Federal Real Property
Views on Real Property Reform Issues Gao ID: GAO-02-622T April 18, 2002The Federal Property Asset Management Reform Act of 2002, will enhance federal real and personal property management and bring the policies and business practices of federal agencies into the 21st century. Available data show that the federal government owns hundreds of thousands of properties worldwide, including military installations, office buildings, laboratories, courthouses, embassies, postal facilities, national parks, forests, and other public lands, estimated to be worth billions of dollars. Most of this government-owned real property is under the custody and control of eight agencies--the Department of Agriculture, Defense, Energy, the Interior, and Veterans Affairs; General Services Administration; the Tennessee Valley Authority; and the U.S. Postal Service. Federal property managers have a large deferred maintenance backlog, obsolete and underutilized properties, and changing facility needs due to rapid advances in technology. It is important that real property-holding agencies link their real property strategic plans to their missions and related capital management and performance plans; ensure that senior real property officers have the knowledge, skills, and expertise needed to effectively perform their duties; are accountable for the reliability, usefulness, and timeliness of their data; and adopt an effective process to monitor and evaluate any management tool authorized by the bill. It is equally important that GSA provides written guidance to agencies on the development of their business and asset management plans and that Congress provide appropriate control and oversight of intended and actual use of the funds retained from real property transactions.
GAO-02-622T, Federal Real Property: Views on Real Property Reform Issues
This is the accessible text file for GAO report number GAO-02-622T
entitled 'Federal Real Property: Views on Real Property Reform Issues'
which was released on April 18, 2002.
This text file was formatted by the U.S. General Accounting Office
(GAO) to be accessible to users with visual impairments, as part of a
longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the
printed version. The portable document format (PDF) file is an exact
electronic replica of the printed version. We welcome your feedback.
Please E-mail your comments regarding the contents or accessibility
features of this document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
United States General Accounting Office:
GAO:
Testimony:
Before the Subcommittee on Economic Development, Public Buildings and
Emergency Management, House Committee on Transportation and
Infrastructure:
For Release on Delivery:
10:00 am. EDT:
Thursday, April 18, 2002:
Federal Real Property:
Views on Real Property Reform Issues:
Statement of Bernard L. Ungar:
Director, Physical Infrastructure Issues:
GAO-02-622T:
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to assist the Subcommittee in its
consideration of H.R. 3947, the Federal Property Asset Management
Reform Act of 2002. This bill would amend the Federal Property and
Administrative Services Act of 1949, as amended, to enhance federal
real and personal property management and bring the policies and
business practices by which federal agencies manage their property
into the 21st century. This statement is based on the work that we
have performed within the last several years in the area of real
property management including our recently released report on
governmentwide real property data.[Footnote 1]
The U.S. government is one of the world's largest property owners.
Available data show that the federal government owns hundreds of
thousands of properties worldwide. These real property assets are very
diverse and include military installations, office buildings,
laboratories, courthouses, embassies, postal facilities, national
parks, forests, and other public lands, estimated to be worth hundreds
of billions of dollars. Overall, government-owned real property is
under the custody and control of at least 30 federal agencies,
[Footnote 2] although most is under the jurisdiction of 8 agencies-the
Departments of Agriculture, Defense, Energy, the Interior, and
Veterans Affairs (VA); General Services Administration (GSA); the
Tennessee Valley Authority; and the U.S. Postal Service.
As we and others have previously reported, federal property managers
find themselves confronted with numerous challenges in managing this
multibillion-dollar real estate portfolio, including a large deferred
maintenance backlog, obsolete and underutilized properties, and
changing facility needs due to rapid advances in technology. These
challenges must be addressed in an environment marked by budgetary
constraints and growing demands to improve service.
