acquired land.
The first of these actions was the Louisiana Purchase in 1803 (17) whereby the United States acquired the Louisiana Territory from France for approximately $15 million. (18) In 1819, Spain ceded its holdings in North America--principally Florida--to the United States for $5 million. (19) In 1848, the United States acquired land from Mexico through the Treaty of Guadalupe Hidalgo for $15 million. (20) In 1850, the federal government acquired a portion of Texas' land for $10 million in return for paying debts (21) which Texas had accrued while it was a separate country and before it became a state. (22) In 1853, the United States acquired land south of the Gila River and West of the Rio Grande in the Southwest for $10 million. (23) And in 1867, the United States bought Alaska when the Secretary of State negotiated its acquisition from Russia for $7 million. (24)
3. Federal Acquisition of Real Property--Cession
The federal government also acquired ownership of property through state cession, by which the United States acquires jurisdiction exclusive of all other state authorities. (25) A cession is the act of relinquishing property rights. (26) Authority for the states to cede jurisdiction to the federal government "springs from the implied authority of the [s]tates to deal with the general government in any manner to accomplish the powers reserved to them by the Constitution." (27)
At the conclusion of the Revolutionary War, sovereign title of the lands of Great Britain transferred to the newly-independent American states. (28) Seven of the newly-independent states--New York, Virginia, Massachusetts, Connecticut, South Carolina, North Carolina, and Georgia--had extensive landholdings that dated to their royal warrants and grants, but the remaining six did not. This issue became a source of contention between the states. As the new country developed, the six states that did not possess western territory pressed the other states to cede land to the federal government, and the national Congress pledged to hold these lands for the common benefit of the United States. (29) Between 1781 and 1802, New York, Virginia, Massachusetts, Connecticut, South Carolina, North Carolina, and Georgia ceded land to the federal government. (30) And in 1787, Congress adopted the Northwest Ordinance, (31) which created the federally-administered Northwest Territory from ceded lands north and west of the Ohio River, east of the Mississippi River, and south of the Great Lakes. Other states also ceded land to the federal government, and additional states entered the Union on the same basis. (32)
States also ceded land to the federal government for purposes other than the creation of new states. As will be discussed below in connection with the Philadelphia Mutiny of 1783, individual states often did not have the same interests as the federal government. The Framers of the Constitution were concerned that a single state could dominate the national government, so Article I, Section 8 expressly called for a 10-square mile district under exclusive federal control to become the seat of government. Maryland (33) and Virginia (34) ceded land to the federal government to create the District of Columbia. (35) In 1875, Kansas ceded land to the United States for the creation of Fort Leavenworth. (36) The federal government has also acquired property by other means, including "purchase based upon voluntary agreement, condemnation for public use, foreclosure of liens, devise or succession (37) where state law does not prohibit such devises, by acceptance as a gift from states and individuals, and by setting it aside from the public domain." (38) Though rarely used, the federal government has acquired property through condemnation. (39)
B. Distinction between "Ownership" and "Jurisdiction"
The preceding section explained the primary ways that property has been acquired by the federal government. Another important concept related to "ownership" is "jurisdiction." Whereas ownership is the actual control of the rights associated with a parcel, jurisdiction is "[a] government's general power to exercise authority over all persons and things within its territory." (40) As will be explained below, the federal government may "own" property while at the same time have no more authority over that property than any other landowner.
