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Joint | June 22, 2015 | Committee Room | Legislative Program Evaluation Oversight

Full MP3 Audio File

Many of the amending of the joint set program evaluation oversight committee will come to order at 4:04 and a half. How unusual we might be a little bit late, it has never happened before much. I would like to begin by introducing our Sergeant at Arm for the Senate. No, yes for the Senate Charles Jeffrey, somewhere to my left. Terry Bon Hurt and Jim Hamilton. Thank you all very much. From the house Reggi Seals[sp?] Marvin Lee, Terry Magrol[sp?] thank you very much. No pages this morning, this afternoon not yet, a little early Senator Hudson will be coming through the door momentarily. I'd give you a little song and dance but you've heard enough of my songs and dances. So, while we prepare I'm going to ask Mr. Turcotte to make a few [xx] Mr. Chairman and members, Dr. Meg Kunde who has been working with us now for two years, she came here on a fellowship, and she has contributed at an extremely high level. She managed a Personal Service Contract Report. She also led one of the projects under QNEN[sp?] dealing with fire and emergency management. She also served on five other teams, and she has recently been hired by Augustana. Augustana. Augustana College. Augustana in Rock Island, Illinois! That's it. My goodness gracious where I grew up! She's going to be on the faculty there teaching Political applications is that correct? Ma'am anyway I'd like to ask the committee if they don't mind to give her a little round of applause for her contribution. That's terrific congratulation for going to Augustana College beautiful little campus over looking the mighty Mississippi River. Great place I did grow up up there left there in 1962 but I never went back not to taint[sp?] a message you understand. Our first order of regular business is the approval of the May 18th minutes first are there any corrections, additions, subtractions, deviations hearing none Senator Clark moves for the approval of the minutes. Any reason to discuss to if not all in favor say aye.   Aye Those opposed no the ayes have it thank you very much. today we have a presentation by Mr. Sean Hamel,  Senior Evaluator, to present the PED report entitled North Carolina Should Dispose Unneeded Real Property  and Improve Portfolio Management. Anticipating a quorum which I think we already have or may have, we have the committee will take a vote on a motion or not, it's up to you all. I do expect that we should be able to have time for some discussion as well as any comments from those joining us from the public and other sectors. So, with that, Sean, Mr. Hamel please proceed. Good afternoon, Mr. Chairman, members. My name is Sean Hamel, I'm a Senior Evaluator with the Program Evaluation Division. Today I'll be presenting a report entitled North Carolina Should Dispose of Unneeded Real Property and Improve Portfolio Management to Reduce Costs. My presentation will take about 30 minutes after which I'll be happy to take happy to answer any questions at the direction of the Chair. Today you should have in front of you a copy of the full report, today's slides which I'll be briefing from in two handouts, one double-sided blue handout and a yellow handout. I will refer to both during my briefing. Brent Lucas and Pamela Taylor join me on this evaluation, we really want to acknowledge the cooperation we received from the Department of Administration's State Property Office and State Agencies and University of North Carolina constituent institutions particularly the Department of Agriculture, Commerce, Health and Human Safety, Public Safety,

I'm sorry Health and Human Services, Public Safety and who all help facilitate 49 different site inspections. The purpose of this evaluation was to examine the State's disposition process for real property. Real Property is defined as all leased or owned land, buildings, warehouses, storage or other type structures. Now, Disposition is the process for identifying and disposing of unused, underutilized surplus real property. It's important to note this evaluation does not include real property classified as Right Of Way that are owned and managed by the Department of Transportation. Our report has four findings. First, disposing of unneeded real property and eliminating leases in favor of optimizing the use of state owned property would generate an estimated 14.3 million in one-time savings and 2.6 million in future cost avoidance now this is a conservative estimate because it's based upon a sample that cannot be generalized across the entire portfolio of real property. Second North Carolina lacks a process to systematically identify surplus real property. Third the department of Administration does not effectively control and manage the states portfolio of real property, and last discrepancies in the database and insufficient access controls jeopardize the completeness, accuracy, and security of North Carolina inventories of real property. To address this findings the general assembly should modify statute and direct DOA to comprehensively manage the states portfolio of real property through more robust planning, performance management, and oversight reporting. It should direct DOA to modify the state's inventory of real property to improve it's completeness accuracy and security and require all state agencies to collect, track, and report data on state owned and leased property and maintain a facility management plan furthermore DOA should be directed to dispose of 17 unneeded property identified in this report and take measures to optimize the use of state owned property by eliminating the us of unneeded leases. I'll provide a bit of background information on the states portfolio of real property but let me begin by saying you're going to see the number of photos throughout this report this photos were taken during our 49 site inspections the aerial map the aerial photographs are courtesy of Google Earth. The state has a large portfolio of real property as the table shows state own real property in all 100 counties it occupies at leases in more than three quarters of county in total the state occupies more than 97 million square feet of leased and owned buildings that  service offers storage, education on other space this asset include games land to a 23rd square foot lease of office spacing to a 14 storage state owned building located here within the capital complex altogether the estimated value of states real property is more than $271/2 billion, the state law charges the department of administration with the responsibility to acquire, dispose and managed stated owned property and leases on behalf of the state agencies as part of board duties and powers over real property control DOA has several numerous duties which includes maintaining an accurate and complete inventory, acquiring and disposing real property and leases space allocation and agents oversight which includes authority to acquire agencies to make report on land and building and any form DOA deems necessary. Now recall from earlier slide disposing is a process for identifying and disposing unused or under utilised or surplus real property with that system identifying and disposing unneeded property is important because retain unneeded asset has several negative consequences such as loss of value and tax revenue, but most of all it is just inefficient use of limited resources given the size, value and diversity of the state portfolio real property it is necessary to ensure the state has in place inefficient ineffective system for real property disposition. Our evaluation resulted in four findings.