Although time constraints did not enable us to do a detailed analysis
of each provision in this bill, we believe that a number of provisions
in H.R. 3947 would go a long way toward helping agencies to recognize
real property as a major component in carrying out their missions and
improving the federal government's management of its multibillion-
dollar real property holdings. We generally support the provisions of
this bill relating to improving real property management leadership
and information and using enhanced asset management tools and
incentives. However, the impact of this bill on property management
will largely depend on how well its provisions are implemented. Given
this, I would like to highlight some specific issues the subcommittee
may wish to consider in its deliberation of H.R. 3947. These issues
include the importance of having real property-holding agencies:
* link their real property strategic plans to their missions and
related capital management and performance plans;
* ensure that senior real property officers have the knowledge,
skills, and expertise needed to effectively perform their duties and
be accountable for the reliability, usefulness, and timeliness of
their real property data; and;
* adopt an effective process to monitor and evaluate the
implementation of any management tool authorized by the bill.
It is equally important that (1) GSA provide written guidance to
agencies on the development of their business plans, specifically when
they propose to use enhanced asset management tools authorized by the
bill, as well as their property asset management plans and (2)
Congress provide appropriate control and oversight regarding agencies'
intended and actual use of the funds retained from real property
transactions.
Now with that as a backdrop, Mr. Chairman, I would like to
specifically comment on the aspects of this bill that are designed to
(1) promote more effective property management leadership, (2) improve
governmentwide real property information, and (3) provide enhanced
asset management tools and incentives to make federal real property
management more effective. These are areas where our past work has
shown that improvements were needed and that federal agencies could
use best practices of private and public organizations to achieve
better results with regard to real property management and oversight
[Footnote 3]
Property Management Leadership:
H.R. 3947 would require the GSA administrator to take a leadership
role, in consultation with the heads of other federal agencies and the
director of the Office of Management and Budget (OMB), in establishing
and maintaining a current set of real property asset management
principles. We support this provision. Agencies would use these
principles as guidance in making decisions about property planning,
acquisition, use, maintenance, and disposal. The bill would also
require the GSA administrator, in consultation with the heads of other
landholding agencies, to establish performance measures to determine the
effectiveness of federal real property management. Performance
measures could address such areas as operating costs, security,
occupancy rates, and tenant satisfaction. The performance measures
should enable Congress and heads of federal agencies to track progress
in the achievement of property management objectives on a
governmentwide basis. This should allow Congress and the agencies to
compare federal agencies' performance against the performance of
private sector and other public sector agencies. In addition, these
provisions would emphasize the importance of effectively managing the
government's multibillion-dollar portfolio of federal real property
assets, help facilitate a uniform approach to asset management, and
assist federal managers in monitoring progress and measuring results.
Another important provision in H.R. 3947, which we support, is the
establishment of a senior real property officer in each landholding
agency that emphasizes the importance of having someone with real
property experience oversee agencies' real property assets. This bill
includes qualification requirements for the senior real property
officer, such as real estate portfolio or facilities management
experience. The senior real property officer would continually monitor
real property assets to ensure that they are being used and invested
in a way that supports the goals and objectives of the agency's
strategic plan. This provision would make federal agencies with real
property holdings accountable for the management and oversight of
their real property assets.
One important feature of having senior real property officers is that
they can be held accountable for providing reliable, useful, and
timely data on their agencies' real property assets to GSA for
inclusion into its worldwide inventory. As you know, using data from
over 30 real property-holding agencies, GSA maintains a governmentwide
real property database commonly referred to as the worldwide
inventory. This database is the only central source of descriptive
data of governmentwide real property assets. As we found during our
recently completed review of this inventory, which I will discuss
later in more detail, decisionmakers, including Congress and OMB,
currently do not have access to quality data for strategic management
and budgeting purposes. Attempting to strategically manage and budget
for the government's vast and diverse portfolio without quality data
puts the government's real property operations at risk and can be
likened to navigating the oceans of the world without the benefit of
oceanographic charts.
Although the senior real property officers would be responsible for
developing their agencies' real property asset management plans, there
also is a need for guidance in establishing standards for the plans so
they are developed in a consistent manner. The adequacy of these plans
will play a key role in improving real property management and
oversight throughout the government. Consequently, this would provide
GSA with an opportunity, in its role as the government's real property
manager, to develop and provide specific guidance for agencies to use
in preparing their real property management plans. This guidance
should describe the types of analyses to be included in the plans to
support planned actions to be taken and conclusions reached in the
plans. For example, the plan should include a discussion of the
benefits to the agency or government that would result from the
proposed actions, and it should provide an analysis of the asset
performance necessary to deliver the required service outcomes over
the duration of the asset strategy planning period. We believe such
guidance would help ensure that the strategic actions that agencies
plan to take relative to their properties will best meet the intended
service delivery outcomes defined in their strategic plans.
