Federal Real Property
Further Actions Needed to Address Long-standing and Complex Problems Gao ID: GAO-05-848T June 22, 2005In January 2003, GAO designated federal real property as a high-risk area due to long-standing problems with excess and underutilized property, deteriorating facilities, unreliable real property data, and costly space challenges. Federal agencies were also facing many challenges protecting their facilities due to the threat of terrorism. This testimony discusses the problems with federal real property, particularly those relating to excess and deteriorating property, and what needs to be done to address them.
The federal real property portfolio is vast and diverse--over 30 agencies control hundreds of thousands of real property assets worldwide, including facilities and land worth hundreds of billions of dollars. Unfortunately, many of these assets are no longer effectively aligned with, or responsive to, agencies' changing missions. Further, many assets are in an alarming state of deterioration; agencies have estimated restoration and repair needs to be in the tens of billions of dollars. Compounding these problems are the lack of reliable governmentwide data for strategic asset management, a heavy reliance on costly leasing, instead of ownership, to meet new needs, and the cost and challenge of protecting these assets against terrorism. In February 2004, the President added the Federal Asset Management Initiative to the President's Management Agenda and signed Executive Order 13327. The order requires senior real property officers at specified executive branch departments and agencies to, among other things, prioritize actions needed to improve the operational and financial management of the agency's real property inventory. A new Federal Real Property Council at OMB has developed guiding principles for real property asset management and is also developing performance measures, a real property inventory database, and an agency asset management planning process. In addition to these reform efforts, some agencies such as the Departments of Defense (DOD) and Veterans Affairs (VA) have made progress in addressing long-standing federal real property problems. For example, DOD is preparing for a round of base realignment and closures in 2005. Also, in May 2004, VA announced a wide range of asset realignment decisions. These and other efforts are positive steps, but it is too early to judge whether the administration's focus on this area will have a lasting impact. The underlying conditions and related obstacles that led to GAO's high-risk designation continue to exist. Remaining obstacles include competing stakeholder interests in real property decisions, various legal and budget-related disincentives to optimal, businesslike, real property decisions, and the need for better capital planning among agencies.
GAO-05-848T, Federal Real Property: Further Actions Needed to Address Long-standing and Complex Problems
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Testimony:
Before the House Committee on Government Reform:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EDT:
Wednesday, June 22, 2005:
Federal Real Property:
Further Actions Needed to Address Long-standing and Complex Problems:
Statement of David M. Walker, Comptroller General of the United States:
GAO-05-848T:
GAO Highlights:
Highlights of GAO-05-848T, a testimony before the House Committee on
Government Reform:
Why GAO Did This Study:
In January 2003, GAO designated federal real property as a high-risk
area due to long-standing problems with excess and underutilized
property, deteriorating facilities, unreliable real property data, and
costly space challenges. Federal agencies were also facing many
challenges protecting their facilities due to the threat of terrorism.
This testimony discusses the problems with federal real property,
particularly those relating to excess and deteriorating property, and
what needs to be done to address them.
What GAO Found:
The federal real property portfolio is vast and diverse”over 30
agencies control hundreds of thousands of real property assets
worldwide, including facilities and land worth hundreds of billions of
dollars. Unfortunately, many of these assets are no longer effectively
aligned with, or responsive to, agencies‘ changing missions. Further,
many assets are in an alarming state of deterioration; agencies have
estimated restoration and repair needs to be in the tens of billions of
dollars. Compounding these problems are the lack of reliable
governmentwide data for strategic asset management, a heavy reliance on
costly leasing, instead of ownership, to meet new needs, and the cost
and challenge of protecting these assets against terrorism.
In February 2004, the President added the Federal Asset Management
Initiative to the President‘s Management Agenda and signed Executive
Order 13327. The order requires senior real property officers at
specified executive branch departments and agencies to, among other
things, prioritize actions needed to improve the operational and
financial management of the agency‘s real property inventory. A new
Federal Real Property Council at OMB has developed guiding principles
for real property asset management and is also developing performance
measures, a real property inventory database, and an agency asset
management planning process. In addition to these reform efforts, some
agencies such as the Departments of Defense (DOD) and Veterans Affairs
(VA) have made progress in addressing long-standing federal real
property problems. For example, DOD is preparing for a round of base
realignment and closures in 2005. Also, in May 2004, VA announced a
wide range of asset realignment decisions.
These and other efforts are positive steps, but it is too early to
judge whether the administration‘s focus on this area will have a
lasting impact. The underlying conditions and related obstacles that
led to GAO‘s high-risk designation continue to exist. Remaining
obstacles include competing stakeholder interests in real property
decisions, various legal and budget-related disincentives to optimal,
businesslike, real property decisions, and the need for better capital
planning among agencies.
