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FHWA Office of Real Estate Services Research Results: 2006 Strategic Vision for the Public Sector Real Estate Profession

II. Vision Statements

To understand the role public sector real estate will be asked to play over the next thirty years and consequently, how the profession should best prepare to meet these challenges, the study team envisioned how external and internal forces will affect the needs of our customers and the resultant impact on public sector real estate.

The purpose of this visioning process was to:

For purposes of this analysis, we have defined customers as follows:

The team accomplished our visioning process by:

This section provides an overview of the results of the visioning performed by the study team.

To facilitate discussion of the various factors anticipated to impact public sector real estate, these external and internal forces have been categorized into several major trend areas as follows:

Each of the trends area will be defined and examined broadly and then specifically analyzed for their impact on our customers and consequently to public sector real estate. This impact analysis has been done across two planning horizons, Years 0-10 and Years 11-30. The impact analysis for the first ten years should logically have the most predictability, with the analysis for years 11-30 being much more unpredictable.

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A. World Trends

World trends refers to general global trends and their impact our nation and people, and where and how they will live.

1. Summary of Key World Trends

The internet and other improvements in communications as well as the speed and ease of travel, have made the world an increasingly interconnected global village, and this trend will undoubtedly continue. As Glen Hiemstra writes in an excerpt from his letter written in 2049 to the people of 1999 on Futurist.com:5

"Our house is tied into the global net all the time, and the wall screens in the rooms make it easy to see and talk to people anywhere in the world. Two of my best friends live in Korea and Russia. We have not met in person yet, but we talk all the time on the net. Sometimes I also like to just sit and skip around the global cameras, and see what is happening in different places…"

While this shrinking of the globe means it is much easier to share ideas and to work together on global initiatives, it also means that problems in one part of the world can now become worldwide problems much more easily. Epidemics that may have once been isolated to one region, for example, can now spread across continents and across the globe.

The world economy is also going through, and will continue to go through, a tremendous transformation. For more than a century, the United States has had the largest, most productive economy in the world. In 2000, the United States was almost twice the size of the next largest economy, China, and about three times the third largest economy, Japan. The fourth largest economy, India, was a little over one-quarter the size of the economy of the United States.

Major shifts, however, are already under way. Over the last thirty years, economic primacy has begun shifting from the United States and Western Europe to China and India. The wealthier countries of Europe have seen the greatest decline in global Gross Domestic Product (GDP) share, incurring a 4.9 percentage point decline, followed by the United States and Japan, with a decline of about one (1) percentage point each. At the same time, China and India have all experienced continued growth in global GDP share.

This trend is expected to continue over the next 30 years, resulting in a historic transformation of the world economy from uni-polar (meaning the singular economic dominance of the U.S.) to bi-polar with the emergence of China, and then ultimately to a tri-polar economy with the growth of India. Within 15 years, China is expected to become the largest economy in the world. China's economy is then projected to become 50 percent larger than the United States' economy by 2025, and almost double that of the United States by 2035.

As the share of the United States in world GDP falls (from 21 per cent to 18 per cent) and that of India rises (from 6 per cent to 11 per cent in 2025), India emerges as the third pole in the global economy. By 2025, the Indian economy is projected to be about 60 per cent the size of the United States economy. The transformation into a tri-polar economy will be complete by 2035, with the Indian economy only a little smaller than the United States economy but larger than that of Western Europe.6

This dramatic growth in the economies of China and India will multiply demand for public infrastructure and increase competition for scarce resources. Already, the demand for structural steel and other construction materials for Chinese projects have been identified as a significant cost driver for civil projects in the United States. Over the next 30 years, this can only be expected to become more significant as China continues to grow exponentially and is joined in this growth by India, potentially Brazil, and a number of other developing nations.

2. Impact Analysis of World Trends on Public Sector Real Estate: 0 to 10 Years

Projected Impacts

These world trends will have several major impacts on the public sector real estate function. These impacts include:

Recommended Actions

These impacts will drive a number of required actions on the part of the public sector real estate community. These actions include the following:

Exhibit II-1 on the page below summarizes the impacts of world trends on public sector real estate for Years 0-10.

Exhibit II-1: Anticipated Impact of World Trends: Years 0 - 10

Trend/Direction Impact on Public Sector Real Estate (PSR) Required Actions
  • World increasingly becoming a global village
  • Shifts in world economy, with China joining United States in a bi-polar economy
  • Expansive growth in developing nations
  • Increased cost pressure on projects as sharing scarce resources with more countries
  • Need for more flexible, creative project solutions
  • Opportunity to share knowledge and experience on a world wide basis
  • Earlier involvement in the project development process to allow for real estate input into developing a more flexible, cost effective solution
  • Improved cost estimating methodologies that include the cost of acquisition and relocation assistance under the Uniform Act
  • Streamlining of acquisition process to reduce potential for delays/associated cost impacts
  • Aggressive planning and management of utility relocation efforts
  • Expansion of programs to share technology and other knowledge with global partners

3. Impact Analysis on Public Sector Real Estate: Years 11 to 30

Projected Impacts

The impacts of world trends on public sector real estate anticipated in Years 11-30 include the following:

Recommended Actions

The required actions in Years 11 to 30 include the following recommended steps.

Exhibit II-2 on the page below summarizes the impacts of world trends on public sector real estate for Years 11-20.

