Federal Real Property: Strategy Needed to Address Agencies'
Long-standing Reliance on Costly Leasing (24-JAN-08, GAO-08-197).
In January 2003, GAO designated federal real property as a
high-risk area, citing the government's overreliance on costly,
long-term leasing as one of the major reasons. GAO's work over
the years has shown that building ownership often costs less than
operating leases, especially for long-term space needs. GAO was
asked to identify (1) the profile of domestically held, federally
leased space including the overall amount and type of space
agencies lease, and any related trends; (2) the factors that
drive agencies to lease space that may be more cost-effective to
own; and (3) any actions taken by the administration and
alternative approaches proposed to address this issue. GAO
reviewed fiscal year 2006 Federal Real Property Profile (FRPP)
leasing data and relevant documents and interviewed officials
from the General Services Administration (GSA), the Office of
Management and Budget (OMB), and the U.S. Postal Service (USPS).
GAO also reviewed 10 building leases that were among those with
the largest dollar value in 3 locations GAO visited.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-08-197
ACCNO: A80110
TITLE: Federal Real Property: Strategy Needed to Address
Agencies' Long-standing Reliance on Costly Leasing
DATE: 01/24/2008
SUBJECT: Cost effectiveness analysis
Data collection
Data integrity
Federal agencies
Federal property
Federal property management
Leases
Leasing policies
Office buildings
Real estate leases
Real property
Real property acquisition
Cost estimates
GAO High Risk Series
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GAO-08-197
* [1]Results in Brief
* [2]Background
* [3]Federal Agencies Rely Extensively on Leasing, Especially for
* [4]Office Space Is the Predominant Type of Federally Leased Spa
* [5]Data Quality Remains a Challenge
* [6]GSA's Reliance on Leasing Continues to Increase
* [7]Decisions to Lease Selected Federal Properties Are Not Alway
* [8]Case Examples: FBI Field Offices in Chicago, Illinois, and T
* [9]Case Example: Bureau of Alcohol, Tobacco, and Firearms and S
* [10]Funds for Ownership Are Limited
* [11]Operational Considerations Also Drive Decisions to Lease
* [12]Security Considerations Can Lead to Leasing
* [13]Leasing Can Meet Short-term Needs and Is Sometimes Practical
* [14]Various Alternatives for Addressing the Leasing Challenge Ha
* [15]Scoring Can Have an Effect on Public-Private Partnerships
* [16]Alternatives to the Current Budget Scorekeeping Rules Have B
* [17]Scoring Long-term Leases Up Front
* [18]Establishing Capital Acquisition Funds to Pursue More
Owners
* [19]Real Property Initiative Has Not Yet Addressed the Leasing C
* [20]Conclusions
* [21]Recommendation for Executive Action
* [22]Agency Comments and Our Evaluation
* [23]Appendix I: Objectives, Scope, and Methodology
* [24]Appendix II: Comments from the Office of Management and Budg
* [25]Appendix III: Comments from the General Services Administrat
* [26]Appendix IV: GAO Contact and Staff Acknowledgments
* [27]GAO Contact
* [28]Staff Acknowledgments
* [29]Related GAO Products
* [30]Order by Mail or Phone
Report to the Subcommittee on Federal Financial Management, Government
Information, Federal Services, and International Security, Committee on
Homeland Security and Governmental Affairs, U.S. Senate
United States Government Accountability Office
GAO
January 2008
FEDERAL REAL PROPERTY
Strategy Needed to Address Agencies' Long-standing Reliance on Costly
Leasing
GAO-08-197
Contents
Letter 1
Results in Brief 4
Background 6
Federal Agencies Rely Extensively on Leasing, Especially for Office Space
Needs; GSA Predicts It Will Lease More Space Than It Owns in 2008 9
Decisions to Lease Selected Federal Properties Are Not Always Driven by
Cost-effectiveness Considerations 14
Various Alternatives for Addressing the Leasing Challenge Have Been
Debated, but No Action Has Been Taken to Resolve This Difficult Issue 22
Conclusions 27
Recommendation for Executive Action 27
Agency Comments and Our Evaluation 28
Appendix I Objectives, Scope, and Methodology 31
Appendix II Comments from the Office of Management and Budget 34
Appendix III Comments from the General Services Administration 37
Appendix IV GAO Contact and Staff Acknowledgments 38
Related GAO Products 39
Tables
Table 1: Profile of Building Asset's Leased Square Footage in the United
States and U.S. Territories by Federal Agencies, Fiscal Year 2006 9
Table 2: Comparative Cost Advantages and Disadvantages of Construction
versus Leasing for Selected GSA Buildings 15
Figures
Figure 1: Federal Real Property Profile of Leased Square Footage by
Predominant Usage in the United States and U.S. Territories, Fiscal Year
2006 11
Figure 2: FBI Field Office in Chicago, Illinois, and Tampa, Florida 17
Abbreviations
Agriculture U.S. Department of Agriculture
CAF capital acquisition fund
CBO Congressional Budget Office
FBI Federal Bureau of Investigation
FRPC Federal Real Property Council
FRPP Federal Real Property Profile
GSA Government Services Administration
OMB Office of Management and Budget
TAPS The Automated Prospectus System
USPS U.S. Postal Service
This is a work of the U.S. government and is not subject to copyright
protection in the United States. The published product may be reproduced
and distributed in its entirety without further permission from GAO.