Examples of Vacant GSA, VA, and USPS Facilities:
[See PDF for image]
[End of figure]
What GAO Recommends:
Since January 2003, some important efforts to address the problems have
been initiated by the administration and executive agencies, including
Presidential Executive Order 13327 on real property reform.
The executive order is clearly a positive step. However, GAO believes
there is still a need for a comprehensive, integrated transformation
strategy for real property to build upon the executive order. More
specifically, the additional step of developing a transformation
strategy would provide decisionmakers with a road map of actions for
addressing the underlying obstacles, for assessing progress
governmentwide, and for enhancing accountability for related actions.
www.gao.gov/cgi-bin/getrpt?GAO-05-848T.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Mark Goldstein at (202)
512-2834 or goldsteinm@gao.gov.
[End of section]
Mr. Chairman and Members of the Committee:
We welcome the opportunity to testify on the actions that are needed to
address the long-standing and complex problems that led to our
designation of federal real property as a high-risk area. As you know,
at the start of each new Congress since 1999, we have issued a special
series of reports, entitled the Performance and Accountability Series:
Major Management Challenges and Program Risks. In January 2003, we
designated federal real property a high-risk area as part of this
series, and we issued an update on this area in January 2005.[Footnote
1] My testimony is based on our January 2003 and January 2005 high-risk
reports and other GAO reports on real property issues. My testimony
focuses on the problems with federal real property, particularly those
relating to excess and deteriorating property, and what needs to be
done to address them.
Summary:
As we reported in February 2005, the physical footprint of agencies is
outmoded, which reflects the failure to take advantage of opportunities
provided by new technology to modernize operations and the changing
nature of agencies' missions.[Footnote 2] More than 30 federal agencies
control about $328 billion in real property assets worldwide, and
maintain a "brick and mortar" buildings and/or office presence in 11
regions across the nation. But this organization and infrastructure
reflects a business model and the technological and transportation
environment of the 1950s. Many of these assets and organizational
structures are no longer needed; others are not effectively aligned
with, or responsive to, agencies' changing missions; and many assets
are in an alarming state of deterioration, potentially costing
taxpayers tens of billions of dollars to restore and repair. In
addition, federal agencies face problems with their real property data
and protecting their facilities due to the threat of terrorism.
Since our designation of this area as high-risk in January 2003, some
important efforts to address these problems have been initiated by the
administration and executive agencies, including a Presidential
Executive Order[Footnote 3] on real property reform and the Office of
Management and Budget's (OMB) development of guiding principles for
real property asset management. The executive order is clearly a
positive step. However, it has not been fully implemented, and further
actions are necessary to address the underlying problems and related
obstacles, including competing stakeholder interests in real property
decisions and legal and budget-related disincentives to optimal,
businesslike, real property decisions. GAO continues to believe that
there is a need for a comprehensive transformation strategy for real
property to build upon the executive order. More specifically, the
additional step of developing a transformation strategy would provide
decisionmakers with a road map of actions for addressing the underlying
obstacles, assessing progress governmentwide, and for enhancing
accountability for related actions.
If actions resulting from the transformation strategy and other efforts
address the long-standing problems are effectively implemented,
agencies will be better able to recover asset values, reduce operating
costs, improve facility conditions, enhance security and safety,
recruit and retain employees, and achieve mission effectiveness.
Realigning the government's real property, taking into consideration
the future federal role, likely organizational structure, geographic
presence, and workplace needs, will be critical to improving the
government's performance and ensuring accountability within expected
resource limits.
The Federal Real Property Environment:
The federal real property environment has many stakeholders and
involves a vast and diverse portfolio of assets that are used for a
wide variety of missions. Real property is generally defined as
facilities; land; and anything constructed on, growing on, or attached
to land. According to its fiscal year 2003 financial statements, the
federal government currently owns billions of dollars in real property
assets. The Department of Defense (DOD), U.S. Postal Service (USPS),
the General Services Administration (GSA), and the Department of
Veterans Affairs (VA) hold the majority of the owned facility space.
Federal real property managers operate in a complex and dynamic
environment. Numerous laws and regulations govern the acquisition,
management, and disposal of federal real property. The Federal Property
and Administrative Services Act of 1949, as amended (Property Act), and
the Public Buildings Act of 1959, as amended, are the laws that
generally apply to real property; and GSA is responsible for the acts'
implementation.[Footnote 4] Agencies are subject to these acts, unless
they are specifically exempted from them, and some agencies may also
have their own statutory authority related to real property. Agencies
must also comply with numerous other laws related to real property.
