Chapter IX

Review of Sample Acquisitions & Sales

To evaluate the property disposition and acquisition process, the program review committee examined 10 of the 12 sales transactions and all eight purchases conducted by DPW since 1998. In addition to DPW files, the committee also consulted files at OPM and SPRB to establish a more comprehensive database. The following chapter provides analysis and a discussion of issues raised by the committee's review.

Property Disposition

The sales price for the 10 transactions examined by the committee ranged from $1 to approximately $2 million. Five of the 10 transactions were the result of legislative acts. The properties were sold to a combination of municipalities and private developers.

Processing times. The committee divided the disposition process into three phases to facilitate analysis: property declared surplus to state's needs; offer to towns and public bid; and approval of terms. A general description of each phase was provided in the briefing paper issued October 2, 2001. The elapsed time for each phase is presented in Figure IX- 1.

Committee analysis found the total amount of time for the state to dispose of property ranged from eight months to 3.4 years. The median disposition time was slightly more than a year and half. The largest percentage of time is spent in the offer and negotiation process with interested parties. Once an agreement is made, the state's approval process usually takes about two months.

Declaring surplus property. All state agencies, departments, or institutions must notify the secretary of OPM of any unneeded real property under its custody and control. Once an agency declares property surplus, OPM gives notice to all state agencies of its availability. The program review sample found the median amount of time between when property is declared surplus to when OPM sends notice to all other agencies was 19 days. However, in one instance notice to the agencies was sent almost a year later¹¹.

Any agency wishing to use the property may submit a plan to OPM within 90 days outlining its intended use, budget, and timetable. If no agency submits a proposal to use the property, DPW, in conjunction with OPM's Asset Management staff, is responsible for its disposition. Only one of the transactions reviewed by the committee was within the 90 day response time. Overall, state agencies typically took 3.5 months to respond to OPM's notice of the property's availability.

Appraisal. The surplus property's fair market value is determined by an independent appraisal. OPM will solicit environmental studies and survey to determine property boundaries and liabilities, if any. The committee found on average it took the state about seven months from when the property was declared surplus to get an appraisal.

Table IX-1 compares the appraised value and the actual sales price for all 10 properties in the sample. As the table illustrates, when the state sold its property on the public market it usually realized a profit. Three of the five sales to the public were made for more than 25 percent over the appraised value. One was for the appraised value. The remaining transaction was transferred by legislation to a nonprofit organization for $1.¹²

Of the sales to municipalities, only one property sold for the appraised value. The remaining four properties sold to municipalities for less than the appraised value or were conveyed via legislation for administrative costs or less.

Offers to municipalities. As stated earlier, the longest part of the disposition process is the offer and negotiation process with interested parties. State law requires the municipality where the property is located must be offered the first opportunity to purchase. By statute, towns have 45 days to notify the state if they are interested in purchasing the property. The committee analysis found a wide range of response time from towns - from 20 to 377 days. The median amount of time for a municipality response was approximately five months.

If the town has interest, OPM, together with DPW staff, will work with the municipality to complete the sale. State law dictates the sale transaction be completed within 60 days of notice provided the state and the municipality agree upon the conditions of the sale and the amount to be paid. None of the property sales to municipalities reviewed by the committee were completed within the 60 days. The committee found after a municipality decided to pursue the purchase, the median amount of time to complete the transaction was six months. Therefore, the total median time for the state to offer (five months) and sell (six months) property to a municipality was approximately 11 months.

Public bids. If the municipality is not interested in acquiring the parcel, DPW and OPM may proceed with the property disposition on the open market. The DPW property agent will prepare an advertisement soliciting bids and sets a date for bid opening. The case files examined by the program review committee found advertisements to place the property in the open market usually occurred 70 days after the town had declined the first opportunity to purchase. Advertisements were placed in one to three newspapers soliciting between one to three proposals each. Proponents were selected approximately 30 days after advertisements occurred. The committee found the total median time for the state to offer and sell property on the open market was approximately four months.

Approval of terms. Once the parties reach agreement, the DPW property agent prepares a package of information which includes the appraisal report, copies of bid documents showing bid price, and any other related materials. The package must be reviewed and approved by the DPW commissioner, the OPM secretary, and the SPRB. Figure IX-2 illustrates the median amount of time for the approvals to be obtained from the required agencies is approximately two months.

The SPRB, at its discretion, may request additional information before making its decision. In the files examined by the committee, DPW typically responded to SPRB inquiries within 10 days. As mentioned in Chapter VIII, the SPRB tracks its own processing times to reflect the board's actual review time. Taking into account when proposals are sent back to DPW for further information, the committee found that SPRB's approval process is decreased from 23 to 13 days.

Once the package is approved by all parties, the legislature's Finance, Revenue and Bonding and Government Administration and Elections Committees receive a copy of sale transaction. The committees have 15 days after receipt to approve or disapprove the transaction. The committees may not change any terms or conditions of the transaction. If the committees do not act within that time frame, the transaction is considered approved. The bid proposal is then submitted to the attorney general's office for final legal review. The program review committee did not find legislative signatures in three sales transactions where they appeared to be required.

