FISCAL NOTE

Date Requested: February 05, 2020
Time Requested: 11:37 AM
Agency: Real Estate Division, WV
CBD Number: Version: Bill Number: Resolution Number:
2272 Introduced HB4701
CBD Subject: Real and Personal Property


FUND(S):

Real Estate Division (RED)

Sources of Revenue:

General Fund

Legislation creates:

Creates New Expense, Creates New Program



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


Summarize in a clear and concise manner what impact this measure will have on costs and revenues of state government. The Real Estate Division understands and supports the need to develop, establish, implement and evaluate a comprehensive and proactive real property asset management framework to improve the efficiency of each spending unit’s management of real property. But implementation of such a complex and ambitious state-wide program, as described in the proposed bill, together with the subsequent evaluation of 169 separate spending units, will involve significant new costs. There has been some prior work on a system known as wvOASIS Phase “E,” which included modules for real estate division, facilities and fleet-management. But funding for that project was removed before the framework was operational. In addition, the proposed real estate module was limited in what it could do and focused more on management of state buildings and leases. The proposed bill seems to be focused more on providing direction for agencies to develop a comprehensive approach to real property asset management, incorporating strategic planning, capital planning and operations, leadership support, and evaluation and improvement of asset management practices. Given the current budget constraints, one option would be a phased approach involving enforcement of the current real property reporting requirements developed by the Legislature over the past 2 years, with concurrent studies and planning for an acceptable real property management framework, followed by future development, implementation and evaluation of the framework (subject to availability of funds). But successful implementation of any such framework will involve significant new costs. A. COST IMPACT: The new costs required to develop, establish, implement and evaluate a comprehensive state-wide program for Real Property Asset Management, as provided in the proposed bill, could reach approximately 1.6M initially, due to the very specialized and technical nature of the requirement, and approximately 1M to maintain annually. These costs include, but are not limited to: 1. Consultant(s) familiar with development of real property asset management frameworks consistent with the required standards and best practices – 250,000 (est.); 2. Additional staff with appropriate expertise – 737,000; 3. Office space - 26,120; 4. Furniture, computers and phones - 46,376; 5. Appropriate Asset Portfolio Management Software - 250,000; 6. Continuous software maintenance – 100,000; 7. ISO 55000 (OR similar) training and materials for Real Estate Division staff – 8,777; 8. Conferences, training and materials for staff of each spending unit – 116,700; 9. Travel for staff of spending units - Unknown; and 10. Addition of fleet vehicles - 14,400 B. REVENUE IMPACT: Implementation could potentially generate additional revenue through efficiency, but we have insufficient data currently to provide an estimate on revenue.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2020
Increase/Decrease
(use"-")
2021
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 1,549,373 1,003,697
Personal Services 0 987,000 737,000
Current Expenses 0 35,596 35,596
Repairs and Alterations 0 0 0
Assets 0 36,900 0
Other 0 131,000 131,000
2. Estimated Total Revenues 0 0 0


Explanation of above estimates (including long-range effect):


Please explain increases and decreases in personal services, current expenses, repairs and alterations, assets, other costs and revenues, including assumptions and data sources and delineation between start-up and ongoing costs. Please also include a long-range schedule of costs and revenues if fiscal impact is expected to vary in future years. Explanation of Estimates Estimated Total Cost = Personal Services, plus other expenses (e.g., offices, furniture, equipment, appropriate software, software maintenance, consultants, training, state-wide conferences, travel, fleet, etc.) Estimated Total Revenue = Unknown The Real Estate Division is not currently equipped to design and implement a complex and expansive program, such as that anticipated in this bill. The Division currently has 21 employees, of which 11 are assigned to the Parking Section. The other 10 include supervisors, administrative personnel, and real estate specialists, who manage approximately 550 operational leases and assist state agencies with diverse real estate projects around the state, including acquisition and disposition of real property. None of the current employees are specifically trained on the real property asset management standards and best practices mentioned in the proposed statute (e.g., ISO 55000 standards, etc.). The Real Estate Division also has insufficient staff for effective performance evaluation of spending units. To implement the bill, the Real Estate Division will require additional staff and training, and will incur additional expenses, as outlined above. The proposed increases in personal services, current expenses, assets and other costs are based upon known values related to current operations. Ongoing costs will be lower once a framework is in place.