The Federal Government Has Many Assets it Does Not Need:
Despite significant changes in the size and mission needs of the
federal government in recent years, the federal portfolio of real
property assets in many ways still largely reflects the business model
and technological environment of the 1950s and faces serious security
challenges. In the last decade alone, the federal government has
reduced its workforce by several hundred thousand personnel, and
several federal agencies have had major mission changes. With these
personnel reductions and mission changes, the need for existing space,
including general-purpose office space, has declined overall and
necessitated the need for different kinds of space. At the same time,
technological advances have changed workplace needs, and many of the
older buildings are not configured to accommodate new technologies. The
advent of electronic government is starting to change how the public
interacts with the federal government. These changes will have
significant implications for the type and location of property needed
in the 21st century. Furthermore, changes in the overall domestic
security environment have presented an additional range of challenges
to real property management that must be addressed.
One reason the government has many unneeded assets is that some of the
major real property-holding agencies have undergone significant mission
shifts that have affected their real property needs. For example, after
the Cold War, DOD's force structure was reduced by 36 percent. Despite
several rounds of base closures, DOD projects that it still has
considerably more property than it needs. The National Defense
Authorization Act for Fiscal Year 2002, gave DOD the authority for
another round of base realignments and military installation closures
in 2005.
In addition, various factors may significantly reduce the need for real
property held by USPS. These factors include new technologies,
additional delivery options, and the opportunity for greater use of
partnerships and retail co-location arrangements. A July 2003
Presidential Commission report on USPS stated, among other things, that
USPS had vacant and underutilized facilities that had little, if any,
value to the modern-day delivery of the nation's mail.[Footnote 5] In
April 2005 we reported that USPS faces future financial challenges due
to its declining First-Class Mail volume and has excess capacity in its
current infrastructure that impedes efficiency gains.[Footnote 6] USPS
has stated that one way to increase efficiency is to realign its
processing and distribution infrastructure.
In the mid-1990s, VA began shifting its role from being a traditional
hospital-based provider of medical services to an integrated delivery
system that emphasizes a full continuum of care with a significant
shift from inpatient to outpatient services. Subsequently, VA has
struggled to reduce its large inventory of buildings, many of which are
underutilized or vacant.
The magnitude of the problem with underutilized or excess federal
property puts the government at significant risk for wasting taxpayers'
money and missed opportunities. First, underutilized or excess property
is costly to maintain. DOD estimates that it is spending $3 billion to
$4 billion each year maintaining facilities that are not needed. It is
likely that other agencies that continue to hold excess or
underutilized property are also incurring significant costs for staff
time spent managing the properties and on maintenance, utilities,
security, and other building needs. Second, in addition to day-to-day
operational costs, holding these properties has opportunity costs for
the government, because these buildings and land could be put to more
cost-beneficial uses, exchanged for other needed property, or sold to
generate revenue for the government. Finally, continuing to hold
property that is unneeded does not present a positive image of the
federal government in local communities. Instead, it presents an image
of waste and inefficiency that erodes taxpayers' confidence in
government. It also can have a negative impact on local economies if
the property is occupying a valuable location and is not used for other
purposes, sold, redeveloped, or used in a public-private partnership.
The Federal Portfolio Is in an Alarming State of Deterioration:
Restoration, repair, and maintenance backlogs in federal facilities are
significant and reflect the federal government's ineffective
stewardship over its valuable and historic portfolio of real property
assets. The state of deterioration is alarming because of the magnitude
of the repair backlog--current estimates show that tens of billions of
dollars will be needed to restore these assets and make them fully
functional. This problem has accelerated in recent years because much
of the federal portfolio was constructed over 50 years ago, and these
assets are reaching the end of their useful lives. As with the problems
related to underutilized or excess property, the challenges of
addressing facility deterioration are also prevalent at major real
property-holding agencies. In recent discussions, a GSA official said
that its $5.7 billion backlog, which we reported in 2003, has grown to
between $6 and $7 billion.[Footnote 7] In recognition of the importance
of addressing deferred maintenance, federal accounting standards
require agencies to report deferred maintenance as supplementary
information in their financial statements. As of September 30, 2004,
the government's consolidated financial statements showed a deferred
maintenance cost range of $13.4 billion to $25.3 billion for the asset
category General Property, Plant, and Equipment--which includes federal
real property.
Over the last decade, DOD reports that it has been faced with the major
challenge of adequately maintaining its facilities to meet its mission
requirements. In February 2003, we reported that although the amount of
money the active forces have spent on facility maintenance had
increased recently, DOD and service officials said that these amounts
had not been sufficient to halt the deterioration of
facilities.[Footnote 8] Too little funding to adequately maintain
facilities is also aggravated by DOD's acknowledged retention of
facilities in excess of its needs.