Exhibit II-2: Anticipated Impact of Community Trends: Years 11 - 20

Trend/Direction Impact on PSR Required Actions
  • Tri-polar world: US, China, India
  • Even greater influence by other developing nations (Brazil, etc.)
  • Extensive cost pressure on projects from global supply/demand pressures
  • Greater multi-national project coordination
  • Need for more flexible, creative project solutions
  • US sharing knowledge and experience on world wide basis
  • Greater opportunities to learn from other nations
  • Global project teams drawing on varied expertise from around the world
  • Cost estimating processes fine tuned
  • Need for broader technical and inter-personal skill base to work effectively on multi-cultural, multi-language global teams
  • Very aggressive programs to foster two-way sharing of technology/knowledge with global partners
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B. Community

Community refers to those trends impacting our nation and its fundamental character. This includes social, cultural, and demographic trends, as well as where and how we live.

1. Summary of Key Community Trends

Much of the growth envisioned over the next thirty years is expected to take place in urban areas and existing suburbs, with people seeking to reduce lengthy commutes. At the same time, it is anticipated that there will be a greater awareness of environmental issues, with infrastructure needing to be designed to better fit into and enhance the character of both the human and natural environment.

Research in the United Kingdom by David Rudlin and Dr. Nicholas Falk of the Urban and Economic Development Group (URBED) analyzed the anticipated influences of social and demographic changes on future housing and how these should affect housing built today. Some of their key findings included:7

Futurist.com predicts, "in the 21st century houses will go ‘back to the future' and rapidly become centers for work, learning, entertainment, and even health care. This will have implications for community planning as profound as did the 20th Century move to the suburbs."8

Glen Hiemstra, in his "Letter Written from the People of 2049 to the People of 1999," continues:9

"What else can I tell you? I really like our house. It's pretty old, built around 2015. The house is built like many other 21st Century houses, with solar orientation and a high-efficiency gas turbine to provide both the heat and the electricity we need. I guess as it got more crowded many people decided to cluster the houses together in small neighborhoods like this, and save more open space for things like our horse pasture. We get added winter heat from the solarium and some of our electricity from the PV (photovoltaic) cells on the roof.

We grow some of our food in the community garden and greenhouse. We use special biotech seeds that help the plants to grow faster and to use less water. I know you had biotech in the old days, but it is a really big business now. Some people say it will be bigger than digital industries soon, but the nano-technology people say they will get there first."

Balancing the projections of significant growth in existing urban and suburban areas is a belief on the part of some experts that there could be substantial migration and hence significant growth in population in rural areas, especially if concerns about terrorism and other security issues make people feel safer in rural or otherwise remote areas.

Likewise, the migration to the South and West is expected to continue. Cities like Las Vegas, Phoenix, Atlanta, and Charlotte are projected to grow substantially through 2035.

Some areas in the Northeast anticipate only marginal increases in population. The population of New York State, for example, is expected to grow only 9.3 percent over the next three decades, and much of this growth is only as a result of a gain of 3.9 million people through net in-migration from abroad.10

Our population will also continue to become more diverse, as well as older. Some anticipated trends in the U.S. population include:11

Likewise, there is expected to be a continued rise in property values in both urban and rural areas and consequently an increase in housing costs in general. Some additional community trends may also surface and be more predominant in the second half of the planning horizon. For example, if the more dire projections concerning global warming begin to occur, there may be some migration inland, abandoning coastal areas. This could also occur if there continues to be a pattern of severe hurricanes as evidenced by the likely abandonment of some of the most low-lying areas in southern Louisiana in the wake of Hurricane Katrina.

Changes in land use could also lead to new uses and needs for land including wind mill and solar panel farms. These new uses for land will likely introduce new issues for public sector real estate professionals to address.

2. Impact Analysis on Public Sector Real Estate: 0 to 10 Years

Projected Impacts

These community trends are expected to have several critical impacts on the public sector real estate function. These impacts include:

Recommended Actions

These impacts will drive a number of required actions on the part of the public sector real estate community. These actions will include:

Exhibit II-3 summarizes the impacts of community trends on public sector real estate for Years 0-10.

Exhibit II-3: Anticipated Impact of Community Trends: Years 0 - 10

Trend/Direction Impact on PSR Required Actions
  • Growth expected to continue in urban and suburban areas
  • Even greater emphasis and expectations on preserving environment and community character
  • Potential for some migration to smaller communities based on security concerns — could be widespread in event of significant/additional terror attacks
  • More multi-cultural society
  • Continued shift of population to the South and West putting pressure on and requiring rapid expansion of infrastructure in these areas
  • Aging population requiring new and innovative solutions
  • More knowledgeable and sophisticated public who have increased expectations concerning the environment and better access to information about what is possible
  • New improvements in urban areas will impact existing infrastructure
  • Continued complexity in acquisition process
  • Continued complexity in business and residential relocation
  • Need for developing new infrastructure in smaller communities and rural areas
  • Real Estate becoming increasing percentage of project budget
  • Need for bi-lingual staff sensitive to a variety of cultural issues
  • Need for additional experienced staff in southern and western United States
  • Increased sophistication of public drives need for stronger community relations skills and capabilities
  • Earlier involvement in the project development process to allow for impact on existing real estate to be avoided or minimized
  • On-going need for experienced resources to address increased complexity
  • Additional trained and experienced PSR resources in smaller, growing communities
  • Developing Spanish language skills of existing work force
  • Recruiting new staff representative of the communities they serve
  • Developing/recruiting staff in faster growing areas of the country
  • Strengthening soft skills of work force

3. Impact Analysis on Public Sector Real Estate: Years 11 to 30

Projected Impacts

The impact on public sector real estate for Years 11 to 30 is expected to involve a continuation and strengthening of the impacts predicted for the first ten years. In addition to those impacts identified above, two new areas of impact will include:

Recommended Actions

The required actions in Years 11 to 30 involve a continuation and institutionalization of the actions started in Years 0 to 10. In addition, the following actions will be critical:

Exhibit II-4 on the page below summarizes the impacts of community trends on public sector real estate for Years 11-20.

