Federal Real Property
An Update on High-Risk Issues Gao ID: GAO-07-895T May 24, 2007In 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 is based largely on GAO's April 2007 report on real property high-risk issues (GAO-07-349). The objectives of that report were to determine (1) what progress the administration and major real property-holding agencies had made in strategically managing real property and addressing long-standing problems and (2) what problems and obstacles, if any, remained to be addressed.
The administration and real property-holding agencies have made progress toward strategically managing federal real property and addressing long-standing problems. In response to the President's Management Agenda real property initiative and a related executive order, agencies have, among other things, established asset management plans; standardized data reporting; and adopted performance measures. Also, the administration has created a Federal Real Property Council (FRPC) and plans to work with Congress to provide agencies with tools to better manage real property. These are positive steps, but underlying problems still exist. For example, the Departments of Energy (Energy) and Homeland Security (DHS) and the National Aeronautics and Space Administration (NASA) reported that over 10 percent of their facilities are excess or underutilized. Also, Energy, NASA, the General Services Administration (GSA), and the Departments of the Interior (Interior), State (State), and Veterans Affairs (VA) reported repair and maintenance backlogs for buildings and structures that total over $16 billion. The Department of Defense (DOD) reported a $57 billion restoration and modernization backlog. Also, Energy, Interior, GSA, State, and VA reported an increased reliance on leasing to meet space needs. While agencies have made progress in collecting and reporting standardized real property data, data reliability is still a challenge at DOD and other agencies, and agencies lack a standard framework for data validation. Finally, agencies reported using risk-based approaches to prioritize security needs, which GAO has suggested, but some cited obstacles such as a lack of resources for security enhancements. In past high-risk updates, GAO called for a transformation strategy to address the long-standing problems in this area. While the administration's approach is generally consistent with what GAO envisioned, certain areas warrant further attention. Specifically, problems are exacerbated by underlying obstacles that include competing stakeholder interests, legal and budgetary limitations, and the need for improved capital planning. For example, agencies cited local interests as barriers to disposing of excess property, and agencies' limited ability to pursue ownership leads them to lease property that may be more cost-effective to own over time.
GAO-07-895T, Federal Real Property: An Update on High-Risk Issues
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Testimony:
Before the Subcommittee on Federal Financial Management, Government
Information, Federal Services, International Security, Committee on
Homeland Security and Government Affairs, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EDT:
Thursday, May 24, 2007:
Federal Real Property:
An Update on High-Risk Issues:
Statement of Mark L. Goldstein, Director:
Physical Infrastructure:
GAO-07-895T:
GAO Highlights:
Highlights of GAO-07-895T, a testimony before the Subcommittee on
Federal Financial Management, Government Information, Federal Services,
and International Security, Committee on Homeland Security and
Government Affairs
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 is based largely on GAO‘s April 2007 report on real
property high-risk issues (GAO-07-349). The objectives of that report
were to determine (1) what progress the administration and major real
property-holding agencies had made in strategically managing real
property and addressing long-standing problems and (2) what problems
and obstacles, if any, remained to be addressed.
What GAO Found:
The administration and real property-holding agencies have made
progress toward strategically managing federal real property and
addressing long-standing problems. In response to the President‘s
Management Agenda real property initiative and a related executive
order, agencies have, among other things, established asset management
plans; standardized data reporting; and adopted performance measures.
Also, the administration has created a Federal Real Property Council
(FRPC) and plans to work with Congress to provide agencies with tools
to better manage real property. These are positive steps, but
underlying problems still exist. For example, the Departments of Energy
(Energy) and Homeland Security (DHS) and the National Aeronautics and
Space Administration (NASA) reported that over 10 percent of their
facilities are excess or underutilized. Also, Energy, NASA, the General
Services Administration (GSA), and the Departments of the Interior
(Interior), State (State), and Veterans Affairs (VA) reported repair
and maintenance backlogs for buildings and structures that total over
$16 billion. The Department of Defense (DOD) reported a $57 billion
restoration and modernization backlog. Also, Energy, Interior, GSA,
State, and VA reported an increased reliance on leasing to meet space
needs. While agencies have made progress in collecting and reporting
standardized real property data, data reliability is still a challenge
at DOD and other agencies, and agencies lack a standard framework for
data validation. Finally, agencies reported using risk-based approaches
to prioritize security needs, which GAO has suggested, but some cited
obstacles such as a lack of resources for security enhancements. In
past high-risk updates, GAO called for a transformation strategy to
address the long-standing problems in this area. While the
administration‘s approach is generally consistent with what GAO
envisioned, certain areas warrant further attention. Specifically,
problems are exacerbated by underlying obstacles that include competing
stakeholder interests, legal and budgetary limitations, and the need
for improved capital planning. For example, agencies cited local
interests as barriers to disposing of excess property, and agencies‘
limited ability to pursue ownership leads them to lease property that
may be more cost-effective to own over time.
What GAO Recommends:
GAO recommended in April 2007 that OMB, in conjunction with the Federal
Real Property Council, (1) develop a framework to better ensure the
validity and usefulness of key agency data; (2) develop an action plan
for addressing key problems, including reliance on leasing, security
challenges, and the effect of competing stakeholder interests; and (3)
create a clearer link between agencies‘ efforts under the real property
initiative and broader capital planning requirements. OMB agreed with
the report and concurred with its recommendations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-895T].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Mark L. Goldstein at
(202) 512-2834 or goldsteinm@gao.gov.
[End of section]
Chairman and Members of the Committee:
We welcome the opportunity to testify on the actions that are needed to
address the long-standing 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 updates on this area in January 2005 and January 2007.[Footnote
1] My testimony is based largely on a recent report on federal real
property high-risk issues,[Footnote 2] and other GAO reports and
testimonies on real property issues. My testimony focuses on the
progress made by the administration and major real property-holding
agencies[Footnote 3] to strategically manage real property and address
long-standing problems, and what problems and obstacles, if any, remain
to be addressed. I will also provide an update of the President's
Management Agenda (PMA) executive branch management scorecard results
for the real property initiative for the second quarter of fiscal year
2007.
