Smithsonian Institution: Funding for Real Property Needs Remains 
a Challenge (11-APR-07, GAO-07-725T).				 
                                                                 
The Smithsonian Institution (Smithsonian) is the world's largest 
museum complex and research organization. The age of the	 
Smithsonian's structures, past inattention to maintenance needs, 
and high visitation levels have left its facilities in need of	 
revitalization and repair. This testimony discusses our prior	 
work on some effects of the condition of the Smithsonian's	 
facilities and whether the Smithsonian has taken steps to	 
maximize facility resources. It also discusses the current	 
estimated costs of the Smithsonian's needed facilities projects. 
In addition, it describes preliminary results of GAO's ongoing	 
work on the extent to which the Smithsonian developed and	 
implemented strategies to fund these projects, as GAO recommended
in prior work. The work for this testimony is based on GAO's 2005
report, Smithsonian Institution: Facilities Management		 
Reorganization Is Progressing, but Funding Remains a Challenge;  
GAO's review of Smithsonian documents and other pertinent	 
information; and interviews with Smithsonian officials. 	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-725T					        
    ACCNO:   A68067						        
  TITLE:     Smithsonian Institution: Funding for Real Property Needs 
Remains a Challenge						 
     DATE:   04/11/2007 
  SUBJECT:   Appropriated funds 				 
	     Cost analysis					 
	     Facility construction				 
	     Facility maintenance				 
	     Facility management				 
	     Facility repairs					 
	     Federal facilities 				 
	     Federal funds					 
	     Internal controls					 
	     Maintenance costs					 
	     Museums						 
	     Reorganization					 
	     Strategic planning 				 
	     Zoos						 

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GAO-07-725T

                 United States Government Accountability Office

Testimony

GAO

Before the Senate Committee on Rules and Administration

For Release on Delivery Expected                  
at 10:00 a.m. EDT Wednesday,                                               
April 11, 2007

SMITHSONIAN INSTITUTION
                                                             
                                    Funding for Real Property Needs Remains a 
                                    Challenge  
									                               
                                    Statement of Mark L. Goldstein, Director  
                                    Physical Infrastructure Issues            

GAO-07-725T

SMITHSONIAN INSTITUTION

Funding for Real Property Needs Remains a Challenge

  What GAO Found

In 2005, GAO reported that facilities-related problems at the Smithsonian
had resulted in a few building closures and posed a serious long-term
threat to the collections. For example, the 1881 Arts and Industries
Building on the National Mall was closed to the public in 2004 for an
indefinite period over concern about its deteriorating roof structure.
Currently, this building remains closed. GAO also found that the
Smithsonian had taken steps to maximize the effectiveness of its existing
resources for facilities.

Preliminary results of GAO's ongoing work indicate that as of March 30,
2007, the Smithsonian estimated it would need about $2.5 billion for its
revitalization, construction, and maintenance projects from fiscal year
2005 through fiscal year 2013, up from an estimate of $2.3 billion in
2005. In 2005, GAO recommended that the Smithsonian develop and implement
a strategic funding plan to address its facilities needs.

The Smithsonian Board of Regents--the Smithsonian's governing body--has
taken some steps to address GAO's recommendation regarding a strategic
funding plan. The board created an ad-hoc committee, which, after
reviewing nine options, such as establishing a special exhibition fee,
decided to request an additional $100 million annually in federal funds
for facilities for the next 10 years, for a total of an additional $1
billion. The President's fiscal year 2008 budget proposal, however,
proposes an increase of about $44 million over the Smithsonian's fiscal
year 2007 appropriation. It is not clear how much of this proposed
increase would be used to support facilities, and how Congress will
respond to the President's budget request. Absent significant changes in
the Smithsonian's funding strategy or significant increases in funding
from Congress, the Smithsonian faces greater risk to its facilities and
collections over time.

GAO is continuing to evaluate the Smithsonian's efforts to strategically
manage, fund, and secure its real property. We expect to publish a report
on these issues later this year.