Exhibit II-4: Anticipated Impact of Community Trends: Years 11 - 20

Trend/Direction Impact on PSR Required Actions
  • Growth expected to continue in urban and suburban areas
  • Even greater emphasis and expectations on preserving environment and community character
  • Potential for some migration to smaller communities based on security concerns — could be widespread in event of significant/additional terror attacks, natural disasters, or epidemics
  • Global warming could result in increase in sea level, leading to migration of people to inland areas (Mid-west, etc)
  • Changes in land use, increase in windmill and solar-panel farms
  • Multi-cultural society
  • Significant changes in the ethnic mix, some minorities no longer a minority
  • Increased aging of population leading to higher healthcare costs
  • Information available easily and on demand, leading to a more knowledgeable and increasingly sophisticated public — higher expectations in terms of performance, accountability and transparency
  • Projects continuing in urban areas further impacting existing infrastructure
  • Continued complexity of acquisition process
  • Continued complexity in business and residential relocation
  • Need for developing new infrastructure in smaller communities and rural areas at a relatively fast pace
  • New concepts, like reverse condemnation — new meaning to the concept of reclamation
  • Need for staff that is multi-lingual and sensitive to various cultural issues
  • Need for additional experienced staff at locations in accordance with migration patterns
  • Higher healthcare costs may lead to less funds for infrastructure projects
  • Earlier involvement in the project development process to allow for impact on existing real estate to be avoided or minimized
  • On-going need for experienced resources to address increased complexity
  • Additional trained, experienced PSR resources in smaller, growing communities
  • Need for a program to facilitate additional training of existing staff when required — well defined continued learning curriculum
  • Need to develop and modify policies to address new and evolving PSR issues
  • Cultural issues/linguistic basics a part of real-estate education course work or orientation courses
  • Process to ensure that staff is a representative of the communities they serve
  • Developing staff in faster growing areas of the country
  • Adding communication, facilitation, and negotiation to a list of required skills to enter the industry
  • Cost estimating processes fine tuned; creative solutions to reduce cost

C. Technology

Technology refers to advancements in information technology and innovation in construction tools and methods.

1. Summary of Key Technology Trends

The advances in technology that will most directly impact public sector real estate can be broadly categorized into three major groups:

  1. Improvements in information management and computer-based analytical tools.

  2. Potential uses of technology to aid in collection of user fees.

  3. On-going evolution of construction techniques.

Each group or trend is described in further detail below.

a. Improvements in information management and computer-based analytical tools.

Some of the more important improvements in the capturing, sharing, management, and analysis of information are:

Growth of mobile computing and an enhanced availability of the internet.

The number of proven technologies available for communicating and sharing information with one another continues to expand in depth and functionality. There is no reason not to expect this trend to continue. It is reasonable, with the increased capability of mobile computing devices, to expect that soon, high speed access to the internet will be available almost anywhere, thus allowing individuals to easily access information about just about anything from anywhere with portable, inexpensive devices.

Increased use of GPS and GIS technology.

GPS (global positioning) technology will enable more precise locating of real estate, as well as other elements of the human and natural environment. GIS (geographical information) technology will allow real estate professionals and other decision makers to more effectively identify, analyze and assess real estate and other impacts (such as wetlands, protected species, environmental justice) on potential projects. GIS will also facilitate "what if" analysis allowing the real estate impacts to be easily balanced and compared against other human and natural environmental factors among various project alternatives. The Florida Department of Transportation and its resource agency partners, for example, have developed a GIS-based application that performs this type of trade-off analysis. A similar application is currently in the planning stages in Tennessee.

Growth of the Digital Enterprise.

Just as many private sector organizations view data as a critical asset, public sector agencies will increasingly view their design data and other information about their infrastructure as vital tools that aid in managing a project over its entire life cycle. With this trend, the process of how a design is developed will become just as important as the set of plans at the end of the design process is today. The quality of the data will be very important as information is used across multiple phases of the project and beyond. For example, information can be passed to the construction contractor to be used as an input for setting up equipment or as a basis for populating an as built database to be utilized to help maintain the asset.

Workflow and Collaboration Tools.

The increased availability of powerful workflow and collaboration tools helps to facilitate the sharing of information within and across organizations. Two examples of these applications directly relevant to the project development process include:

b. Potential uses of technology to aid in collection of user fees

Transportation officials in the United States and the United Kingdom are both studying the use of satellites and ground positioning receivers (GPS) to determine and collect user fees for transportation facilities. Under the plans, the current gas tax would be reduced or replaced in favor of a system where satellites would monitor the driving of individuals and charge fees based on use, collecting higher fee for use of facilities at peak times.
In the fall of 2005, the Oregon Department of Transportation began implementing a federally funded road tax pilot project. Twenty vehicles equipped with a GPS receiver will fill up at one of two special gas stations that download mileage information from the GPS device, charge the road tax and refund the amount of the gas tax automatically. Initially, the special black box will not record location data, just total mileage in-state and out-of-state, with the latter mileage being tax-free. 12

c. On-Going Evolution of Construction Techniques

A range of improvements to construction methods and techniques will help to significantly transform the nature and type of infrastructure developed for public benefit. These technology improvements could include among others:

2. Impact Analysis on Public Sector Real Estate: 0 to 10 Years

Projected Impacts

These technology trends are expected to have several impacts on the public sector real estate function over the first ten years of the planning cycle. These impacts include:

Recommended Actions

These impacts will drive a number of required actions on the part of the public sector real estate community. These actions will include:

Exhibit II-5 summarizes the impacts of technology trends on public sector real estate for Years 0-10.