Summary:
The administration and major real property-holding agencies have made
progress toward strategically managing federal real property and
addressing some long-standing problems. In response to the PMA real
property initiative and a related executive order, agencies covered
under the executive order have, among other things, designated senior
real property officers, established asset management plans,
standardized real property data reporting, and adopted various
performance measures to track progress. The administration has also
established a Federal Real Property Council (FRPC) that supports reform
efforts. In addition, the administration intends to work with Congress
to provide agencies with asset management tools to more effectively
manage real property. For example, VA, NASA, DOD, Energy, Interior, and
USPS have limited authorities that allow the agency to enter into
enhanced-use lease (EUL) agreements. Each agency has been provided its
own statutory authority, and the authority varies from agency to
agency. These agencies are also authorized to retain proceeds from the
lease and to use them for items specified by law, such as improvement
of their real property assets. Additionally, certain agencies such as
GSA and VA have been authorized to retain the proceeds from disposal of
their real property and to use these proceeds for their real property
needs.
Although progress toward strategically managing real property and
addressing some long-standing problems has been made, these problems
largely persist and the underlying obstacles remain. For example,
Energy, DHS and NASA reported that over 10 percent of their facilities
are excess or underutilized. In addition, Energy, NASA, GSA, Interior,
State, and VA reported repair and maintenance backlogs that total over
$16 billion. DOD reported a backlog of more than $57 billion, which
includes the cost of restoring and modernizing obsolete buildings.
Furthermore, Energy, Interior, GSA, State, and VA reported an increased
reliance on operating leases--an approach which we have reported is
often more costly for long-term space needs. While agencies have made
progress in collecting and reporting standardized real property data,
data reliability is still a challenge at some of the agencies, and
agencies lack a standard framework for data validation. Finally, all of
the major real property-holding agencies reported using risk-based
approaches to prioritize security needs, as we have suggested, but
cited a lack of resources for security enhancements as an ongoing
problem.
In our past high-risk reports, we called for a transformation strategy
to address the long-standing problems in this area. The
administration's approach is generally consistent with what we
envisioned, but certain areas warrant further attention. More
specifically, underlying obstacles, such as competing stakeholder
interests, legal and budgetary limitations, and a need for improved
capital planning, persist. For example, some agencies cited local
interests, such as historic preservation advocates or various advocacy
groups that want to keep the federal government in their community, as
barriers to disposing of excess property. Furthermore, agencies'
limited ability to pursue ownership often leads them to lease property
that may be more cost-effective over time for them to own. Finally,
long-term capital planning efforts to improve the efficiency of
government operations continue to be a challenge, and these efforts are
not clearly linked with the real property initiative. The federal
government has generally not planned or budgeted for capital assets,
such as real property, over the long term. In our April 2007
report,[Footnote 4] we made recommendations aimed at (1) ensuring the
validity of agency data, (2) focusing reform efforts to better address
the leasing problem and security challenges, (3) and addressing
obstacles that include competing stakeholder interests and the need for
improved capital planning. OMB agreed with the report and concurred
with its recommendations. VA, Energy, DHS, GSA, and NASA generally
agreed with the report. State, DOD, Interior, and USPS did not state
whether they agreed or disagreed with the report and its
recommendations.
The Administration and Major Real Property-Holding Agencies Have Taken
Actions to Strategically Manage Real Property and Address Some Long-
standing Problems:
Pursuant to Executive Order 13327, the administration has taken several
key actions to strategically manage real property. FRPC was established
in 2004, which subsequently created interagency committees to work
toward developing and implementing a strategy to accomplish the
executive order. FRPC developed a sample asset management plan and
published Guidance for Improved Asset Management in December 2004. In
addition, FRPC established asset management principles that form the
basis for the strategic objectives and goals in the agencies' asset
management programs and also worked with GSA to develop and enhance an
inventory system known as the Federal Real Property Profile (FRPP).
FRPP was designed to meet the executive order's requirement for a
single database that includes all real property under the control of
executive branch agencies. The FRPC, with the assistance of the GSA
Office of Government-wide Policy, developed 23 mandatory data elements,
which include four performance measures. The four performance measures
are utilization, condition index, mission dependency, and annual
operating and maintenance costs. In addition, a performance assessment
tool has been developed, which is to be used by agencies to analyze the
inventory's performance measurement data in order to identify
properties for disposal or rehabilitation. In June 2006, FRPC added a
data element for disposition that included six major types of
disposition, including sale, demolition, or public benefit conveyance.
Finally, to assist agencies in their data submissions for the FRPP
database, FRPC provided standards and definitions for the data elements
and performance measures through guidance issued on December 22, 2004,
and a data dictionary issued by GSA in October 2005. The first
governmentwide reporting of inventory data for FRPP took place in
December 2005, and selected data were included in the fiscal year 2005
FRPP published by GSA, on behalf of FRPC, in June 2006. Data on the
four performance measures were not included in the FRPP report.
Agencies Have Met Scorecard Standards to Varying Degrees:
Adding real property asset management to the PMA has increased its
visibility as a key management challenge and focused greater attention
on real property issues across the government. OMB has identified goals
related to the four performance measures in the inventory for agencies
to achieve in right-sizing their real property portfolios and it is the
administration's goal to reduce the size of the federal real property
inventory by 5 percent, or $15 billion, by disposing of unneeded assets
by 2015. In October 2006, the administration reported that $3.5 billion
in unneeded federal real property had been disposed of since 2004.
Figure 1: PMA Executive Branch Management Scorecard Standards for the
Real Property Initiative:
[See PDF for image]
Source: OMB.
[End of figure]
To achieve these goals and gauge an agency's success in accurately
accounting for, maintaining, and managing its real property assets so
as to efficiently meet its goals and objectives, the administration
established the real property scorecard in the third quarter of fiscal
year 2004. The scorecard consists of 13 standards that agencies must
meet to achieve green status, which is the highest status. These 13
standards include 8 standards needed to achieve yellow status, plus 5
additional standards. An agency reaches "green" or "yellow" status if
it meets all of the standards for success listed in the corresponding
column in figure 1 and red if it has any of the shortcomings listed in
the "red" column.