The idea of federal jurisdiction first arose toward the close of the Revolutionary War. As mentioned above, most of the American colonies had been established under royal charters and warrants. Although there were economic and social interactions among the colonists themselves, each colony was individually situated toward England. There was no single national representative who spoke for the colonies as a whole; each had its own executive and legislative body and governed its affairs accordingly. (41)
1. Mutiny of 1783 and the Need for Federal Land Ownership
When the Revolutionary War ended, the newly-independent states enacted the Articles of Confederation and established the first "national" government. However, a national government existed only with respect to foreign affairs. (42) In domestic relations, it was virtually powerless and was almost wholly dependent upon the states for support. The weakness of the federal government was highlighted by the "Philadelphia Mutiny of 1783." On June 20, 1783, Congress was in session in Philadelphia when soldiers from Lancaster, Pennsylvania, who had fought in the Revolutionary War came "to obtain a settlement of accounts, which they supposed they had a better chance for in Philadelphia than in Lancaster." (43) There never appeared to be an imminent threat of riot or violence, but Congress was still concerned enough that it asked Pennsylvania state authorities for protection. No help was provided. By June 24, "the members of Congress abandoned hope that State authorities would disperse the soldiers, and Congress removed itself from Philadelphia." (44)
Congress later convened in Princeton, New Jersey, Trenton, New Jersey, Annapolis, Maryland, and New York City, and "at no time during the remaining life of the Confederacy was the safety of the members of Congress similarly threatened or the deliberations of the Congress in any way hampered" (45) as it had been in Philadelphia. However, the effect that this incident had on the Continental Congress could not be ignored. On October 7, 1783, the Continental Congress adopted a resolution that called for buildings to be erected on the banks of the Delaware River suitable for a "federal town; and that the right of soil, and an exclusive or such other jurisdiction as Congress may direct, shall be vested in the United States," (46)
In 1787, the Constitutional Convention expressly adopted this position and directed the acquisition of a federal district as the seat of government: "The Congress shall have Power ... to exercise exclusive Legislation in all Cases whatsoever, over such District ... as may, by Cession of particular States, and the Acceptance of Congress, become the Seat of the Government of the United States." (47) The Constitution also extended exclusive jurisdiction over "all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings; ..." (48) This clause has been liberally construed, (49) and most states now have general laws giving the national government exclusive or concurrent jurisdiction over land so acquired. (50)
2. Jurisdiction on Federally-owned Land
The method of property acquisition has not been uniform, so the jurisdiction exercised by the federal government has likewise not been uniform and varies based on how the land was acquired. (51) Prior to February 1940, the federal government was prohibited from spending "public money for the erection of public works until there had been received from the appropriate state the consent to the acquisition by the United States of the site." (52) Congress made state consent optional rather than mandatory in 1940, (53) and it also changed the general policy regarding the acquisition of land for federal use. Prior to February 1, 1940, "acceptance of [exclusive] jurisdiction by the United States [from a state by means of consent or cession] was presumed in the absence of intent by the federal government not to accept such jurisdiction." (54) Regarding property acquired after that date, there is "a conclusive presumption against the acceptance of any legislative jurisdiction over lands acquired ... by the federal government, unless a formal acceptance of jurisdiction is filed by the United States." (55)
The concept of "jurisdiction" as applied to federal real property is "the power to pass and enforce United States laws on matters that are ordinarily reserved for the states." (56) "Jurisdiction" can generally be divided into four main categories: exclusive, concurrent, partial, and proprietorial (or proprietary). (57) In an area of "exclusive jurisdiction," the federal government "has acquired ... all of the state's authority in an area, and the state concerned has not reserved the right to exercise any of that authority except the right to serve state civil or criminal process." (58) In an area of exclusive jurisdiction, "not [s]tate but [f]ederal law is applicable ... for enforcement not by [s]tate but [f]ederal authorities, and in many instances [action is taken] not in [s]tate but in [f]ederal courts." (59)
The second type of jurisdiction is "concurrent" jurisdiction. This occurs when "[t]he state, in granting the [federal government exclusive legislative jurisdiction over an area, has reserved to itself the right to exercise the same authority at the same time." (60) Therefore, both state and federal law is applicable, and both state and federal authorities may take action in either state or federal courts. The third type of jurisdiction is "partial" jurisdiction. This occurs where the "state has granted the [federal government some of its authority to legislate but has reserved the right to exercise, alone or with the [federal g]overnment, some authority beyond the right to serve criminal process in the area (for example, the right to tax private property)." (61)
The final type of jurisdiction is "proprietary" jurisdiction. This occurs where the federal "[g]overnment has acquired some right or title to an area in a state but has not obtained any of the state's authority to legislate over the area." (62) From the federal government's perspective, this is the lowest degree of jurisdiction. The federal government owns and occupies the parcel as any landowner would, but it does not exercise jurisdiction over the parcel. Therefore, state law applies to this property, and the federal government would be a party to actions occurring on this property like any other landowner. This is of particular importance because current Air Force policy is to "operate under a proprietorial interest in land unless it needs another interest to carry out the assigned mission." (63) Flowever, the fact that the federal government may only exercise proprietorial jurisdiction does not mean it cannot exercise the power necessary to perform its assigned duties and functions under the Constitution or federal law. (64) These constitutional and statutory provisions give the federal government "many powers and immunities in acquired land area that ordinary landowners do not have. Further, it holds its properties and performs its functions in a [g]overnmental rather than proprietary, or business, capacity." (65)
C. Fee Title and Leaseholds
Once the question whether the federal government actually "owns" the parcel in question is resolved and after the type of jurisdiction which exists over the parcel is determined, then the rights associated with ownership of property can be ascertained and the way those rights may be transferred to another may be known. As a general rule, federal ownership of real property is ownership in fee simple. The fee simple absolute is "[t]he highest form of ownership [that can be had] in real property, because it has no restrictions on its use or enjoyment except those restrictions imposed by public policy for the common good." (66) When property is owned in fee simple, the owner of that property enjoys the "highest concentration of rights and privileges" that may be exercised. (67) The owner of the fee simple absolute gives the owner the right "to have uncontrolled use and disposition of all of the legal and physical properties thereof." (68)
1. Leases and Leaseholds
As previously noted, ownership of property has been compared to "sticks in the bundle of rights" (69) with "[e]ach stick representing] one of the total number of possible interests in sum of rights, powers, privileges, immunities and liabilities." (70) One of these interests is a leasehold or a lease. "Historically, leases have been characterized as a conveyance, ... [which] creates an interest in land." (71) Now, leases are viewed as contracts between landlord property owners and tenants who receive possessory rights in the land. (72) The Department of Defense manages over 27.7 million acres of land worldwide, the vast majority of which is located in the United States or in territorial possessions. (73) Only forty-eight percent of this land is actually government owned, so the Department of Defense exercises property rights as both an owner and tenant.