Our work over the years has shown that the deterioration problem leads
to increased operational costs, has health and safety implications that
are worrisome, and can compromise agency missions. In addition, we have
reported that the ultimate cost of completing delayed repairs and
alterations may escalate because of inflation and increases in the
severity of the problems caused by the delays.[Footnote 9] As discussed
above, the overall cost could also be reduced by government
realignment. That is, to the extent that unneeded property is also in
need of repair, disposing of such property could reduce the repair
backlog. Another negative effect, which is not readily apparent but
nonetheless significant, is the effect that deteriorating facilities
have on employee recruitment, retention, and productivity. This human
capital element is troublesome because the government is often at a
disadvantage in its ability to compete in the job market in terms of
the salaries agencies are able to offer. Poor physical work
environments exacerbate this problem and can have a negative impact on
potential employees' decisions to take federal positions. Furthermore,
research has shown that quality work environments make employees more
productive and improve morale. Finally, as with excess or underutilized
property, deteriorated property presents a negative image of the
federal government to the public. This is particularly true when many
of the assets the public uses and visits the most--such as those at
national parks and museums--are not well maintained or in generally
poor condition.
Other Long-standing Problems Continue to Exist:
As we reported in October 2003, in addition to the difficulties with
excess and deteriorated property, the federal government faces other
long-standing real property-related problems.[Footnote 10] For example,
there is a lack of reliable and useful real property data that are
needed for strategic decision-making. In April 2002, we reported that
the government's only central source of descriptive data on the makeup
of the real property inventory, GSA's worldwide inventory database and
related real property reports, contained data that were unreliable and
of limited usefulness.[Footnote 11] GSA agreed with our findings and
has revamped this database and produced a new report on the federal
inventory; we have not evaluated GSA's revamped database and related
report. In addition to the problems with the worldwide inventory, in
February 2005, we reported that as in the 7 previous fiscal years,
certain material weaknesses[Footnote 12] in internal control and in
selected accounting and financial reporting practices resulted in
conditions that continued to prevent us from being able to provide an
opinion as to whether the consolidated financial statements of the U.S.
government were fairly stated in conformity with U.S. generally
accepted accounting principles.[Footnote 13] We have reported that
because the government lacked complete and reliable information to
support asset holdings--including real property--it could not
satisfactorily determine that all assets were included in the financial
statements, verify that certain reported assets actually existed, or
substantiate the amounts at which they were valued.
In addition to problems with unreliable real property data, the
government continues to rely on costly leasing for much of its space
needs. As a general rule, building ownership options through
construction or purchase are the least expensive ways to meet agencies'
long-term and recurring requirements for space. Lease-purchase--under
which payments are spread over time and ownership of the asset is
eventually transferred to the government--are generally less costly
than using ordinary operating leases to meet long-term space
needs.[Footnote 14] However, over the last decade, we have reported
that GSA--as the central leasing agent for most agencies--relies
heavily on operating leases to meet new long-term needs because it
lacks funds to pursue ownership. Operating leases have become an
attractive option in part because they generally look cheaper in any
given year, even though they are generally more costly over time.
Budget scorekeeping rules allow these costly operating leases to look
cheaper in the short term and have encouraged an overreliance on them
for satisfying long-term space needs. Finding a solution for this
problem has been difficult; however, change is needed because the
current practice of relying on costly leasing to meet long-term space
needs results in excessive costs to taxpayers and does not reflect a
sensible or economically rational approach to capital asset management.
Federal agencies also face challenges in protecting their facilities
due to the threat of terrorism. Terrorism is a major threat to
federally owned and leased real property, the civil servants and
military personnel who work in them, and the public who visits them.
This was evidenced by the 1995 Oklahoma City bombing; the 1998 embassy
bombings in Africa; the September 11, 2001, attacks on the World Trade
Center and Pentagon; and the anthrax attacks in the fall of 2001. Since
the 2001 attacks, the focus on security in federal buildings has been
heightened considerably. Real property-holding agencies are employing
such measures as searching vehicles that enter federal facilities,
restricting parking, and installing concrete bollards. As the
government's security efforts intensify, the government will be faced
with important questions regarding the level of security needed to
adequately protect federal facilities and how the security community
should proceed.
Various Efforts Initiated, but Real Property Problems Persist Due to
Factors that Require Attention:
In February 2004, the President added the Federal Asset Management
Initiative to the President's Management Agenda and signed Executive
Order 13327 to address challenges in this area. The order requires
senior real property officers at specified executive branch departments
and agencies[Footnote 15] to, among other things, develop and implement
an agency asset management plan; identify and categorize all real
property owned, leased, or otherwise managed by the agency; prioritize
actions needed to improve the operational and financial management of
the agency's real property inventory; and make life-cycle cost
estimations associated with the prioritized actions. In addition, the
senior real property officers are responsible, on an ongoing basis, for
monitoring the real property assets of the agency. The order also
established a new Federal Real Property Council (the Council) at OMB.