We envision that the senior real property officers would work together
with three other senior agency officials”the chief financial officer
(CFO), the chief information officer (CIO), and the head of human
resources”to integrate the strategic planning and management of
facilities, financial management, technology, and human capital to
ensure that the agencies' asset management plans are linked to the
agencies' overall missions and strategic plans. Given the significant
responsibilities foreseen for senior real property officers, we
believe that in addition to the qualification requirements specified
in the bill, the officers should also have a recognized professional
designation or certification, such as certified facility manager or
real property administrator.
Real Property Information:
H.R. 3947 would require the GSA administrator to establish and
maintain a single, comprehensive, and descriptive inventory database
of all real property interests under the custody and control of each
federal agency. Subject to certain limitations, and as deemed
appropriate by the administrator, portions of this database would be
available to interested stakeholders and the public. We believe that a
comprehensive, reliable listing of federal properties, as envisioned
by H.R. 3947, is essential for the government to oversee and manage
its large portfolio of federal assets. Lack of good data makes it
difficult for the government to select the optimal level of capital
spending needed for the acquisition and maintenance of real property.
Inadequate data also impede the government's ability to identify real
property assets that are no longer needed or cost effective to retain.
As I previously mentioned, GSA currently maintains a worldwide
inventory of real property holdings. This week we reported that GSA's
worldwide inventory of federal real property contained data that were
unreliable and of limited usefulness. Worldwide inventory data for 12
of the 31 reporting agencies, which held an estimated 32 percent of
the inventory in terms of building square footage, were not current in
the most recent inventory report. In addition, the inventory did not
contain key data-such as data related to space utilization, facility
condition, historical significance, security, and facility age-that
would be useful for budgeting purposes and the strategic management of
these assets. Given this, decisionmakers, including Congress and OMB,
do not have access to quality data on what real property assets the
government owns; their value; whether the assets are being used
efficiently; and what costs are involved in preserving, protecting,
and investing in them. Without quality data, decisionmakers have
difficulty strategically managing and budgeting for such significant
real property management issues as deteriorating federal buildings,
disposal of underutilized and unneeded properties, and the protection
of people and facilities.
Consequently, we recommended, among other things, that the
administrator of GSA exercise strong leadership and work with
Congress, OMB, the Department of the Treasury (Treasury), and real
property-holding agencies to design a cost-effective strategy for
developing and implementing a reliable, timely, and useful
governmentwide real property database. GSA agreed with the report's
recommendations. Because there is a concern that GSA lacks specific
statutory authority to compile the inventory, we also asked Congress
to consider enacting legislation requiring GSA to maintain an accurate
and up-to-date governmentwide inventory of real property assets and
requiring real property-holding agencies to submit reliable data on
their real property assets to GSA. This would give GSA added leverage
in obtaining the data it needs from other federal agencies.
GSA recognizes the problems associated with the worldwide inventory
and has proposed several legislative initiatives in recent years to
help correct the problems. This provision in H.R. 3947, if effectively
implemented, can help GSA make the worldwide inventory a valuable
resource. However, it is important to recognize that even if this
provision is enacted, GSA will face formidable challenges in compiling
reliable, timely, and useful data on federal real property. GSA will
be challenged to identify and compile this data in a manner that the
many real property-holding agencies, Congress, the Treasury, and OMB,
agree is cost effective. Another challenge for GSA would be to work
with participating agencies to make their real property databases
capable of producing the common data that are needed to make the
worldwide inventory an effective and valued resource.