OMB evaluates agencies quarterly on progress and agencies then have an
opportunity to update OMB on their status towards achieving green.
According to PMA real property scorecards, for the second quarter of
fiscal year 2007, the Department of Labor is the only real property-
holding agency included in the real property initiative that failed to
meet the standards for yellow status as shown in figure 2. All of the
other agencies, have, at a minimum, met the standards for yellow
status.
Figure 2: PMA Executive Branch Management Scorecard Results for the
Real Property Initiative:
[See PDF for image]
Source: OMB scorecards.
[End of figure]
Among the 15 agencies under the real property initiative, 5 agencies--
GSA NASA, Energy, State, and VA--have achieved green status. According
to OMB, the agencies achieving green status have established 3-year
timelines for meeting the goals identified in their asset management
plans; provided evidence that they are implementing their asset
management plans; used real property inventory information and
performance measures in decision making; and managed their real
property in accordance with their strategic plan, asset management
plan, and performance measures. Once an agency has achieved green
status, OMB continues to monitor its progress and results through PMA
using deliverables identified in its 3-year timeline and quarterly
scorecards. Each quarter, OMB also provides formal feedback to agencies
through the scorecard process, along with informal feedback, and
clarifies expectations. Yellow status agencies still have various
standards to meet before achieving green.
Agency Actions Intended to Address Some Long-standing Problems:
In addition to addressing their real property initiative requirements,
some agencies have taken steps toward addressing some of their long-
standing problems, including excess and underutilized property and
deteriorating facilities. Some agencies are implementing various tools
to prioritize reinvestment and disposal decisions on the basis of
agency needs, utilization, and costs. For example, GSA officials
reported that GSA's Portfolio Restructuring Strategy sets priorities
for disposal and reinvestment based on agency missions and anticipated
future need for holdings. In addition, GSA developed a methodology to
analyze its leased inventory in fiscal year 2005. This approach values
leases over their life, not just at the point of award; considers
financial performance and the impact of market rental rates on current
and future leasing actions; and categorizes leases by their risk and
value.
Additionally, some agencies are taking steps to make the condition of
core assets a priority and address maintenance backlog challenges. For
example, Energy officials reported establishing budget targets to align
maintenance funding with industry standards as well as programs to
reduce the maintenance backlogs associated with specific programs. In
addition, Interior officials reported that the department has conducted
condition assessments for 72,233 assets as of fourth quarter fiscal
year 2006.
Further Efforts Made to Strategically Manage and Address Problems:
As mentioned previously, Executive Order 13327 requires that OMB, along
with landholding agencies, develop legislative initiatives to improve
federal real property management and establish accountability for
implementing effective and efficient real property management
practices. Some individual agencies have obtained legislative authority
in recent years to use certain real property management tools, but no
comprehensive legislation has been enacted. Some agencies have received
special real property management authorities, such as the authority to
enter into EUL agreements.[Footnote 5] These agencies are also
authorized to retain the proceeds of the lease and to use them for
items specified by law, such as improvement of their real property
assets. DOD, Energy, Interior, NASA, USPS, and VA are authorized to
enter into EUL agreements and have authority to retain proceeds from
the lease. These authorities vary from agency to agency, and in some
cases, these authorities are limited. For example, NASA is authorized
to enter into EUL agreements at two of its centers,[Footnote 6] and
VA's authority to enter into EUL agreements expires in 2011.[Footnote
7] In addition, VA was authorized in 2004 to transfer real property
under its jurisdiction or control and to retain the proceeds from the
transfer in a capital asset fund for property transfer costs, including
demolition, environmental remediation, and maintenance and repair
costs.[Footnote 8] VA officials noted that although VA is authorized to
transfer real property under its jurisdiction or control and to retain
the proceeds from such transfers, this authority has significant
limitations on the use of any funds generated by any disposal under
this authority. Additionally, GSA was given the authority to retain
proceeds from disposal of its real property and to use the proceeds for
its real property needs. Agencies with enhanced authorities believe
that these authorities have greatly improved their ability to manage
their real property portfolios and operate in a more businesslike
manner.
Overall, the administration's efforts to raise the level of attention
to real property as a key management challenge and to establish
guidelines for improvement are noteworthy. The administrative tools,
including asset management plans, inventories, and performance
measures, were not in place to strategically manage real property
before we updated our high-risk list in January 2005. The actions taken
by major real property-holding agencies and the administration to
establish such tools are clearly positive steps. However, these
administrative tools and the real property initiative have not been
fully implemented, and it is too early to determine if they will have a
lasting impact. Implementation of these tools has the potential to
produce results such as reductions in excess property, reduced
maintenance and repair backlogs, less reliance on leasing, and an
inventory that is shown to be reliable and valid.
Long-standing Problems in Real Property Largely Persist and Obstacles
Remain:
Although clear progress has been made toward strategically managing
federal real property and addressing some long-standing problems, real
property remains a high-risk area because the problems persist and
obstacles remain. Agencies continue to face long-standing problems in
the federal real property area, including excess and underutilized
property, deteriorating facilities and maintenance and repair backlogs,
reliance on costly leasing, and unreliable real property data. Federal
agencies also continue to face many challenges securing real property.
These problems are still pervasive at many of the major real property-
holding agencies, despite agencies' individual attempts to address
them.
The Federal Government Continues to Hold Many Unneeded Assets:
Although the changes being made to strategically manage real property
are positive and some realignment has taken place, the size of
agencies' real property portfolios remains generally outmoded. As we
have reported, this trend largely reflects a business model and the
technological and transportation environment of the 1950s.[Footnote 9]
Many of these assets and organizational structures are no longer
needed; others are not effectively aligned with, or responsive to,
agencies' changing missions. While some major real property-holding
agencies have had some success in attempting to realign their
infrastructures in accordance with their changing missions, others
still maintain a significant amount of excess and underutilized
property.[Footnote 10] For example, officials with Energy, DHS, and
NASA--which are three of the largest real property-holding agencies--
reported that over 10 percent of the facilities in their inventories
were excess or underutilized. The magnitude of the problem with
underutilized or excess federal real property continues to put the
government at risk for lost dollars and missed opportunities. Table 1
describes the status of excess and underutilized real property
challenges at the nine major real property-holding agencies.