Findings. The committee findings and conclusions of the state's disposition processing times are summarized below:

• The disposition process is complex and time consuming. In none of the cases reviewed did the sales transaction fall within the 6.5 month time frame suggested in the statutes.
• The determination whether property is surplus to the state's needs takes time. State agencies typically took 3.5 months to respond to OPM's notice of the property's availability. Only one response was within the 90 day statutory requirement.
• Municipalities may require more than the statutory 45 days to decide whether to purchase state property. Only one case was found where the municipality notified the state within the statutory timeframe. The median time was approximately five months.
• Property sales to municipalities are slow. None of the property sales to towns was completed within the 60 days mentioned in statute. Once the decision is made to buy, sales to municipalities had a median processing time of six months compared to the four months typically taken by the public bidders.

Based on the review of DPW sales transactions, the committee concludes the length of the disposition process appears to be affected by several factors including the following:

• The state agencies' ability to determine whether the state has a continued need for property now or in future before declaring it surplus.
• The size, type, location, and condition of property may make it difficult to market or reuse. Some parcels cannot be converted for alternative use or may be too difficult or costly to convert.
• The statutory requirement the state offer the municipalities first opportunity to purchase prior to placing it on the open market subjects the property to local policies and procedures. The local government decision-making process can be lengthy. For example, although local zoning regulations do not apply to state-owned properties, if the property is sold it has to comply with local zoning restrictions.

Some of these obstacles are unavoidable, however, the committee also believes weak identification practices, outdated policies and procedures, and unrealistic statutory deadlines all contribute to a complex and lengthy disposition process. A discussion of these issues is provided below.

Identification of surplus property. Surplus property has been the subject of several audits and reports over the years. Some of the reports reviewed by the committee during this study which specifically address the issue of state-owned surplus property include the 1991 Thomas Commission Report (Commission to Study the Management and Efficiency of State Government) and two recent reports issued by the state auditors.¹³ The reports pointed out several areas in which the state's management of surplus property was in need of improvement. While some efforts to address concerns raised by the reports have been made, many of the basic management and policy issues identified in these reports appear to still exist.

Similar to the program review findings, the previous reports found the procedures for disposition of surplus real property to be both complex and time consuming. Among the contributing factors cited were a lack of standards or criteria to identify surplus property and a need for long range planning beyond five years.

Existing statutory language is silent as to how each state agency will determine when property is surplus to its needs. Each agency may use its own criteria. Since no standards or guidelines exists, properties can sit idle for long periods of time. Slow identification of excess property may lead to neglect and deterioration which could increase costs if the state decides to reuse the property or decrease the value if property is to be sold. Therefore, the auditor's report recommended the state develop standards and criteria for defining surplus and marginal use property and improve its long range planning.¹⁴ The program review committee concurs with these recommendations. Better and earlier identification of surplus property will assist in the state's planning and strategizing of how to best dispose unused property and may provide municipalities advance notice of possible availability.

Statutory time frames. As previously discussed, there are three statutory timeframes related to the state's disposition process:

1) State agencies have 90 days to submit plans to OPM for reuse of available surplus property. (C.G.S. § 4b-21(b))

2) Municipalities have 45 days to give written notice of its desire to purchase state property. (C.G.S.§ 3-14b (a))

3) The sale to a municipality must be completed within 60 days of the town's written notice of interest. (C.G.S. § 3-14b (c ) )

As noted above, committee analysis of sales transactions reveals these timeframes are not met. Discussions with various agency personnel suggest these statutory time frames are not realistic given the work and negotiations involved in these transactions. Agency personnel contend the spirit, if not the letter, of the law is followed which is to say that reasonable efforts are made to ensure state agencies and municipalities have ample opportunity to make their decisions. Therefore, the committee recommends:

The existing statutory deadlines be eliminated and be replaced with realistic and reasonable guidelines developed by OPM. The guidelines should be established no later than September 1, 2002.

Legislative action. Five of the 10 transactions reviewed by the committee were pursuant to legislative action. Information in the case files indicate at least two of the transactions occurred because the property did not generate public bids or experienced difficulty in obtaining other use zoning. The topic of property transferred by legislative action was also addressed in the 1991 Thomas Commission Report. The report expressed concern over the number of legislative property transfers to localities with the state receiving little or no compensation. This issue was recently examined by the state auditors who found many of the legislated transfers enacted between 1984 and 1998 did not ultimately take place. It was their recommendation that a mechanism be implemented to keep the legislative body apprised of the status of property which is to be transferred or sold because of legislative action.

In the program review analysis, four of the five legislative transactions were for administrative cost (usually less than $1,000) or for $1. Although the transactions had been through the disposition process and the required approvals had been obtained, none of the case files indicated whether the actual transfers had occurred. Therefore, the committee reasserts the auditors recommendation:

DPW, in conjunction with OPM, shall establish a monitoring system to track the disposition process from beginning to end. Information from this system should be included in DPW's annual report to the SPRB and the legislature.