Exhibit II-5: Anticipated Impact of Technology Trends: Years 0 - 10

Trend/Direction Impact on PSR Required Actions
  • Continued expansion of capabilities of mobile computing
  • Increased availability/access to information through the Internet
  • Continued automation of the project development process
  • More importance on project data and process besides the end-product (plans, NEPA document, etc.)
  • Continued automation of PSR business processes in the office and on a wider scale in the field through use of PDAs and tablet computers
  • Collaboration software/tools to more easily work with other team members
  • Ability to use visualization/simulation software with citizens in the field
  • Need to be as knowledgeable and as informed about the project as possible since the citizens will be informed
  • Investment in technological solutions to improve efficiency of PSR work force
  • Training to improve technological competence of existing and future PSR work force
  • Strengthening of soft skills to better work with a more knowledgeable and informed public

3. Impact Analysis on Public Sector Real Estate: Years 11 to 30

Projected Impacts

The impact on public sector real estate for Years 11 to 30 is expected to involve a continuation and strengthening of the impacts predicted for the first ten years. In addition to those impacts identified above, two new areas of impact will include:

Recommended Actions

The required actions in Years 11 to 30 involve a continuation and institutionalization of the actions begun in Years 0 to 10. In addition, the following actions will be critical:

Exhibit II-6 on the page below summarizes the impacts of technology trends on public sector real estate for Years 11-30.

Exhibit II-6 Anticipated Impact of Technology Trends: Years 11 - 20

Trend/Direction Impact on PSR Required Actions
  • Mobile-computing and instant information access standard
  • Communication with rest of the world cheap and instant, resulting in very knowledgeable public with a broad perspective
  • Infrastructure elements that are luxuries at present becoming necessities
  • Space exploration — building space communities
  • Use of technology to visually communicate options to citizens
  • Need to estimate relocation costs more accurately according to the changing needs and expectations
  • Who owns space?
  • Continual investment in technology to improve efficiency
  • Continual training of staff in the use of new technology
  • Strengthening of soft skills to better work with a much more knowledgeable public
  • Cost estimating processes fine tuned; creative solutions to reduce cost
  • Need for a program to facilitate additional training of existing staff when required — well defined continued learning curriculum
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D. Infrastructure Development and Management

Infrastructure refers to those trends related to the planning, design, development and management of infrastructure for the public benefit.

1. Summary of Key Infrastructure Development and Management Trends

The study team has identified a number of trends related to the design, development, management, and operation of new and existing infrastructure. These trends include:

Each of these trends is described in further detail below.

Graying of infrastructure nationally, resulting in more emphasis by agencies on maintenance of existing infrastructure

There is an increasing awareness on the part of policy makers that our infrastructure is aging and that we must consider ways to maintain and extend the life of these assets as opposed to simply building new infrastructure. At the end of this thirty-year planning horizon in 2036, the first components developed in the interstate highway system will be 80 years old. A number of state highway transportation agencies, for example, have recognized this change in mission in their statewide transportation plans. The North Carolina Statewide Transportation Plan, adopted in late 2004, for example for the first time in state history specifically called for increased investments in highway maintenance and modernization. The plan also required a higher level of investment in other strategies designed to increase the capacity of existing infrastructure such as alternative modes of transportation and Intelligent Transportation Systems (ITS).13

Increased focus on leveraging existing infrastructure to generate revenue
Agencies are no longer focused only on the construction of the asset, but are also now looking more at on-going operations and how an asset can be an on-going revenue source for an agency. During the 1990s for example, a number of state transportation agencies made arrangements with telecommunication agencies to allow fiber to be placed in highway right-of-way. In addition, SAFETEA-LU mandates a study on the feasibility of installing fiber optic cabling and wireless communication infrastructure along multi-state interstate system route corridors for improved communications services to rural communities along such corridors. Benefits envisioned by this SAFETEA-LU initiative include:

Likewise, various cities and states are looking at opportunities to lease existing infrastructure to private consortiums to raise funds for other programs and initiatives. The City of Chicago in early 2005 completed negotiating a 99-year lease of the Chicago Skyway toll road with Cintra-Macquarie for $1.83 billion. Cintra-Macquarie Consortium is composed of Cintra Concessiones de Infraestructuras de Transporte, S.A. (Cintra) of Spain and Macquarie Infrastructure Group of Australia. The Cintra-Macquarie Consortium must comply with detailed operating standards to assure safety in operations and high engineering standards during the term of the lease, as well as work within specified toll rate caps. The lease agreement, for example, was designed to ensure that the operator continues to maintain the structural quality of the Skyway for the duration of the lease.