Table 1: Status of Excess Property Challenges at the Major Real
Property-Holding Agencies:
Agency: DOD;
Status: DOD officials indicated that because its real property holdings
are so extensive and DOD has just begun collecting detailed excess
facility information, the department has not fully completed its
reporting of all excess property.
Agency: Energy;
Status: Energy officials reported that approximately 16 percent of
Energy's real property inventory has been identified as excess or
underutilized.
Agency: DHS;
Status: According to DHS officials, for the 2006 FRPP submission, the
percentage of underutilized real property is 9.7 percent.
Agency: Interior;
Status: In December 2006, Interior reported in the FRPP during fiscal
year 2006 that 1,181 assets of 185,527 were disposed, or less than 1
percent of the inventory. Officials reported that Interior is working
to address its excess and underutilized facilities, citing two major
initiatives undertaken at Interior; (1) Bureau of Land Management
(BLM), the Space Management Program and (2) Service First, to better
meet space needs and priorities.a.
Agency: GSA;
Status: According to GSA officials, 258 buildings, with 13.8 million
rentable square feet (RSF), have been reported as excess property.
Additionally, 21 buildings, with 0.7 million RSF, are pending disposal
or demolition.
Agency: NASA;
Status: NASA officials reported that over 10 percent of all assets are
underutilized or not utilized at all.
Agency: State;
Status: According to State officials, the department's properties
showed a high level of utilization in 2005. Only about 1.5 percent of
the portfolio was reported as underutilized. State has identified 65
properties (less than 0.4 percent of the overseas portfolio for
government-owned assets) for potential disposal.
Agency: USPS;
Status: According to USPS officials, 1 percent of its inventory of
8,807 owned properties is considered excess or underutilized. Fewer
than 50 properties are considered excess.b.
Agency: VA;
Status: According to VA officials, VA has moved from 98 percent
utilized space in fiscal year 2005 to 100 percent in fiscal year 2006.
In fiscal year 2006, VA disposed of 77 buildings, including 6 buildings
via sales, 19 buildings via demolition, and 52 buildings via EUL.
Source: GAO analysis of agencies' data.
[A] The Space Management Program is a top management initiative to
review space requirements and reduce space allocations across the
department. Started in 2003 and managed by the Office of Acquisition
and Property Management, the program is designed to strengthen
management decision making at all levels throughout the life cycle
(acquisition through disposition) of owned, leased and GSA-provided
space. The Service First Initiative is a cross-agency partnership
between BLM and the Department of Agriculture's U.S. Forest Service. It
was established several years ago with three broad goals to improve
customer service, increase operational efficiency, and enhance land
stewardship.
[B] As part of our ongoing work, we are reviewing USPS infrastructure
realignment plans.
[End of table]
Major Real Property-Holding Agencies Still Have Multibillion-Dollar
Repair and Restoration Backlogs:
Addressing the needs of aging and deteriorating federal facilities
remains a problem for major real property-holding agencies. According
to recent estimates, tens of billions of dollars will be needed to
repair or restore these assets so that they are fully functional.
Furthermore, much of the federal portfolio was constructed over 50
years ago, and these assets are reaching the end of their useful lives.
Energy, NASA, GSA, Interior, State, and VA reported repair and
maintenance backlogs for buildings and structures that total over $16
billion. In addition, DOD reported a $57 billion restoration and
modernization backlog.[Footnote 11] We found that there was variation
in how agencies reported data on their backlog. Some agencies reported
deferred maintenance figures consistent with the definition used for
data on deferred maintenance included in their financial
statements.[Footnote 12] Others provided data that included major
renovation or restoration needs. More specifically,
* For DOD, facilities restoration and modernization requirements total
over $57 billion. Officials noted that the backlog does not reflect the
impact of 2005 Base Realignment and Closures (BRAC) or related
strategic rebasing decisions that will be implemented over the next
several years.
* For Energy, the backlog in fiscal year 2005 for a portfolio valued at
$85.2 billion was $3.6 billion.
* For Interior, officials reported an estimated maintenance backlog of
over $3 billion for buildings and other structures.[Footnote 13]
* GSA's current maintenance backlog is estimated at $6.6 billion.
* For State, the maintenance backlog is estimated at $132 million,
which includes all of the deferred/unfunded maintenance and repair
needs for prior fiscal years.
* For NASA, the restoration and repair backlog is estimated at over
$2.05 billion as of the end of fiscal year 2006.
* For VA, the maintenance backlog for facilities with major repair
needs is estimated at $5 billion, and according to VA officials, VA
must address this aged infrastructure while patient loads are changing.
Despite Long-Term Cost, Several Agencies Reported That Reliance on
Leasing to Meet New Space Needs Is Increasing:
Many of the major real property-holding agencies continue to rely on
leased space to meet new space needs. As a general rule, building
ownership options through construction or purchase are often the least
expensive ways to meet agencies' long-term requirements. Lease
purchases--under which payments are spread out over time and ownership
of the asset is eventually transferred to the government--are often
more expensive than purchase or construction but are generally less
costly than using ordinary operating leases to meet long-term space
needs.[Footnote 14] For example, we testified in October 2005 that for
the Patent and Trademark Office's long-term requirements in northern
Virginia, the cost of an operating lease was estimated to be $48
million more than construction and $38 million more than lease
purchase. 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 often
more costly over time. Under current budget scorekeeping
rules,[Footnote 15] the budget generally should record the full cost of
the government's commitment. Operating leases were intended for short-
term needs and thus, under the scorekeeping rules, for self-insuring
entities, only the amount needed to cover the first year lease payments
plus cancellation costs needs to be recorded. However, the rules have
been stretched to allow budget authority for some long-term needs being
met with operating leases to be spread out over the term of the lease,
thereby disguising the fact that over time, leasing will cost more than
ownership. Resolving this problem has been difficult; however, change
is needed because the current practice of relying on costly leasing to
meet long-term space needs result in excessive costs to taxpayers and
does not reflect a sensible or economically rational approach to
capital asset management, when ownership would be more cost effective.