DPW procedures. As with the leasing process, DPW has not promulgated regulations specifying how it will carry out its responsibilities in the disposition or acquisition process. It's procedural manual has not been updated since 1986 and refers to forms and steps no longer in use. The committee recommends:

DPW update its property acquisition and disposition manual to reflect the department current policies and procedures. Regulations shall be promulgated as needed.

Documentation. The committee found varying levels of documentation in DPW's case files for acquisitions and sales. To carry out its analysis, the committee had to refer to documentation at OPM and SPRB. The inconsistency found in the DPW files made it difficult for the committee to thoroughly assess DPW's performance in carrying out certain procedural steps. The committee believes the condition of the case files is in part due to the fact there is only one staff person assigned to handle these transactions. The program review committee recommends:

DPW require complete documentation of all real estate transactions. DPW staff assigned to handle property acquisition and disposition should be required to maintain an activity status report for periodic review by DPW management.

Property Acquisitions

The committee reviewed all eight acquisitions purchased by DPW since 1998. The majority of the purchases have been for expansion of educational facilities, judicial operations, and parking. The purchase price ranged from $80,000 to $380,000.

Processing times. The committee divided the acquisition process into phases to facilitate analysis. The phases include: property request and selection; negotiations; and approval of terms.

Figure IX-3 provides the elapsed time for each phase. The figure shows the total median time for the state to acquire property was 108 days or approximately four months. Six of the eight transactions examined by the committee were for property adjoining existing state land or in close proximity. Since these properties were needed for expansion or parking, a general search for competitive alternatives was not conducted. It took more time to complete the two transactions where a search was conducted for competitive bids.¹⁵

Competitive bids and negotiations. As Figure IX-3 shows, more than half of the time is spent in the first two phases when DPW is in control of the transaction. Because the purchases were for identified property, the majority of time spent in the first phase was obtaining an appraisal. The least amount of time was spent on negotiations. This phase of the process was also the most poorly documented. There was little to no documentation evident in the files regarding negotiations. A review of the files suggests once an appraisal was completed, the negotiation process simply consisted of offering the property owner fair market value.

Table IX-2 compares the final purchase price with the appraised value. DPW was able to purchase two identified properties at the appraised price and one below the appraised value. Three identified parcels were purchased at slightly over 5 percent of the appraisal value.

Since the majority of purchases were for identified properties, it is difficult for the committee to assess DPW's ability to attract competitive bidders. In the committee sample, two of the eight transactions had advertisements drafted. Each generated 11 proposals from ads running in four newspapers. One purchase was made at slightly above the appraised price while the second purchase was obtained for eight percent over the appraised value.

In the two advertised transactions, no formal assessment was conducted by DPW in selecting the proposed property. The client agency determines, within its budgetary constraints, which property they would prefer.

In order to ensure accountability for future transactions, the committee recommends:

DPW develop a standardized format for documenting any negotiations with property owners. In addition, the documentation should include an analysis of site alternatives and reasons why the subject property was chosen.

Appraisals. The purpose of the appraisal is to estimate the market value of the proposed property. In addition to a description of the property, the appraisal will contain a market analysis. Appraisals are conducted by outside appraisers selected by the purchasing agent from a list of previously used appraisers. According to DPW procedures manual, the criteria for the selection is based on appraiser's proximity to the property, expertise and knowledge of area, and availability.

The case file review and discussions with various agency staff revealed the following issues related to appraisals:

• There is no reference to the use of appraisals mentioned in DPW's statutes. Current DPW policy is to seek two separate appraisals if the property is valued in excess of $1.5 million. However, this is an informal policy agreement made between DPW and SPRB.
• There is no statutory requirement for DPW to disclose the results of appraisals. In one case, an appraisal was significantly lower than the owner's asking price. DPW sought a second appraisal that turned out be closer to the owner's asking price.¹⁶ However, only the second appraisal was submitted and disclosed to the SPRB.
• DPW does not have a formal process for the selection of appraisers or inclusion of new appraisers. Six of the eight purchase appraisals reviewed were prepared by the same appraiser.

To address these issues, the committee recommends:

• the DPW statutes be amended to reflect policy regarding the use and disclosure of appraisals for DPW real estate transactions;
• SPRB be granted authority to request, at its discretion, additional appraisals to assist in its review process; and
• DPW adopt a formal process for the selection and inclusion of new appraisers to be used in its real estate transactions.

¹¹ The surplus property in this case included a Department of Public Safety (DPS) radio tower. According to OPM, significant amount of time was spent working with DPS to determine if the tower could be relocated, it could not.

¹² This Middletown property was transferred to a non-profit corporation for the development of moderate income housing and recreational or community facilities open to the public. (P.A. 96-249)

¹³ Performance Audit Reports Management of State's Surplus Real Property and The State's Real Property Management Systems. Auditors of Public Account. November 1999.

¹⁴ The state auditors are currently in the process of follow-up compliance of their 1999 report.

¹⁵ In at least one case the acquisition process took over three years. This case involved an acquisition in Litchfield county for courthouse operations. DPW encountered legal difficulties when a third party purchased the property DPW had been negotiating.

¹⁶ Agency staff contend there was a question as to the location of the property line in the first appraisal.

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