Arts and Industries Building, 1977 (left) and February 2005 (right)

                 United States Government Accountability Office

Madam Chairman and Members of the Committee:

Thank you for the opportunity to testify before you today on our work
regarding the Smithsonian Institution's (Smithsonian) facilities
management and funding challenges. Since its founding in 1846, the
Smithsonian, which is funded through its own private trust fund assets and
its federal appropriation, has evolved into the world's largest museum
complex and research organization, with more than 660 owned and leased
buildings and other structures, with an estimated replacement value of
about $4.7 billion for owned space as of June 2004. The age of the
Smithsonian's structures, past inattention to maintenance needs, and high
visitation levels have left its facilities in need of revitalization and
repair. Facilities problems include the structural deterioration of aging
buildings; heating, cooling, and electrical systems that are well past
their normal life expectancy; leaks from roofs and pipes that jeopardize
the collections; inadequate exhibition and storage space; and maintenance
levels that have not kept pace with the wear and tear from millions of
visitors each year. In 2005, the Smithsonian estimated it would need about
$2.3 billion through fiscal year 2013 for its identified revitalization,
construction, and maintenance projects.

In my statement today, I will be focusing on the results of our 2005 study
of the Smithsonian's facilities management and funding issues--

Smithsonian Institution: Facilities Management Reorganization Is
Progressing, but Funding Remains a Challenge^1--as well as some
preliminary results from an ongoing study we have undertaken of the
Smithsonian's real property management at the request of this committee
and the House of Representatives Committee on Appropriations, Subcommittee
on Interior, Environment, and Related Agencies. I will be discussing our
prior work on some effects of the condition of the Smithsonian's
facilities and whether the Smithsonian has taken steps to maximize the
effects of its resources for facilities; current estimated costs of the
Smithsonian's revitalization, construction, and maintenance projects; and
some preliminary results of our ongoing work on the extent to which the
Smithsonian developed and implemented strategies to fund its
revitalization, construction, and maintenance needs, as we recommended in
prior work.

In summary:

     o In our 2005 report, we found that facilities-related problems at the
       Smithsonian had resulted in a few building closures and access
       restrictions and posed a serious long-term threat to the collections.
       For example, the 1881 Arts and Industries Building on the National
       Mall was closed to the public in 2004 for an indefinite period over
       concern about its deteriorating roof structure and pending the repair
       or replacement of its weakened roof panels and aging systems such as
       heating and cooling. Currently, this building remains closed. In
       addition, we found that these problems were indicative of a broad
       decline in the Smithsonian's aging facilities and that in some cases,
       items in the Smithsonian's collections had been damaged by water. We
       also found that the Smithsonian had taken steps to maximize the
       effectiveness of its existing resources for facilities, such as
       adopting a variety of recognized industry best practices for managing
       facilities projects.
     o Preliminary results from our ongoing work show that as of March 30,
       2007, the Smithsonian estimates it will need about $2.5 billion for
       revitalization, construction, and maintenance projects identified from
       fiscal year 2005 through fiscal year 2013, an increase of about $200
       million from its 2005 estimate of about $2.3 billion for the same time
       period. Smithsonian officials stated that to update this estimate,
       they identified changes that had occurred to project cost figures used
       in the 2005 estimate and then subtracted from the new total the
       appropriations the Smithsonian had received for facilities
       revitalization, construction, and maintenance projects for fiscal
       years 2005-2007. In our previous work, we recommended that the
       Smithsonian develop and implement a strategic funding plan to address
       its facilities needs.