While some citizens and policy makers were eager to see a significant amount of the proceeds from the lease agreement spent immediately, the City of Chicago has developed a plan to carefully allocate the proceeds from the lease arrangement. $875 million is being set aside to establish a $500 million long-term reserve fund and a $375 million mid-term annuity the city can use to smooth the effects of economic cycles and stabilize the need for additional revenues. $100 million will be invested over the next five years to improve quality of life in the city's neighborhoods. Approximately $28 million of this will be used to fund "safety net" programs that will bridge the gap for Chicago's residents most in need. This includes a city homeless program, home heating assistance programs, assistance for the disabled to make home modifications, affordable housing and homeowner programs, job creation and training through re-entry programs for ex-offenders, a new Small Business Development Fund, and programs for children and seniors such as after-school programs, Meals-on-Wheels, and senior satellite centers. The remaining funds will be utilized to pay off $463 million in Skyway debt.14

Independent financial analysis of the lease terms has suggested that the deal is win-win, for both the City of Chicago and Cintra-Macquarie. The City is able to get an infusion of cash to use in the short-term, while Cintra-Macquarie appears to have the potential for a strong positive return on investment over the term of the lease. The initial success of this transaction has spurred interest in other similar transactions. For example, the lease of the Indiana Toll Road was also just finalized to Cintra-Macquarie for $3.85 billion. The State of Indiana plans to use part of the funds from this transaction to finance development of other highway construction projects across the State. Likewise, there are on-going discussions on various alternatives for leasing the New Jersey Turnpike.

The Chicago Skyway and Indiana Toll Roads transactions are far from the exception. There are on-going discussions on various alternatives for leasing the New Jersey Turnpike. Likewise, many new toll facilities under construction around the world are being built by investors under government-administered concessions. Italy privatized its largest state toll business, Autostrade, a few years ago and the Ontario 407 Extended Toll Road (407ETR) in Toronto Canada was privatized after being constructed by the province of Ontario.

Airport operations are in private hands in many of the world's major cities, including London, Rome, Copenhagen, and Frankfurt. While only one airport in the United States, Stewart-Newburgh in New York State, is privately operated, other cities are interested in exploring this idea. Building on the Chicago Skyway transaction, the City of Chicago, for example, is studying leasing Midway Airport to a private operator.15

Development of the NAFTA Corridors

The two priority segments of the NAFTA corridor system in the United States are the I-35 Corridor and the proposed I-69 Corridor, both of which will originate in Laredo, Texas and carry NAFTA freight all the way to the American Midwest. The I-35 Corridor will extend 1,600 miles north to the U.S./Canada border. The proposed I-69 Corridor will also originate in Laredo but will head northeast, serving Houston, Memphis, and Indianapolis, before extending to the U.S./Canada border at Port Huron, Michigan, a total of approximately 2,100 miles. The NAFTA corridors, when fully completed will be some of the largest engineering projects ever undertaken in U.S. history.

The NAFTA corridors will be up to 1,200 feet wide with separate lanes for passenger vehicles (three in each direction) sandwiched between truck lanes (two in each direction). The corridors will also contain six rail lines (three in each direction): two tracks for high-speed passenger rail, two for commuter rail, and two for freight. The third component of the corridor will be a 200-foot-wide utility zone. To accommodate the railways and underground utilities, the corridors will run at grade level and will require extensive bridging at crossovers and intersections. The current estimate is that a typical corridor section will require 146 acres of right-of-way per mile, making the anticipated land consumption for the NAFTA corridors 584,000 acres in Texas alone. Total land consumption in the United States for the NAFTA corridors could exceed 1 million acres. The Texas sections of these corridors (approximately 4,000 miles) alone will cost $145.2 to $183.5 billion, including right-of-way costs estimated at $11.7-$38 billion.16

These NAFTA corridors will be heavily utilized. Traffic projections for the year 2025 estimate 82,100 vehicles per day (including 18,100 trucks) on the busiest section of the I-35 Corridor, and estimates for I-69 traffic are comparable. This volume traffic has the potential to create extensive pollution impacts throughout the corridor.

Growth of the Corporate Aircraft Market

Rising dissatisfaction with commercial service, the need to reach smaller communities efficiently and the expanding alternatives for business travelers are expected to generate years of growth for the corporate aircraft industry.

The introduction of new and relatively inexpensive very light jets (VLJs) later this year could open jet ownership to more fliers. More companies seeking alternatives to commercial airlines also are gravitating toward the increasingly efficient, flexible and affordable options offered by charter air services and fractional jet ownership.
In its aerospace forecast for 2006 to 2017, the FAA reported the number of noncommercial aircraft hours flown is projected to increase by 3.2 percent annually, and much of the projected increase is attributed to increased flying by business and corporate aircraft. Jets are forecasted to account for most of the increase, as jet hours flown are expected to grow an average of 10.2 percent annually over the next 12 years thanks largely to VLJs and increases in fractional ownership.17

Increased development of multi-modal and multi-use solutions

There is also an increased focus on the development of multi-modal and multi-use solutions. Most state transportation plans now recognize the need for developing integrated multi-modal solutions to transportation problems, and there is greater awareness of the importance of integrating transportation solutions with the development of housing, parks, utilities, and other infrastructure. Some of these initiatives include:

2. Impact Analysis on Public Sector Real Estate: 0 to 10 Years

Projected Impacts

These infrastructure trends will have several important impacts on the public sector real estate function over the next ten years. These impacts include:

Recommended Actions

These infrastructure impacts will drive a number of required actions on the part of the public sector real estate community. These actions will include:

Exhibit II-7 on the following page summarizes the impacts of infrastructure trends on public sector real estate for Years 0-10.