First, disposing of unneeded real property and eliminating leases in favor of optimizing the use of state owned property would generate an estimated one time savings of 14.3 million as well as 2.6 million in future cost avoidance. Now initially we had expected to use the Department Administrations Database to identify unused and underutilized real property. However PED'S review of this database revealed two major short comings. First state inventory does not track critical asset performance measures. As you'll see in finding two this data are critical when trying to identify unneeded property. Second PED could not verify the accuracy and completeness of the State's inventory which will be discussed in finding four. For our site inspections we selected composed samples of leased and owned property in Wake and surrounding counties. This sampling included property identified by State Agencies as unused, underutilized or no longer serving a programmatic need and property selected by PED. We drew upon a proposed of sampling because the reliability and validity of the data couldn't be assured. As I said in total we conducted 49 different site inspections, where the evaluation team physically measured unassigned or unused space We discuss space plans with agency officials and reviewed leasing documents. The double sided blue handout, provides a summary of all 49 inspections. These observations allow the evaluation team to conclude, that the state retains interest in real property that is underutilized vacant, or no longer serving programmatic need. The following slides will provide detail this conclusion. Now just a few blocks the east of this building, DOA has 12 vacant homes. These properties were constructed between 1870 and 1947. There is no record of how long these houses have been vacant. Site inspections confirm, that no state agencies regularly conducts business at this properties. One building the Heck Andrews house has remained vacant since the state acquired it, under the Martin administration more than 20 years ago. Observations from site inspections and data collection show these homes are in need of substantial repair work, it is estimated the state will have to invest over 18 million just to renovate these homes for use disposing of these properties through sale, could generate an estimated 11 million in one time revenue and store more than hundred dollars annually to the late country tax pace according to officials of the department of agriculture and consumer services there are 4 properties no longer serving a programmatic need sail this property can generate 1.8 million in one time revenue I will quickly move to the description of each in the next four slots this site was once intended need to be a large stack and a large stack show in sale facility as the picture show there is no such facility ever developed search large just near state quarter is just over 45 acres its estimated value is just shy of $1000 000 this site is located in Fairgoer county this property in Gifford county is just over 6 acres is located across the road from pima trade farmers market it was purchased with intended to expand the market but as you can see development never occured this property is evaluated and estimated $190 000 the third property is located in Dublin county as a former diagnostics lab with almost 9 square feet of lab space the facility is located located and just over 5 acres and is across the road from local line maker estimated value of this land facility $700000 in mystery the small piece of property in New hand over county located just across the street in the port authority in moment, it once served as a calibration station but it is now vacant it's estimated value just over $100,

000 but due to it's size and location and tension mediation needs it makes it less attractive for disposal by sale. Now the Department of Public Safety retains an underutilized storage facility located on US 70, U. S. Highway 70 in Garner, this property is a little more than 8 acres of land and consists of three small buildings totaling more than 10, 000 square feet. Buildings are used for storage and occasional material fabrication as the protocol also show properties used for collection vehicles weighed to be up fit or decommisioned This property is not staffed, PED has determined existing storage and fabrication functions can be performed at other DPS on facilities or state on facilities freeing up this site for disposal, to sell this property would generate an estimated 1.4 million in one-time revenue, we also found many cases where the need for a lease space could be eliminated by relocating operations to underutilized state owned space, during our site inspections we identified three state owned with more than 30, 000 square feet of unused space this three state owned properties sufficient space available to accommodate one or more leases in total there are seven leases expiring within the next year the location of this leases are nearby this three buildings and the lease based requirements could be accommodated by existing space in one of those state owned buildings this would result in an estimated a 2.6 million in future cost avoidance. To summarize we conducted 49 different site inspections for state property that show he state retains interest in real property that is underutilized vacant or no longer serving in properties for disposal and seven leases it could be avoided and consolidated into used state owned space this disposal and consolidation will generate an estimated saving of 14.3 million as well 2.6 in future cost avoidance although the estimated one time revenue in cost avoidance savings cannot be generalized state wide we are confident of regular systematic review state property would yield additional opportunities for disposal and consolidation of assets to reduce cost systematically identifying surplus real property as definition clear procedures and monitoring and identifying the appropriate performance measures at present North Carolina lacks the definition process and data which perform this function federal codes best identify surplus property as assets that are unused or underutilized. In 2003 session law in North Carolina defined surplus real property as land or buildings that are unused or underutilised. However, the Session Law was never courtified in this definition surplus real property expired in 2005. Currently, state law only refers to surplus real property, but does not define the term. Absence statutory definition, or criteria for surplus real property, the department of administration has delegated the responsibility to identify unneeded property state agencies. However, D. O. A does not provide guidance or criteria of how and when to determine if an asset is no longer needed. When state agencies identify unneeded property they wish to dispose off, they require to submit an application to D. O. A to begin the disposal process thus the process of identifying unneeded property relies on each agency's ability and willingness to do so The Federal government has established standards for real property data collection however, the Department of Administration State Owned Property Office, does not maintain the data necessary, to make informed decisions regarding the disposition of real property. This table shows, four critical data elements. As you can see, none of these data elements are fully track within the state the real property database. Good news though in many cases this data do exist. A program evaluation survey of agencies show that 39% track in collect this four data, on the individual asset level. Collecting this four performance measures is important because they service

