For readers interested in Thaler’s Sunday column in military base land policy, another interesting case study that most economists would probably shake their heads at is the Navy’s Oceana air station in Virginia Beach. The Navy first acquired the land for the base in 1940 and it has since become one of the most advanced air stations in the world with about 12,000 people working on site. Virginia Beach is a strong military community with plenty of attractive oceanfront property that has seen its share of economic and population growth in the last half century, thanks in no small part to the military’s large presence. Home values in the Norfolk, Virginia, area where Virginia Beach is located have almost tripled in the past 20 years, while land values have more than tripled.
It’s not really clear how valuable Oceana is or what private developers might do with it. The two sides would have to sit down and figure it out. There’s little chance of that happening since the Navy likes the site very much. It has moved more jets there in recent years and has talked about making it a master jet base. So the Secretary of Defense didn’t propose closing it in the 2005 BRAC round. The BRAC commission thought otherwise, though, adding it to the list because of encroaching economic development. The military acknowledges that there is a risk of F-14 and F-18 jets crashing into nearby neighborhoods. Plus, the noise associated with planes has been the subject of citizen ire and even a lawsuit involving about 5,000 homeowners. The suit was settled in 2007 for $38 million.
Naturally, a spot on the BRAC commission’s list spurred community action as local and state officials loudly protested the moving of the base, citing the economic impacts of lost revenue and jobs. They hired a consultant to estimate the gross impact of the base closing at about $700 million to the city. The Oceana base is the city’s largest employer, but it is not the only military site there. And with a non-agricultural labor force of more than 730,800 in the Norfolk/Virginia Beach/Newport News metropolitan area, it is still a small player in a larger, diverse economy.
So what did BRAC do? It decided not to close the base. Instead it ordered Virginia Beach officials to halt and even roll back development around the base through new air noise and building ordinances; offer tax incentives to get businesses to move; and reacquire some 3,400 nearby homes. Local officials estimated cost of these plans at $268 million, although at least one area real estate developer said they would be four times as much. Some 8,000 acres of land around the base, many of which city officials thought would be perfect for homes at one time, will lie undeveloped because of noise regulations.
Politicians opted against exercising public domain rights to seize nearby property, and instead set aside $15 million a year for buy-backs. Almost $60 million later, the state is losing its appetite for these buy backs, and even ended up selling homes it bought back to private developers for as little as 10 percent of what it paid. Despite these costs, all parties in Virginia Beach–the Navy, local politicians, and a majority of voters–are satisfied with the current arrangement.