Exhibit II-7: Anticipated Impact of Infrastructure Trends: Years 0 - 10

Trend/Direction Impact on PSR Required Actions
  • Graying of infrastructure nationally resulting in more emphasis by agencies on maintenance of existing infrastructure
  • Increasingly viewing assets as a potential source of revenue
  • Development of light rail in growing/expanding areas
  • Increased availability of inter-urban trains
  • Increased use and growth of smaller airports
  • Need for PSR to be a partner in developing creative solutions to extend life of existing assets
  • Additional property management and business development experience
  • More multi-modal, multi-agency teams
  • New customers with limited UA experience to date
  • Earlier involvement in the project development process to allow for impact on existing real estate to be avoided or minimized
  • Need for experienced resources to address increased complexity/need for creativity
  • More emphasis on property management skills for PSR staff
  • Education programs for new customers

3. Impact Analysis on Public Sector Real Estate: Years 11 to 30

Projected Impacts

Additional impacts on public sector real estate from infrastructure trends for Years 11 to 30 include:

Recommended Actions

Actions recommended in Years 11 to 30 include:

Exhibit II-8 on the page below summarizes the impacts of infrastructure trends on public sector real estate for Years 11-20.

Exhibit II-8: Anticipated Impact of Infrastructure Trends: Years 11 - 20

Trend/Direction

Impact on PSR

Required Actions

  • Increased availability of inter-urban trains
  • Increased use and growth of smaller airports
  • Growth in the need for public sector real estate services by smaller airports as travel by corporate jet, especially to smaller communities, continues to expand
  • Need for public sector real estate services in support of development of initiatives such as inter-urban high-speed trains.
  • Continued need for public resources to execute components of the NAFTA corridors plan.
  • Focusing on education programs for new customers (e.g. smaller airports and consortiums developing inter-urban trains).
  • Continuing to emphasize recruitment of new staff to the profession and proactive training programs to meet on-going demands of the NAFTA initiatives and other large projects.

E. Policy and Politics

Policy and politics refers to external forces impacting our public agency customers and the internal trends of these customers related to the management and operation of their agencies.

1. Summary of Key Policy and Politics Trends

The study team identified a number of policy and political trends. These trends included:

Both of these trends are described in further detail below.

Focus on managing government like a business, with increased emphasis on performance measurement and accountability

Government agencies are consistently focused on managing themselves more like businesses with an emphasis on transparency and accountability through setting and meeting performance objectives. This trend was confirmed by a survey of the strategic plans of a number of Federal, State, and Local agencies that are significant customers of the public sector real estate community.

"The President's Management Agenda," for example, outlines a number of objectives including:18

These principles can be found in agency mission statements and strategic plans as well. The Department of Housing and Urban Development's annual performance plan, for example, is closely aligned with "The President's Management Agenda." It specifically includes a goal to continue to make measurable improvement in a number of areas including:19

The mission of the U.S. Army Corp of Engineers, for example, calls for USACE to:20

This same emphasis on performance and accountability can also be found at the state level. The Virginia Department of Transportation (VDOT), for example, has implemented a series of performance measures for its project delivery process and tracks the agency's performance against these metrics on a web site accessible on to the public. The Washington State Department of Transportation (WSDOT) has instituted a detailed performance measurement process that is tightly linked to WSDOT's business objectives. Results are reported quarterly to policy makers and the public through a detailed briefing book known as "The Gray Notebook."

Increased policy maker reluctance to utilize eminent domain for redevelopment projects as a result of fallout from Kelo case

As a result of significant public opposition to the ruling in the Kelo decision in 2005, policy makers have become more reluctant, at least for now, to utilize eminent domain for redevelopment. In fact, Federal legislation has been proposed to bar the use of Federal funds for takings for private development, and 20 plus States are looking at legislation and possible constitutional amendments to restrict use of eminent domain authority for economic development.

This reluctance is further complicated by confusion, on the part of some policy makers and the public on the protections afforded under the Uniform Act. There is also a great deal of confusion on the distinction between the taking of private property for clear public benefit such as the building of a new highway or the expansion of an airport runway and the taking of property to benefit private development. An example of the latter would be a city using its powers of eminent domain to condemn an area of low income housing and then selling this land to a developer to build a shopping mall and higher end condominiums to help improve the city's overall tax base.

With the increase of public private partnerships, the leasing of public assets to private entities, and other creative financing arrangements, this distinction may become even less clear going forward, further creating the potential for public confusion and anxiety for policy makers. In addition, there is the potential for increased pressure on policy makers due to the need to establish guidance and direction on evolving issues such as creation of new artificial lands, the development of underground communities and the impact of reverse condemnation in situations where land may be abandoned.

2. Impact Analysis on Public Sector Real Estate: 0 to 10 Years

Projected Impacts

These policy and political trends are anticipated to have several impacts on the public sector real estate function. These impacts include:

Recommended Actions

These policy and political impacts will drive a number of recommended actions. These actions will include:

Exhibit II-9 summarizes the impacts of policy and political trends on public sector real estate for Years 0-10.

Exhibit II-9: Anticipated Impact of Policy and Political Trends: Years 0 - 10

Trend/Direction Impact on PSR Required Actions
  • Continued emphasis on managing government like a business
  • Emphasis on performance measurement and accountability
  • Budget pressures, while at the same time continued increases in cost of projects
  • Increased policy maker reluctance to utilize eminent domain — fallout from Kelo case
  • Reluctance to follow UA process — concerns about time and cost
  • Management driven by performance measures
  • Need to have a more transparent process to improve accountability
  • Emphasis on developing accurate estimates for real estate components of projects
  • Need to sell/educate customers on UA process and benefits
  • Improved cost estimating methodology for real estate
  • Earlier involvement in the project development process to allow for impact on existing real estate to be avoided or minimized
  • Education programs for new customers and policy makers

3. Impact Analysis on Public Sector Real Estate: Years 11 to 30

Projected Impacts

The additional impacts of policy and political trends in Years 11 to 30 include the following:

Recommended Actions

The following actions, which further extend and institutionalize action steps initiated in the first ten years, are recommended in Years 11 to 30 to address policy and political impacts:

Exhibit II-10 summarizes the impacts of policy and political trends on public sector real estate for Years 11-20.