2. Enhanced Use Leases
A relatively recent development in the area of federal property management is the "enhanced use lease." Section 2667, Title 10, United States Code (hereinafter "the Leasing Statute"), is the statutory authority for enhanced use leases, even though the Leasing Statute itself does not define the term. As will be discussed at greater length below, an enhanced use lease is a specific type of lease where a federal asset--real property--is leveraged for a specific development. Enhanced use leases have been used to build office space, (74) solar energy arrays, (75) hotels, (76) and wastewater treatment plants. (77) An important part for enhanced use leases is that the federal land subject to the lease possesses a characteristic that makes it desirable for use.
Enhanced use leases are unique for other reasons. Federal law has been enacted whereby the leaseholder may pay the federal government through payment in kind in addition to cash payment. Enhanced use leases have been summarized this way: "[An enhanced use lease] is essentially a real estate transaction whereby the [tenant--often a real estate or other] developer [--] is leasing land from the [f]ederal agency to construct and operate a [real estate development]. But unlike an ordinary lease, the ... developer in an [enhanced use lease] pays the military installation through in-kind considerations equal to the value of the lease rather than directly with cash." (78) The federal government has entered into enhanced use leases through the Department of Defense and the Department of Veterans Affairs, and other agencies are also permitted to enter into enhanced use leases. This thesis will explore only the development of the Department of Defense's Leasing Statute.
III. HISTORY AND DEVELOPMENT OF THE LEASING STATUTE, 10 U.S.C. [section] 2667
The history and development of the Leasing Statute is an interesting study, and its history and development track the evolution and transformation of the federal government itself.
A. Origin of the Military's Authority to Lease Federal Property
To understand the Leasing Statute and how it is currently used, it is helpful to understand where this law originated. The military first received authority to lease federal property when Congress considered legislation to permit such leases in 1892. (79) Prior to this time, the Department of the Treasury had enjoyed the authority to lease property for over a decade, whereas the Department of War (80) could only convey land through "revocable licenses" which the law did not authorize. (81) In addition, the Secretary of the Treasury's authority to lease property under his control was less restrictive than the authority given to the Secretary of War. (82) Given the difficulties the Department of War had managing its real property, it requested authority similar to the Department of the Treasury.