In April 2005, OMB officials updated us on the status of the
implementation of the executive order. According to these officials,
all of the senior real property officers are in place, and the Council
has been working to identify common data elements and performance
measures to be captured by agencies and ultimately reported to a
governmentwide database. In addition, OMB officials reported that
agencies are working on their asset management plans. Plans for the
DOD, VA, Energy, and GSA have been completed and approved by OMB. The
Council has also developed guiding principles for real property asset
management. These guiding principles state that real property asset
management must, among other things, support agency missions and
strategic goals, use public and commercial benchmarks and best
practices, employ life-cycle cost-benefit analysis, promote full and
appropriate utilization, and dispose of unneeded assets.
In addition to these reform efforts, Public Law 108-447 gave GSA the
authority to retain the net proceeds from the disposal of federal
property for fiscal year 2005 and to use such proceeds for GSA's real
property capital needs. Also, Public Law 108-422 established a capital
asset fund and gave VA the authority to retain the proceeds from the
disposal of its real property for the use of certain capital asset
needs such as demolition, environmental clean-up, repairs, and
maintenance to the extent specified in appropriations acts. And,
agencies such as DOD and VA have made progress in addressing long-
standing federal real property problems and governmentwide efforts in
the facility protection area are progressing. For example:
* VA has established a process called Capital Asset Realignment for
Enhanced Services (CARES) to address its aging and obsolete portfolio
of health care facilities. In March 2005, we reported that through
CARES, VA identified 136 locations for evaluation of alternative ways
to align inpatient services--99 facilities had potential duplication of
services with another nearby facility or low acute patient
workload.[Footnote 16] VA made decisions to realign inpatient health
care services at 30 of these locations. For example, it will close all
inpatient services at 5 facilities. VA's decisions on inpatient
alignment and plans for further study of its capital asset needs are
tangible steps in improving management of its capital assets and
enhancing health care. Accomplishing its goals, however, will depend on
VA's success in completing its evaluations and implementing its CARES
decisions to ensure that resources now spent on unneeded capital assets
are redirected to health care.
* In DOD's support infrastructure management area, which we identified
as high-risk in 1997, DOD has made progress and expects to continue
making improvements. In May 2005, we testified that DOD implemented the
recommendations from the previous BRAC rounds within the 6-year period
mandated by law.[Footnote 17] As a result, DOD estimated that it
reduced its domestic infrastructure by about 20 percent, as measured by
the cost to replace the property; about 90 percent of unneeded BRAC
property is now available for reuse. Substantial net savings of
approximately $29 billion have been realized over time. DOD's
expectations for the 2005 BRAC round include further eliminating
unneeded infrastructure and achieving savings. It also expects to use
BRAC to further transformation and related efforts such as restationing
of troops from overseas as well as efforts to further joint basing
among the military services. The results of the 2005 BRAC round will be
known later this year, once the legislatively mandated Defense Base
Closure and Realignment Commission completes its work and its
recommendations are considered by the President and the Congress.
* In light of the need to invest in facility protection since September
11, 2001, funding available for repair and restoration and preparing
excess property for disposal may be further constrained. The
Interagency Security Committee (ISC), which is chaired by the
Department of Homeland Security (DHS), is tasked with coordinating
federal agencies' facility protection efforts, developing standards,
and overseeing implementation. In November 2004, we reported that ISC
had made progress in coordinating the government's facility protection
efforts by, for example, developing security standards for leased space
and design criteria for security in new construction projects. Despite
this progress, we found that its actions to ensure compliance with
security standards and oversee implementation have been limited.
Nonetheless, the ISC serves as a forum for addressing security issues,
which can have an impact on agencies' efforts to improve real property
management.
The inclusion of real property asset management on the President's
Management Agenda, the executive order, and agencies' actions are
clearly positive steps in an area that had been neglected for many
years. However, despite the increased focus on real property issues in
recent years, the underlying conditions--such as excess and
deteriorating properties and costly leasing--continue to exist and more
needs to be done to address various obstacles that led to our high risk
designation. For example, the problems have been exacerbated by
competing stakeholder interests in real property decisions, various
legal and budget related disincentives to businesslike outcomes, and
the need for better capital planning among real property-holding
agencies.