Memorandum


Please identify any areas of vagueness, technical defects, reasons a bill would not have a fiscal impact, and/or any special issues not captured elsewhere on this form. A. Status of Real Property Reporting and Ongoing Management Progress Over the last 2 years, the state has made some progress on tracking real property. On March 3, 2018, the West Virginia Legislature passed HB4236 “to amend and reenact §5A-10-9 of the Code of West Virginia, 1931” requiring “agencies to provide an annual inventory of real property holdings to the Real Estate Division; removing the exemption of certain agencies from reporting property holdings to the Real Estate Division; clarifying the information to be reported annually by agencies; and requiring an annual report by the Real Estate Division to the Governor and Legislature.” The Act was codified in W. Va. Code §5A-10-9 (2018). Pursuant to the provisions of W. Va. Code §5A-10-9(a) and (b), “All real property owned or leased by the state shall be accounted for by the state spending unit that owns, leases or is in the possession of the real property” and “each state spending unit” must maintain a record of each item of real property it owns and/or leases and “annually furnish its records to the Real Estate Division.” On March 1, 2019, the Legislature, through SB 157, authorized revisions to the Real Estate Division’s Legislative Rule regarding “Leasing of Space and Acquisition of Real Property on Behalf of State Spending Units,” as set forth in 148 CSR 19, by requiring each state spending unit to “annually report its real property inventory in the centralized accounting system maintained by the Enterprise Resource Planning Board [wvOASIS].” On June 21, 2019, the Real Estate Division provided a report to the Governor and Joint Committee on Government and Finance pursuant to W. Va. Code §5A-10-9(c). The report was based upon information provided by each state spending unit in wvOASIS. Some state spending units were more responsive than others and the available information regarding real property assets is only as good as the information submitted by each of the 169 different spending units in wvOASIS. B. Proposed New Statute The purpose of this bill is to require the Real Estate Division of the Department of Administration to develop and implement a new comprehensive real property asset management framework. The Real Estate Division understands and supports the need to develop, establish, implement and evaluate a comprehensive and proactive real property asset management framework to improve the efficiency of each spending unit’s management of real property assets. However, implementation of such a complex and ambitious state-wide program, as described in the proposed bill, and the subsequent evaluation of 169 separate spending units, will involve significant new costs. C. Potential Issues The proposed bill appears to follow guidance from a study completed by the federal government, which suggests the need for a proactive real property management framework. Although such programs typically address all fixed assets, this one is focused primarily on real property. Regardless, such endeavors typically involve significant investments of time and resources. Without additional funding, the Real Estate Division is not currently equipped to design and implement a complex and expansive program, such as that anticipated in this bill. The Division currently has 21 employees, of which 11 are assigned to the Parking Section. The other 10 include supervisors, administrative personnel, and real estate specialists, who manage approximately 550 operational leases and assist state agencies with diverse real estate projects around the state, including acquisition and disposition of real property. None of the current employees are specifically trained on the real property asset management standards and best practices mentioned in the proposed statute (e.g., ISO 55000 standards, etc.). The Real Estate Division also has insufficient staff for effective performance evaluation of all spending units. In addition, the current Real Estate Division statute (W.Va. Code §5A-10-2) contains multiple exceptions and exclusions applicable to various agencies, including: (1) Division of Highways; (2) Division of Natural Resources; (3) The Higher Education Policy Commission; (4) The West Virginia Council for Community and Technical College Education; (5) The Institutional Boards of Governors; (6) the Department of Agriculture; (7) the West Virginia State Conservation Committee; (8) The Adjutant General's Department; and (9) the West Virginia National Guard (W. Va. Code §5A-10-2). To the Extent the new statute requires oversight of these additional agencies, which manage most of the state’s real property assets, would add a significant requirement to the Division, and may cause confusion among agencies. Some of the larger agencies, which are currently exempt from the provisions of W. Va. Code §5A-10-2, such as West Virginia Division of Highways, also have specific Real Property Management statutory and regulatory constructs consistent with Federal requirements already in place (e.g., Division of Highways, W. Va. Code §17-2A-19, “Sale, Exchange, or Lease of Real Property,” and 157 CSR 2, “Disposal, Lease and Management of Real Property and Appurtenant Structures”). D. Potential Revisions to the Current Draft if Funding is Available Assuming funding is available for the proposed bill, consider deleting the requirement for “life-cycle cost estimates” mentioned on line 9, because that typically refers to other types of fixed assets, such as buildings. To include these estimates would require involvement of other state agencies, such as the Department of Administration, General Services Division and/or Finance, and anticipates a much broader framework. Also, within the current proposed statute, the word “asset,” without reference to “real property” in certain areas is potentially vague. Consider adding the words “real property” before the word “asset,” both in the title and throughout the statute including on lines 3, 10, 21, 24, 27, and 31. E. Potential Solutions Given Budget Constraints Assuming there is insufficient funding for the proposed bill, one option would be a phased approach involving enforcement of the current real property reporting construct developed by the Legislature over the past 2 years, with concurrent studies and planning (consistent with the new bill) for an acceptable real property management framework, followed by future development, implementation and evaluation of a comprehensive real property asset management framework (subject to availability of future funds). In addition, there should be some repercussion for agencies that fail to accurately report their real property in wvOASIS, as required by the current statute and rule. But in order to assess agency compliance, the Real Estate Division would still need at least some additional funding for personnel to conduct an actual audit of each agency’s real property report in wvOASIS, with a penalty for agencies failing to accurately report their real property in wvOASIS. For example, if a report appears inadequate, the agency head might be required to appear before the Committee to explain why, or provide a written report. If the state can develop an accurate listing of all real property in wvOASIS, which was a goal of the prior legislation in 2018 and 2019, agencies would then be in a better position to actively manage their real property. Real property management has been handled by individual state agencies since the formation of this state. It will take some time to achieve a more centralized approach with clear visibility of all real property assets. The recent statutory and rule changes over the last 2 years have enabled the state to gain at least some visibility of real property assets. And we now have an indication as to which agencies have issues with real property management. At some point, the state must shift to a proactive property management framework. But successful implementation of a comprehensive real property asset management framework will involve significant costs.



    Person submitting Fiscal Note: John K. McHugh, Executive Director RED
    Email Address: John.k.mchugh@wv.gov