indicators for identifying underused and inefficient assets. Incorporating this data, into the state database will require DOA to develop adequate guidance and procedures to collect and measure this data, and a process to verify agency data in order to ensure consistency state wide. Over the past 20 and 25 years, property management has evolved from a discipline focused on managing individual buildings to one focused on the total performance of a portfolio of assets. Our findings show the Department of Administration does not effectively control and manage the state's portfolio of real property. Portfolio management seeks to optimize the financial performance of a portfolio leased and owned assets by setting strategic priorities, performance management, benchmarking, utilization monitoring and disposing of unneeded properties. DOA has not established any strategic priorities for the State's portfolio of real property. There is no system to manage the performance of the states portfolio, DOA does not conduct any benchmarking nor which they are attracted to which an asset is being used and in this position relies in agencies to voluntarily identify asset that are no longer needed. This occurs without any formalised process or criteria in defination for surplus property the reporting is an important function for ensuring the performance of a portfolio. The reporting in a structure or D. O. A is charged with the control of real property and agencies and institutions are responsible for the day to day operation and management requires agencies institutions to report to D. O. A on individual assets and D. O. A to report on the portfolio as a whole currently State Law grants D. O. A the authority to require any State Agency to make reports on its land and buildings, however D. O. A any agency reporting. DOA's reporting to the general assembly on the portfolio is minimal at best currently decision makers receive information almost a 1% of the total value of the State's portfolio of real property. Now the State Property Office will tell you that the office lacks the resources necessary to more comprehensively manage the state's portfolio, but states like Georgia have shown how this capacity can be found. Georgia's State Property Commission is the administrative body similar to our state's Property Office in its responsibility to control and oversee real property. This office is outsourced new and existing lease transactions to a commercial real estate firm at no cost to the State of Georgia. The vendor brokers multi-year leases on behalf of the State and earns it's commission from landlords for executing the lease. In addition, a portion of the vendor's earnings goes into a fund that the State Property Commission can use to procure assistance on other strategic priorities related to the State's portfolio. The state of Georgia estimates this contract has result in 834 million in cost avoidance since 2013 we estimate outsourcing similar to this could free up nearly 11 full time equivalent positions within the state property office. These individuals could be reassigned to carry out practices and activities more closely aligned with managing and controlling the states portfolio of real property. Finally finding for discrepancies in the state property database and insufficient access controls jeopardize the completeness accuracy and security of North Carolina inventory of real property. As I mentioned before state law requires DOA to prepare and keep current a complete and accurate inventory of state land and buildings owned and leased by the state or any state agency. We found several examples where the inventory is neither complete nor accurate. We found instances where buildings owned by the State were not listed as part of the inventory, for example, that picture of the fire damaged home allocated to DPS on the background slide does not exist in the State's inventory of buildings. There was allocated space at sites that was not recorded as part of the inventory, and there was vacant property not listed as vacant.

We even saw instances where property used by the State Bureau of Investigation still fell under the allocation of the Department of Justice despite being transferred nearly a year ago to DPS. These inaccuracies can be attributed to the lack of reconciliation process. Currently, DOA relies on the discretion of each agency to review its records against the State Property Office database in order to identify and report discrepancies. A Program Evaluation Division survey of agencies and institutions found only 6% of agencies reconciled property records on a regular basis. The other 94% reconcile ad hoc or not at all. Furthermore, we found access controls jeopardized the security of the state's database. State property office databases is available online and allows members of the general public to search property records. We were able to access a public report that listed all authorized users. We identified what appeared to be an administrator account, and gained access to administrative functions. Once logged into the system under the administration tab, we were able to add or delete agency users, modify fields and reports and formats of reports that are run from the database for public users. Now PED notified DOA of this and the department corrected the issue for that one account we tested access security six months later, using what appeared to be another administrator account and found the same deficiencies. Now NCID is our state standard identity management and access service. The service provides a high degree of security and access control to real time resources. DOA plans to have NCID implemented by the end of fiscal year 2015. Based on these findings we have five recommendations, first the general assembly should direct the department of administration, to actively manage the state's portfolio of real property and modify state law to ensure the department is complying with this mandate. The general assembly should amend state law and direct DOA to develop and implement a statewise stratigic facilities plan and performance management system, for the states portfolio real property DOA should be required to establish baseline utilization data, by developing procedures for measuring utilization, and collecting utilization data on all leased and owned buildings and structures. Working in consultation and coordination with state agencies there should be directed to working consultation and coordination state agencies to drive the rules to finding surplus real property and develop a system that continuously identify, and dispose real property deemed as being surplus, and lastly the general assembly should amend state law to improve oversight and reporting of state portfolio real property. Our second recommendation, the General Assembly should direct DOA to modify the state of inventory of real property to ensure it's completeness, accuracy and security. To ensure improved oversight reporting, DOA will need to monitor states database to include the following data elements listed on the slide, DOA believes most fields can easily be added to the database. It's important to note as part of location data each asset should have the latitude and longitude recorded as part of this information, and utilization data should be provided as a numerical ration or index value of used or unused space. To ensure standard interpretation of all these elements DOA should be required to define each element and develop procedures for collecting this data state wide. Lastly to improve the security the state inventory real property, the General Assembly should direct DOA to comply with state wide policies and procedures for information security by directing the use of NCID, North Carolina's Identity Management service or access to the real property database. Third, the General Assembly should require all state agencies to collect, track, and report on state owned and leased space they occupy, and maintain the current facilities management plan to ensure DOA is able

to effectively manage the state's real property portfolio, the general Assembly should require all state agencies to collect and track the data that provides information on the performance of each allocated to each agency, and perform an annual reconciliation and report discrepancies found to DOA, and to develop a 5 year property management plan and submit it to DOA for review which would serve as the basis for the state wide strategic facilities plan . Recommendations 4: The General Assembly should direct the department of administration to dispose of the unused, unneeded and underutilized property identified in this report. And from a limited sample, PED identified 17 properties for disposal, 16 of which could generate an estimated 14. 3 million in one time revenue if sold. These properties are allocated to three agencies, the Department of Administration, Department of Agriculture and consumer services in the Department of Public Safety. The yellow handout shows how the General Assembly should direct DOA to handle the disposition of each. A cost associated with the sale of property can be charged against the State's land fund. An agency should be allowed to retain up to 25% of net proceeds unless otherwise specified in statute. Lastly, the General Assembly should direct DOA to review request to acquire new or renew existing lease space to determine whether suitable State owned space exists to meet lease requirements. Most immediately, DOA should work to allocate underutilized State owned space to meet the needs of seven expiring leases identified in the finding of one of this report. In the inner room, until DOA has established basing utilisation data on all real property agencies should be required to search existing holdings for excess space prior to or seeking prior to renewing or seeking new leases. Once baseline utilisation data has been established, D. O. A should be required to analyse lease proposals against utilisation data this would ensure D. O. A has the data and information to enforce current State Law which requires the use of State Owned Property in [xx] of leasing. In summary, we found disposing of assets and optimizing state owned space would result in one time savings and recurring future cost avoidance. The State cannot systematically identify surplus real property, the Department of Administration is not managing the portfolio of real property. In discrepancies in the State Property of its data base and insufficient access controls jeopardise the completeness, act and accuracy and security of North Carolina's inventory real property. To address this, the General Assembly should modify statute and direct delay to comprehensively manage the State's portfolio real property to borrow best planning, performance management and oversight. Should modify the State's inventory of real property to improve its completeness, accuracy and security and require all State agencies to collect, track and report data on State owned and lease space and keep current. So what is management plan? Furthermore, delay should be directed to dispose of unneeded property identified in this report and take measures to optimize the use of State owned property by eliminating unneeded leases. As members of this committee, you have a few options in response to this report. The committee may accept the report or vote to oppose appropriate committees and all instruct staff to dress legislation based on any other report recommendations. This report which includes a response from the Department of Administration is available on our website. Now, Proper Evaluation Division took exception to the agencies' formal response as we felt some of the assertions were a bit misleading. So, we took the opportunity to respond to many of the points found in the formal response, this can be found on page 43 of the full report. I believe representative from the