More specifically:
* Competing Stakeholder Interests - In addition to Congress, OMB, and
the real property-holding agencies themselves, several other
stakeholders also have an interest in how the federal government
carries out its real property acquisition, management, and disposal
practices. These include foreign and local governments; business
interests in the communities where the assets are located; private
sector construction and leasing firms; historic preservation
organizations; various advocacy groups; and the public in general,
which often views the facilities as the physical face of the federal
government in local communities. As a result of competing stakeholder
interests, decisions about real property often do not reflect the most
cost-effective or efficient alternative that is in the interests of the
agency or the government as a whole but instead reflect other
priorities.
* Legal and Budgetary Disincentives -The complex legal and budgetary
environment in which real property managers operate has a significant
impact on real property decisionmaking and often does not lead to
economically rational and businesslike outcomes. For example, we have
reported that public-private partnerships might be a viable option for
redeveloping obsolete federal property when they provide the best
economic value for the government, compared with other options, such as
federal financing through appropriations or sale of the property.
Resource limitations, in general, often prevent agencies from
addressing real property needs from a strategic portfolio perspective.
When available funds for capital investment are limited, Congress
should weigh the need for new, modern facilities with the need for
renovation, maintenance, and disposal of existing facilities, the
latter of which often gets deferred. In the disposal area, a range of
laws intended to address other objectives--such as laws related to
historic preservation and environmental remediation--makes it
challenging for agencies to dispose of unneeded property.
* Need for Improved Capital Planning - Over the years, we have reported
that prudent capital planning can help agencies to make the most of
limited resources, and failure to make timely and effective capital
acquisitions can result in increased long-term costs. GAO, Congress,
and OMB have identified the need to improve federal decisionmaking
regarding capital investment. Our Executive Guide,[Footnote 18] OMB's
Capital Programming Guide, and its revisions to Circular A-11 have
attempted to provide guidance to agencies for making capital investment
decisions. However, agencies are not required to use the guidance.
Furthermore, agencies have not always developed overall goals and
strategies for implementing capital investment decisions, nor has the
federal government generally planned or budgeted for capital assets
over the long term.
As you know, GSA is required by law to charge agencies for renting
space in federal office buildings, courthouses, and other assets GSA
owns. The rental receipts are deposited into the Federal Buildings Fund
(FBF), a revolving fund used to fund GSA real property services,
including space acquisition and asset management for federal facilities
that are under GSA's control. Over the years, there have been various
efforts to restrict or exempt agencies from paying rent to GSA for some
or all of their space. This, however, can have a negative impact on the
government's ability to "re-invest" in its portfolio. Currently, the
federal judiciary is seeking such an exemption. This is a very
important issue, since it would serve to provide a precedent with
significant governmentwide implications.
More specifically, GSA has historically been unable to generate
sufficient revenue through FBF and has thus struggled to meet the
requirements for repairs and alterations identified in its inventory of
owned buildings. We reported in 2003 that the estimated backlog of
repairs had reached $5.7 billion, and consequences included poor health
and safety conditions, higher operating costs, restricted capacity for
modern information technology, and continued structural deterioration.
Restrictions imposed on the rent GSA could charge federal agencies have
compounded the agency's inability to address its backlog in the past.
Consequently, we recommended in 1989 that Congress remove all rent
restrictions and not mandate any further restrictions, and most rent
restrictions have been lifted. The GSA Administrator has the authority
to grant rent exemptions, and all of the current exemptions are limited
to single buildings or were granted for a limited duration. Together,
these current exemptions represent about $170 million, a third of the
$483 million permanent exemption the judiciary is requesting from GSA.
The judiciary has requested the exemption, equal to about half of its
annual rent payment, because of budget problems that it believes its
growing rent payments have caused. GSA data show that one reason the
judiciary's rent is increasing is that the space it occupies is also
increasing. We are currently studying the potential impact of such an
exemption on FBF, however our past work shows that rent exemptions were
a principal reason why FBF has accumulated insufficient money for
capital investment.
A Transformation Strategy Is Needed:
The magnitude of real property-related problems and the complexity of
the underlying factors that cause them to persist put the federal
government at significant risk in this area. Real property problems
related to unneeded property and the need for realignment,
deteriorating conditions, unreliable data, costly space, and security
concerns have multibillion-dollar cost implications and can seriously
jeopardize mission accomplishment. Because of the breadth and
complexity of the issues involved, the long-standing nature of the
problems, and the intense debate about potential solutions that will
likely ensue, current structures and processes may not be adequate to
address the problems. In addition, a governmentwide perspective
regarding the extent of excess or underutilized space, deferred
maintenance, and the costs of real property would improve transparency.
