New Laws Establish Procedural Framework for Disposition of D.C.-Owned Property
In the second half of 2009, the Council of the District of Columbia unanimously passed two bills aimed at addressing perceived deficiencies in the disposition and development of District-owned property: The District Land Disposition Amendment Act of 2009 (the Land Disposition Amendment), which took effect on October 22, 2009, and The Public Land Surplus Standards Amendment Act of 2009 (the Surplus Land Amendment), which is projected to become law on March 10, 2010. Sponsors of the new laws believe that they will provide clarity and bring a level of transparency to the surplus land and disposition processes. Others, particularly in the building industry, worry that the additional procedural requirements and Council oversight could inject uncertainty and impede negotiations for public-private development. Following is a discussion of the laws and some of the issues that have been raised by the new statutory requirements.
District Land Disposition Amendment Act of 2009
In many respects, the Land Disposition Amendment sets out a useful road map for Council approval. At the public hearing held on June 26, 2009, Councilmember Kwame Brown, who chairs the Committee on Economic Development and introduced the legislation, stated, “[t]he Land Disposition Amendment Act will allow the Council to conduct its review in a prompt manner by identifying the basic information that is required concurrent with the request. In addition, it will provide business owners, neighborhood groups, and other citizens with a set of clear expectations regarding the land disposition process.”
The Land Disposition Amendment requires that any resolution transmitted to the Council for land disposition approval contain several specific findings. In addition to information about the developer and intended use of the subject property, the resolution must include a finding that the developer will contract with Certified Business Enterprises (CBEs) for at least 35 percent of the contract dollar volume of the project, and will require at least 20 percent equity and 20 percent development participation of CBEs. The resolution must also find that the developer will enter into a First Source Agreement with the District; detail the proposed method of land disposition; and include a statement requiring consistency between the documents submitted to the Council and the executed Memorandum of Understanding or term sheet for the proposed development project.
The resolution for land disposition approval must be accompanied by an analysis, prepared by the mayor, of the economic factors that were considered in proposing the disposition; an executed term sheet or Memorandum of Understanding between the District and the selected developer; and an appraisal performed within 12 months of transmission of the proposed resolution. Further, any development project where the total value of the government assistance is greater than $10 million must provide a description of the project funding and financing plan. In addition, all development projects requiring government assistance must include a land disposition agreement between the District and the selected developer, any community benefits agreement between the developer and the relevant community, if any, and a CBE agreement.
In the past, the mayor had the authority to modify an agreement between the District and a developer where changes in circumstances dictated the modification. Under the Land Disposition Amendment, any substantive change(s) made to the term sheet or Memorandum of Understanding, after the land disposition resolution was transmitted to and approved by the Council, must be submitted to Council for a 30-day review period. The building industry believes this is problematic because the law broadly defines substantive change as “a change that makes the agreement inconsistent with the executed Memorandum of Understanding or term sheet transmitted with the proposed resolution.” This definition offers plenty of room for interpretation, and therefore subjects any change to a term sheet or Memorandum of Understanding, however minor, to a potential challenge or review. Also, since projects are often developed over a number of years and circumstances are likely to change during that time, the requirement that both the mayor and the Council must approve any “substantive” changes in the deal injects uncertainty in the development process.
In his remarks for the public hearing held on June 24, 2009 before the Committee on Economic Development, W. Christopher Smith, Jr., then the president of the District of Columbia Building Industry Association, wrote, “Developers will not be inclined to undertake the costs of all of the formal commitments called for – only to then risk the prospect of further open-ended and potentially adversarial re-negotiations to obtain Council approvals.”
The building industry has also raised concerns about the Land Disposition Amendment’s CBE provision, which requires that CBEs have a minimum of 20 percent equity in a development project. Specifically, some question whether many small and minority partners have the financial capacity to provide the 20 percent equity required under the law. If not, this could result in a smaller pool of eligible CBEs for public-private development projects.
Public Land Surplus Standards Amendment Act of 2009
The most recent practice of the Council was to simultaneously consider surplus land and land disposition agreements; these matters are now bifurcated under the new laws. Whereas the Land Disposition Amendment established the procedures for land disposition approval, the Surplus Land Amendment delineates separate procedures for determining whether District-owned real property is no longer required for public purposes, and therefore can be classified as surplus property – thereby extending and expanding the approval process for the development of District-owned property. Specifically, the legislation requires the mayor to submit to the Council, for a 90-day review period, a proposed resolution that includes a detailed explanation regarding any real property the mayor believes is no longer required for public purposes. The resolution must also be accompanied by: (i) an analysis of whether the real property has any necessary use by the District; (ii) an explanation of why the determination that the real property is no longer required for public purposes is in the best interests of the District; and (iii) a summary of the public comments received at the required public hearing. The legislation is intended to give charter schools priority over surplus land of D.C. Public Schools (DCPS) by requiring the mayor to issue an expedited report on whether the property will be disposed of for use by a charter school or another District agency. If the report is not filed within 90 days of the surplus land determination, the DCPS property will be open for multiple development proposals and the disposition of the DCPS site will be subject to the new statutory requirements.
The Surplus Land Amendment also renames the Office of Property Management the Department of Real Estate Services (the Department), and establishes six primary organizational functions for the agency. The Department will include the Portfolio Division, the Construction Division, and the Contracting and Procurement Division. The Portfolio Division will coordinate lease administration, allocation of owned and leased properties to District agencies, property acquisition and disposition, fixed-cost forecasting for District facilities, and rent collection from entities leasing District-owned property. The Construction Division will implement and oversee the Department’s capital improvement program for client agencies within the District and execute the capital budget program, which includes rehabilitation of existing real property facilities and construction of new facilities supporting the District. The Contracting and Procurement Division will provide services and support in procuring for the District construction, architecture and engineering services; facilities maintenance and operation services; real estate asset management services, including leasing and auditing; and utility contracts and security services. The Department will also be responsible for maintaining an inventory of the District’s real property assets and making it available to the Council and the public, as specified in the legislation.
Lastly, the Surplus Land Amendment creates a District Facilities Planning Advisory Committee whose purpose is to advise the Council on the information maintained and managed by the Department; also, to make recommendations to the Council on the standards, reports or plans prepared by the mayor for District-owned facilities. The Committee will be composed of seven members: three appointed by the Chairman of the Council, one appointed by the chair of the Committee on Government Operations and the Environment, one appointed by the chair of the Committee on Economic Development, and two appointed by the mayor.
The Surplus Land Amendment has been described by opponents as a “regulatory overreach” that could adversely impact private development of the District’s surplus property. On the other hand, its proponents maintain that the legislation merely codifies the current review and approval processes for the disposition of surplus land, and will have little impact, if any, on the review and approval process for public-private development deals.
It is too soon to know the effects of the new surplus land and land disposition laws. Although the Council believes the new laws will improve the process for reviewing and approving the disposition of District-owned property, many in the building industry are concerned that the additional procedural requirements will serve as an impediment to public-private development projects. The outcome will depend in large part on the manner, spirit and timeframes in which the mayor and the Council undertake their duties under the legislation, as well as on the response from other stakeholders in the land disposition process – including community groups and, ultimately, the courts. For now, all concerned parties must be prepared to push forward their agendas within the new statutory framework, a highly charged political climate and the worst real estate market in decades.