Department of Administration as well as Department of Public Safety are here today to answer any question you may have. Mr. Chairman, I'll now take questions in your direction. Thank you very much Sean, here's how we are going to go forward with the process, if any of our members has questions for Mr. Hammer and then we are going to hear from [xx] wishes to speak or anyone else wishes to speak and then we we'll work on action from there. So with that, representative Lukas. Thank you Mr. Chair Mr. Hammer item 17 on the blue sheet, the [xx] at the farmer's market is that the one [xx] If we navigate to this slide, it shows the picture. This property is just South of I- 40 now I'm not sure if it's off of sandy ridge road. Yes sir, I believe it is and the question is, are you making a reference to the farmers market itself or the property adjacent to the farmers market?  If I can refer you to the map that's up on the screen the property highlighted in gold is the property were referencing Now this was originally picked up in the thought of expanding the market, and this was several years ago it was never done the property of Agriculture and Consumer Services has identified this is a property no longer needed so. Yes I'm quite familiar with that now I think probably the state could do well to sell that piece of property again I don't know if you really done an estimate on that, but if you notice west of that there's a substantial upscale housing development that's right behind that. I was there a couple of weeks ago and the farmers market itself first I had a little pause because I thought you were making reference to the farmers market itself. I couldn't find a park over there it was so busy. We were not referencing to the farmers market, but the property adjacent. I will have you know that the estimates we have on the evaluation are the accessed values at the county level. We did not make any sort of appraisal on any of the properties. Representative Farmer-Butterfield. Thank you, Mr. Chair. He just answered my question, I was trying to figure how you got the estimated value on the properties And Representative Turner. Thank you Mr Chair. Are you aware of the history of the homes within the Raleigh area and why they were purchased by the state? I'm not personally aware of any of the history, I think that's probably a question that is better addressed by any the folks at the Department of Administration or even within cultural resources. I'm not sure the intent behind the purchase of homes. Follow up Yes, follow up thank you.  And if they have continued to be vacant what condition would you assess them at this point? As our site inspections and data request show there was an estimated $18 million worth of renovation that was needed across these homes to bring them up to use Further questions? Any other members, the committee with questions for Representative Harley. Thank you, Mr. Chair. I am just curious, 870 acres and et cetera, and it's taken evidently years to get all this bought, and now if we do sell some or whatever, I think the council stated has to come to the Council Estate if I'm correct, I may be wrong. But, do they just get to buy this property regardless and nobody has any say or do they have to bring it before anybody before they buy this property for whatever reason? Can you again tell me which property in specifically you Any property that they've been buying, period. Because you got 870, 000 acres say, whatever you got about,  okay What you want is the process of disposition? I want to know if from going forward, if they can still buy more without any approval or any before anybody and I think it came through the council of state through the years I don't know You are actually right, council of state does require approval on acquisition of property as well as leases over a certain threshold. Now all of the state property, wasn't necessarily purchased. Some of it is left to the

state and in that, the council state, has no decision making authority on the disposition of whether to receive that property but, this is a portfolio that has now built up, over the years and indeed the council states role, is as a decision making authority. Okay, no further questions, just a, I'm sorry [xx], well I kept looking around and obviously didn't catch up. So, would the lower house go ahead. Senator Yes sir, I would like to direct your attention to slide 13 if you don't mind OK, there you indicate 2.6 million in future cost avoidances, is that an annual recurring cost savings that we're talking about here? No, that is a cost avoidance that was a subset of the seven leases that we had found that could fit into under utilized state owned space. Now, that's not even an annual cost avoidance. That figure or that estimate is based upon the previous terms of those leases, and we made the assumption that in the renewal similar terms would be found again. So we if consolidated those leases into state owned space, we would be avoiding the cost of the next turn. Follow up. Go ahead, I'm sorry I thought you'd finished. No. Appendix A and Appendix B. Now, in Appendix A you have a total of 11, 937 buildings owned by the State. It's in the back of the Report? It doesn't have a page, [xx] near the back of the Report there, and Appendix B you have a total of 9, 146 properties and I guess my question is does the 47 site that you evaluated come from that list of 11, 937 and 9, 146, sir Appendix B is the summary of state owned land That is a count that 9, 000 is a count of parcels, so in did the site we visited such as the Ark properties that was the farmers market as well as the livestock center that's part of the account similarly the 11, 937 those are buildings so every one of our site inspection the 49 is the subset of a very small a subset of what we've here in the inventory So we really do have very slow sample here We've very small sample Now I have follow up Mr. Chair how did you decide which 47 sites to survey? So what we did is we surveyed every agency as well as UNC constituent institution and based upon definitions of that we derive from Federal laws and where we can gather definitions for surplus property, we check an inventory that ask them is they have property that was under utilized, unneeded and they responded back to us with a list of propertyN Now what we did is we went out and we actually physically inspected those, but then obviously PED does a number of different evaluations and we make it to a number of different sites through out North Carolina so we had a list of buildings that we had been in that would warrant further inspection. Building, for example, as we walk through to other meeting that we had the sense felt severely under utilized, so that's how we slipped to those buildings. Other than that we were able to go to the inventory we had expected. We had hoped that we could go to state property inventory and look at utilization level, but because utilization is not measured we had no way of identifying property other than asking the agencies directly. Ok, I was somewhat amazed that 36% of the properties you surveyed determined which to get rid of this, and I know you cautioned us against generalizing but when I look out there and I see 11, 000 more properties and 9, 000 more buildings, I'm like, are we going to be anywhere close there at 30% number. I would really caution any generalization. I think what we found in the D. O. A homes which is the bookable, we identified as being vacant which had a utilization greater zero, it's because those were the only buildings that were tagged into the database as vacant. Other than that it was a one zero determination was either vacant or it was occupied, and we had no way of knowing, but I would caution against any sort of a generalization but remind that this is what more annual systematic review would potentially yield. Representative Carney Thank you Mr. Chairman.