That is, all stakeholders would know the condition of the problem and
overall, the government could better manage its real property. Given
this, we concluded in our high-risk report and in our update in January
2005, and still believe that a comprehensive and integrated
transformation strategy for federal real property is needed. Such a
strategy could build upon the executive order by providing
decisionmakers with a road map of actions for addressing the underlying
obstacles, assessing progress governmentwide, and for enhancing
accountability for related actions. Based on input from agencies, the
private sector, and other interested groups, the strategy could
comprehensively address these long-standing problems with specific
proposals on how best to:
* realign the federal infrastructure and dispose of unneeded property,
taking into account mission requirements, changes in technology,
security needs, costs, and how the government conducts business in the
21st century;
* address the significant repair and restoration needs of the federal:
portfolio;
* ensure that reliable governmentwide and agency-specific real property
data--both financial and program related--are available for informed
decisionmaking;
* resolve the problem of heavy reliance on costly leasing; and:
* consider the impact that the threat of terrorism will have on real
property needs and challenges, including how to balance public access
with safety.
To be effective in addressing these problems, it would be important for
the strategy to focus on:
* minimizing the negative effects associated with competing stakeholder
interests in real property decisionmaking;
* providing agencies with appropriate tools and incentives that will
facilitate businesslike decisions--for example, consideration should be
given to what financing options should be available; whether agencies
should keep some of the disposal proceeds to recoup the costs of
preparing properties for disposal; what process would permit
comparisons between rehabilitation/renovation and replacement and among
construction, purchase, lease-purchase, and operating lease; and how
public-private partnerships should be evaluated;
* addressing federal human capital issues related to real property by
recognizing that real property conditions affect the federal
government's ability to attract and retain high-performing individuals
and the productivity and morale of employees;
* improving real property capital planning in the federal government by
helping agencies to better integrate agency mission considerations into
the capital decision-making process, make businesslike decisions when
evaluating and selecting capital assets, evaluate and select capital
assets by using an investment approach, evaluate results on an ongoing
basis, and develop long-term capital plans; and:
* ensuring credible, rational, long-term budget planning for facility
sustainment, modernization, or recapitalization.
The transformation strategy should also reflect the lessons learned and
leading practices of organizations in the public and private sectors
that have attempted to reform their real property practices. Over the
past decade, leading organizations in both the public and private
sectors have been recognizing the impact that real property decisions
have on their overall success. For example, we at GAO are currently
leasing space to the U.S. Army Corps of Engineers to better utilize our
space, generate revenue, and reduce the Corps' need to lease space from
the private sector. The revenue we receive provides us with an
incentive to efficiently manage our space. Better managing real
property assets in the current environment calls for a significant
departure from the traditional way of doing business. Solutions should
not only correct the long-standing problems we have identified but also
be responsive to and supportive of agencies' changing missions,
security concerns, and technological needs in the 21st century. If
actions resulting from the transformation strategy comprehensively
address the problems and are effectively implemented, agencies will be
better positioned to recover asset values, reduce operating costs,
improve facility conditions, enhance safety and security, recruit and
retain employees, and achieve mission effectiveness.
In addition to developing a transformation strategy, it is critical
that all the key stakeholders in government--Congress, OMB, and real
property-holding agencies--continue to work diligently on the efforts
planned and already under way that are intended to promote better real
property capital decisionmaking, such as enacting reform legislation,
assessing infrastructure and human capital needs, and examining viable
funding options. Congress and the administration could continue to work
together to develop and enact additional reform legislation to give
real property-holding agencies the tools they need to achieve better
outcomes, foster a more businesslike real property environment, and
provide for greater accountability for real property stewardship. These
tools could include, where appropriate, the ability to retain a portion
of the proceeds from disposal and the use of public-private
partnerships in cases where they represent the best economic value to
the government. Congress and the administration could also elevate the
importance of real property in policy debates and recognize the impact
that real property decisions have on agencies' missions.
Regarding this Committee's draft legislation known as the "Federal Real
Property Disposal Pilot Program and Management Improvement Act of
2005," we believe that the objectives of the legislation and several of
its provisions have strong conceptual merit. For example, it would
establish a pilot program for the expedited disposal of excess,
surplus, or underutilized real property assets identified and would
enact many of the requirements of Executive Order 13227 into law. In
particular, pursuing this pilot program, as outlined in Title I, would
allow for assessing lessons learned and help determine the merits of
the program and whether it should continue. Furthermore, making the
requirements of the executive order law, as outlined in Title II, would
serve to elevate their importance and show that Congress and the
administration are unified in pursuing real property reform. We would
respectfully suggest that the Committee give consideration to including
a requirement that a transformation strategy for federal real property
be developed, as we have recommended.
