Lt Col Rod Croslen SAF/IEE

1. Resource ValuationSustaining Mission CapabilitythroughBetter Informed Decisions &Better Asset Management Lt Col Rod Croslen SAF/IEE

2. Something to Consider as We Talk A simple accounting formula with complex relationships Asset Value = Liabilities + Equity • Weapon Systems • Infrastructure • Built • Natural Accrued value as a result of our actions to sustain, restore, and modernize our infrastructure base Sometimes we put more in this category than we should Value can be measured in both monetary and non-monetary terms

3. Agenda • Background • Resource Valuation for Natural Infrastructure • What – definition, goals, and examples • Why – the right thing to do…plus • How – using accepted and evolving business practices

4. 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

5. 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

6. Evolving Resource Markets http://www.lta.org/newsroom/pr_091201.htm#success Millions of Acres Conserved By Voluntary Action; Number of Nonprofit Land Trusts At New High Copied Jan 2005

7. Transferable Development Rights How Well Can Markets for Development Rights Work? Evaluating a Farmland Preservation Program Virginia McConnell, Elizabeth Kopits, and Margaret Walls March 2003 • Discussion Paper 03–08

8. What is RV?

9. 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

10. Data----Information----Knowledge Asset Management & Valuation • Asset Management • Market Strategy • Investment Strategy • Transactions • Equity Accounting • Outreach The imperative -- recognize and leverage natural infrastructure as a set of assets with equity value • Military Valuation • Market Valuation • Benefits Transfer • Empirical Study Knowledge Application & Informed Decision Making • Real Property Accounts • INRMPs • Emission Inventories • Geospatial data sources • EAs / EISs • Permits Appraise Assets (monetary & Non-monetary Characterize Assets Better asset management -- doing what we do today better using existing and emerging tools Inventory Assets

11. Old vs New Paradigms Ecological Value Ecological Value Military Value Economic Value Military Value Old Paradigm New Paradigm

12. Operational / Military Value Ecological Value • Military Capability • Training • Access • Basing • Littorals • Maneuver areas • C2ISR • Goods & Services • Cultural / social • Ecosystem Links • Goodwill • Biodiversity Economic Value • Willingness to pay • Stakeholder $ value • Asset Tradability Valuing A DoD AssetNatural Infrastructure Resource capability modeling and resource valuation aid in the assessment of operational and financial risks and opportunities Air, Land, & Water Asset Value = Liability + Equity Better understanding Of resource risks And Resource opportunities Sometimes more Important to Non-DoD Stakeholders Essential for National Security Influences financial risks…to Sustain, Restore, and Modernize DoD Assets

13. 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.

14. 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

15. 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

16. 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

17. Why the new focus and enhanced methodology?

18. 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…

19. The Context -- Strategic Decisions • Five Major Categories: • Acquire assets • Book equity • Manage assets / risk • Outreach • Trade / sale / lease • Examples of where we expect strategic application of RV Installation & range planning Encroachment mitigation strategies Weapon system beddown Environmental restoration initiatives Mission expansion and realignments Range sustainment BRAC Enhanced Use Leasing

20. How?

21. Resource Valuation Methodology Overview Resource Characteristics Size, location, substrate, species, seasonal variations, other physical asset metrics. Permit conditions, quantified discharges, credits Step1: Characterize the assets Step 2: Determine the goods and services present represented by the assets Goods: Physical Assets-- Water, Minerals, Crops, Timber, Fish, Game, Non- Traditional Products, Species of Concern, Indicator Species Services: Physical Assets-- Climate Regulation, Waste Assimilation, Disturbance Prevention, Nutrient Regulation, Habitat Provision, Soil Formation, Pollination, Recreation, Aesthetics Goods: Statutory Permissions-- Permits, Water Rights, Pollutant Credits, Restoration Credits Step 3: Gather relevant economic data on value of goods and services Monetary: Market Appraisal: Comparable Sales Income Stream Replacement Cost Monetary: Market Appraisal: Comparable Sales Income Stream Replacement Cost Non-Monetary: Ecosystem Studies Habitat Equivalency Analysis, Other Monetary: Empirical Studies/ Benefits Transfer: Travel Host, Hedonic Pricing, Contingent Valuation, Substitute Cost, Avoided Cost, Restoration Cost 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 Statutory Permissions: $ Value Physical Assets Goods $ Value Physical Assets Ecosystem Value Physical Assets Services $ Value Total Natural Resources Assets $ Value (and Description of Any Non-Monetized Ecosystem Values)

22. The First Comprehensive AssessmentEglin Biodiversity Hotspots (The Nature Conservancy) Significant population increases in last five years Forests Wetlands Barrier Islands

23. Characterization of Natural and Cultural Resources Evaluated at Eglin *Recreation is evaluated separately

24. 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. Theseare in effect a no net gain or loss into the airshed.

25. Eglin Valuation Summary

26. 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

27. Questions / Comments?

29. 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

30. Air Land Water State of RV Processes / Standards NRV = [Qty * f(Resource Value)] Filters & Business Rules Market Factors Asset Database Industry Standards Federal Valuation Guidelines Valuation Factors Inventories Mature processes and products; move towards integration Mature practices for land assets; emerging market forces and standards for air and water

31. Turning Ideas…into…Practice…into…Results An Evolutionary Construct – success breeds more success Use empirical data to generate knowledge Develop policy • Processes • Standards • Funding • Metrics Conceptual Actionable Compliant Testable Results Measurable Market and Corporate Factors