1. Steps to Assume Management of Fort Monroe
Fort Monroe FADA
Steps to Assume
Management of Fort Monroe
We are two budget cycles away from taking over Fort Monroe. I need your help, because we are running out of time.
Refer to early meetings w/finance committee staff in December and meeting with several of our Legislators: Senator Mill, Senator Locke, Senator Norment, Delegate Hamilton, Secretary Brown & Deputy and others.
This meeting is to talk about next year’s budget of $3.1 million, and we need to get it funded.
However, we have far greater challenges ahead of us.
Just to remind you of the scope of work, The Army has a staff of 400 people and a budget of $15 million annually to cover operation and maintenance cost at Fort Monroe. The FMFADA has a staff of 4 people and a state allocation of $921,651. Since FM is a BRAC closure we are receiving support from OEA, but that support is not open ended. Our current OEA grant expires on Dec. 31, Future funding is not certain.

2. Goals FY2010 to FY2016
Achieve economic sustainability that generates a reliable return on investment for the Commonwealth from Fort Monroe, a 570-acre historic town that Virginia will own and operate in three years.
Management Objectives:
Transition 2.4 million square feet of prime, waterfront, real estate from Army occupancy to short and long-term private leases.
Preserve landmark structures and add new mixed use development and in-fill housing.
Provide recreational opportunities for public enjoyment.
Provide educational public programs to encourage heritage tourism.
We are working on an interim strategy aimed at keeping the buildings occupied. From September, 2011 until 2016, we will offer short-term leases of 1 to 2 years.
Short-term rentals do not require support from the mortgage industry, so we buy some time for property values to stabilize.
This will produce less revenue and increase FMFADA maintenance cost, so we have adjusted our projections. This means some upfront funding will be needed from the state but in the long term, the return on investment will be greater. And, it buys us time until the mortgage lending becomes available for long-term (50 year) leases.
The advantage of this strategy is that it keeps the buildings occupied, saving us the cost of mothballing procedures, extra security cost of unoccupied structures, and increased rehabilitation and insurance cost of buildings that are not occupied. Key point is that it delivers immediate revenue, captures the existing demand for housing at Fort Monroe because it allows the current residents the option of remaining in place.

3. FMFADA needs seed money to achieve economic sustainability
Today, FMFADA is seeking)
funding for an operating budget of $3.1 million for FY (property transfer--15 months
Next year, the operating budget for FY 2011 is estimated to increase to $4.6 million. (property transfer--3 months)
Immediately following the 2011 transfer, a capital reserve of $40 million will be required with a $30 million reserve to standardize infrastructure, roads, utility systems and more environmental flood controls along with an additional $10 million for building improvements. (Drawdown over 5 years)
In addition to the $40M reserve, budget and shortfall estimates for:
FY 2012 $6.7 million
FY 2013 $5.9 million
FY 2014 $5.3 million
FY $2.1 million
FY 2016 $1.65 million
FY 2017 Anticipate Fort Monroe will cover expenses.
By FY 2021 revenue sufficient for FMFADA to issue bonds to repay Commonwealth
($40M or existing balance)
The challenge before us is to develop a business plan that finances the $40 million in capital improvements required immediately upon the take over of the Fort. And, fund the O&M cost combined with the FMFADA budget shortfall of $20 million from 2012 to 2015.
We have to add to this the pre-transfer FMFADA budget of $3.1 million for 2010 and next year’s $4.6 million for 2011.
We will add four people next year, and more FTEs the following year. We hope to contract out most of the Fort Monroe O&M after takeover but we still have to come up with the money to pay for it until we have enough revenue to breakeven.
We know, our analysis makes it clear that we are going to need state funding for the next six years. We are determined to be proactive, and I want to present the challenges and some possible solutions.
We have to ramp up the FTEs to manage the state’s buildings and land, that without inflation, will be valued at $417 million at build-out.

4. Capabilities and Limitations
The Fort Monroe FADA is a political subdivision of the Commonwealth with enabling legislation to function independently and finance its operations and staffing needs.
However, it is limited by an economic model that includes many unknowns. We have to be able to move quickly and independence is key to the flexibility we need.
The FMFADA needs to set up its own financial system and have professional staff and adequate oversight to operate it. This would streamline communications and decision making from state to FMFADA—only one agency responsible instead of multiple state agencies involved in different aspects of the project. This would allow us to carry over grant funds from one fiscal year to the next. We have $300,000 in grant funds at risk now and we need approve to keep the funds. (We have discussed this w/Secretary Brown and others of his staff.)
The Fort Monroe FADA is developing a financial model, with pricing assumptions, and revenues expected from 2011 to However, I need to point out that we must continue to fine tune these estimates, annually. We still have unknown cost and multiple issues to resolve before the transfer.
And, —any one of them may change our O&M cost. For example:
*BRAC closure led Army to stop flood control measures---We need Federal funding to continue this work-$11 million needed?
*FMFADA must negotiate with area utilities and municipal providers for services—police, fire, street, electric, water wastewater and grounds maintenance. Extensive discussions/meetings are underway with City of Hampton.
*Infrastructure conditions are largely unknown: must complete studies and bring systems up to modern standards.

5. FMFADA needs to operate as Political Subdivision
Move the FMFADA from the Department of Housing and Community Development to an independent arrangement similar to the one used for Virginia Economic Development.
Management Plan
Fund the interim budget of the FMFADA until 2011 property transfer $7.7 million, (2010) $3.1 (2011) $4.6
FY 2012 to FY Fund budget short fall $20 million
Set up Capital Reserve $40 million – anticipate bond money
Convene state financial agencies to develop a short and long term financing plan for Fort Monroe
Move the FMFADA from the Department of Community and Housing Development to an independent arrangement similar to the one used for Virginia Economic Development. Commonwealth needs to fund the interim budget of the FMFADA until transfer of the site in 2011 and the $40 million in capital improvements needed immediately after the 570 acre site is transferred.
Management Plan:
Short-term rental is response to market conditions, that will allow the FMFADA to generate cash flow to help bridge the gap until lending can be secured by possible lease holders. The 2.4 million square feet of historic property and non-historic buildings will be made available, as they are vacated, on short-term rentals of 1 to 3 years, until We would like to retain professional real estate management. Strict Historic Preservation standards require staff to assure compliance.
As opportunities are presented for long-term leases, we will implement them but not at fire-sale prices. It is to our advantage to wait until the market works through the toxic inventory. We have a prime location and the return is worth the wait.

6. Risks and Rewards Risks Addressing Risk Rewards
The real estate industry may take five years to work though current toxic asset inventory, therefore short-term rentals may be our best option to produce income.
Mothballing of buildings will result in an increased cost of rehabilitation. This will add millions of dollars to current estimates.
Addressing Risk
FMFADA needs resources to generate revenue.
Rewards
Expected pay-off exceeds operational cost, and Fort Monroe will achieve economic sustainability.
We recommend a team from the Treasury Board and State Finance Agencies work with FMFADA to explore ways to finance capital and operation/maintenance needs of the 570 acre site. So, we can development a Management Plan that factors in current market conditions.
FMFADA powers are broad, we need to be able to exercise them and have some independence from rigid state systems to manage and develop Fort Monroe.