The proposed legislation had several benefits. First, it established a lawful means whereby the Department of War could authorize the use of federal land under his control that did not then exist. (83) In so doing, Congress aligned the method by which two separate Departments exercised authority over federal land they each controlled. (84) Second, the proposed legislation prescribed "leases" as the preferred method of granting possession of federal land--away from the "revocable licenses" utilized by the Department of War and "for which there [was] apparently no authority in law." (85) Third, it outlined the criteria for the Secretary of War to use in granting leases on federal land: The Secretary of War, at his discretion, would determine that the lease "[was] for the public good;" (86) was revocable; (87) and did not exceed a term of five years. (88) In addition, the proposed law had the practical effect of "enabling] the Secretary of War to prevent trespassing, and to terminate many disputes in regard to title and possession." (89) The Senate Committee on Military Affairs considered the legislation and reported it out of committee without amendment. (90) During the Senate floor debate, the bill was amended to exclude "mineral and phosphate lands" from the provisions outlined in the proposed legislation. (91) This amendment was adopted and the bill passed the Senate. The House of Representatives did not amend the bill, and it passed on July 22, 1892. (92) On July 28, 1892, the measure became law and the Secretary of War was now authorized to lease federal lands under his control. (93)
B. World War II and the Birth of the Leasing Statute
The Department of War's authority to lease federal property lay dormant until World War II when Congress enacted the provision that became the Leasing Statute. Before World War II began, the industrial base of the United States was inadequate to support the type of effort that would be needed to fight. (94) In only a few years, resources were mobilized that dramatically increased industrial output in the country. (95) Resources were also used to increase federal real property holdings. Between 1940 and 1944, the Department of War "acquired almost nineteen million acres of land, at a cost of approximately [$300 million]. In addition, a leasing program, involving yearly rentals of [$65 million, was] in operation covering piers, warehouses, storage plants, buildings of all sorts and vacant land." (96) The increase in real property holdings was attributable "to the intensified mechanization which [took] place." (97) In addition to piers, warehouses, and storage plants, "[a] sizable segment of the real estate holdings of the federal [government consisted of industrial plants and facilities." (98) By 1944, the federal government spent approximately $15/4 billion on industrial plants. (99) The military departments expended enormous time and resources in building up that capacity, (100) and they did not want to lose this production capability if it was needed in a future conflict. (101)
With this as a backdrop, the military departments requested new legislation that would address these issues. On April 28, 1947, the Secretary of War and Acting Secretary of the Navy sent the Speaker of the House a proposed bill. (102) The military departments identified three purposes for the proposed legislation. First, the military departments asked Congress to grant "uniform legislative authority for the leasing of property" under the departments' control. (103) Although each department had statutory authority to lease federal land under its control, the authority derived from different Code sections. This act would bring the authority into the same Code section. Second, the military departments asked Congress to expand existing peacetime authority to lease federal government property "for performance of [government or private work." (104) Finally, the military departments asked Congress to "permit the transfer without reimbursement to the [military departments of certain plants, machinery, and equipment" for use in a "stand-by program." (105)
1. Preserving the Military's Industrial Capacity
In a committee hearing on the bill, its proponents stated that the principal purpose was "to aid the industrial facilities stand-by programs" of the military departments. (106) By "facilities," the bill's proponents meant "[g]overnment-owned properties] which had been furnished to or acquired by war contractors at [g]overnment expense." (107) When hostilities ceased, the military departments carefully reviewed and analyzed these facilities to determine how they should be managed. This review divided these plants into three categories. The first category consisted of plants which were so important that they were "taken over and incorporated [as a permanent part] in the [military] establishment." (108) The second category consisted of plants "excess to further requirements of the [military d]epartment[s] and could be disposed of as surplus." (109)
The third category was more difficult. These plants were often machine tools and production plants that manufactured specialized equipment for the armed forces. The review recommended that these plants "be retained in [federal government ownership so as to [e]nsure [their] immediate availability for the rapid expansion of the production of essential war [materiel] in the event of a future emergency." (110) Since these machine tools and production equipment also had non-military industrial purposes, they could be leased when they were not needed for military purposes. In time of conflict, it could quickly be reconverted to support the military departments. Such an approach had several benefits. First, the plants and equipment would not fall into disuse or disrepair. Second, the knowledge to operate the equipment would be retained. Finally, there would be no need to rebuild a plant if the federal government did not disposed of it. This last benefit was especially important to the bill's proponents. They argued for the new statute, because the time required to build industrial facilities exceeded the amount of advance warning the military departments expected they would have before a future war would actually break out. (111)
