lt col rod croslen saf/iee
DESCRIPTION
Resource Valuation Sustaining Mission Capability through Better Informed Decisions & Better Asset Management. Lt Col Rod Croslen SAF/IEE. Something to Consider as We Talk. A simple accounting formula with complex relationships. Asset Value = Liabilities + Equity. Weapon Systems - PowerPoint PPT PresentationTRANSCRIPT
I n t e g r i t y - S e r v i c e - E x c e l l e n c e
Headquarters U.S. Air Force
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Resource ValuationResource ValuationSustaining Mission CapabilitySustaining Mission Capability
throughthroughBetter Informed Decisions &Better Informed Decisions &
Better Asset ManagementBetter Asset Management
Lt Col Rod Croslen
SAF/IEE
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Asset Value = Liabilities + Equity
•Weapon Systems•Infrastructure
•Built•Natural
Sometimes we put more in
this category than we should
A simple accounting formula with complex relationships
Something to Consider as We Talk
Value can be measured in both monetary and non-monetary terms
Accrued value as a result of our actions to
sustain, restore, and
modernize our infrastructure
base
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Agenda
Background
Resource Valuation for Natural InfrastructureWhat – definition, goals, and examplesWhy – the right thing to do…plusHow – using accepted and evolving business
practices
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Take Aways RV is not a new concept…it is an enhanced approach based on a synthesis
of successful business practices and emerging opportunities. RV leverages what we do today
RV is not solely about assigning a monetary value; the greatest benefit of this approach is recognizing that the value of our assets is multidimensional and we are able to leverage equity to assure mission capability
Our natural infrastructure (air, land, and water components) includes a set of assets with military, ecological, and economic value
Our valuation or under valuation of our assets factors into our investment decisions to sustain, restore, and modernize our assets for mission capability
A confluence of factors, to include Federal asset management strategies and growing competition for resources, compels us to look at new approaches to leveraging the value of our assets
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Background Starting Point:
Growing competition for resources -- air, land, and water -- supply vs demand
Increased regulation – equate to economic legislation -- rationing of resources; internalization of costs (new penalties and liabilities)
Evolving and maturing resource markets Vector:
National Agenda; Executive Orders; effective cost management Flight Plan:
Optimize Military and Ecological Value of our Assets through Enhanced Management Strategies Develop approach to better capture and leverage value of resources Beta-test enhanced methodology Integrate into corporate thinking and processes Continue to improve approach based on results Promulgate and update policy and guidance as required
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Evolving Resource Markets
http://www.lta.org/newsroom/pr_091201.htm#successMillions of Acres Conserved By Voluntary Action;
Number of Nonprofit Land Trusts At New HighCopied Jan 2005
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Transferable Development Rights
How Well Can Markets for DevelopmentRights Work? Evaluating a Farmland
Preservation ProgramVirginia McConnell, Elizabeth Kopits, and
Margaret WallsMarch 2003 • Discussion Paper 03–08
What is RV?
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Definition and Strategic Goal
What is Resource Valuation (RV)? An enhanced methodology for recognizing and appraising the
military, economic, and ecological benefits of natural infrastructure -- the air, water and land components of our resource base
Strategic Goal: Better informed decisions and smarter asset management by….. Recognizing and appraising the operational, monetary, and
ecological value of our natural infrastructure assets
Leveraging the value of our assets in strategic decisions and routine business practices to sustain, restore, and modernize the assets over their perpetual useful life
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InventoryAssets
CharacterizeAssets
AppraiseAssets(monetary
&Non-monetary
KnowledgeApplication& Informed
Decision Making
Real Property AccountsINRMPsEmission InventoriesGeospatial data sourcesEAs / EISsPermits
Military ValuationMarket ValuationBenefits TransferEmpirical Study
Asset ManagementMarket StrategyInvestment StrategyTransactionsEquity AccountingOutreach
Data----Information----
Knowledge
The imperative -- recognize and leverage natural infrastructure as a set of assets with equity value
Asset Management & Valuation
Better asset management -- doing what we do today better using existing and emerging tools
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Old vs New Paradigms
MilitaryMilitaryValueValue
EcologicalEcologicalValueValue MilitaryMilitary
ValueValue
EcologicalEcologicalValueValue
Econ
omic
Econ
omic
Valu
eVa
lue
Old Paradigm New Paradigm
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Valuing A DoD AssetNatural InfrastructureNatural Infrastructure
Air, Land, & WaterAsset Value = Liability + Equity
EcologicalValue
•Goods & Services•Cultural / social•Ecosystem Links•Goodwill•Biodiversity
EconomicValue
•Willingness to pay•Stakeholder $ value•Asset Tradability
Operational / MilitaryValue
•Military Capability•Training•Access
•Basing•Littorals•Maneuver areas•C2ISR
Essential forNational Security
Sometimes moreImportant to
Non-DoD StakeholdersInfluences financial risks…to Sustain, Restore, and Modernize
DoD Assets
Better understandingOf resource risks
And Resource opportunities
Resource capability modeling and resource valuation aid in the assessment of operational and financial risks and opportunities
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Example: Valuing and Banking Air Shed Equity
Mission Requirement: replace C-141s with thirteen C-17s at McGuire Air Force Base, which is in an ozone nonattainment area
Operational Constraint: for purposes of air quality regulation, the base has its own emissions budget within the State Implementation plan. The base had just enough NOX emission budget to cover the new planes, and was concerned because they would not be able to bring any more C-17’s to McGuire
Leveraging the Equity: the base’s successful pollution prevention program increased VOC headroom. The base negotiated with New Jersey to trade VOC headroom for NOX credits
Result: this trade will allow the base to add additional planes when needed without purchasing NOX credits worth approximately $1 million.
