The ‘Real’ Problem with Federal Real Property Management
When it comes to processing its inventory of real property, which includes buildings, structures, and land, the federal government has a real problem.
The federal government owns or leases approximately 361,000 buildings and 3.3 billion square feet of space, which is six times more than all of the commercial office space in Manhattan. The federal real property inventory consists of more than 480,000 structures, from national monuments to dams and levees. The General Services Administration (GSA) plays the role of both broker and property manager to many of these assets. In (FY) 2011, GSA had a total of 374.6 million rentable square feet in its inventory, of which 192.7 million square feet, or 51.4 percent, was leased.
A March 2014 Government Accountability Office (GAO) report reviewed case study projects from four agencies which rank in the top 10 in federal real property holdings. The GAO found that the federal government can end up spending more money on renovation costs and lease payments over the course of a long-term lease than it would if it just paid the initial contract price and bought the building outright. In 2012, the government spent $33 billion in total operating costs of real property, and spends $4.2 billion renting office space each year. The federal government’s reckless leasing practices have been on the GAO’s high risk list since January 1, 2003.
In one example from the 2014 report, the GSA renewed its lease at Columbia Plaza in Washington, D.C. for the Department of State in 1992. As part of an agreement to spend $30.6 million on renovations at the time, the GSA included a purchase option in the 20-year lease contract. In 2012, as the expiration date on the lease neared, the GSA exercised its right to purchase. Under the original contract, GSA could have purchased the building for $100 million, even though the appraised value was $150 million in 2009. Instead, due to initial renovation costs and lease payments made over the 20-year term, the total acquisition cost climbed to $258 million.
Unfortunately, similar examples of taxpayer money being wasted are all too common. Other wasteful examples found by the GAO include a Department of Commerce building in Alexandria, Virginia that costs $60 million annually to rent, the Consumer Financial Protection Bureau building in D.C., where $95 million will be spent to renovate the building, and the Bureau of Indian Affairs, which is responsible for wasting $32 million after overpaying for office space and renting property, in some cases without government authority.
In theory, leasing properties rather than purchasing allows agencies the flexibility to make new hires, shrink staff, or move locations entirely. However, even representatives of real estate companies that lease property to the government agree that it might make more sense to purchase property. In a February 12, 2014 NPR article, Kurt Stout, a representative of the real estate firm Collier International, stated, “It’s kind of like buying a car. Over time, the annual cost of repairs and maintenance and upgrades to a space, and even things like furniture and telecom, far outweigh the actual cost of the real estate itself.”
Currently, the GSA operates the Federal Buildings Fund (FBF), which is funded by rent received from other agencies. The balance of the FBF, which is used to fund alterations, repairs and construction projects, increased from $56 million in FY 2007 to $4.7 billion at the end of FY 2013, since Congress has provided less money than requested by the executive branch and generated by the FBF. The obligational authority for repairs and alterations has declined from $855 million in 2005 to $280 million in 2012 and, as a result, even though the agency has access to a large amount of money, it claims it is unable to provide sufficient resources to handle all needed alterations, repairs and construction.
The GAO made numerous recommendations to the GSA in order to improve the budgetary structure for maintaining real property, particularly concerning the FBF. In 2012, GSA identified $4.6 billion in maintenance and repairs expected from 2012 to 2021, and anticipates that nearly a quarter of this amount is needed immediately. GAO proposed that Congress make the full balance of the FBF available to GSA as well as adjust the FBF pricing structure so that the GSA could reduce rents to cover only operations and ongoing maintenance costs of federally-owned buildings. The GAO stressed that even though providing the full balance of the FBF to GSA would increase funding to complete projects, it might mean less congressional fiscal control and less funding for other critical needs projects.
An inefficient budgetary structure isn’t the only shortfall plaguing the management of federal real property. A January 2014 GAO report found that officials from the Department of Agriculture, the Department of Energy, the Department of the Interior, the Department of Transportation, and the Department of Veterans Affairs stated that many challenges in managing federal real property arose from differences in the definition of structures. The GAO found that the Federal Real Property Profile (FRPP), a government wide, comprehensive database of real property holdings that also provides guidance to agencies on how to report data, was inconsistent in its approach to defining, inventorying, counting, and determining the location of structures. These discrepancies made the aggregation of data in the FRPP’s database unreliable.
The report also found that agencies continue to struggle with the disposal of excess structures or “surplus property,” defined as real property that is not required to meet the needs or responsibilities of any federal agency. A February 10, 2011 Office of Management and Budget (OMB) estimate pegged the number of excess and underutilized properties at 55,000, with an annual maintenance cost of $1.7 billion.
In 2010, President Obama proposed the sale of $15 billion worth of vacant and unused federal buildings by 2014, and in 2011 released a presidential memo that requested $3 billion in savings from shedding 14,000 excess real estate properties by 2012. In its 2012 Prime Cuts publication, CAGW highlighted the GSA’s “backwards” screening process of selling excess property under the McKinney-Vento Homeless Assistance Act. CAGW concluded that in order to efficiently sell vacant excess federal property and reconstruct it into productively used buildings, federal real property sales must be exempt from any provisions in the Homeless Assistance Act. In doing so, the federal government would save $3 billion over one year, and $15 billion over five years.
Since 2011, OMB has failed to release any new data regarding the handling of vacant and outmoded real property. On March 24, 2014, House Oversight and Government Reform Committee Chairman Darrel Issa (R-Calif.) and Subcommittee on Government Operations
Chairman John Mica (R-Fla.) wrote a letter to budget director Sylvia Mathews Burwell pressuring the OMB to provide the committee with FRPP data on federal property holdings, citing two buildings that have been vacant for years: the David W. Dyer Federal Building and U.S. Courthouse in Miami that costs $1.2 million a year to maintain, and the L Street Warehouse in Washington, which costs $70,000 annually in maintenance fees.
A September 2013 GAO report completed an analysis of 218, or only 3 percent of the GSA’s high-value leases. The report showed that while the GSA has reduced the overall costs of its leases, of the properties reviewed with leases expiring from 2012 through 2027, purchasing rather than leasing would save the federal government more than $866 million.
A complete overhaul of the government’s plagued management practice of the inventory and definition of real property, in addition to selling excess and vacant buildings worth billions, would allow it to downsize its real estate footprint, saving taxpayers billions of dollars. It would also help agencies produce consistent, accurate, and reliable information on both their property and structures. With 841,000 buildings and structures in its real property portfolio, the federal government must eliminate disincentives and cut unnecessary red tape in order to efficiently dispose of more if its unneeded real property.
– Alexandra Booze
