Federal Real Property: An Update on High-Risk Issues (24-MAY-07,
GAO-07-895T).
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.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-895T
ACCNO: A69910
TITLE: Federal Real Property: An Update on High-Risk Issues
DATE: 05/24/2007
SUBJECT: Federal agencies
Federal property
Federal property management
Inventory control
Property disposal
Real property
Standards
Strategic planning
Surplus property
GAO High Risk Series
******************************************************************
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GAO-07-895T
* [1]The Administration and Major Real Property-Holding Agencies
* [2]Agencies Have Met Scorecard Standards to Varying Degrees
* [3]Agency Actions Intended to Address Some Long-standing Proble
* [4]Further Efforts Made to Strategically Manage and Address Pro
* [5]Long-standing Problems in Real Property Largely Persist and
* [6]The Federal Government Continues to Hold Many Unneeded Asset
* [7]Major Real Property-Holding Agencies Still Have Multibillion
* [8]Despite Long-Term Cost, Several Agencies Reported That Relia
* [9]Governmentwide Real Property Data Inventory Is in Early Stag
* [10]Individual Agencies Continue to Struggle with Data Reliabili
* [11]Physical Security Is Still a Problem for Major Real Property
* [12]Underlying Obstacles Hamper Agency Real Property Reform Effo
* [13]Several Agencies Cited Competing Stakeholder Interests
as Im
* [14]Legal and Budgetary Limitations Continue to Hamper
Agencies'
* [15]Need for Improved Capital Planning Still Exists
* [16]Federal Real Property Reform Efforts Still in Early Stages
* [17]Contact and Acknowledgments
* [18]GAO's Mission
* [19]Obtaining Copies of GAO Reports and Testimony
* [20]Order by Mail or Phone
* [21]To Report Fraud, Waste, and Abuse in Federal Programs
* [22]Congressional Relations
* [23]Public Affairs
Testimony
Before the Subcommittee on Federal Financial Management, Government
Information, Federal Services, International Security, Committee on
Homeland Security and Governmental 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
Mr. 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 2007.1 My testimony is based largely on a
recent report on federal real property high-risk issues,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
agencies3 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.
1GAO, High-Risk Series: Federal Real Property, [24]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, [25]GAO-03-119
(Washington, D.C.: Jan. 2003); GAO, High-Risk Series: An Update,
[26]GAO-05-207 (Washington, D.C.; Jan. 2005), and High-Risk Series: An
Update, [27]GAO-07-310 (Washington, D.C.: Jan. 2007).
2GAO, Federal Real Property: Progress Made Toward Addressing Problems, but
Underlying Obstacles Continue to Hamper Reform, [28]GAO-07-349
(Washington, D.C.: Apr. 13, 2007).
3For 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.
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,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.
4 [29]GAO-07-349 .
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
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
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.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,6 and VA's
authority to enter into EUL agreements expires in 2011.7 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.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.
5This 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.
642 U.S.C. S 2459j.
738 U.S.C. S 8169.
8In 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. S 8118.
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.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.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.
9GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, [30]GAO-05-352T (Washington, D.C.: Feb. 16, 2005).
10GSA 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).
Table 1: Status of Excess Property Challenges at the Major Real
Property-Holding Agencies
Agency Status
DOD 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.
Energy Energy officials reported that approximately 16 percent of
Energy's real property inventory has been identified as excess or
underutilized.
DHS According to DHS officials, for the 2006 FRPP submission, the
percentage of underutilized real property is 9.7 percent.
Interior 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
GSA 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.
NASA NASA officials reported that over 10 percent of all assets are
underutilized or not utilized at all.
State 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.
USPS 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
VA 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.
aThe 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.
bAs part of our ongoing work, we are reviewing USPS infrastructure
realignment plans.
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.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.12
Others provided data that included major renovation or restoration needs.
More specifically,
o 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.
o For Energy, the backlog in fiscal year 2005 for a portfolio
valued at $85.2 billion was $3.6 billion.
o For Interior, officials reported an estimated maintenance
backlog of over $3 billion for buildings and other structures.13
11To 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.
12Deferred 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.
13It 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.
o GSA's current maintenance backlog is estimated at $6.6 billion.
o 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.
o For NASA, the restoration and repair backlog is estimated at
over $2.05 billion as of the end of fiscal year 2006.
o 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.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,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.
14According to VA officials, VA does not enter into lease-purchase
agreements.
15The 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.
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 elements16 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 weaknesses17 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, 2006.18
16As 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.
17A 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.
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.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.
18GAO, 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, [37]GAO-07-607T
(Washington, D.C.: Mar. 20, 2007).
19DOD, Office of Inspector General, Internal Controls Related to
Department of Defense Real Property, D2006-072 (Arlington, VA: Apr. 6,
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;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.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.
20In GAO, Homeland Security: Further Action Needed to Coordinate Agencies'
Facility Protection Efforts and Promote Key Practices, [38]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.
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.
21GAO, Homeland Security: Guidance and Standards Are Needed for Measuring
Effectiveness of Agencies' Facility Protection Efforts, [39]GAO-06-612
(Washington, D.C.: May 31, 2006).
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.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.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.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.
22GAO, VA Health Care: Key Challenges to Aligning Capital Assets and
Enhancing Veterans' Care, [40]GAO-05-429 (Washington, D.C.: Aug. 5, 2005).
23 [41]GAO-05-429 .
24GSA 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.
Our prior work assessing agencies' implementation of the planning
phase principles in OMB's Capital Programming Guide and our
Executive Guide25 found that some agencies' practices did not
fully conform to the OMB principles, and agencies' implementation
of capital planning principles was mixed.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.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.
25GAO, Executive Guide: Leading Practices in Capital Decision-Making,
[42]GAO/AIMD-99-32 (Washington, D.C.: December 1998).
26GAO, Agency Implementation of Capital Planning Principles Is Mixed,
[43]GAO-04-138 (Washington, D.C.: Jan. 16, 2004).
27GAO, Three Agencies' Implementation of Capital Planning Principles Is
Mixed, [44]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.
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.28 OMB agreed with the report and concurred with its
recommendations.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.
28 [45]GAO-07-349 .
29VA, 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.
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.
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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 Governmental
Affairs
May 24, 2007
FEDERAL REAL PROPERTY
An Update on High-Risk Issues
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.
[46]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.
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.
Examples of Excess Federal Facilities
References
Visible links
24. http://www.gao.gov/cgi-bin/getrpt?GAO-03-122
25. http://www.gao.gov/cgi-bin/getrpt?GAO-03-119
26. http://www.gao.gov/cgi-bin/getrpt?GAO-05-207
27. http://www.gao.gov/cgi-bin/getrpt?GAO-07-310
28. http://www.gao.gov/cgi-bin/getrpt?GAO-07-349
29. http://www.gao.gov/cgi-bin/getrpt?GAO-07-349
30. http://www.gao.gov/cgi-bin/getrpt?GAO-05-352T
37. http://www.gao.gov/cgi-bin/getrpt?GAO-07-607T
38. http://www.gao.gov/cgi-bin/getrpt?GAO-05-49
39. http://www.gao.gov/cgi-bin/getrpt?GAO-06-612
40. http://www.gao.gov/cgi-bin/getrpt?GAO-05-429
41. http://www.gao.gov/cgi-bin/getrpt?GAO-05-429
42. http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-99-32
43. http://www.gao.gov/cgi-bin/getrpt?GAO-04-138
44. http://www.gao.gov/cgi-bin/getrpt?GAO-07-274
45. http://www.gao.gov/cgi-bin/getrpt?GAO-07-349
*** End of document. ***