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Example: Leveraging the Equity in our Resources
Mission Requirement: Barksdale Air Force Base desire to reduce O&M cost drain resulting from sustainment of property. Attempted for over nine years to increase value of outleases
Operational Constraint: cannot afford to give up property; land required to sustain encroachment buffer
Leveraging the Equity: the base applied resource valuation technique to record and leverage the recreational value in lease negotiations with Commercial Oil and Gas companies
Result: gained an additional $180K per year in the lease agreements – overtime benefit accumulates
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Example:Leveraging the Value of Land Buffers
The Navy leases 85,000 acres on Navy bases to farmers, generating $2 million in revenue and saving $6 million in mowing and maintenance costs
The right types of farming can help keep sensitive areas clear of vegetation that is too high or too fire prone, and clear of birds that might hit aircraft
Farming on installations can keep family farms in business when development pressure makes farming difficult
The leases can specify the conservation techniques that protect sensitive resources
Resource valuation could be used to assist in a systematic evaluation of whether conservation buffers might benefit both the public and more DoD installations
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Example: Leveraging Equity to Attract 3rd Party Investment
In 2003, in addition to federal and conservation group spending, 15 states had ballot initiatives for land conservation funding representing over $4.35 billion in spending. Some land conservation benefits military bases as well as preserving important resources Example: The Public Lands Initiative of the Army and the
Nature Conservancy has purchased land or conservation easements (9,000 acres) to buffer Ft. Bragg and provide protection to endangered red-cockcaded woodpeckers. The Conservancy is paying half the cost. NC DOT also purchased 2,500 acres of long leaf pine next to Fort Bragg for conservation and soldier training
The Air Force is evaluating whether information about the value of the resources preserved by these purchases might spur additional “win-win” conservation initiatives
Why the new focus and enhanced methodology?
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Federal Real Property Asset ManagementExecutive Order 13327, 6 Feb 04
…promote the efficient and economical use of Federal real property resources in accordance with their value as national assets
…consider…the environmental costs associated with ownership of property, including the costs of environmental restoration and compliance activities.
…consider…the realization of equity value…
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The Context -- Strategic Decisions
Five Major Categories: 1. Acquire assets2. Book equity3. Manage assets / risk4. Outreach5. Trade / sale / lease
Examples of where we expect strategic application of RVInstallation & range planning Encroachment mitigation strategiesWeapon system beddown Environmental restoration initiativesMission expansion and realignments Range sustainmentBRAC Enhanced Use Leasing
How?
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Total Natural Resources Assets $ Value (and Description of Any Non-Monetized Ecosystem Values)
Statutory Permissions:
$ Value
Resource CharacteristicsSize, location, substrate, species,
seasonal variations, other physical asset metrics.Permit conditions, quantified discharges, credits
Services: Physical Assets--Climate Regulation, Waste Assimilation,
Disturbance Prevention, Nutrient Regulation, Habitat Provision, Soil
Formation, Pollination, Recreation, Aesthetics
Goods: Physical Assets--Water, Minerals, Crops,
Timber, Fish, Game, Non-Traditional Products, Speciesof Concern, Indicator Species
Goods: Statutory Permissions--
Permits, Water Rights, Pollutant Credits,
Restoration Credits
Monetary:Market Appraisal:Comparable Sales
Income StreamReplacement Cost
Monetary:Market Appraisal:Comparable Sales
Income StreamReplacement Cost
Monetary:Empirical Studies/Benefits Transfer:
Travel Host, Hedonic Pricing, Contingent Valuation, Substitute Cost, Avoided Cost,
Restoration Cost
Non-Monetary:Ecosystem
StudiesHabitat
EquivalencyAnalysis, Other
Physical AssetsGoods $ Value
Physical AssetsServices $ Value
Physical AssetsEcosystem Value
Step1: Characterize the assets
Step 2: Determine the goods and services present represented by the assets
Step 3: Gather relevant economic data on value of goods and services
Step 4: Apply economic or non-economic value data to the goods and services. Enter the value estimates into an accounting framework that allows aggregation
Resource Valuation Methodology Overview
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The First Comprehensive AssessmentEglin
Biodiversity Hotspots(The Nature Conservancy))
Selected Eglin Resources
Regional Context
Forests – 400,000 acres
72% of remaining old growth longleaf pine stands in world. 20-25% of remaining large tracks of longleaf pine
Wetlands – 64,299 acres
17% of wetlands in Santa Rosa, Okaloosa and Walton Counties
Barrier Islands – 16 miles
15% of remaining undeveloped coastal upland mileage in Florida Panhandle
Forests
Wetlands
Barrier Islands
Significant population
increases in last five years
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Characterization of Natural and Cultural Resources Evaluated at Eglin
Resource Characterization Goods ServicesForests 400,000 acres of Longleaf
Pine Sandhills EcosystemTimber and non-traditional forest products
Carbon sequestration, habitat provision and biodiversity, recreation*
Wetlands/Riparian 64,299 acres, 80% in good condition, 1,158 miles of streams
Timber and non-traditional forest products, fish
Water regulation and supply, waste assimilation, nutrient regulation, habitat, soil formation, disturbance prevention, recreation*, aesthetics
Barrier Islands 6,202 acres, 16 miles of barrier islands
Land value in mission (conservation) easement
Interior bay and coastline storm protection, habitat, recreation*
Cultural and Historic
1,900 discrete historic properties, archeological sites & associated artifacts.