          o Preliminary results also suggest that the Smithsonian has taken
            some steps to address our recommendation to develop and implement
            a strategic funding plan to address its facilities needs. In June
            2005, the Smithsonian Board of Regents--the Smithsonian's
            governing body, which is comprised of both private citizens and
            members of all three branches of the federal
            government--established the ad-hoc Committee on Facilities
            Revitalization to explore options to address the about $2.3
            billion the Smithsonian estimated it needed for facilities
            revitalization, construction, and maintenance projects through
            fiscal year 2013. According to Smithsonian officials, after
            reviewing nine options, such as establishing a special exhibition
            fee, the ad-hoc committee decided in 2006 to request an
            additional $100 million annually in federal funds for facilities
            over its current appropriation for 10 years, starting in fiscal
            year 2008, to reach a total of an additional $1 billion. In
            September 2006, according to Smithsonian officials, several
            members of the Board of Regents and the Secretary of the
            Smithsonian met with the President of the United States
          o to make this request. The President's fiscal year 2008 budget
            proposal, however, proposes an increase of about $44 million over
            the Smithsonian's fiscal year 2007 appropriation, and it is not
            clear how much of this increase would be used to support
            facilities. Some of these funds could be used to support
            research, collections, and exhibitions, among other things.
            Moreover, Congress may choose to modify the President's budget
            proposal when funds are appropriated for the fiscal year.

     o The Smithsonian's estimate for revitalization, construction, and
       maintenance needs has increased at an average of about $100 million a
       year over the past 2 years. Therefore, the Smithsonian's request for
       an additional $100 million a year may not actually reduce the
       Smithsonian's estimated revitalization, construction, and maintenance
       needs but only offset the increase in its estimate. Absent significant
       changes in the Smithsonian's funding strategy or significant increases
       in funding from Congress, the Smithsonian faces greater risk to its
       facilities and collections over time.
     o We are continuing to evaluate the Smithsonian's efforts to
       strategically manage, fund, and secure its real property. Our
       objectives include assessing (1) the extent to which the Smithsonian
       is strategically managing its real property portfolio, (2) the extent
       to which the Smithsonian has developed and implemented strategies to
       fund its revitalization, construction, and maintenance needs, and (3)
       the Smithsonian's security cost trends and challenges, including the
       extent to which the Smithsonian has followed key security practices to
       protect its assets. We are also examining how other similar
       institutions, such as other museums and university systems,
       strategically manage, fund, and secure their real property. We expect
       to report on these issues later this year.

  Past Work Showed that Smithsonian's Aging Facilities and Systems Threaten
  Collections

In our 2005 report, we found that facilities-related problems at the
Smithsonian had resulted in a few building closures and access
restrictions and some cases of damage to the collections. A few facilities
had deteriorated to the point where access must be denied or limited. For
example, the 1881 Arts and Industries Building on the National Mall was
closed to the public in 2004 for an indefinite period, pending repair of
its weakened roof panels, renovation of its interior (which had been
damaged by water intrusion), and replacement of aging systems such as
heating and cooling. Currently, this building remains closed. Other
facilities also faced problems. We found that water leaks caused by
deteriorated piping and roofing elements, along with humidity and
temperature problems in buildings with aging systems, posed perhaps the
most pervasive threats to artifacts in the museums and storage facilities.
For example, leaks have damaged two historic aircraft at the National Air
and Space Museum. Additionally, Smithsonian Archives officials told us
that they had had to
address 19 "water emergencies" since June 2002. These problems were
indicative of a broad decline in the Smithsonian's aging facilities and
systems that posed a serious long-term threat to the collections.

We also found that the Smithsonian had taken steps to maximize the
effectiveness of its resources for facilities. These changes resulted from
an internal review and a 2001 report by the National Academy of Public
Administration, which recommended that the Smithsonian centralize its then
highly decentralized approach to facilities management and budgeting in
order to promote uniform policies and procedures, improve accountability,
and avoid duplication. The Smithsonian created the Office of Facilities
Engineering and Operations in 2003 to assume responsibility for all
facilities-related programs and budgets. At the time of our 2005 review,
this office was adopting a variety of recognized industry best practices
for managing facilities projects, such as the use of benchmarking and
metrics recommended by the Construction Industry Institute and leading
capital decision-making practices.^2

  Preliminary Data Show that the Smithsonian's Estimated Costs for Facilities
  Projects through Fiscal Year 2013 Have Increased Since 2005

Preliminary results from our ongoing work show that as of March 30, 2007,
the Smithsonian estimates it will need about $2.5 billion for
revitalization, construction, and maintenance projects identified from
fiscal year 2005 through fiscal year 2013, an increase of about $200
million from its 2005 estimate of about $2.3 billion for the same time
period.^3 Smithsonian officials stated that to update this estimate, they
identified changes that had occurred to project cost figures used in the
2005 estimate and then subtracted from the new total the appropriations
the Smithsonian had received for facilities revitalization, construction,
and maintenance projects for fiscal years 2005-2007.