Enhanced Asset Management Tools and Incentives:
H.R. 3947 would also provide agencies with enhanced asset management
tools and incentives for better property management. These proposed
changes would give agencies the flexibility to establish real property
portfolios that most appropriately, effectively, and efficiently meet
the agencies' mission requirements. The bill provides four new
enhanced asset management tools for effective management of federal
property: (1) interagency transfers or exchanges, (2) sales to or
exchanges with nonfederal sources, (3) subleases, and (4) outleases
and public-private partnerships. In addition, H.R. 3947 provides
incentives for agencies to use these enhanced asset management tools
and dispose of excess property by allowing them to retain proceeds
generated to pay expenses associated with the property and fund other
capital needs. Currently, the law for most federal agencies requires
that proceeds from the sale of federal land and buildings go either to
the general treasury or the Land and Water Conservation Fund.
Within the last year we have issued two reports that addressed issues
related to one of the enhanced management tools proposed in H.R.
3947public-private partnerships. In our report on repairs and
alterations, we said that GSA faced long-standing obstacles, including
limited funding, in reducing its multibillion-dollar inventory of
repair and alteration needs.[Footnote 4] In this report, we asked
Congress to consider providing the administrator of GSA the authority
to experiment with funding alternatives, such as exploring public-
private partnerships when they reflect the best economic value
available for the federal government. The other report identified the
potential benefits of allowing federal agencies to enter into public-
private partnerships.[Footnote 5]
A public-private partnership allows the federal government to lease
federal property to a nongovernmental entity to develop, rehabilitate,
or renovate the facilities on that property for use by federal
agencies and/or private sector tenants. We hired consultants to
develop and analyze hypothetical partnership scenarios for 10
judgmentally selected GSA properties. Appendix I contains a flowchart
that shows how a public-private partnership may be structured. This
work showed that 8 of these properties were potential candidates for a
public-private partnership, and 2 did not appear to be viable
candidates. We identified several potential net benefits to the
federal government of entering into these public-private partnerships.
These potential benefits included improved space, lower operating
costs, and the conversion of buildings that are currently a net cost
to GSA into net revenue producers. Location in a strong office real
estate market with demand for federal and nonfederal office space and
untapped value in underperforming assets were two key factors when
considering properties for partnership opportunities. However, public-
private partnerships will not necessarily be the best option available
to address all real property issues. Ultimately, public-private
partnerships and all other alternatives such as federal financing
through appropriations or sales or exchanges of property would need to
be carefully evaluated to determine which option offers the best
economic value for the government.
Public-private partnership arrangements are not new to some federal
agencies. Congress has previously provided statutory authority for some
specific public-private partnership projects. In addition, Congress
has enacted legislation that gives VA and the Department of Defense
(DOD) specific statutory authority to enter into such partnerships. We
are currently evaluating issues related to DOD's implementation of the
military housing privatization initiative.
H.R. 3947 would give the administrator of GSA the sole discretion to
review and disapprove any transaction by agencies proposing to use
enhanced asset management tools. The bill would require agencies to
consult with GSA when developing their business plans for specific
properties when they intend to use any enhanced asset management tools
specified in the bill. A business plan outlines the scope of the
project from an output and cost perspective, analyzes the cost and
benefits associated with the project, and demonstrates that it has net
benefit. In addition, a business plan should include an overview of
the structure of the proposed arrangements as well as other elements.
Consequently, the business plan is the key step in the decision-making
process. Given GSA's role as the government's real property manager,
other agencies would naturally look to GSA to develop and provide
specific written guidance on how to develop their business plans.
We believe that federal asset managers need the proper tools,
expertise, and knowledge to effectively manage and oversee federal
assets. Given this, the tools provided in H.R. 3947 are steps in the
right direction for agencies to begin exploring opportunities to
better utilize federal assets. However, it is important to recognize
that enhanced asset management tools may result in complex real
property transactions. For example, in structuring public-private
partnerships for individual properties, it must be remembered that
each property is unique and thus will have unique issues that will
need to be negotiated and addressed as the partnership is formed. In
addition, great care will need to be taken in structuring partnerships
to protect the interests of both the federal government and the
private sector partner. The senior real property officers will need to
have access to individuals with the appropriate knowledge, skills, and
expertise when they decide to explore more complex real estate
transactions authorized by the bill. The proposed enhanced asset
management tools and other asset management tools currently available
for real property management will also need to be carefully evaluated
to ensure that they provide the best economic value and outcome for
the government.