However, because this work may contain copyrighted images or other
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wish to reproduce this material separately.
United States Government Accountability Office
Washington, DC 20548
January 24, 2008
The Honorable Tom Carper:
Chairman:
The Honorable Tom Coburn:
Ranking Member:
Subcommittee on Federal Financial Management, Government Information,
Federal Services, and International Security:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
In January 2003, we designated federal real property as a high-risk
area,^1 citing the government's overreliance on costly leasing as one of
the major reasons for our designation. Other reasons for the designation
included unreliable data, excess and deteriorating property, and
challenges associated with protecting assets against the threat of
terrorism. Under certain conditions, such as fulfilling short-term space
needs, leasing may be a lower-cost option than ownership. However, our
work over the years has shown that building ownership often costs less
than operating leases, especially for long-term space needs. For example,
in 1995, we found that 55 of 73 operating leases that the General Services
Administration (GSA) had entered into cost a total of $700 million more
than construction.^2 In 1999, we reported that for eight of nine major
operating lease acquisitions GSA had proposed, construction would have
cost less than leasing and saved the government $126 million over 30
years.^3
In February of 2004, the President signed Executive Order 13327,^4 which
created the Federal Real Property Council (FRPC). Real property management
also was added to the President's Management Agenda^5 to address the
problems we had raised in our high-risk report. The order required
executive branch agencies^6 to standardize real property data for
inclusion in a governmentwide database of owned and leased space, known as
the Federal Real Property Profile (FRPP). FRPP is maintained by GSA on
behalf of FRPC, which controls access to the data. Shortly after signing
the executive order, the President added the Federal Asset Management
Initiative, commonly referred to as the real property initiative, to the
President's Management Agenda. Under the executive order, the Office of
Management and Budget (OMB) was given the responsibility to, among other
things, review the efforts of agencies in achieving the governmentwide
policies established in the executive order. In our April 2007 update on
real property high-risk issues,^7 we concluded that these efforts provided
a good foundation for strategically managing federal real property, but
that more progress was needed for us to remove real property management
from our high-risk list.
^1 GAO, High-Risk Series: Federal Real Property, [31]GAO-03-122
(Washington, D.C.: January 2003).
^2 GAO, General Services Administration: Opportunities for Cost Savings in
the Public Buildings Area, [32]GAO/T-GGD-95-149 (Washington, D.C.: July
13, 1995).
^3 GAO, General Services Administration: Comparison of Space Acquisition
Alternatives--Leasing to Lease-Purchase and Leasing to Construction,
[33]GAO/GGD-99-49R (Washington, D.C.: Mar. 12, 1999).
^4 Executive Order 13327--Federal Real Property Asset Management, Feb. 6,
2004.
You requested that we evaluate federal leasing trends and challenges. To
do so, we addressed the following questions:
1. What is the profile of domestically held, federally leased
space, including the overall amount and type of space agencies
lease, and what are any related trends?
2. What factors drive agencies to lease space that may be more
cost-effective to own?
3. What actions has the administration taken, and what alternative
approaches have been proposed, to address agencies' reliance on
costly leased space?
^5 The President's Management Agenda, announced in the summer of 2001, is
the administration's strategy for improving the management of the federal
government in five areas, including strategic management of human capital,
competitive sourcing, improved financial performance, expanded electronic
government, and budget and performance integration.
^6 The executive order applies to 24 executive branch agencies, but not to
the United States Postal Service (USPS). However, USPS submitted real
property information to the Federal Real Property Profile (FRPP), the
centralized real property database, in fiscal years 2005 and 2006, but did
not include any usable data on performance measures.
^7 GAO, Federal Real Property: Progress Made Toward Addressing Problems,
but Underlying Obstacles Continue to Hamper Reform, [34]GAO-07-349
(Washington, D.C.: Apr. 13, 2007).
To answer the first question, we used publicly available data from FRPP,
as well as additional data analyses we requested from OMB. These
additional analyses used data from the three civilian
real-property-holding agencies with the largest portfolios of leased
building space held within the United States and U.S. territories--GSA,
the U.S. Postal Service (USPS), and the U.S. Department of Agriculture
(Agriculture)--to develop a more detailed analysis and assessment of FRPP
data. We used data from GSA's Public Building Service to examine trends in
leasing because GSA had historical data and GSA's tenants represent a
cross-section of federal agencies. These data are different from those of
FRPP. FRPP data are governmentwide, while Public Building Service data are
more detailed and are only for properties that GSA controls. The FRPP data
were generally reliable for describing the inventory, but data quality
concerns, such as missing data, which we identified both during this
review and previously,^8 would limit the usefulness of FRPP for other
purposes, such as strategic decision making. OMB is taking action to
address these data quality concerns. USPS and Agriculture could not
provide us with an electronic copy of historical data on their leases;
therefore, we could not include information from these agencies in our
analysis of trends. We determined that the FRPP and GSA Public Building
Service data were sufficiently reliable for the purposes of our review by
reviewing GSA's data systems and other reports. In addition, we defined
"domestic" or "domestically held" leased space as being in the United
States and U.S. territories.