Five of the nine largest real property-holding agencies--Energy,
Interior, GSA, State, and VA--reported an increased reliance on
operating leases to meet new space needs over the past 5 years.
According to DHS officials, per review of GSA's fiscal year 2005 and
2006 lease acquisition data for DHS, there has been no significant
increase in GSA acquired leased space for DHS. In addition, officials
from NASA and USPS reported that their agency's use of operating leases
has remained at about the same level over the past 5 years.
We did not analyze whether the leasing activity at these agencies,
either in the aggregate or for individual leases, resulted in longer-
term costs than if these agencies had pursued ownership. For short-term
needs, leasing likely makes economic sense for the government in many
cases. However, our past work has shown that, generally speaking, for
long-term space needs, leasing is often more costly over time than
direct ownership of these assets.
Governmentwide Real Property Data Inventory Is in Early Stages, and
Data Reliability Is Still a Problem at the Agency Level:
While the administration and agencies have made progress in collecting
standardized data elements[Footnote 16] needed to strategically manage
real property, the long-term benefits of the new real property
inventory have not yet been realized, and this effort is still in the
early stages. The federal government has made progress in revamping its
governmentwide real property inventory since our 2003 high-risk
designation. The first governmentwide reporting of inventory data for
FRPP took place in December 2005, and GSA published the data on behalf
of FRPC, in June 2006. According to the 2005 FRPP report, the goals of
the centralized database are to improve decision making with accurate
and reliable data, provide the ability to benchmark federal real
property assets, and consolidate governmentwide real property data
collection into one system. According to FRPC, these improvements in
real property and agency performance data will result in reduced
operating costs, improved asset utilization, recovered asset values,
and improved facility conditions, among others.
It is important to note that real property data contained in the
financial statements of the U.S. government have also been problematic.
The CFO Act, as expanded by the Government Management Reform Act,
requires the annual preparation and audit of individual financial
statements for the federal government's 24 major agencies. The
Department of the Treasury is also required to compile consolidated
financial statements for the U.S. government annually, which we audit.
In March 2007, we reported that--for the tenth consecutive year--
certain material weaknesses[Footnote 17] in internal controls and in
selected accounting and financial reporting practices resulted in
conditions that continued to prevent us from being able to provide the
Congress and the American people with 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. Further, we also reported that the federal government did
not maintain effective internal control over financial reporting
(including safeguarding assets) and compliance with significant laws
and regulations as of September 30, 2006.[Footnote 18]
Individual Agencies Continue to Struggle with Data Reliability Issues:
While agencies have made significant progress in collecting the data
elements from their real property inventory databases for the FRPP,
data reliability is still a problem at some of the major real property-
holding agencies and agencies lack a standard framework for assessing
the validity of data used to populate the FRPP. Quality governmentwide
and agency-specific data are critical for addressing the wide range of
problems facing the government in the real property area, including
excess and unneeded property, deterioration, and security concerns.
Despite the progress made by the administration and individual agencies
in recent years, decision makers historically have not had access to
complete, accurate, and timely data on what real property assets the
government owns; their value; whether the assets are being used
efficiently; and what overall costs are involved in preserving,
protecting, and investing in them. Also, real property-holding agencies
have not been able to easily identify excess or unneeded properties at
other agencies that may suit their needs. For example, in April 2006,
the DOD Inspector General (IG) reported weaknesses in the control
environment and control activities that led to deficiencies in the
areas of human capital assets, knowledge management, and compliance
with policies and procedures related to real property management. As a
result, the military departments' real property databases were
inaccurate, jeopardizing internal control over transactions reported in
the financial statements.[Footnote 19]
Compounding these issues is the difficulty each agency has in
validating its real property inventory data that are submitted to FRPP.
Validation of individual agencies' data is important because the data
are used to populate the FRPP. Because a reliable FRPP is needed to
advance the administration's real property initiative, ensuring the
validity of data that agencies provide is critical. In general, we
found that agencies' efforts to validate the data for the FRPP are at
the very early stages of development. For example, according to
Interior officials, the department had designed and was to begin
implementing a program of validating, monitoring, and improving the
quality of data reported into FRPP in the last quarter of fiscal year
2006.
Furthermore, according to OMB staff, there is no comprehensive review
or validation of data once agencies submit their real property profile
data to OMB. OMB staff reported that both OMB and GSA review agency
data submissions for variances from the prior reporting period.
However, agencies are required to validate their data prior to
submission to the GSA-managed database. OMB staff reported that some
agencies, as part of the PMA initiative, have provided OMB with plans
for ensuring the quality of their inventory and performance data. OMB
staff reported that OMB has not, to date, requested these plans of all
agencies. OMB staff reported that agencies provide OMB with information
that includes the frequency of data updates and any methods used for
data validation. In addition, according to OMB staff, OMB relies on the
quality assurance and quality control processes performed by individual
agencies. Also, OMB staff noted that they rely on agency IGs, agency
financial statements, and our reviews to establish the validity of the
data. Furthermore, OMB staff indicated that a one-size-fits-all
approach to data validation would be difficult to implement.
Nonetheless, a general framework for data validation that could guide
agencies in this area would be helpful, as agencies continue their
efforts to populate the FRPP with data from their existing data
systems. A framework for FRPP data validation approaches could be used
in conjunction with the more ad hoc validation efforts OMB mentioned
to, at a minimum, suggest standards for frequency of validation,
validation methods, error tolerance, and reporting on reliability. Such
a framework would promote a more comprehensive approach to FRPP data
validation. In our recent report, we recommended that OMB, in
conjunction with the FRPC, develop a framework that agencies can use to
better ensure the validity and usefulness of key real property data in
the FRPP.
