General Services Administration

Pursuant to a congressional request, GAO reviewed the General Services Administration's (GSA) management of the Silver Spring Metro Center I (SSMC I) federal office building, focusing on: (1) whether GSA knew about the floor deflection problem in SSMC I prior to its purchase, and if so, ascertain GSA's rationale for purchasing SSMC I; (2) a chronology of SSMC I's problems and GSA's solutions to those problems since SSMC I's purchase; (3) information on GSA's profit/loss from SSMC I's operations since its purchase; and (4) the estimated interest cost the federal government would have incurred if funds used to purchase SSMC I had been borrowed.

GAO noted that: (1) no evidence was found that GSA knew about SSMC I's floor deflection problem prior to purchasing the building in February 1987; (2) an evaluation report, dated September 22, 1986, did not note any floor deflection problem; (3) GSA officials said that GSA became aware of SSMC I's deflection problem in March 1989; (4) a GSA 1990 structural report identified floor deflection problems on portions of floors 3 through 9 of the nine-story building; (5) GSA officials also said that the deflection problem existed prior to SSMC I's purchase but that the building evaluation failed to identify the problem; (6) floor deflection and structural problems (insufficient floor reinforcement), which existed in 1987 when GSA purchased SSMC I, began affecting building operations during 1989; (7) initial studies to determine the cause of related air quality problems began in March 1990; (8) according to GSA's SSMC I income statements for fiscal years 1987 through 1997, GSA incurred a loss of $1 million as a result of SSMC I operations; (9) during this period, GSA incurred about $6.2 million in repair costs associated with correcting the deflection, structural, and environmental problems; (10) a portion of these repair costs were reported in the SSMC I income statements as either direct or general and administrative expense in the year the expense occurred; (11) the other portion of these costs have been capitalized and are being depreciated over the life of the repair (generally 20 years); (12) as a result, not all of GSA's repair costs that were capitalized are accounted for in the income statements to date, although GSA expects the remainder of the capitalized costs to be included in future years' depreciation expenses; (13) GSA's SSMC I operating costs do not include any financing costs associated with the funds used to purchase SSMC I because there is no mortgage and thus no interest expense associated with the purchase; (14) SSMC I was purchased during February of 1987 for $21.8 million; (15) if those funds had been borrowed at about that time at the interest rate the federal government was then paying for 30-year treasury bonds, and the amount borrowed was amortized over that 30-year period, the federal government would have incurred about $16.4 million in interest cost from about the date of the SSMC I purchase through December 31, 1997; and (16) the GSA SSMC I's operating costs and the estimated interest cost over the last 11 years do not represent the building's full cost or benefit to the federal government.