Exhibit II-10: Anticipated Impact of Policy and Political Trends: Years 11 - 20

Trend/Direction

Impact on PSR

Required Actions

  • Government consistently being measured by the same standards as corporations
  • Strong performance and accountability measures
  • Increased pressure on policy makers due to evolving issues such as creation of new land, tunneling, and reverse condemnation
  • Clear accountability and performance measures will be integral to everyday work
  • Need to handle evolving issues through learning and applying historical precedents
  • Earlier involvement in the project development process to account for policy changes or public push-back
  • Education programs for PSR staff and policy makers
  • Research by PSR staff to handle evolving issues like tunneling through learning from historical cases
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F. Project Development Process

This subsection describes those trends directly related to the project development process including project financing and mechanisms for service delivery.

1. Summary of Key Project Development Trends

A number of trends are expected to help to evolve and transform the project development process over the next thirty years. These trends include:

Each of these trends is described briefly below

Potential for Federal government to have a reduced or reconfigured role in financing infrastructure projects.

There is a potential for changes in the Federal role in financing the development of infrastructure projects most notably highways, transit facilities and airports, with some consideration being given to the potential for some devolution of the current Federal system.

SAFETEA-LU established two study commissions to address different aspects of this issue. These are:

Substantial increase in the use of innovative financing techniques.

More projects will clearly be built using a variety of funding sources other than straight government funding. For transportation projects, there will be a transition away from reliance on gasoline taxation to user fees, general taxes, specialized taxes, and other specialized revenue sources. Other financing techniques could include land swaps, joint ventures, and a number of different types of public private partnerships.

SAFTEA-LU, for example, includes numerous bonding and tolling provisions that allow private entities to finance, build, own, and operate transportation facilities. It also includes provisions to establish pilot projects for tolling existing interstate highways to help with on-going enhancement of these facilities.

Public sector real estate work increasingly performed as part of an integrated, multi-disciplinary team effort.

Public sector real estate work will be performed more often as one part of an integrated, multi-disciplinary team effort as part of design/build initiatives or turnkey engineering services and construction management contracts.

SAFETEA-LU includes the Highways for Life program that seeks to enhance the ability of the private sector to save time and costs by delivering projects in innovative ways. This is just one example of the large number of innovative project delivery techniques that while still the exception today, will likely become standard operating procedure over the next thirty years.
Fewer projects will be built using the traditional design, bid, build approach. Likewise, real estate work may not be performed by the public agency itself or by consultants working for the real estate function. Instead, more real estate work will be performed by a consultant organization as a member of a large design/build project team who has responsibility for project implementation. Alternatively, the real estate function may be performed by a consultant acting as a sub-consultant to an engineering firm or construction management company driving the design process in the role of general contractor for the public sector agency.

In both of these delivery approaches, the role of the public agency real estate function will be more focused on project and contract management and quality assurance of the consultant's work versus actual service delivery, especially in regards to the acquisition and relocation assistance phases of the project. The current presumption is that the role of condemnation would still remain vested in the public sector agency but this may shift over time with the private sector partner playing a larger role as the agent for the public sector organization.

Over the course of the planning cycle, it is also likely that these teams will become more global in nature, with firms representing many countries teaming together to pool their specialized expertise developed around the world to provide the experience necessary to execute the larger, more innovative or more risky projects.

Greater decision-making authority and accountability for Local Public Agencies

More control of project programming decisions and the subsequent responsibility for managing these projects is currently being given to Local Public Agencies. Stakeholder team members reported that a number of states are giving Local Public Agencies more control of project decision-making, with California and Tennessee where there is a gubernatorial initiative underway to allow communities to take ownership of the execution of a number of transportation projects cited as two examples. In addition, the private sector members of the stakeholder team reported a considerable increase in the number of smaller communities who are clients for projects that would have been previously been managed by state agencies. This trend is expected to increase in the future, with Local Public Agencies having considerably more control of project decision-making.

2. Impact Analysis on Public Sector Real estate: 0 to 10 Years

Projected Impacts

These project delivery trends are expected to have several important impacts on the public sector real estate function. These impacts include:

Recommended Actions

These impacts will drive a number of required actions on the part of the public sector real estate community. These actions will include:

Exhibit II-11 summarizes the impacts of project development trends on public sector real estate for Years 0-10.

Exhibit II-11: Anticipated Impact of Project Development Trends: Years 0 - 10

Trend/Direction Impact on PSR Required Actions
  • Innovative financing
  • Public/Private partnerships
  • Design/Build
  • Turn-key projects led by architectural or engineering firm for the public agency
  • More programming decisions by Local Public Agencies
  • More projects managed at the local level
  • Public sector real estate often a partner on a large, diversified team
  • Different customers (consortium manager versus agency)
  • Customers have limited Uniform Act experience
  • Emphasis on project management skills
  • Earlier involvement in the project development process to allow for impact on existing real estate to be avoided or minimized
  • Strengthening soft skills of work force
  • Education programs for new customers

3. Impact Analysis on Public Sector Real Estate: Years 11 to 30

Projected Impacts

The impact of changes in project development processes for Years 11 to 30 represents a continuation and strengthening of the impacts predicted for the first ten years. In Years 11 to 30, it is anticipated that:

Recommended Actions

The required actions in Years 11 to 30 primarily involve a continuation and institutionalization of the actions started in Years 0 to 10. In addition, the following actions will be critical:

Exhibit II-12 on the page below summarizes the impacts of project development trends on public sector real estate for Years 11-20.