Physical Security Is Still a Problem for Major Real Property-Holding
Agencies:
The threat of terrorism has increased the emphasis on physical security
for federal real property assets. All of the nine agencies reported
using risk-based approaches to some degree to prioritize facility
security needs, as we have suggested;[Footnote 20] but some agencies
cited challenges, including a lack of resources for security
enhancements and issues associated with securing leased space. For
example, DHS officials reported that the department is working to
further develop a risk management approach that balances security
requirements and the acquisition of real property and leverages limited
resources for all its components. In many instances, available real
property requires security enhancements before government agencies can
occupy the space. Officials reported that these security upgrades
require funding that is beyond the cost of acquiring the property, and,
therefore, their acquisition is largely dependent on the availability
of sufficient resources.
While some agencies have indicated that they have made progress in
using risk-based approaches, some officials told us that they still
face considerable challenges in balancing their security needs and
other real property management needs with their limited resources.
According to GSA officials, obtaining funding for security
countermeasures, both security fixtures and equipment, is a challenge,
not only within GSA, but for GSA's tenant agencies as well. In
addition, Interior and NASA officials reported that their agencies face
budget and resource constraints in securing real property. Interior
officials further noted that despite these limitations, incremental
progress is made each year in security.
Given their competing priorities and limited security resources, some
of the major real property-holding agencies face considerable
challenges in balancing their security and real property management
needs. We have reported that agencies could benefit from specific
performance measurement guidance and standards for facility protection
to help them address the challenges they face and help ensure that
their physical security efforts are achieving the desired
results.[Footnote 21] Without a means of comparing the effectiveness of
security measures across facilities, particularly program outcomes, the
U.S. government is open to the risk of either spending more money for
less effective physical security measures or investing in the wrong
areas. Furthermore, performance measurement helps ensure
accountability, since it enables decision makers to isolate certain
activities that are hindering an agency's ability to achieve its
strategic goals. Performance measurement can also be used to prioritize
security needs and justify investment decisions so that an agency can
maximize available resources.
Despite the magnitude of the security problem, we noted that this area
is largely unaddressed in the real property initiative. Without
formally addressing security, there is a risk that this challenge could
continue to impede progress in other areas. The security problem has an
impact on the other problems that have been discussed. For example, to
the extent that funding will be needed for a sustained investment in
security, the funding available for repair and restoration, preparing
excess property for disposal, and improving real property data systems
may be further constrained. Furthermore, security requires significant
staff time and other human capital resources and thus real property
managers may have less time to manage other problems.
Underlying Obstacles Hamper Agency Real Property Reform Efforts
Governmentwide:
In past high-risk reports, we called for a transformation strategy to
address long-standing real property problems. While the
administration's current approach is generally consistent with what we
envisioned and the administration's central focus on real property
management is a positive step, certain areas warrant further attention.
Specifically, problems are exacerbated by underlying obstacles that
include competing stakeholder interests and legal and budgetary
limitations. For example, some agencies cited local interests as
barriers to disposing of excess property. In addition, agencies'
limited ability to pursue ownership often leads them to lease property
that they could more cost-effectively own over time. Another obstacle-
-the need for improved long-term capital planning--remains despite OMB
efforts to enhance related guidance.
Several Agencies Cited Competing Stakeholder Interests as Impeding Real
Property Management Decision Making:
Some major real property-holding agencies reported that competing
local, state, and political interests often impede their ability to
make real property management decisions, such as decisions about
disposing of unneeded property and acquiring real property. For
example, VA officials reported that disposal is often not an option for
most properties because of political stakeholders and constituencies,
including historic building advocates or local communities that want to
maintain their relationship with VA. In addition, VA officials said
that attaining the funding to follow through on Capital Asset
Realignment for Enhanced Services (CARES) decisions is a challenge
because of competing priorities. Also, Interior officials reported that
the department faces significant challenges in balancing the needs and
concerns of local and state governments, historical preservation
offices, political interests, and others, particularly when coupled
with budget constraints. Other agencies cited similar challenges
related to competing stakeholder interests. If the interests of
competing stakeholders are not appropriately addressed early in the
planning stage, they can adversely affect the cost, schedule and scope
of a project.
Despite its significance, the obstacle of competing stakeholder
interests has gone unaddressed in the real property initiative. It is
important to note that there is precedent for lessening the impact of
competing stakeholder interests. BRAC decisions, by design, are
intended to be removed from the political process, and Congress
approves BRAC decisions as a whole. OMB staff said they recognize the
significance of the obstacle and told us that FRPC would begin to
address the issue after the inventory is established and other reforms
are initiated. Without addressing this issue, however, less than
optimal decisions that are not based on what is best for the government
as a whole may continue.
Legal and Budgetary Limitations Continue to Hamper Agencies' Disposal
Efforts:
As discussed earlier, budgetary limitations that hinder agencies'
ability to fund ownership leads agencies to rely on costly leased space
to meet new space needs. Furthermore, the administrative complexity and
costs of disposing of federal property continue to hamper some
agencies' efforts to address their excess and underutilized real
property problems. Federal agencies are required by law to assess and
pay for any environmental cleanup that may be needed before disposing
of a property--a process that may require years of study and result in
significant costs. As valuable as these legal requirements are, their
administrative complexity and the associated costs of complying with
them create disincentives to the disposal of excess property. For
example, we reported that VA, like all federal agencies, must comply
with federal laws and regulations governing property disposal that are
intended, for example, to protect subsequent users of the property from
environmental hazards and to preserve historically significant
sites.[Footnote 22] We have reported that some VA managers have
retained excess property because the administrative complexity and
costs of complying with these requirements were disincentives to
disposal.[Footnote 23] Additionally, some agencies reported that the
costs of cleanup and demolition sometimes exceed the costs of
continuing to maintain a property that has been shut down. In such
cases, in the short run, it can be more beneficial economically to
retain the asset in a shut-down status.
