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Energy Downsizing: Criteria for Community Assistance Needed (Letter Report, 12/27/95, GAO/RCED-96-36).

GAO examined the criteria that the Department of Energy (DOE) used to:
(1) identify and evaluate the economic effects of closing the Pinellas
plant; and (2) decide what types and amounts of assistance are
appropriate in offsetting the effects of future plant closings.

GAO found that DOE: (1) policy supports economic development that
minimizes the impact of closing nuclear weapons facilities on displaced
workers and affected communities; (2) has not established specific
criteria to evaluate the impact of DOE closings or the types of
assistance needed to offset the impact of the closings; (3) is providing
$10.75 million for economic development activities to facilitate
workers' transition and $6 million for community technology development;
and (4) will continue to spend millions of dollars to mitigate the
adverse economic effects of downsizing on communities, but it needs
specific criteria for identifying these effects to ensure fair and
appropriate allocation of DOE resources.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-96-36
     TITLE:  Energy Downsizing: Criteria for Community Assistance Needed
      DATE:  12/27/95
   SUBJECT:  Nuclear weapons plants
             Economic development
             Reductions in force
             Federal employees
             Economic assistance
             Community development
             Impacted area programs
             Atomic energy defense activities
IDENTIFIER:  DOE Workforce Restructuring Plan
             Largo (FL)
             
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Cover
================================================================ COVER


Report to the Secretary of Energy

December 1995

ENERGY DOWNSIZING - CRITERIA FOR
COMMUNITY ASSISTANCE NEEDED

GAO/RCED-96-36

Energy Downsizing

(308681)


Abbreviations
=============================================================== ABBREV


Letter
=============================================================== LETTER


B-270358

December 27, 1995

The Honorable Hazel R.  O'Leary
The Secretary of Energy

Dear Madam Secretary: 

Since the end of the Cold War, the Department of Energy has been
downsizing and realigning its facilities.  As part of this effort,
Energy closed the Pinellas plant, located on a 96-acre site in Largo,
Florida.  This facility had been used to manufacture components for
the nation's nuclear weapons program.  In 1995, Energy transferred
the facility to the Pinellas County Industry Council\1 to help
minimize the adverse economic effects of the closing on the
surrounding communities.  Energy has also provided funding to
mitigate the effects of the closing. 

Because Energy will likely dispose of additional facilities as it
continues to downsize and realign its facilities, this report
examines the criteria Energy used to (1) identify and evaluate the
economic effects of closing the Pinellas plant and (2) decide what
types and amounts of assistance were appropriate to help offset these
effects. 


--------------------
\1 The Council is chartered by the state to, among other things,
develop the county's industrial base. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Energy's policy guidance supports economic development to minimize
the impact on displaced workers and affected communities of closing
the Department's former defense nuclear weapons facilities.  However,
Energy has not established specific criteria for identifying and
evaluating the impact of the closings; nor has it established
specific criteria for deciding what types and amounts of assistance
are appropriate to help offset that impact.  Such criteria are
important because Energy's downsizing will likely continue for years
and will cost millions of dollars. 


   BACKGROUND
------------------------------------------------------------ Letter :2

As part of the nationwide effort to downsize, realign, or close
defense nuclear weapons facilities, on September 8, 1993, the
Secretary of Energy authorized the termination of defense production
activities at the Pinellas plant in Largo, Florida.  This decision
was designed to reduce the cost of operating facilities that make
components for the nation's nuclear weapons complex.  On December 14,
1993, Energy notified the Pinellas plant's employees and the affected
communities that the plant would be closed over the next several
years as activities were consolidated at other Energy locations.  On
May 27, 1994, Energy issued a Workforce Restructuring Plan
identifying the actions it would take to minimize the impact of the
closing on the displaced workers.  Energy also developed an Economic
Development Plan in conjunction with representatives of the affected
communities to identify the actions it would fund to minimize the
impact of the plant's closing on the surrounding communities. 

Section 3161 of the National Defense Authorization Act for Fiscal
Year 1993 (P.L.  102-484) requires Energy to develop a plan for
restructuring the workforce at defense nuclear weapons facilities
affected by a change in nuclear weapons production.  The objectives
of the plan should include identifying the types of assistance to
displaced workers and affected local communities that Energy will
provide to minimize the social and economic effects of its decisions
to terminate nuclear weapons production operations. 