2. Recalling War-Making Industrial Capacity into Production as Necessary
The ability to maintain an industrial reserve capacity was at the heart of this proposed act, and it was basically divided into two parts. (112) The first part of the proposal contained the key provisions that remain at the heart of this law today. The proposed legislation repealed previous limits that required the leases made by the military departments to be revocable at any time and limited them to terms of no more than five years. (113) Not only were the military department secretaries authorized to approve longer-term leases "where necessary in the interest of national defense or of the public interest," (114) the leases were now revocable when the President of the United States declared a national emergency. (115)
Ultimately, the need to maintain the industrial capacity of the military persuaded Congress to act. The "principal purpose" of the legislation was to support the "the industrial facilities stand-by program" of the military departments. (116) This law "furnish[ed] the means whereby the real or personal property of the federal [g]overnment under the control of the [military departments may be made available ... to aid ... in the production of ... supplies for the [departments, thereby reducing costs to the [federal government]". (117) And almost as an afterthought, a final statement in support of this act has become its most significant justification: "[T] he bill will furnish the means ... where [the] real or personal property [of the federal government] for the time being is not needed by the [military departments permits it to be leased to industry as an aid to the civilian economy." (118) The law's principal purpose has receded into history, but the act's secondary purpose has increased in importance and significance. On August 5, 1947, the Leasing Statute was enacted. (119)
C. The Leasing Statute's Era of Limited Use
After 1947, the statute entered an extended period of dormancy. With the exception of a recodification of the military statutes which occurred in 1956, (120) the Leasing Act was virtually unused until 1959 when the United States Supreme Court considered United States v. 93.970 Acres. (121) A central issue in 93.970 Acres was whether a military department could revoke a lease of property of "strategic value," thereby rendering it ineligible for disposal as surplus. (122) The Court held that the federal government's right to revoke a lease was not restricted to occasions when it desired to use the land for purposes expressly laid out in the actual lease. (123) Notice of revocation only required the "signatures of the Secretaries of the Army and Navy stating that a national emergency declared by the President in 1950 was still in effect and that both Secretaries deemed revocation of the lease essential." (124) The Court determined that the law applicable at the time the lease was signed permitted a lease to be terminated at any time, (125) Therefore, the lease was revocable.
1. The Leasing Statute Affirmed by the Courts
The Supreme Court did not specifically address the applicability of the Leasing Statute in 93.970 Acres, but it assumed that the statute applied. (126) The opportunity to directly test the applicability of the Leasing Statute finally arose the same year that the Supreme Court decided 93.970 Acres. In 1950, the Department of the Army offered two government-owned warehouses for lease at a Sub-Depot of Benicia Arsenal located in Stockton, California. (127) The offer was for the buildings to be leased for one year that would end in June 1951. (128) The offer also contained a provision that any lease was "revocable at will by the Secretary of the Army." (129) Maco Warehouse Company ("Maco Warehouse") was selected as lessee and signed a lease with the Department of the Army. (130) Before signing the lease, Maco Warehouse stated the revocability provision "would interfere with [its] intended use of the property as a warehouse." (131) Maco Warehouse was told that the provision was "required by statute ... and could not be eliminated[, but ...] there was in effect a regulation of the Department of the Army stating that such leases would not be revoked except for military needs which were not foreseen at the time the leases were executed," (132) On June 23, 1950, Maco Warehouse signed the lease and at the end of four months, 90 percent of the available space had been rented. (133) On June 26, 1950, hostilities broke out in Korea, and the military suddenly had an urgent need for warehouse space in the Stockton area, given its proximity to the port of San Francisco. (134) That day, the Quartermaster General requested the Chief of Staff to transfer jurisdiction over the Stockton Sub-Depot to another General Depot. (135) On August 25, the Quartermaster General formally requested the Chief of Staff to terminate the lease for military necessity. (136)
On September 8 and in response to this request, the Assistant Chief of Staff pointed out that the "cancellation of [Maco Warehouse's] lease would result in strong protests by the lessees and by local civil and political organizations." (137) He also asked the Quartermaster General to determine if alternatives were available to delay the use of the Stockton Sub-Depot until the lease expired in 1951. (138) On October 10, the Quartermaster General replied that the Sub-Depot was, in fact, needed for the war effort, so on November 1, 1950, the Department of the Army served Maco Warehouse with formal notice of revocation of the lease and gave forty-five days to vacate the warehouses. (139) By February 1, 1951, it had essentially vacated the space; (140) however, before leaving, Maco Warehouse had made improvements to the property which it claimed the federal government had requested and for which it had not been paid. (141) On July 5, 1955, legislation was introduced on behalf of Maco Warehouse to reimburse it for the costs associated with this lease. (142) On March 6, 1956, the House of Representatives referred the matter to the United States Court of Claims. (143)