A part of my questions have been answered but I'm just curious you may have covered this I apologize for being a little late. There're some that are 100% estimated utilization rate and you recommend retaining and I see that you have one that's 100% utilization rate and you've recommended sale, that was number 49 why? That's an interesting case. This is a facility allocated to DMV down in Wilmington and this was a piece of property that was directed years ago and I can get you the exact year in session law, to be sold. The stipulation of when was sold and the proceeds to be retained to build a new facility. So, the recommendation on that is just to adhere to the intent of that Session Law which is to dispose of that property. Maybe one more question. Go ahead. Thank you PED has done this before, I can't remember the year 2000, 7 or 5 no we have not, We have this is our first evaluation Of state property as a whole we have done an evaluation on some earths lands and in 2013 there was a house sub committee that looked at their so called process and we had started this evaluation believing by a year and half a go but we wanted to see what the result about house subcommittee were before we continue the evaluation, so it was postponed.  More? Sure.  Representative from Georgia. What is that process and what is there. We requested data and RP from Georgia and in fact this was a contract there was no cost to the state, the broker retains a fee that is paid for by the [xx] and George estimates that has saved the state as 8.4 million since 2013, Senator [xx] Thank you Mr. Speaker just have a series of questions and then I will wait answer for more and ask more later Thank you Mr. Hamer could you once again for the committee tell us, what statute does or does not say to the resposibilty of statutory requirement that would like to requirement for the DOA their property office and [xx] office we expect the legislation to give to make sure we all understand what the [xx] requirement are? Sure that can be found in part 143 - 341 and I go through at least but on page 5 of the full report we bullet out all the responsibilities associated with 143 and that is again re-inventory keeping an accurate and complete inventory acquire by acquisition in disposal require department institution to use state owned property in the move of leasing allocate, re allocate buildings and space until requiring any State Agency to make reports lands and buildings owned by them to DOA as deemed necessary. In general it's talk in terms of broad duties and powers over real property control administration. So is that mean that by statute they are required to we are confused whether this is statutory requirement or a broad suggestion This is stated in the statute as a enumerated duties so I don't think the legislative that was wrong direction but specifically what department of administration is required to do. May I continue series so what state can say that based on you report that we are not doing a very good job fulfilling our statutory requirements?  I think we've pointed out a number of recommendations that could improve the Department of Administration's management of the entire portfolio portfolio of real property because as we

pointed out in there were a number of deficiency associated with portfolio management can I continue Mr chair until you get tired of me? because you've got some more people wanting [xx]. OK, I understand. I would not be asking if I wasn't seeking knowledge there have been in the past I believe Miss Chamel at least a study or directives about surplus property, I think they started as far back as 2003 would it be safe to say that most these study to directives have led very little changes in management procedures or disposition of property or consolidation of leases and I'm trying to find the exact pay we point out a bullet-ed list page 20 of the report goes all the way back to 2003 which was session law that directed DOA in consultation with agencies to develop an implement assistant that would continuously identify State owned real property now there was a review again of surplus propertiy in 2011, there was a review again in 2012 is the house committee and even this year there is a senate bill to develop and implement of plan to analyze the current use of on properties so I think that we have shown that I have been repeated measures to improve real property management. One moment chair now I love [xx] on the amendment. Okay I appreciate. On page five there is a reference surety to lease property best planning that makes the comment to second vote under bottom page. Talks about for fewer than three years I have got the question as to deservedly led through into potential extention in other words if agents meet their requirement of a three year lease even though there could be fewer three three years. There is a chance they did not apply under [xx] is that right? I will have to ask DOA to address that but the way I understand it is this is for the initial lease and a point for that is simply, it seems to me if we are going to be potentially exposing our state over three years with extensions, we'd probably would need some more, a little bit more safe guards in place. That's all for now Mr. Chair. Thank you Senator Representative Turner you had another question. Thank you. Am I correct that we were evaluating, at a point in time so you don't. But are you aware of any plans for development of any other properties, or anticipated expansions? All of that is addressed in kind of a six year capital expanssion request that are required by agencies to submit. We we're looking at this at our point in time when field work began January December time frame to the point we closed out several weeks ago. And again we were limited to looking at the the disposition process, which kind of bled over into portfolio management so we did not look at the future capital expansion plans. Follow up. Also when we refer to the leased property and that we own property that there's leased agreements be moved into our own property. Would there be a cost to renovation or are those properties able to receive the work? environment as they are We did not go into each one of the seven leases to determine the feasibility of each lease fading in there. We recognize space requirements would fit they were office tight lease spaces and I think the real point of that analysis was to show we had three buildings within the capital area with 30, 000 plus square of unused space and we continually have leases that are coming for exploration that can fit non-used state on the space Representative Farmer Butterfield I wanted to ask a couple of questions if I have one year's in loot in the link the time it took to lose this. How long did it take how many staff were there, three staff and what period of time? I was the led on it myself Pamela Taylor and Brand Lucas. I was three-quarter on this and they will probably each half on this and so we maybe had one and a half [xx] it took about six months to perform all the field work OK follow, yes ma'am.