The Pinellas plant is operated under contract by Lockheed Martin
Specialty Components, Inc.  The plant employed 1,132 personnel on
March 25, 1994.  On March 7, 1995, Energy transferred the Pinellas
plant to the Pinellas County Industry Council to help mitigate the
economic impact of the plant's closing on the surrounding
communities.  The plant consists of about 96 acres of land and over
750,000 square feet of office and plant space.  Two appraisals were
performed to determine the value of the property, land, and
facilities.  The appraised values were $2.6 million and $5.1 million. 
The site was sold to the Council for the lower appraised value of
$2.6 million.  As part of the sale, Energy agreed to finish cleaning
up environmental pollution at the site.  To accomplish this task,
Energy is leasing the site back from the Council for up to 31 months
at a rate of $120,331 a month.  The monthly lease payments are being
credited against the sale price.  After 22 months, the lease payments
will have offset the sale price, and Energy will begin paying rent to
the Council. 

Pinellas County, the most densely populated county in Florida, is
located in the Tampa Bay metropolitan statistical area, which is
Florida's largest metropolitan market.  Pinellas County has a high
percentage of high-technology and manufacturing jobs.  However,
tourism, real estate, and retail sales are the staple industries of
the county's economy, and growth is occurring in manufacturing,
international trade, health care, and biotechnology.  When the
workforce's restructuring began in 1994, the Pinellas plant was the
21st largest employer in Pinellas County. 


   ENERGY LACKS CRITERIA FOR
   IDENTIFYING AND MITIGATING THE
   IMPACT OF DOWNSIZING
------------------------------------------------------------ Letter :3

Energy has issued policy guidance on the responsibilities of Energy
and contractor officials for (1) mitigating the impact on communities
of reductions in contractors' employment at Energy's facilities and
(2) supporting communities' transition and economic development
activities.  However, this guidance does not establish specific
criteria either for determining the economic effects of Energy's
downsizing or for funding communities' economic development
activities. 


      ENERGY IS PROVIDING
      ASSISTANCE TO MITIGATE THE
      EFFECTS OF CLOSING THE
      PINELLAS PLANT
---------------------------------------------------------- Letter :3.1

Energy has relied on the local communities to help determine the
types and amounts of assistance needed to mitigate the economic
impact of closing the Pinellas plant and has not performed analyses
to determine the extent of the impact and the amounts of assistance
needed.  However, Energy is providing over $20.5 million in financial
assistance.  The Director of Energy's Office of Worker and Community
Transition told us that Energy is further trying to mitigate the
economic effects of the closing on the communities by seeking to
convert defense technology to produce commercial goods and services. 
Energy's guidance indicates that such commercialization will create
jobs for former employees and enhance economic development. 
According to a Transition program official at Energy's Pinellas Area
Office, Energy is providing $10.75 million for economic development
activities to facilitate workers' and the communities' transition. 
In addition, Energy provided $9.75 million for alternative-use
activities at the facility and technology transfer initiatives with
Lockheed Martin Specialty Components, Inc.  Finally, the Department
of Defense is providing $6 million for technology development.  The
financial assistance has been provided to

  plan and organize the local community organization;

  identify replacement job opportunities for the Pinellas plant's
     employees by creating new businesses, attracting businesses to
     the area, and expanding existing businesses;

  identify potential replacement occupants for the Pinellas plant;

  develop criteria for evaluating, ranking, and commercializing
     technologies; and

  establish a technology deployment center to make the Pinellas
     plant's equipment, technical expertise, production capability,
     and service functions available for new economic and business
     development. 


      ENERGY'S GUIDANCE
      ESTABLISHES GOALS FOR
      ASSISTING WORKERS AND
      COMMUNITIES
---------------------------------------------------------- Letter :3.2

In November 1992, Energy issued policy guidance stating that
reductions in contractors' employment should be managed to, among
other things, help alleviate the impact of the reductions on affected
communities.  The guidance requires cognizant program secretarial
officers, heads of field organizations, and contractors to develop
programs to mitigate the impact of the reductions on the displaced
employees and the communities. 