Without addressing the monetary claims raised by Maco Warehouse which the Court of Claims considered, it is helpful to understand why the court nonetheless affirmed the Department of the Army's action in revoking the lease as "entirely lawful." (144) Maco Warehouse was the victim of "misfortune and disappointment" when hostilities erupted shortly after the lease was signed, but Army officials "used their honest judgment as to the country's military needs for storage space" when they revoked the lease. (145) The court stated that "[t]here was no reason why, having expressly reserved the right of revocation, the Army should seek out other storage space at inconvenient locations and at added expense. Military needs were given priority, and were legally and equitably entitled to such priority." (146) Equitable relief, which Maco Warehouse sought from Congress, "is designed to protect the citizen against loss through arbitrary although lawful actions on the part of the Government." (147) Not only was the Army acting lawfully, it actions were not arbitrary; therefore, the court affirmed the Leasing Statute as a lawful exercise of the military's authority. (148)
In Hingham Management Corporation v. United States, the Court of Claims affirmed the Department of the Navy's termination of a lease of government property during a national emergency prior to the lease's expiration. (149) Maco Warehouse and Hingham Management were important because they underscored two important aspects of the Leasing Statute, first, they confirmed that leases were a lawful exercise of the military departments' authority delegated to them by Congress. (150) Second, the Leasing Statute could be exercised--at least as it pertained to revocation of leases--only upon a presidential declaration of emergency. (151)
2. Broadening the Leasing Statute's Application
Just as the law's enactment was a general reflection of the country--namely, the mobilization of the entire country in the war effort--the first major change occurred in the context of broader changes in the United States. In 1975, the United States started to realign and close several military installations throughout the country. (152) This revision occurred when Congress amended the Leasing Statute by adding language "designed to overcome the prohibition contained in [the law] against the leasing of property which is 'excess' to one of the [military [departments." (153) The Leasing Statute was amended to give the military departments the "the ability to place the excess military real property in interim productive civilian use through leasing, pending ultimate disposition by the General Services Administration." (154) Putting military property to "productive civilian use" would become an important part of the Leasing Statute in the future, and Congress adopted this change on October 7, 1975. (155)
3. Eliminating the Leasing Statute's "National Emergency" Requirement
The second major change occurred when Congress addressed the "national emergency" requirement in the Leasing Statute. This amendment also reflected the political climate in the country. Prior to 1975, one of the Leasing Statute's key provisions required the declaration of a national emergency before the military departments could revoke leases of military property. (156) In 1972, Congress began examining the ways through which executive power had expanded through the exercise of emergency declarations. (157) By 1975, Congress identified specific sections to repeal, where powers exercised by the executive branch were invoked by the declaration of a national emergency. (158) The Leasing Statute contained one of these sections. (159) The change was adopted in 1976. (160)
Even if the underlying rationale for the National Emergencies Act was to limit executive power, its effect on the Leasing Statute had the opposite effect. The deletion of the statutory requirement that a lease be revocable by the military department only during a national emergency gave "the [military] departments ... the option of either including, or not including such a requirement in their leases" (161) at their discretion. The military departments now had increased flexibility when entering into real property leases, because they could agree to lease terms based on the specifics of particular transactions instead of rigid requirements of law. In other words, the military departments' authority to lease their property expanded greatly.
D. The Leasing Statute Begins to Be Used More Frequently
Over the next several years, the Leasing Statute underwent technical amendments (162) and its implementation was affected by a federal circuit court case. (163) Taken together, these developments were important steps in the Leasing Statute's evolution toward becoming the "modern" law that currently exists. First, in City and County of San Francisco v. United States, the court determined that, with the exception of analysis for abuse of discretion, "action taken pursuant to [the Leasing Statute] is committed to agency discretion and is non-reviewable." (164) The next phase of its development occurred as the Leasing Statute became a tool for environmental stewardship to be used in connection with the overall maintenance of federal lands on military installations. This occurred through two amendments.