Exhibit II-12: Anticipated Impact of Project Development Trends: Years 11 - 20

Trend/Direction

Impact on PSR

Required Actions

  • Multi-national partnerships with global financing
  • Innovative financing standard operating procedure
  • More projects managed by multi-national teams
  • PSR being a partner on a large, diversified team is standard operating procedures
  • Different customers very typical (consortium manager versus agency)
  • Continued emphasis on team building skills to prepare public sector real estate staff to work effectively on global teams.
  • Partnerships to bring in specialized resources from other countries
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G. Human Capital

Human Capital refers to the organizations and employees responsible for delivering or managing the delivery of public sector real estate work. This includes both public agencies and private sector firms performing public sector real estate work on behalf of the public agency owners.

1. Summary of Key Human Capital Trends

A number of anticipated trends involving the public sector real estate work force include:

2. Impact Analysis on Public Sector Real Estate: 0 to 10 Years

Projected Impacts

These organizational and human capital trends will have several impacts on the public sector real estate function. These impacts include:

Required Actions

The impacts of the organizational and human capital trends will drive a number of required actions on the part of the public sector real estate community. These actions will include:

Exhibit II-13 summarizes the impacts of human capital trends on public sector real estate for Years 0-10.

Exhibit II-13: Anticipated Impact of d Human Capital Trends: Years 0 - 10

Trend/Direction Impact on PSR Required Actions
  • Aging work force
  • Difficulty for some agencies to replace staff
  • Increased outsourcing of work
  • Continued growth of private sector capabilities
  • Difficulty for PSR to be recognized as a profession
  • Difficulty in being viewed as an equal player at the table in some of our agencies
  • Need to effectively leverage remaining experienced staff
  • Need to capture intellectual capital of retiring workers
  • Need to have programs in place to recruit people to the profession and effectively train them
  • Requirement for project and contract management skills
  • Use of SWAT teams
  • Greater multi-agency collaboration to leverage experience
  • Implementation of web-based project development manuals, templates and collaboration tools
  • Implementation of project repositories to capture and allow easier access to history
  • Project Management and Contract Management training
  • Marketing program to increase interest in PSR as a profession
  • New or strengthened certification programs

3. Impact Analysis on Public Sector Real Estate: Years 11 to 30

Projected Impacts

Additional impacts of organizational and human capital trends in Years 11 to 30 include:

The impact on public sector real estate for Years 11 to 30 is expected to involve a continuation and strengthening of the impacts predicted for the first ten years. In addition to those impacts identified above, some additional impacts of organizational and human capital trends in Years 11 to 30 above include:

Required Actions

The required actions in Years 11 to 30 involve a continuation and institutionalization of the actions begun in Years 0 to 10. In addition, the following actions will be critical:

Exhibit II-14 summarizes the impacts of human capital trends on public sector real estate for Years 11-20.

Exhibit II-14: Anticipated Impact of Human Capital Trends: Years 11 - 20

Trend/Direction Impact on PSR Required Actions
  • Most, if not all hands-on delivery work done by private sector firms
  • Agency staff focused on policy setting and contract management
  • More transient work force
  • Use of multi-national teams for all aspects of a project
  • Proper recognition of PSR as a cutting-edge profession with excellent growth opportunities
  • Need to have standardized processes and extensively leverage technology to prevent loss of intellectual capital of transient workers
  • Need to have programs in place to effectively train staff in new technologies on a continuous basis
  • On-going recruitment programs required
  • Use of multi-national SWAT teams
  • Greater multi-agency and multi-national collaboration to leverage experience
  • Institutionalization of knowledge sharing and collaboration processes
  • Enhanced course curriculum and orientation to keep up-to-date on issues, opportunities, and challenges in the industry

18 "The President's Management Agenda", Office of Management and Budget.

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5 Hiemstra, Glen. "Letter written in 2049 to the people of 1999", Futurist.com

6 Virmani, Arvind. "India a Giant Economy? Yes, by 2035!"

7 Rudlin, David and Dr Nicholas Falk. "Future influences on housing".

8 "Preparing for the 21st Century", Futurist.com

9 Hiemstra, Glen. "Letter written in 2049 to the people of 1999", Futurist.com

10 "Demographics Projections to 2025", New York State Office of Aging.

11 Cheesman, Jennifer. "National Population Projections", United States Census Bureau.

12 "US, UK Move Toward Per-Mile Driving Tax", Newspaper.com, June 6, 2005.

13 "Statewide Transportation Plan", North Carolina Department of Transportation, September 2004.

14 "Chicago Skyway Handed Over to Cintra-Macquarie After Wiring $1830m”, Tollroads News, January 24, 2005.

15 "Researcher: Only Matter of Time Till Large U.S. Airport Embraces Private Ownership", Chicago Tribune News Service, March 4, 2006

16 Vogel, Richard D. "The NAFTA Corridors: Offshoring U.S. Transportation Jobs to Mexico", Monthly Review, January 2006.

17 Tritto, Christopher, "The Sky is the Limit", St. Louis Business Journal on MSNBC.com.

19 Department of Housing and Urban Development Fiscal Year 2006 Annual Performance Plan.

20 Department of the Army Corp of Engineers, Civil Works Strategic Plan, 2004-2009.

Updated: 04/02/2013
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