FY2012 House 1 Budget Recommendation:
Issues in Brief
Deval L. Patrick, Governor
Timothy P. Murray, Lt. Governor
As the Commonwealth continues to recover from the recession, it is imperative that our state agencies take a more proactive and strategic approach to how we manage our inventory of state-owned real property and leased facilities. As a concept, strategic asset management provides a foundation from which to monitor the Commonwealth’s real property holdings and lease agreements in order to optimize return on investment, maximize value, and create economies of scale and other efficiencies that benefit the Commonwealth and its residents. Strategic asset management will lead to better and cheaper space utilization while fostering opportunities for economic development.
In practice, decisions on what to surplus and how to dispose of property as well as where to lease should be made based on objective facts and information and the overall inventory needs of all agencies (rather than just one or two) and should be applied in a systematic manner across agencies. Ultimately, the Commonwealth should be able to allocate its leased and real property locations based on a strategic approach that takes opportunities for regionalization and co-location into consideration. The Patrick-Murray Administration’s Fiscal Year 2012 H1 recommendations reflect a commitment to developing and implementing a smart strategic asset management plan that will realize savings and promote economic development opportunities for the Commonwealth.
The Commonwealth owns more than 650,000 acres of land, or one-eighth of the total land area of Massachusetts. It also owns more than 6,000 structures totaling approximately 80 million gross square feet with an assessed value of more than $8 billion. The Commonwealth leases approximately 6.8 million usable square feet at a budget cost of approximately $140 million.
As part of any Commonwealth-wide strategic asset management initiative, the Commonwealth will examine and enhance its surplus and disposition policies through increased coordination across agencies and with an eye towards economic development and value maximization and implement a Strategic Master Space Utilization Plan through annual space utilization studies with the goal of establishing standards for use of space by state agencies.
As a matter of policy, the Commonwealth will take a more proactive approach within DCAM to (1) identify State-owned real property that could be declared surplus and sold off immediately or (2) identify alternative uses for those properties that realize an economic or other benefit to the Commonwealth. Further, the Commonwealth should have a unified, systematic and collaborative approach regarding the disposition of surplus land, transferring of land and management of resources on land. All policies should have a focus on identifying opportunities for economic development, value maximization, strategic reuse and revitalization or immediate revenue in the form of land and / or building sales.
As a practical matter, the Commonwealth’s policy should be to encourage the regionalization, co-location and consolidation of state services into a single facility or adjacent facilities, whenever appropriate or applicable, to improve public service delivery, minimize duplication of facilities, increase efficiency of operations, and promote smart growth and strategic asset / economic development planning principles. The Division of Capital Asset Management will meet the above-mentioned policy recommendations through the implementation of a Strategic Master Space Utilization Plan.
By identifying under-utilized assets and piloting a new economic development / value maximization effort with MassDevelopment, substantial income can be generated in FY 2012
Towards this end, after a thorough review of state-owned real property holdings, the Inter-Secretariat Budget Team (“ISBT”) identified and examined several land holding which could be considered surplus and disposed of during FY 2012. Specifically, ISBT identified more than 180 acres and approximately 8 structures as surplus. Combined with existing surplus property sale opportunities, the Fiscal Year 2012 budget reflects $15 million in such asset sales.
ISBT also conducted a formal review of lease agreement expiration dates. The formal review identified 70 lease expirations that have already occurred in 2010, 185 lease expirations occurring over the next 18 months, or by June 30, 2012, 10 lease expirations occurring after June 30, 2012 but before January 1, 2013 and 173 lease expirations occurring between January 1, 2013 and July 31, 2032.
The total annualized cost for the 185 leases that will expire over the next 18 months is over $35 million. Assuming that agencies could negotiate a 5 -15% reduction through lease concessions or active re-negotiation, the Commonwealth could realize between $1.75 - $5.25 million in savings during Fiscal Year 2012. The Governor will file legislation in a Fiscal Year 2011 supplemental budget bill containing language that would support this component of an overall strategic asset management approach. This savings estimate reflects expiring leases only and does not reflect additional savings on account of renegotiation of longer-term leases.
Prepared by Lori Hindle, Executive Office for Administration and Finance ·
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