According to Smithsonian officials, this estimate includes only costs for
which the Smithsonian expects to receive federal funds. Projects that have
been or are expected to be funded through the Smithsonian's private trust
funds were not included as part of the estimate, although the Smithsonian
has used these trust funds to support some facilities projects. For
example, the Steven F. Udvar-Hazy Center was funded largely through trust
funds. According to Smithsonian officials, maintenance and capital repair
projects are not generally funded through trust funds.

^2 GAO, Executive Guide: Leading Practices in Capital Decision-Making,
[2]GAO/AIMD-99-32 (Washington, D.C.: December 1998.)

^3 The Smithsonian's estimated revitalization and new construction costs are
driven in part by the need to modernize or add systems such as fire
detection and alarm and security systems and to comply with newer code
requirements such as those for handicapped accessibility to buildings and
restrooms. Maintenance costs include such things as staff costs, minor
repair and maintenance projects, and other contracts, supplies, materials,
and equipment for Smithsonian's maintenance program.

At the time of our 2005 report, Smithsonian officials told us that the
Smithsonian's estimate of about $2.3 billion could increase for a variety
of reasons. For example, the estimate was largely based on preliminary
assessments. Moreover, in our previous report, we found that recent
additions to the Smithsonian's building inventory--the National Museum of
the American Indian and the Steven F. Udvar-Hazy Center--and the reopening
of the revitalized Donald W. Reynolds Center for American Art and
Portraiture^4 on July 1, 2006 would add to the Smithsonian's annual
maintenance costs.

According to Smithsonian officials, the increase in its estimated
revitalization, construction, and maintenance costs through fiscal year
2013 from about $2.3 billion in our 2005 report to about $2.5 billion as
of March 30, 2007, was due to several factors. For example, Smithsonian
officials said that major increases had occurred in projects for the
National Zoo and the National Museum of American History because the two
facilities had recently had master plans developed that identified
additional requirements.^5 In addition, according to Smithsonian
officials, estimates for anti-terrorism projects had increased due to
adjustments for higher costs experienced and expected for security-related
projects at the National Air and Space Museum. According to Smithsonian
officials, the increase also reflects the effect of delaying corrective
work in terms of additional damage and escalation in construction costs.

^4 At the time of our 2005 report ( [3]GAO-05-369), this building was
referred to as the Patent Office Building. Its name was changed during its
revitalization.

^5 A master plan is a proposal of a comprehensive renovation and/or expansion
of a complex that aligns the physical plant with the organization's
strategic goals. It includes proposals such as making the complex conform
to current codes, and meeting technology and security requirements. This
process can also involve such things as upgrading and replacing major
building systems, including the electrical, plumbing, fire suppression,
and heating and air conditioning systems, as well as reinforcing the
complex's structural integrity and removing asbestos. Master plans also
identify changes in building use and expansion requirements to meet
mission needs.

According to Smithsonian officials, the Smithsonian's March 30, 2007,
estimate of about $2.5 billion could also increase, as the about $2.3
billion estimate was largely based on preliminary assessments, and
therefore, as the Smithsonian completes more master plans, more items will
be identified that need to be done. Moreover, this estimate does not
include the estimated cost of constructing the National Museum of African
American History and Culture, which was authorized by Congress and which
the Smithsonian notionally estimates may cost about $500 million, half of
which is to be funded by Congressional appropriations.