In terms of contracts what about leased properties using state dollars are they a part of these at all? Absolutely, the leased properties that we looked at using state dollars you can see that appendix C on the last page of the report is the portfolio of leased property that we included in this evaluation. It's close to $65 million worth of leases you'll see on the blue and I can give you. If I could do the math quickly. On the blue hand out the third column labelled interest shows all of our site inspections and whether that was an owned property or whether it was leased, and in indeed some of the leases have federal and state split. Thank you, Mr Hamon[sp?] seeing no more questions from the committee advice secretary Doctrines to come up if you'd like to address any of the issues, conclusions or respond in any way please thank you very much Mr Humphrey. Welcome Mr secretary. [xx] First of all Mr Chairman and committee I appreciate the opportunity to address committee day regarding the PED evaluation of a real property report. My comments are going to be brief since that department previously provided a formal response to the report, the North Carolina Department of Administration appreciates the work and ethics that Department of Evaluation Division has done on the study. Now responsive commentary will merely aim to provide a proper perspective on several of the conclusions for the report to assist in formulating a good policy and recommendations, certainly there's no disagreement with the funding and reform that disposed the unneeded real property and elimination of leases will generate both one term profits and long term savings and the management response outlined past efforts and processes to that effort. Unfortunately recommendations for resources of implementation in the past previously developed policies and procedure whenever [xx] A General Assembly need to recognize that disposal of real property is a cooperative effort between agencies and institutions and the Department of Administration, without complete cooperation just the identification of surplus property by the agency the department or anyone else for that matter cannot undertake the activity to meet all these expectations that we should be working toward Before we look at the PED report from an overall perspective and the lack of and the need for a comprehensive while at real estate portfolio management plan and the need for strategic facility management we threw out this whole report to that then a relatively simple change in the statute could as the agencies provide the information necessary for other department OSBM and the general Assembly get a better hand on state, real estate, portfolio and lease phase. Under the current statute, there's a six-year current capital recruitment plan that we've already talked about is due on or before December 31st in every even number year and the director of budget shall provide and transmit to the general assembly and the six year capital improvement plan. Agencies provide this information to OSBM for incorporation into the plan as a part of the capital improvement plan, agencies set forth an integrated schedule of real property acquisition new construction or rehabilitation of rehabilitation resisting facilities. In conjunction with the six year capital improvement plan, agencies should be required to provide an inventory and review of their real estate holdings and leases. identifying property deemed surplus regarding a projection regarding space needs and future leases. As a final comment, PED responded to the department's formal response and an incorporated PED's response to their published report, and we were not aware of their PED response to our response until the day before the committee meeting met so we don't have any more information, we're going to leave our report as is. Our department stands ready to implement these duties and responsibilities as authorized by the General Assembly, and with these duties and responsibilities it is the department's request that the General Assembly provide the necessary financial resources to successfully implement any of these recommendations on the report that are adopted by action of the General Assembly. So we thank you for that consideration. I just give you just one example of some things that down[sp?] the Department of Administration we have

13 things that we supposedly don't know anything about, but we actually do know something about them. One of the interesting things is, we've only had this property since 2013 because it was with a developer. We got it back We got $1.2 million by setting that deal back and giving it a process so, we got 1.2 million and 100% of the properties in our hands. Out of those properties, we plan to sell the Ashley House, the Cambridge House, the Grey House, Lamar House the Watson House and the Worth House. We plan to demolish the the McGee House, the Fayer House is going to be used for the board of elections, the Hart House will be used for the Council of Women and the Heck Andrews House is being discussed with Cultural Resources as to how to use this since its adjacent to the Governess mansion  and its needs to be kind of safety issues, we use it for bringing people in and working with on the cultural resources and in addition to Commerce. So we have ideas and plans for sale and which ones we're going to use, and keep people moving in, and that of which ones we're going to sell, and we've only been doing this for a couple of years because we've only had the property back for a couple of years. So, I think we're moving at a pretty rapid rate and doing as good as we can, but there is a whole lot of more action that needs to happen and we've expressed that information, and it's come through how all the different agencies have to do their part to get the information in and then we consolidate that and come out with a final piece of information that the General Assembly and our department can use. So that's my very quick overview, thank you. Thank you, Mr. Secretary. Are there any questions for the Secretary? Seeing none, I appreciate very much. I'm sorry, I'm sorry Senator Gunn. I was going to have a smart remark, I better not. A couple of questions and I'll make a comment. Thank you. First of all, I do want to make a comment that it is my perception that some of the deficiencies that we have seen in this report did not happen overnight. This is probably been decades long through several administration, so I'm not going to sit here and [xx] that you sir, you don't deserve that. But what we do deserve as tax payers and school reserve assets for the state is a comprehensive plan, and I would want to tell this committee that I'm very very much less concerned about recommendations for, which is the actual disposition of these properties, and much more concerned about one, two, three and five which has to do with accountability of said properties. I would ask this group not to get too focused stand on a sell of this or a sell of that, the truth of the matter is I believe that we've got a lot more work to do you cannot under stipulate and follow conclusion from Wake County I don't think that would be fair to us and to this body but I do think that we got more than Those under the [xx] everybody likes to or something that [xx] and we need to continue to do this. Another question that I would have a couple of questions for you if I may? Do you, I have a serious question as to how engage we can get our agencies to cooperate relative to providing the data that you need to do this comprehensive report and I don't do that as any disrespect to the individual agency I just kind wonder if you In your opinion think that they have the time or probably more important the will or even more important the expertise to provide this on an agency level I don't know sometimes they think this is submission [xx] so it fell like scrambling more important than in this report and there is a number of reports. One said the report in every other year and then some other one say that are done as needed, I have got my staff back here so they have more specific things need to save that they can no more about the I do so if we get down and wait some more [xx] give me out Mr. Chair and state secretary I think that this body, this legislative body in this particular administration