1. Using the Leasing Statute for Environmental Management Purposes
The first amendment occurred when the Leasing Statute evolved from maintaining the industrial capacity of the United States to managing all military property. In 1981, the General Accounting Office issued a report to Congress outlining deficiencies in the way the Department of Defense managed federal property. (165) This report expressly stated that department lands were held "in trust" for a variety of purposes. (166) Department of Defense land managers were responsible for managing the department's "vast natural resources ... under the multiple-use principle." (167) The report identified ways in which the department's resources were not fully utilized, and it highlighted ways that additional revenue could be generated through a variety of means. (168) Significantly, the report specifically identified agricultural leases as an area which provided value to the department and which, with additional planning and oversight, could provide additional value. (169) The report then identified "a factor which contribute[d] to the apparent lack of management emphasis on leasing." (170) In contrast to the forestry and fish and wildlife programs, which were allowed to retain income derived from those programs to continue operations, "income derived from agricultural leases on military lands [could not] be used by the [military departments]." (171)
The report became the basis for congressional action. (172) As a direct result of the report's findings, Congress amended the Leasing Statute to "authorize the use of rental receipts derived from agricultural and grazing leases on military lands to (a) finance multiple use land management programs on military installations and (b) cover administrative costs associated with such leasing." (173) This change permitted "lease proceeds [to be used] for administration and multiple land use management expenses [would] provide the necessary incentive to installation commanders to expand their programs." (174) Not only would lands not presently leased be identified and improved, but these programs would then be "better integrated into the overall operation and management of each installation." (175) It was expected that this change would generate income in excess of actual costs needed to administer the program, and the net increase in funds was to be deposited in the Treasury. (176) The change was adopted in 1982. (177)
2. Authorization to Keep Proceeds of Leases on Defense Department Land
The next amendment was made at the request of the executive branch. Before 1990, "rent for leases of property under the control of the Department [of Defense was required to] be deposited into the Treasury as miscellaneous receipts, except for rent received under a lease for agricultural or grazing purposes." (178) The requested amendment would authorize "[o]ne half of the proceeds of [these] leases to be returned to the installation ... to be used to cover the administrative costs of the lease, real property maintenance, or environmental restoration." (179) The other half "would be deposited with the [individual military department] involved for use to meet [d]epartment-wide real property maintenance or environmental restoration requirements." (180)
The amendment was to have two main effects. First, it was hoped that "installation commanders and other real property managers within a military department [would now] examine their immediate land use requirements with a view to increasing the use of leases where deemed appropriate." (181) The second effect of this proposed change would be to address the increasing backlog in deferred maintenance across the military departments. Through this amendment, an installation commander who was "faced [with or found] that there [was] serious long-term deferral of maintenance that [was] routine [would be given] the opportunity... [to] receive the proceeds from the [lease]." (182) The only real objections to this proposal were that it gave authority to the Department of Defense and not to other agencies, and that it incentivized behavior that was already required." (183) These objections did not prevail, and the measure was adopted November 5, 1990. (184)
Two additional amendments to the Leasing Statute were made over the next two years. Both amendments were relatively minor--the first was a technical amendment (185) and the second clarified that military property had to be leased at fair market value (186)--but they presaged a significant change of which the Leasing Statute was a small part but which would affect the Leasing Statute's use for several years.
E. The Leasing Statute's Use Expands through the BRAC Process
In the early 1980s, "broad consensus [existed] that, among the approximately 3,800 military bases ... in the United States, many could be closed without significant detrimental effect to national security." (187) Base closures had occurred prior to this period, but they had generally been regarded as an executive branch function and were conducted with little input from the Congress. In 1977, statutory authority for closing obsolete and excess military installations was granted, (188) but the statute imposed onerous procedural requirements for the Department of Defense to follow before proceeding. (189) Closure or realignment of military installations could cause acute hardship in the affected communities while the benefits would be broadly diffused among citizens and taxpayers, (190) so members of Congress formed coalitions to protect threatened installations through the legislative process. (191) In addition, "Congress mandated that the Department of Defense...comply with the requirements of the National Environmental Policy Act...before closings could occur. This requirement made the base closure process far more complex, and each case required a year or more to conclude." (192) As practical effect of these requirements, virtually no major military installations closed over the next decade. (193)
1. Military Base Closure and Consolidation
On May 3, 1988, the Secretary of Defense "chartered the Defense Secretary's Commission on Base Realignment and Closure." (194) On December 29, 1988, the "Carlucci Commission" (named after then-Secretary of Defense Frank C. Carlucci who appointed the panel) issued its report and recommended closure and realignment of 145 military installations. (195) On October 24, 1988 and in the middle of this bureaucratic and legislative maneuvering, Congress passed the Defense Authorization Amendments and Base Closure and Realignment Act of 1988.196 This act authorized the Secretary of Defense to establish a commission comprised of twelve individuals (197) that would recommend military installations for closure or realignment. (198) The recommendations would then be transmitted to Congress, and Congress would act on the recommendations. (199) In contrast to previous closure and realignment efforts, "Congress could accept or reject the entire list of actions, but [it] could not make changes to the commission's list of recommended actions." (200) Nowhere near that amount actually closed, but this marked the beginning of a dramatic transformation that affected virtually every aspect of the armed forces, including use of the Leasing Statute. (201)
