It took 7 months, but we finally have copies from the VA of the leases for all the VA medical clinics in our region. We requested the leases after finding out the VA was spending $279,000 a month to lease the VA clinic in Wilmington, about twice the going rate for prime medical office space here.
The VA previously provided us copies of the leases for the other 9 medical clinics in our region, but the rental prices had been blacked out. Since that information is public record, we hired an attorney to appeal.
The VA has now provided clean copies of the leases, and we are told the Freedom of Information Act (FOIA) officer who had initially redacted the pricing information is no longer with the VA.
An analysis of the 500+ pages of lease documents indicates the VA is paying well over the going rate for medical office space for many of the other clinics in our region, too. However, these lease arrangements for the smaller VA clinics in the Fayetteville region often have the private landlord covering costs which would typically be paid for by the tenant.
For example, at the VA outpatient clinic in Goldsboro, the private landlord (and not the VA) is covering the cost of heat/air conditioning, electricity, water and sewer, pest control, janitorial services and supplies including everything from toilet paper to light bulbs. Those expenses add up, and help explain why the rate the VA is paying is more than the typical market rate at these smaller clinics.
But at the 80,000 square foot clinic in Wilmington, the rent does not cover the cost of interior utilities and janitorial services, so it remains unclear why the rent there is so high.
The majority of the leases for the smaller VA clinics call for an automatic 3% increase in the rental rate each year, which substantially increases the cost to taxpayers over the life of the contract.
Real estate agents tell us that is negotiable in the private market. In a down market, landlords are often happy to find a tenant at all, and will honor the same annual rental rate for the duration of the contract. Other times, there will be a certain percentage increase either at the end of each year, or at the end of a 5 year term.
According to industry experts, government agencies don’t always drive such a hard bargain when leasing private facilities. That may explain the nearly universal 3% annual increase in rent on these VA clinic contracts.
At the VA’s Brunswick County Community Based Outpatient Clinic in Supply, these automatic rental increases drive the lease price from $65,450 the first year of the contract in 2011, to $85,397 in the 10th year of the contract, a 30% increase in the cost to taxpayers.
VA Lease History
Congressman Walter Jones has helped WECT in its efforts to get answers about possible waste of tax money by paying potentially inflated prices for these VA clinics. His office is trying to find out what kind of bidding process was used, if any, to insure tax payers are paying a fair rate.
Additionally, tax payers and a number of our elected representatives in Washington have questioned the wisdom of leasing these facilities at all, since traditional wisdom holds that buying a facility is more cost-effective if it’s going to be used for a substantial length of time.
Congressman Jones’ office sent us a copy of a report from the Government Accountability Office in Washington, DC entitled “VA Real Property; Action Needed to Improve the Leasing of Outpatient Clinics.” The report says that as of fiscal year 2013, VA had 1,889 leases, of which 1,192 were medical outpatient clinics. The cost to lease those facilities is $5.5 billion a year and growing.
The report noted that the “VA generally provides inpatient care at large VA medical facilities that are owned by the federal government and provides outpatient care at leased facilities.”
“To help meet the changing medical needs of the veteran population, VA has increasingly leased medical facilities to provide health care to veterans…. According to the VA, leasing medical facilities rather than owning them allows VA to provide more veterans with accessible health-care services and gives VA the flexibility to respond to changing service demands….”
The lease agreements for most of the smaller VA outpatient clinics in our region are short term, from 2-5 years, with the option to lease the clinics for additional years and a contracted rate, providing flexibility to the VA.
But the VA chose to lock into a 20 year lease for its clinic in Wilmington, limiting their flexibility. Taxpayers will spend about $68 million in rent over the life of that contract.
The Wilmington VA clinic, and high cost of rent, began making headlines last year when tests came back showing heavy metal contamination in the water at the nearly-new clinic. The source of the contamination has been linked to an internal plumbing issue, not the water supply.
The water problem remains unresolved, and patients and employees at the clinic have been unable to drink the water there for almost a year now. The VA remains at the mercy of the landlord to fix the problem.
Congressman Jones and Congressman David Rouzer tell us they are not convinced that leasing the facilities has been a cost effective strategy for the VA.
“So many times the government gets started in doing something, thinking they are doing the best thing for the tax payer and before long they don’ t know how much they are spending but they just keep doing the same thing and it doesn’t prove to be the benefit of the taxpayer,” Jones told WECT.
Congressman Rouzer previously told us that the VA does not use going market rates to determine how much it will pay to lease a building. Instead, they use formulas derived by the price paid to lease facilities throughout the country.
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