Buildings (office, residential, laboratory, industrial), archeological sites & associated artifacts
Heritage preservation & protection, public awareness, education, research
Air Shed Resources
Historical operational emissions, emissions allowances, air shed regulatory or procedural head room
Emission rights - historical mobile, fugitive & stationary sources, permit head room
Air shed emissions head room under existing laws and regulations
Water Discharge Rights
Historical wastewater and storm water discharges, NPDES/other permit allowances and actual use
“Rights” to historical discharges within NPDES/other permit allowances
“Head room” between historic use and NPDES/other permit allowances
*Recreation is evaluated separately
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Example:Forest Service Valuations
Carbon Sequestration:
• 14,000,000 tonnes of carbon sequestered/annually*
• 51,380,000 tonnes of CO2
• Market Value of CO2 : $0.84 / tonne**
Total Value : $42 M annually
*Carbon sequestration based on DoD study on Carbon Sequestration on Military Lands 2001, US Forest Service
**Source: Chicago Climate Exchange
Note: Carbon sequestration does not include the releaseof emissions in the air from prescribed burning. These
are in effect a no net gain or loss into the airshed.
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Eglin Valuation Summary
ResourceAverage Market Value for Goods
Average Non-Market Value
for Services
Total Notional
ValueLand (Barrier Islands)
Land ValueStorm Protection
$390MN/A
N/A $22M
N/A N/A
Land/WaterRecreation
Transfer. Dev. RightPermit Sales: $208K/Yr
$1.08B$11M/Yr N/A
$1.08BLand (Forests)
Timber SalesCarbon Sequestration
Biodiversity
$1.2M/Yr$42.6M/Yr*
N/A
N/AN/A
$26M/Yr
N/A$42.6M/Yr
N/ASelected Cultural, Historic Resources
$370M Tax Credit: $1.6M
N/AN/A
N/A$1.6M
Air (Emission Rights) $2B/Yr N/A $2B/Yr
Water (Discharge Rights) $6.6M/Yr N/A $6.6M/Yr
Wetlands/Riparian N/A $187M/Yr N/A
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Take Aways RV is not a new concept…it is an enhanced approach based on a synthesis
of successful business practices and emerging opportunities. RV leverages what we do today
RV is not solely about assigning a monetary value; the greatest benefit of this approach is recognizing that the value of our assets is multidimensional and we are able to leverage equity to assure mission capability
Our natural infrastructure (air, land, and water components) includes a set of assets with military, ecological, and economic value
Our valuation or under valuation of our assets factors into our investment decisions to sustain, restore, and modernize our assets for mission capability
A confluence of factors, to include Federal asset management strategies and growing competition for resources, compels us to look at new approaches to leveraging the value of our assets
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Questions / Comments?
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Approaches to Economic Valuation
Empirical Studies Primary research using one or more specific valuation techniques;
e.g., contingent valuation (surveying people to determine what they would be willing to pay for a good or service)
Market Appraisal Market data based on comparable sales, income stream, and/or
replacement costs Applies to air credits, pollution credits, historic resources, land
values, other goods and services Benefits Transfer
Meta-approach that uses input from primary empirical studies (market and non-market) to generate values associated with natural resource goods and services
Can be applied at various levels of detail
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State of RV Processes / Standards
Air
Land
Water
Filters & Business Rules
Asset Database
Inventories Valuation Factors
MarketFactors
FederalValuationGuidelines
IndustryStandards
NRV = [Qty * f(Resource Value)]
Mature processes and products; move towards integration
Mature practices for land assets; emerging market forces and standards for air and water
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Turning Ideas…into…Practice…into…Results
Conceptual Actionable
Testable
Compliant
MeasurableResults
Use empirical data to generate knowledge Develop policy
•Processes•Standards•Funding•Metrics
Market and Corporate Factors
An Evolutionary Construct – success breeds more success