Solving the problems in this area will undeniably require a
reconsideration of funding priorities at a time when budget constraints
will be pervasive. Without effective incentives and tools; top
management accountability, leadership, and commitment; adequate
funding; full transparency with regard to the government's real
property activities; and an effective system to measure results, long-
standing real property problems will continue and likely worsen.
However, the overall risk to the government and taxpayers could be
substantially reduced if an effective transformation strategy is
developed and successfully implemented, reforms are made, and property-
holding agencies effectively implement current and planned initiatives.
Since our high-risk report was issued, OMB has informed us that it is
taking steps to address the federal government's problems in the real
property area. Specifically, it has established a new Federal Real
Property Council to address these long-standing issues. To assist OMB
with its efforts, we have agreed to meet regularly to discuss progress
and have provided OMB with specific suggestions on the types of actions
and results that could be helpful in justifying the removal of real
property from the high-risk list.
Mr. Chairman, this concludes my prepared statement. I would be happy to
respond to any questions you or other Members of the Committee may have
at this time.
Contacts and Acknowledgements:
For further information on this testimony, please contact Mark
Goldstein on (202) 512-2834 or at goldsteinm@gao.gov. Key contributions
to this testimony were made by Christine Bonham, Daniel Hoy, Anne Izod,
Susan Michal-Smith, and David Sausville.
FOOTNOTES
[1] GAO, High-Risk Series: Federal Real Property, GAO-03-122
(Washington, D.C.; Jan. 2003); the report on real property is a
companion to GAO's 2003 high-risk update, GAO, High-Risk Series: An
Update, GAO-03-119 (Washington, D.C.: Jan. 2003); and GAO, High-Risk
Series: An Update, GAO-05-207 (Washington, D.C.; Jan. 2005); these
reports are intended to help the new Congress focus its attention on
the most important issues and challenges facing the federal government.
[2] GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-352T (Washington, D.C.; Feb. 16, 2005).
[3] Presidential Executive Order 13327, Feb. 6, 2004.
[4] For the Property Act, see 40 U.S.C. § 101 et. seq.; the Property
Act excludes certain types of property, such as public domain assets
and land reserved or dedicated for national forest or national park
purposes; for the Public Buildings Act, see 40 U.S.C. § 3301 et. seq.
[5] President's Commission on the United States Postal Service,
Embracing the Future: Making the Tough Choices to Preserve Universal
Mail Service (Washington, D.C.: July 31, 2003).
[6] GAO, U.S. Postal Service: The Service's Strategy for Realigning Its
Mail Processing Infrastructure Lacks Clarity, Criteria, and
Accountability, GAO-05-261 (Washington, D.C.: Apr. 8, 2005).
[7] GAO-03-122.
[8] GAO, Defense Infrastructure: Changes in Funding Priorities and
Strategic Planning Needed to Improve the Condition of Military
Facilities, GAO-03-274 (Washington, D.C.: Feb. 19, 2003).
[9] GAO, Federal Buildings: Funding Repairs and Alterations Has Been a
Challenge--Expanded Financing Tools Needed, GAO-01-452 (Washington,
D.C.; Mar. 20, 2001).
[10] GAO, Federal Real Property: Actions Needed to Address Long-
standing and Complex Problems, GAO-04-119T (Washington, D.C.: Oct. 1,
2003).
[11] GAO, Federal Real Property: Better Governmentwide Data Needed for
Strategic Decisonmaking, GAO-02-342 (Washington, D.C.: Apr. 16, 2002).
[12] A material weakness is a condition that precludes the entity's
internal control from providing reasonable assurance that
misstatements, losses, or noncompliance material in relation to the
financial statements or to stewardship information would be prevented
or detected on a timely basis.
[13] GAO, Fiscal Year 2004 U.S. Government Financial Statements:
Sustained Improvement in Federal Financial Management Is Crucial to
Addressing Our Nation's Future Fiscal Challenge, GAO-05-284T
(Washington, D.C.: Feb 9, 2005).
[14] In an operating lease, the government makes periodic lease
payments over the specified length of the lease in exchange for the use
of the property.
[15] See 31 U.S.C. § 901(b) (1) and (b) (2) for a list of the executive
branch departments and agencies required to establish a senior real
property officer.
[16] GAO, VA Health Care: Important Steps Taken to Enhance Veterans'
Care By Aligning Inpatient Services with Projected Needs, GAO-05-160
(Washington, D.C.: Mar. 2, 2005).
[17] GAO, Military Base Closures: Observations on Prior and Current
BRAC Rounds, GAO-05-614 (Washington, D.C.: May 3, 2005).
[18] GAO, Executive Guide: Leading Practices in Capital Decision-
making, GAO/AIMD-99-32 (Washington, D.C.: Dec. 1998).