In April 1993, Energy's Office of Worker and Community Transition
issued interim guidance on restructuring the Department's contractor
workforce to implement section 3161 of the National Defense
Authorization Act for Fiscal Year 1993.  This guidance, which was
revised in April 1995, addresses three interdependent processes that
Energy considers integral to support economic development activities: 
involving local communities, allocating funding and resources, and
identifying uses for Energy's surplus real and related personal
property.  The guidance does not define what conditions create the
adverse economic effects that require the transfer of Energy's land
and facilities.  Although the guidance states that Energy will
prioritize funding for projects, it does not discuss the specific
types and amounts of assistance that should be provided to offset the
economic effects.  Because Energy will likely continue downsizing its
facilities at other locations, such criteria are needed to provide
for the fair and appropriate allocation of its resources. 

The Director of Energy's Office of Worker and Community Transition
agreed that the Department does not have specific criteria for
identifying and evaluating the economic effects of closing its
facilities and downsizing or for determining the appropriate types
and amounts of assistance to help offset these effects.  However, he
told us that determining the reasonableness of such activities and
assistance has involved negotiation between Energy and community
stakeholders. 

At the conclusion of our audit work, the Director told us that his
office needs to develop specific guidance on how much Energy should
spend to mitigate the economic effects of downsizing and to develop
replacement technologies. 


   CONCLUSIONS
------------------------------------------------------------ Letter :4

Because the actions at the Pinellas plant are only part of a
longer-term restructuring process at Energy's facilities, Energy will
continue to spend millions of dollars to mitigate the adverse
economic effects of downsizing on communities.  However, without
specific criteria for identifying and analyzing these effects in
communities and for making decisions on providing financial and other
assistance for economic development, Energy cannot ensure that it is
fairly and appropriately allocating its resources. 


   RECOMMENDATION
------------------------------------------------------------ Letter :5

We recommend that you direct the Director, Office of Worker and
Community Transition, and other cognizant secretarial officers to
develop criteria for Energy to

  identify the adverse economic effects of downsizing or closing its
     facilities and

  define the types and amounts of assistance that it will provide for
     economic development. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :6

We transmitted a draft of this report to the Secretary of Energy for
review and comment.  Energy's comments appear in appendix I.  Energy
generally agreed with the report's findings and recommendation.  In
addition, Energy outlined its plans for implementing our
recommendation and provided some technical corrections.  The
conceptual framework outlined by Energy to implement our
recommendation appears reasonable; however, Energy did not provide
time frames for implementation.  We believe that establishing time
frames is important because, as Energy noted in its comments, the
impact of future closings may be more severe and a well-defined
program would be the most effective way to minimize that impact. 
Energy also explained why it had initiated the program without
specific criteria to identify the adverse economic effects of
downsizing or to define the types and amounts of economic development
assistance that it would fund.  We believe that specific criteria are
important because they would help Energy allocate its resources
fairly. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7

We reviewed Energy's policies and procedures governing the sale of
the Pinellas plant to the Pinellas County Industry Council.  We
reviewed relevant federal regulations, prior GAO reports on sales of
property, and a related audit report by Energy's Inspector General. 
We reviewed cost analyses, property appraisals, financial documents,
relevant departmental policies and procedures, and data on Energy's
transfers of properties through sales and leases to communities and
businesses, as well as on the recipients' uses of the properties.  We
interviewed Energy officials in the Offices of Worker and Community
Transition, Environmental Management, Field Management, and the
Pinellas Area Office.  We conducted our review from June 1995 through
November 1995 in accordance with generally accepted government
auditing standards. 


---------------------------------------------------------- Letter :7.1

As you know, 31 U.S.C.  720 requires the head of a federal agency to
submit a written statement of the actions taken on our
recommendations to the Senate Committee on Governmental Affairs and
the House Committee on Government Reform and Oversight not later than
60 days after the date of this letter.  A written statement must also
be sent to the House and Senate Committees on Appropriations with the
agency's first request for appropriations made more than 60 days
after the date of this letter. 

We are sending copies of this report to your Audit Liaison Division
for distribution within your agency.  Copies will also be sent to
congressional committees; the Director, Office of Management and
Budget; and other interested parties.  We will make copies available
to others upon request. 

Please call me at (202) 512-3841 if you or your staff have any
questions.  Major contributors to this report were Jeffrey E.  Heil
and Carrie M.  Stevens. 

Sincerely yours,

Victor S.  Rezendes
Director, Energy and
 Science Issues




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
ENERGY
============================================================== Letter 



(See figure in printed edition.)


*** End of document. ***