In 1989, the Berlin Wall fell and the Communist governments in Eastern Europe were overthrown. Suddenly, the United States had excess military capacity in the form of both real and personal property. In fact, the process to dispose of surplus military property had already begun. On August 2, 1990, the President of the United States announced a "new defense strategy, which shifted focus from Cold War deterrence to regional threats." (202) This new defense strategy facilitated "a [twenty-five] percent reduction in force structure and personnel." (203) At approximately the same time, Congress enacted the Base Realignment and Closure Act of 1990, (204) which authorized three additional rounds of base closure and realignment, and which "provide[d] the basic framework for the transfer and disposal of military installations closed during the base realignment and closure ... process." (205) In April 1991, the first realignment and closure recommendation was made. (206)
2. The Leasing Statute Becomes a BRAC Tool
The full force of the realignment and closure process did not take effect immediately, but once its effects started to be felt, the Leasing Statute became a significant tool in the process. When the first amendment to the Leasing Statute in connection with this process occurred in 1993, two realignment and closure rounds had occurred, and the impact on affected communities was just beginning. (207) This amendment made three significant changes. First, it authorized the leasing of real or personal property on a military base subject to closure "pending final disposition" of the property if the Secretary "determine[d] that such a lease would facilitate [s]tate or local economic adjustment effort." (208) Second, it authorized the military secretary to "accept consideration in an amount that is less than the fair market value of the lease interest" if either "a public interest [would] be served as a result of the lease," or if "the fair market value of the lease is  unobtainable, or  not compatible with such public benefit." (209) Third, it directed the military department to consult with the Environmental Protection Agency "to determine whether the environmental condition of the property proposed for leasing is such that the lease of the property is advisable." (210)
The reasons for these amendments were clear and are best explained by examples. In Myrtle Beach, South Carolina, the Department of Defense announced its intent to close Myrtle Beach Air Force Base and transfer the land to new owners. (211) Among other facilities at the base was a golf course. Local officials expressed interest in acquiring the golf course, because as a resort community, golf was something the community "did well." (212) However, the law made a transfer very difficult. As a result, the golf course was unused, notwithstanding that even a temporary lease could have put it to beneficial use. (213)
With regard to fair market value, the existing law required that fair market value be used when proceeding with a transaction involving Department of Defense property. However, this approach was problematic when dealing with installations targeted for closure. For one thing, uncertainty surrounding such properties increased the risk of investment to the point that private credit could not be secured. (214) This concern was also echoed by the executive branch. (215) Finally, it was necessary to understand the nature and extent of any environmental contamination that had occurred, because "[u]nder the Comprehensive Environmental Response, Compensation, and Liability Act..., the [federal] government could not transfer land outside federal ownership until it agreed that all remedial action necessary to protect human health and the environment had been taken." (216) This amendment ensured that military property subject to closure could be put to productive use before a transfer actually occurred. (217) It also provided flexibility to the military departments to begin the transfer process in a way that did not burden the affected communities. (218)
Toward the end of the legislative process for this amendment, Congress commented on the competing interests involved in realignment and closure process:
One interest is the remediation of the contamination on an expedited basis and reducing or eliminating any health hazards associated with the contamination so the property can be transferred from federal control. Another interest is the community's desire to generate new jobs, often using facilities located on environmentally contaminated parcels of land. (219)
One purpose of this change was to ameliorate the potential loss of jobs associated with the closing or realigning military facility by allowing property to be conveyed free or at a discount for economic development. (220) Another purpose of this change was to give new property owners the ability to begin putting the property to beneficial use while also preserving the military department's ability to clean up contaminated parcels of land. Under the applicable environmental laws, a new property owner who acquired former military property without proper remediation could be liable for a potentially substantial cleanup. (221) Under the existing law, short-term leases which were authorized presented an obstacle to entities seeking financing from capital markets to reuse the property. (222) Leases were part of that process because they could encourage and facilitate reinvestment on these properties where cleanup was not yet complete. But if the property was leased and "[i]f the lease [was] too short, redevelopment prospects would be discouraged from making the necessary capital investment.... The leases should be for the length of time necessary to foster redevelopment but not so long as to discourage the cleanup of the property as expeditiously as possible." (223) This amendment was enacted November 20, 1993. (224)
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|Title Annotation:||Introduction through III. History and Development of the Leasing Statute, 10 U.S.C. s. 2667 E. The Leasing Statute's Use Expands through the BRAC Process 2. The Leasing Statute Becomes a BRAC Tool, p. 161-195|
|Author:||DeVore, Douglas E., II|
|Publication:||Air Force Law Review|
|Date:||Dec 22, 2014|
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