As I discussed before, H.R. 3947 would allow agencies to retain
proceeds generated from the transfer or disposition of their property.
Under the bill, agencies would be authorized reimbursement for their
costs of disposing of their property. The remaining proceeds would be
deposited in agencies' capital asset accounts that would be authorized
by the bill and could be used to fund capital asset expenditures,
including expenses related to capital acquisitions, improvements, and
dispositions. These accounts would remain available until expended.
In our April and July 2001 reports, we asked Congress to consider
allowing GSA to retain the funds it received from real property
transactions. Accordingly, we support the intent of these provisions.
However, it is important to have effective congressional oversight
over any receipts retained by agencies from real property
transactions. In considering whether to allow federal agencies to
retain the proceeds from real property transactions, it is important
for Congress to ensure that it retains appropriate control and
oversight over these funds, including the ability to redistribute the
funds to accommodate changing needs if necessary. Congress has done
this by using the appropriations process to review and approve
agencies' proposed use of the proceeds from real property
transactions. Another approach could be for Congress to require
agencies to submit plans on how they intend to use the proceeds in
their capital accounts and report on the actual use of the proceeds.
H.R. 3947 makes no distinction between facilities and land in
permitting agencies to retain asset sales proceeds. Since our work has
focused on facilities, our conclusions regarding sales proceeds are
limited to facility sales. Specific issues related to the retention of
land sales proceeds may need to be studied further and separately
addressed.
Mr. Chairman, this concludes my prepared statement. I would be pleased
to answer any questions you or other members of the Subcommittee may
have.
Contacts and Acknowledgments:
For information about this testimony, please contact Bernard L. Ungar,
Director, Physical Infrastructure Issues, on (202) 512-8387 or at
ungarb@gao.gov. Individuals making key contributions to this testimony
included Ron King, Maria Edelstein, Susan Michal-Smith, David
Sausville, Gerald Stankosky, and Lisa Wright-Solomon.
[End of section]
Appendix I: Partnership Structure:
[Refer to PDF for image: illustration]
Contributions:
Federal Property (Master Ground Lease);
Private Sector Investment (Cash and financing ability).
Together, form: Partnership.
Partnership:
Property Cash Flows:
Operating income;
minus Operating expenses;
Equals Net operating income;
minus Master ground lease (to government);
minus Debt service;
minus Replacement reserve;
Equals Cash flow;
minus Preferred return (to the private partner);
Equals Net cash flow:
- Private sector share;
- Government share.
[End of figure]
[End of section]
Footnotes:
[1] U.S. General Accounting Office, Federal Real Property: Better
Governmentwide Data Needed for Strategic Decisionmaking, [hyperlink,
http://www.gao.gov/products/GAO-02-342] (Washington, D.C.: April 16,
2002).
[2] For purposes of this testimony, we are using the term agency to
include all federal entities.
[3] U.S. General Accounting Office, U.S. Infrastructure: Funding
Trends and Opportunities to Improve Investment Decisions, [hyperlink,
http://www.gao.gov/products/GAO/RCED/AIMD-00-35] (Washington, D.C.:
February 7, 2000).
[4] U.S. General Accounting Office, Federal Buildings: Funding Repairs
and Alterations Has Been a Challenge”Expanded Financing Tools Needed,
[hyperlink, http://www.gao.gov/products/GAO-01-452] (Washington, D.C.:
April 12, 2001).
[5] U.S. General Accounting Office, Public-Private Partnerships: Pilot
Program Needed to Demonstrate the Actual Benefits of Using
Partnerships, [hyperlink, http://www.gao.gov/products/GAO-01-906]
(Washington, D.C.: July 25, 2001). See also, U.S. General Accounting
Office, Public-Private Partnerships: Factors to Consider When
Deliberating Governmental Use as a Real Property Management Tool,
[hyperlink, http://www.gao.gov/products/GAO-02-46T] (Washington, D.C.:
October 1, 2001).
[End of section]