have a judiciary obligation to do more than haphazardly continue down the path of poor reporting, lack of thorough documentation proper analysis and transparency as relates to almost one billion dollar square feet of owned property and numerous numerous lease properties so I would to simply say that this is going to be a little bit tough love and I can't decide quite honestly to tell you whether we got a connect as to what statutory requirements are blatant disregard for what they say and maybe we are somewhere in between I agree with you the more information we know the better decision we can make and there's a whole lot of more to it than just quote will be solved today when you look at a piece of property and lease coming out and you can say well where can we move that? You have a renovation requirements and cost, and moving cost too to just moving to another building it's not like every building is set ready to go, there are additional cost, ramp that building up for the specific need that that agency would want one final question Mr Chair if I may? I do I would like to and may [xx] spot a little bit but in reading the responses relative to the Georgia commission and and using the private sector in actuality I see many, many large corporations which there is no bigger corporations North Carolina real estate property, that's big cooperation right there, use outside sources to do analysis, to negotiate leases to consolidation and I would beg to differ that using an outside source or materially affects the pricing in a negative way as relates to the value of that leisure despite that lease, and I would probably argue that somebody who was a crew, or company as true expert in the fear will have much more time And resources than the State of North Carolina is going to be able to put in an arousing and negotiating leases can you come into that?  Let me request somebody back in my group may come here for me. Come over yo the other one please, thank you, identify yourself, turn on the mic. There we go. Thank you. My name is John the leasing manager for the state property office. Alright Sir. That's a good question, but let me tell you historically where we've been back in 2005 we used that a tenant rent for the leasing process and we did that for 42 year contract and counsel that after 17 months that was with Staubach Company, and here's sort of the summation the 100 leases handled by tenant rent we're 90 cents a square foot higher than the lease state property agecy handle themselves, essentially the property agency we can't lease this that were county lease and things that wouldn't think they could add value to and wouldn't really want to do those leases this barn seems to square foot translated into about a major and a half dollars of extra expense over the 3.49 average year term of tenant representative leases take representative took more time to complete projects the average receiving fuel proposal to advertising state property office achieved before the contract begin with 29% unless proposal is received and we did some surveys to landlords and agencies in response to service only 20% of agencies zero percent of major agents and 30% of landlords believe tenants representative had added value to states lease process. Responses to other questions on the survey we request on favorable regarding the tenant representative performance and essentially what we determine when the commission was added to the final saturate so repair the price for that, we did by the price for that further question? Yes, I will offer a comment if I can I will

say that in the documentation they agreed the report, I would say that there was probably a some inadequate information to draw such a hard conclusion and I really do question and all kind of the ability that stop by company versus some of the companies under and operating in state on North Carolina as to their complication to be grad, to be there without reading point term but I have been think that based on what I so in the report it will be a little bit short sided and with D. O. A to discount the use of qualified services has listed border beyond going, we are going to make to a write this property situation we find ourselves in. Thank you, Representative Landolin. Thank you Mr. Chair. My question may go outside of the evaluation a little bit and maybe for the secretary and maybe for Mr. Hamel. But my concern is are we looking to purchase of any more property because on the appendix B, we're showing that we currently have a little over 888000 acres. Shows the counties a number of tracks of land which there's over 9000 tracks of land. So my concern, and I don't know the evaluation look at that, but are we looking to purchase any more land for the state? Who would you like to, let's asked secretary [xx] if you have a comment if not, I'll ask Mr. Hamel. That's we don't have anything in particular that we are looking at right now, but at some point in time, when you relocate agencies, you may need to [xx] your land to go with it. So it's not out of the realm of possibility, but it's not something that we have to go out there and search out a whole lot of land for a whole lot of things, because we can reuse existing property. Mr. Hamel any further comment? Shawn here, will from the evaluation division. We did not look at what was in the acquisition pipeline for the office. Follow up Follow up And I guess what threw my attention to this, in my home county we are showing the state owns 141 properties and the total acreage is almost 20, 000 acres. So it sounds like at some point in time, we must have acquired some acreage in the mountains. We got a lot of gifted land to us for parks and recreation that could be part of that land that you talking about. So we do actually quarry land every year, but most of it it's a year after. Representative Heinz I saw, excuse me Senator Heist, I didn't mean to promote you I saw you had indicated that you had a question and Representative Harley and Senator Garn start questions. Go ahead but person would like to make a motion at the appropriate time. Representative [xx]   Thank you Mr. Chair Mr, Secretary how sure are we that this is all the property that we have out there now that the state owns? In this report not 100% sure because some lands are gifted to us, and take for example that house that you saw that was burned down, it was a gift to us and then they said they're going to tear the building down, so we didn't put it on our sheet because it was supposedly to be torn down so it never got going down so with the building was there but we weren't on the sheet. So, there could be some things like that are still out there Thank you. Okay, Senator Garn. Yes there is one, I don't know if it's probably be more comment than question, but one thing that I feel as maybe we have not talked about today is the state as a landlord and are we some leases that have seen in fairly so, there are leases that should be for dollar, depends on once again is when they study with an analysis, with understanding the use of that building, I can see where we could have variations from a dollar to true market rent, but it seems to me if we're going to do any study moving forward we probably need to include how the state's doing and and what kind of information they're providing as relates to property that we're leasing either to non profits other private sector entities or  the private sector, because to me that's equally of importance. Thank you representative no she's

already spoken you mentioned gifted land, for example [xx]. So if someone has gifted land to the state propriety specified that it has to yet for certain part we cannot dispose off that land, can we? well that's a technical question that I think there are different answers to, it depends on what type of it's a wildlife variety of things sometimes it cannot change from its intended use, but that's part of the process of receiving the gift, but all gifts are not like that some of them have no control of the meadow[sp?] Representative Hurley. we're saying please thank you I know a building that was sold recently some property that was sold recently by the state and they did the lowest bid but there were several people to buy it? Can there be some other way besides the lowest bid? Can there not be 10 days grace and continue the bid? Can we not do that to get more money? Yes we can and we're actively doing that now. There's a piece of land that we're working on right now and we're looking at it coming in at significantly higher than potentially is appraised value because of the location we think we can do better than that, and we will ahead of it now we are continuing it now. So yes we do work this things to get the maximum amount we can. Alright with that before a motion Senator Heist in consultation with my Co-chair our plan is rather than a motion is we're going to appoint a subcommittee to make recommendations including recommending legislation of necessary to look a little further into all this get with your office Mr secretary, Department of Public Safety et cetera dig a little more, although we certainly realize that PED dug very deeply. We take a little bit different of an approach as legislatures to decide how we are going to go forward, and come back to the committee with specific recommendations on legislation. Given the fact that in sometimes events overtake may possibly as you mentioned Mr Secretary the need for money, the need for authority, the need for this side or the other. So with that said and in all due respect to Senator Heist were going to appoint a subcommittee of Representative Connie, Representative Davis, Representative Turner. On the Senator side Senator Gunn, Senator Clark, Senator Randleman, and Senator Gunn will be the Chairman of that committee and then ask him to report back to us at our next meeting in July. Some recommendations if you need more time let us know but that may overtake your motion but that's the intent of the chairs and Senator Heist you're recognized. Thank you Mr Chairman and I think most to hear but I'll defer to subcommittee however, I still think it would be appropriate to make a motion to accept the report. Absolutely, and that motion on the floor in discussion that motion, but seeing none all those in favor say aye. Aye. Opposed no. The ayes have it, the committee has accepted the report, we're going to refer a subcommittee chaired by Senator Gunn, and look forward to recommendations. I did not, and excuse me, is there anyone else attending that would like to comment on this report recommendation, somethings that our subcommittee should consider? And I see someone rising, please come identify yourself. Good evening? Now I'm Karen Brown, I'm the Director of Correction Enterprises. I would like to refer you to number 38 on your blue document right here that's the Department of Public Safety Owned Property. The Department of Public Safety opposes the sale of that property, and we ask that the committee not to consider that sale of that property as it would adversely impact the DPS operations due to an estimated addition of $35, 000 in annual operating expenses for the vehicles and the movement of the vehicles it was storing over there, as well as an additional $330, 085 and cost associated with moving Correction Enterprises.