Given that agencies are required to fund the costs of preparing
property for disposal, the inability to retain any of the proceeds acts
as an additional disincentive. It seems reasonable to allow agencies to
retain enough of the proceeds to recoup the costs of disposal, and it
may make sense to permit agencies to retain additional proceeds for
reinvestment in real property where a need exists.[Footnote 24]
However, in considering whether to allow federal agencies to retain
proceeds from real property transactions, it is important for Congress
to ensure that it maintains appropriate control and oversight over
these funds, including the ability to redistribute the funds to
accommodate changing needs. In our recent report, we recommended that
OMB, in conjunction with the FRPC, develop an action plan for how the
FRPC will address key problems, including the continued reliance on
costly leasing in cases where ownership is more cost effective over the
long term, the challenges of securing real property assets, and
reducing the effect of competing stakeholder interests on businesslike
outcomes in real property decisions.
Need for Improved Capital Planning Still Exists:
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 acquisitions
that cost more than anticipated, fall behind schedule, and fail to meet
mission needs and goals. In addition, Congress and OMB have
acknowledged the need to improve federal decision making regarding
capital investment. A number of laws enacted in the 1990s placed
increased emphasis on improving capital decision-making practices and
OMB's Capital Programming Guide and its revisions to Circular A-11 have
attempted to address the government's shortcomings in this area.
Our prior work assessing agencies' implementation of the planning phase
principles in OMB's Capital Programming Guide and our Executive
Guide[Footnote 25] found that some agencies' practices did not fully
conform to the OMB principles, and agencies' implementation of capital
planning principles was mixed.[Footnote 26] Specifically, while
agencies' capital planning processes generally linked to their
strategic goals and objectives and most of the agencies we reviewed had
formal processes for ranking and selecting proposed capital
investments, the agencies have had limited success with using
agencywide asset inventory systems and data on asset condition to
identify performance gaps. In addition, we found that none of the
agencies had developed a comprehensive, agencywide, long-term capital
investment plan. The agency capital investment plan is intended to
explain the background for capital decisions and should include a
baseline assessment of agency needs that examines existing assets and
identifies gaps and help define an agency's long-term investment
decisions. In January 2004, we recommended that OMB begin to require
that agencies submit long-term capital plans to OMB. Since that report
was issued, VA--which was one of our initial case study agencies--
issued its first 5-year capital plan. However, the results of follow-up
work in this area showed that although OMB now encourages such plans,
it does not collect them, and the agencies that were included in our
follow-up review do not have agency wide long-term capital investment
plans.[Footnote 27] OMB agreed that there are benefits from OMB review
of agency long-term capital plans, but that these plans should be
shared with OMB on an as-needed basis depending on the specific issue
being addressed and the need to view supporting materials.
Shortcomings in the capital planning and decision-making area have
clear implications for the administration's real property initiative.
Real property is one of the major types of capital assets that agencies
acquire. Other capital assets include information technology, major
equipment, and intellectual property. OMB staff said that agency asset
management plans are supposed to align with the capital plans but that
OMB does not assess whether the plans are in alignment. We found that
guidance for the asset management plans does not discuss how these
plans should be linked with agencies' broader capital planning efforts
outlined in the Capital Programming Guide. In fact, OMB's asset
management plan sample, referred to as the "shelf document," which
agencies use to develop the asset management plans, makes no reference
to the guide. Without a clear linkage or crosswalk between the guidance
for the two documents, there is less assurance that agencies will link
them. Furthermore, there could be uncertainty with regard to how real
property goals specified in the asset management plans relate to longer
term capital plans.
Federal Real Property Reform Efforts Still in Early Stages:
The executive order on real property management and the addition of
real property to the PMA have provided a good foundation for
strategically managing federal real property and addressing long-
standing problems. These efforts directly address the concerns we
raised in past high-risk reports about the lack of a governmentwide
focus on real property management problems and generally constitute
what we envisioned as a transformation strategy for this area. However,
these efforts are in the early stages of implementation, and the
problems that led to the high-risk designation--excess property, repair
backlogs, data issues, reliance on costly leasing, and security
challenges--still exist. As a result, this area remains high risk until
agencies show significant results in eliminating the problems by, for
example, reducing inventories of excess facilities and making headway
in addressing the repair backlog. Furthermore, the current efforts lack
an overall framework for helping agencies ensure the validity of real
property data in FRPP and do not adequately address the costliness of
long-term leases and security challenges. While the administration has
taken several steps to overcome some obstacles in the real property
area, the obstacle posed by competing stakeholder interests has gone
largely unaddressed, and the linkage between the real property
initiative and broader agency capital planning efforts is not clear.
Focusing on these additional areas could help ensure that the problems
and obstacles are addressed.
We made three recommendations to OMB's Deputy Director for Management
in our April 2007 report on real property high risk issues.[Footnote
28] OMB agreed with the report and concurred with its
recommendations.[Footnote 29] We recommended that the Deputy Director,
in conjunction with FRPC, develop a framework that agencies can use to
better ensure the validity and usefulness of key real property data in
the FRPP. At a minimum, the framework would suggest standards for
frequency of validation methods, error tolerance, and reporting on
reliability. OMB agreed with our recommendation and reported that it
will work with the FRPC to take steps to establish and implement a
framework. For our second recommendation to develop an action plan for
how the FRPC will address key problems, OMB said that the FRPC is
currently drafting a strategic plan for addressing long-standing issues
such as the continued reliance on costly leasing in cases where
ownership is more cost effective over the long-term, the challenge of
securing real property assets, and reducing the effect of competing
stakeholder interests on businesslike outcomes in real property
decisions. OMB agreed that it is important to build upon the
substantial progress that has been realized by both the FRPC and the
federal real property community in addressing the identified areas for
improvement. OMB said that it will share the strategic plan with us
once it is in place and will discuss strategies for ensuring successful
implementation. For our third recommendation to establish a clearer
link or crosswalk between agencies' efforts under the real property
initiative and broader capital planning guidance, OMB stated that as
agencies update their asset management plans and incorporate updated
guidance on capital planning, progressive improvement in this area will
be realized.
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.
Contact and Acknowledgments:
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 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); GAO, High-Risk
Series: An Update, GAO-05-207 (Washington, D.C; Jan. 2005), and High-
Risk Series: An Update, GAO-07-310 (Washington, D.C.: Jan. 2007).