The Smithsonian's annual operating and capital program revenues come from
its own private trust fund assets and its federal appropriation. According
to Smithsonian officials, the Smithsonian's federal appropriation totaled
nearly $635 million in fiscal year 2007, with about $99 million for
facilities capital and about $536 million for salaries and expenses, of
which the facilities maintenance appropriation, which falls within the
salaries and expenses category, was about $51 million.^6 In our previous
work, we found that the facilities projects planned for the next 9 years
exceeded funding at this level.^7 As a result, we recommended that the
Secretary of the Smithsonian establish a process for exploring options for
funding its facilities needs and engaging the key stakeholders--the
Smithsonian Board of Regents, the Administration, and Congress--in the
development and implementation of a strategic funding plan to address the
revitalization, construction, and maintenance projects identified by the
Smithsonian.

^6 According to Smithsonian officials, the Smithsonian's fiscal year 2007
appropriation included $98,554,760 for facilities capital and $536,295,000
for salaries and expenses, of which the facilities maintenance
appropriation was $51,277,000.

^7 Our recommendation was based on funding at the level of Smithsonian's
fiscal year 2004 appropriation, which totaled $904 million, with $184.4
million for facilities.


  The Smithsonian Has Taken Some Steps to Address Our Recommendation to
  Develop and Implement a Funding Strategy

Smithsonian officials told us during our current review that the
Smithsonian Board of Regents --the Smithsonian's governing body, which
is comprised of both private citizens and members of
all three branches of the federal government--has taken some steps to
address our 
recommendation. In June 2005, the Smithsonian Board of Regents
established the ad-hoc Committee on Facilities
Revitalization to explore
options to address the about $2.3 billion the Smithsonian estimated it
needed for facilities revitalization, construction, and maintenance
projects through fiscal year 2013. In September 2005,
the ad-hoc committee held its
first meeting, at which it reviewed nine funding options that had been
prepared by Smithsonian management for addressing the about $2.3 billion
in revitalization, construction, and maintenance projects through fiscal
year 2013. These options included the following:

     o Federal income tax check off contribution, in which federal income tax
       returns would include a check-off box to allow taxpayers to designate
       some of their tax liability to a special fund for the Smithsonian's
       facilities.
     o Heritage treasures excise tax, in which an excise tax would be
       created, and possibly levied on local hotel bills, to generate funds
       for the Smithsonian's facilities.
     o National fundraising campaign, in which the Smithsonian would launch a
       national campaign to raise funds for its facilities.
     o General admission fee program, in which the Smithsonian would
       institute a general admission charge to raise funds for critical but
       unfunded requirements.
     o Special exhibition fee program, in which the Smithsonian would charge
       visitors to attend a select number of special exhibitions as a means
       to raise funds to meet critical but unfunded requirements.
     o Smithsonian treasures pass program, in which the Smithsonian would
       design a program through which visitors could purchase a Smithsonian
       treasures pass with special benefits, such as no-wait entry into
       facilities or behind-the-scenes tours, to raise funds to meet critical
       but unfunded requirements.
     o Facilities revitalization bond, in which the Smithsonian would borrow
       funds such as through a private or public debt bond for the
       Smithsonian's facilities.
     o Closing Smithsonian museums, in which the Smithsonian would
       permanently or temporarily close museums to the public in order to
       generate savings to help fund its facilities.
     o Increasing Smithsonian appropriations, in which the Board of Regents
       and other friends of the Smithsonian would approach the Administration
       about a dramatic appropriations increase to fund Smithsonian's
       facilities.

According to Smithsonian officials, after considering these nine proposed
options, the ad-hoc committee decided to request an increase in the
Smithsonian's annual federal appropriations, specifically deciding to
request an additional $100 million over the Smithsonian's current
appropriation annually for 10 years, starting in fiscal year 2008, to
reach a total of an additional $1 billion.