Correction Enterprise is a 100% receipt supported agency. We purchased the property from DOA in 1984 for $717, 478, and we believe if the property is sold it should come back to Correction Enterprise given that we're receipt supported but we prefer that the property not be sold, the property is owned and run by correction enterprises, and we are utilizing that property. If we were forced to sell that property we would have to move other costs to correction enterprises for moving that and since we obviously supported that will be a cost to the funds of correction enterprises and there would be no cost avoidance for the state of North Carolina since we don't use any general funded moneys.  Thank you very much for coming forth, the only other thing for Senator [xx] one of the things that occurred to me is coordination with Department of commerce and [xx] development people with some of these properties. I'm aware and I'm sure there are others that are aware that there are people coming to North Carolina looking for properties and some of these by coordinating among other agencies might prove very beneficial. Seeing no more business to come before the committee at this time Sorry, we do have more business to come before the committee at this time. Pam Taylor, please. I sincerely apologise. Bad manners. It's the people I hang around with.   Thank you, Mr. Chair. And I'll make this quick. As the Chair stated, I'm Pam Taylor. I'm the Principal Evaluator in the Program Evaluation Division, and this is a status report for projects in the 2013/15 and the 2015/17 Work Plans, and you should have a copy of the slides in front of you. so to recap members of the committee, the program evaluation division has had a productive biennium. The 13 projects we've completed from the 2015 work plan have yielded 18 reports. Over the past two years, the committee has received reports on school choice options, UNC system administration, or reports regarding fire rescue, and emergency management services. Driver education, department of public instruction operations, child support services. We've also received reports on over respate pilot program. Three reports for the project that reviewed the alcohol, adult alcohol drug abuse treatment program, prescription drug abuse and program [xx]. In December 2014 you heard the report on occupational licensing agencies, in January you heard the report on licenses fees for none insurance occupations on the DOY. And then February you heard two reports the alcohol substance abuse, education prevention initiative as well use of personal services contracts and of course this committee just heard before presented by Shawn Harmal on surplus property, I want to take this opportunity to also mention the recognition division has received its reports presented on April 2014, the prescription drug abuse report received a notable back main award in 2014 from MSSL, that is a national conferences state legislatures and the grasp report of the fire rescue and EMS project that identified $8 million in surplus funds recently received an impact award from NLPS, the national legislature program evaluation society, and you may recall that PD hosted, that professional development seminar, last October. On May, 18th, this committee approved 15 projects for the 2015/17 work plan and we are started on the 2 of these projects. on finishing up three others. Of the 5 credit card projects, 3 are scheduled to be presented this year. next month, Kina Maggrey will present the report for the retiree health benefits fund, which will compare the funny stairs up of these funds to other

states, with similar funds and explore options for improving the funding statius. Then August, just Brian will present the report for the review of state agencies supplemental post tax benefits that examines insurance options offered by state agencies beyond what's available to MC flex and lastly we expect to present the report on effectiveness of economic development steer from the current work plan, this December, and Sarah Nina is a lead for that project. The reports from medicaid eligibility determination and performance of private work plan, types of government functions are expected early next year. Now we show you this week before, but we want to remind you that if at any time, you want to take a closer look at the division's court evaluations. You may do so on our website, at the evaluations page. So here you can track, the progress of each work plan project by evaluation phase. During planning, we develop research questions and engage the agency, during fieldwork, we gather the information needed to develop our findings and we conduct interviews, site visits, do administrative queries and conduct surveys and in the writing space we prepare the report and conduct a quality assurancde check according to our internal procedures. And this is where the affected agency also has the opportunity to review a confidential draft of the document before it's finalized. For projects that are underway, you may click on the link under weekly update, to get a summary of activities. These reports are updated by project leads and posted to the web around noon. And if you seen the news and observers, in the in federal part on economic development, to you and you know this website is used by people outside of the general assembly. So lastly, I would like to make you aware of four proposed studies of the program evaluation division. Three of this projects appear in different versions of 2015 appropriations bill. Section 12 F&D, in the house appropriations bill, contains a provision, for the program evaluation division, to evaluate the proposed pilot program for behavioral health. However, this committee is directed to consider, including this project in it's 2017, 2018 work plan, so a couple of years from now. The proposed committee substitute offered by the senate has two provisions affecting our division section 12B. 8 requires the director of the program evaluation division to recommend a firm to prepare the plan for merger of the child care subsidy NC pre-kindergarten or NC Pre K and the smart start programs and appropriate $300, 000 for an outside consultant. The merger plan would be due on March, 1st 2016 and then section 11.7B directs the program evaluation division to study graduation rates at UNC constituent institution and make recommendations regarding policies to increase graduation rates and no joke, this project would be due on April 1st 2016. We will keep you posted on which one of these projects wind up in the final bill. now, Senate bill 291 which was signed by the Governor on June fourth, extends the overnight respite pilot program offered by Adult Day Care facilities through June 2017. The session law requires DHHF to co-ordinate with PD to collect more detailed data that would determine if providing overnight respite services in such settings is worthwhile and lastly the session law requires us to make an interim report December of this year and final report next October. This concludes presentation I'll be happy to questions at the direction of the chair. Miss Chair  thank you very much, I would like to add that we may still be receiving the report from State Auditor on DPI we're still awaiting that, also keep that on the back on your mind Is there any questions from this table? Seeing none thank you very much, for keeping yourself updated of how to use their website, being nothing more to come before this committee this time, meeting adjourned.