[2] GAO, Federal Real Property: Progress Made Toward Addressing
Problems, but Underlying Obstacles Continue to Hamper Reform, GAO-07-
349 (Washington, D.C.: Apr. 13, 2007).
[3] For the purpose of this review, we are focusing on eight of the
largest real property-holding agencies (these agencies are the
Departments of Defense (DOD), Energy (Energy), Homeland Security (DHS),
the Interior (Interior), State (State); and Veterans Affairs (VA); the
General Services Administration (GSA); the National Aeronautics and
Space Administration (NASA). Also included is the United States Postal
Service (USPS), which is an independent establishment in the executive
branch and is among the largest property holders in terms of owned and
leased space.
[4] GAO-07-349.
[5] This authority allows the agency to lease real property under its
control or custody to public and private entities and to accept as
payment under the lease either cash or other consideration, such as
construction, maintenance, restoration, and repair of facilities, or
services that are of benefit to the agency.
[6] 42 U.S.C. § 2459j.
[7] 38 U.S.C. § 8169.
[8] In 2004, VA was authorized to transfer real property under its
control or custody that is not part of an EUL for fair market value and
to deposit the proceeds in VA's Capital Asset Fund. 38 U.S.C. § 8118.
[9] GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-352T (Washington, D.C.: Feb. 16, 2005).
[10] GSA Management Regulations define not utilized property as an
entire property or portion of a property that is not occupied or used
for current program purposes of the accountable agency or property that
is occupied in caretaker status only. According to a GSA official,
property that is not utilized is generally considered vacant. The
regulations also define underutilized property as an entire property or
portion of a property that is used only at irregular periods or
intermittently by the accountable agency or property that is being used
for the agency's current program purposes that can be satisfied with
only a portion of the property. (41 C.F.R. 102-75.45 and 41 C.F.R. 102-
75.50).
[11] To determine whether agencies still have repair and restoration
backlogs, we asked each agency to provide updated estimates of their
backlogs, which we defined as needs in facilities for which major
upkeep, repair, and maintenance have not been funded and the repair and
maintenance on these assets has been postponed.
[12] Deferred maintenance is defined by the Statement of Federal
Financial Accounting Standards No. 6, which includes the accounting
standards for deferred maintenance, as maintenance that was not
performed when it should have been or scheduled maintenance that was
delayed or postponed. Maintenance is the act of keeping fixed assets in
acceptable condition, including preventative maintenance, normal
repairs, and other activities needed to preserve the assets, so that
they can continue to provide acceptable services and achieve their
expected life. Maintenance excludes activities aimed at expanding the
capacity of assets or otherwise upgrading them to serve needs different
from those originally intended.
[13] It is important to note that the National Park Service, which has
responsibility for trails and recreation sites in addition to buildings
and other structures, has previously reported an estimated $5 billion
maintenance backlog. The estimated $3 billion maintenance backlog
reported here does not include roads, bridges, trails, irrigation, dams
or other water structures.
[14] According to VA officials, VA does not enter into lease-purchase
agreements.
[15] The extent to which capital costs are reflected in the budget
depends on how they are "scored." The Congressional Budget Office (CBO)
and OMB separately "score" or track budget authority, receipts,
outlays, and the surplus or deficit estimated to results as legislation
is considered and enacted. CBO develops estimates of the budgetary
impact of bills reported by the different congressional committees. OMB
also uses the scorekeeping guidelines to determine how much budget
authority must be obligated for individual agency transactions.
[16] As previously mentioned in this report, GSA, working under the
leadership of FRPC, collaborated with numerous agencies to develop 23
mandatory data elements, which include four performance measures.
[17] 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.
[18] GAO, Fiscal Year 2006 U.S. Government Financial Statements:
Sustained Improvement in Federal Financial Management Is Crucial to
Addressing Our Nation's Accountability and Fiscal Stewardship
Challenges, GAO-07-607T (Washington, D.C.: Mar. 20, 2007).
[19] DOD, Office of Inspector General, Internal Controls Related to
Department of Defense Real Property, D2006-072 (Arlington, VA: Apr. 6,
2006).
[20] In GAO, Homeland Security: Further Action Needed to Coordinate
Agencies' Facility Protection Efforts and Promote Key Practices, GAO-05-
49 (Washington, D.C.: Nov. 30, 2004) we identified several key
practices in facility protection, which included using risk management
to allocate resources; leveraging security technology; coordinating
protection efforts and sharing information; realigning real property
assets to an agency's mission, thereby reducing vulnerabilities;
strategically managing human capital; and measuring program performance
and testing security initiatives.
[21] GAO, Homeland Security: Guidance and Standards Are Needed for
Measuring Effectiveness of Agencies' Facility Protection Efforts, GAO-
06-612 (Washington, D.C.: May 31, 2006).
[22] GAO, VA Health Care: Key Challenges to Aligning Capital Assets and
Enhancing Veterans' Care, GAO-05-429 (Washington, D.C.: Aug. 5, 2005).
[23] GAO-05-429.
[24] GSA has determined, and OMB has concurred, that GSA was provided
permanent authority to retain proceeds from the sale or disposition of
real property in its annual appropriation for fiscal year 2005.
[25] GAO, Executive Guide: Leading Practices in Capital Decision-
Making, GAO/AIMD-99-32 (Washington, D.C.: December 1998).
[26] GAO, Agency Implementation of Capital Planning Principles Is
Mixed, GAO-04-138 (Washington, D.C.: Jan. 16, 2004).
[27] GAO, Three Agencies' Implementation of Capital Planning Principles
Is Mixed, GAO-07-274 (Washington, D.C.: Feb. 23, 2007). This review
covers the Offices of Science and Environmental Management within
Energy and U.S. Customs and Border Protection within DHS.
[28] GAO-07-349.
[29] VA, Energy, DHS, GSA, and NASA generally agreed with the report.
State, DOD, Interior, and USPS did not state whether they agreed or
disagreed with the report and its recommendations.
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