In September 2006, according to Smithsonian officials, several members of
the Board of Regents and the Secretary of the Smithsonian met with the
President of the United States to discuss the issue of increased federal
funding for the Smithsonian's facilities. According to Smithsonian
officials, during the meeting, among other things, the Regents discussed
the problem of aging facilities and the need for an additional $100
million in federal funds annually for 10 years to address the
institution's facilities revitalization, maintenance, and construction
needs. According to Smithsonian officials, the representatives of the
Smithsonian at the meeting told the President that they had no other
options to obtain this $100 million except the Smithsonian's federal
appropriation. According to Smithsonian officials, these representatives
said the Smithsonian had made considerable expense cuts and raised
substantial private funds, but donors are unwilling to donate money to
repair and maintain facilities.

The President's fiscal year 2008 budget proposal, published in February
2007, proposed an increase of about $44 million over the Smithsonian's
fiscal year 2007 appropriation. The Smithsonian's appropriation is divided
into two categories. The about $44 million increase in the President's
budget proposal represented an increase of about $9 million for facilities
capital and an increase of about $35 million for salaries and expenses,
which includes facilities maintenance.^8 However, funds in the salaries
and expenses category also support many other activities, such as
research, collections, and exhibitions, and it is not clear how much of
the $35 million increase the Smithsonian would use for facilities
maintenance. Moreover, Congress may choose to adopt or modify the
President's budget proposal when funds are appropriated for the fiscal
year.

As part of our ongoing work, we are reviewing the Smithsonian's analysis
of each funding option, including its potential for addressing its
revitalization, construction, and maintenance needs. We plan to report  on
these issues later in the year.

^8 Specifically, the President's fiscal year 2008 budget proposal for the
Smithsonian's appropriation proposed $107,100,000 for facilities capital
and $571,347,000 for salaries and expenses.

  Concluding Observations

The Smithsonian's estimate for revitalization, construction, and
maintenance needs has increased at an average of about $100 million a year
over the past 2 years. Therefore, the Smithsonian's request for an
additional $100 million a year may not actually reduce the Smithsonian's
estimated revitalization, construction, and maintenance needs but only
offset the increase in this estimate. Absent significant changes in the
Smithsonian's funding strategy or significant increases in funding from
Congress, the Smithsonian faces greater risk to its facilities and
collections over time. Since our work is still ongoing, it remains unclear
why the Smithsonian has only pursued one of its nine options for
increasing funds to support its significant facilities needs. At this
time, we still believe our recommendation that the Smithsonian explore a
variety of funding options is important to reducing risks to the
Smithsonian's facilities and collections.

Madam 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.

                             Scope and Methodology

We conducted our work for this testimony in March 2007 in accordance with
generally accepted government auditing standards. Our work is based on our
past report on the Smithsonian's facilities management and funding, our
review of Smithsonian documents, and interviews with Smithsonian
officials. Specifically, we reviewed the Smithsonian's revised estimated
costs for major revitalization projects from fiscal year 2005 through
fiscal year 2013 and documents from the Board of Regents. We also reviewed
the President's fiscal year 2008 proposed budget and the Smithsonian's
federal appropriations from fiscal years 2005-2007.

We are continuing to evaluate the Smithsonian's efforts to strategically
manage, fund, and secure its real property. Our objectives include
assessing (1) the extent to which the Smithsonian is strategically
managing its real property portfolio, (2) the extent to which the
Smithsonian has developed and implemented strategies to fund its
revitalization, construction, and maintenance needs, and (3) the
Smithsonian's security cost trends and challenges, including the extent to
which the Smithsonian has followed key security practices to protect its
assets. We are also examining how similar institutions, such as other
museums and university systems, strategically manage, fund, and secure
their real property. We expect to report on these issues later this year.

GAO Contact

                       Mark L. Goldstein, (202) 512-2834

Staff Acknowledgments

In addition to those named above, Colin Fallon,
Brandon Haller, Carol Henn, Susan Michal-Smith, Dave Sausville, Gary
Stofko, Alwynne Wilbur, Carrie Wilks, and Adam Yu made key contributions
to this report.

(543186)

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References

Visible links
1. http://www.gao.gov/cgi-bin/getrpt?GAO-05-369
2. http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-99-32
3. http://www.gao.gov/cgi-bin/getrpt?GAO-05-369
*** End of document. ***