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