To answer the second question, we analyzed seven GSA and three USPS
building leases to determine the estimated cost of leasing versus the cost
of new construction. We visited GSA regional offices in Atlanta, Georgia;
Chicago, Illinois; and Fort Worth, Texas; and USPS facility service
offices in Lawrenceville, Georgia; Bloomingdale, Illinois; and Dallas,
Texas, to determine the reasons that led these agencies to lease certain
building space. We selected these locations because multiple agencies
leased space there, the number of larger-dollar-value leases was high, and
the locations were geographically diverse. The building leases we selected
were among the larger-dollar-value leases within these locations. Our
findings from visits to, and economic analyses of, federally leased space
cannot be generalized to federally leased space nationwide. USPS provided
similar data for its leases but requested that we not provide them in this
report because of a Postal Regulatory Commission ruling that such data
should not be disclosed to the public.
^8 [35]GAO-07-349 .
To answer the third question, we analyzed administration and agency
efforts to address long-standing problems in real property and past
proposals for reforming federal leasing policy. For this question, we did
not focus on issues related to USPS, because USPS is not subject to OMB
guidance on leasing. In addressing each of the three questions, we
interviewed agency officials and obtained and analyzed relevant laws and
documents. Additional information on our methodology appears in appendix
I. We conducted this performance audit from July 2006 to January 2008 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.
Results in Brief
Federal agencies rely extensively on leasing, occupying about 398 million
square feet of leased building space domestically in fiscal year 2006,
according to data from FRPP. Over half of the leased square footage is
used for offices, with the remaining space allocated for a mix of
warehouses, family housing, schools, and other uses. GSA (which acts as a
leasing agent for most federal agencies), USPS, and Agriculture were the
dominant civilian agencies, leasing roughly 71 percent of this space, with
the military services leasing an additional 17 percent. FRPP is a
relatively new inventory, and as a result, governmentwide data on leasing
trends are not available. However, GSA maintains historical data on
leasing and ownership that are useful for trends because GSA's tenants
represent a cross-section of federal agencies. The most striking trend in
GSA-leased space is that, according to GSA, for the first time, it
predicts it will lease more space than it owns in 2008. From fiscal year
2003 through fiscal year 2006, GSA increased its leased space from about
160 million square feet to about 172 million square feet while its owned
space decreased from about 180 million square feet to about 174 million
square feet. GSA also analyzes trends in its leased portfolio, including
trends in lease extensions and vacancy rates.
In the 10 leases we examined, decisions to lease space for long-term needs
that would have been more cost-effective to own were driven by the limited
availability of capital for ownership and other considerations, such as
security and operational efficiency. For four of the seven GSA leases we
analyzed, leasing was more costly over the long term than construction--by
an estimated $83.3 million over 30 years. For example, GSA executed leases
for the Federal Bureau of Investigation's (FBI) field offices in Chicago
in 2006 and in Tampa in 2005. These leases were estimated to cost $40
million and about $7 million more, respectively, than federal construction
over 30 years. GSA officials said they entered into these leases because
GSA lacked up-front capital at that time and there were security
considerations. For GSA, limited funding for construction is exacerbated
by federal budget scorekeeping rules, which require, for ownership and
capital leases, that the full cost of the government's commitment be
recorded in the budget in the first year. In contrast, for operating
leases, only the amount needed to cover yearly lease payments plus
cancellation costs is required to be recorded in the annual budget,
thereby making operating leases "look cheaper" in any given year. This is
a long-standing challenge, and overreliance on leasing is one of the major
reasons we designated federal real property management as a high-risk
area. Although USPS is not subject to the federal budget scorekeeping
rules, USPS officials said that limited up-front capital to fund
construction projects also is a hindrance for USPS.
The administration has made considerable progress in focusing on
long-standing problems in the real property area, such as poor data and
excess property, but efforts to address the leasing challenge have been
limited. The 2004 executive order on real property management,
establishment of FRPC, and other related initiatives have given greater
emphasis to improving real property management and have brought a more
strategic focus to fixing the problems. However, the impact of budget
scorekeeping rules--though rooted in sound budget policy and designed to
promote transparency--on real property costs has not been addressed. We
have raised this issue for almost 20 years. Over this time, several
proposals have been discussed, such as scoring operating leases the same
as ownership when they are used to meet a long-term need or establishing
capital acquisition funds at agencies to fund ownership. However, none of
these proposals have been implemented. OMB staff said that the
administration's efforts have not yet addressed the leasing challenge and
that basic improvements, such as developing a reliable, governmentwide
inventory of space and establishing performance measures, had to occur
before OMB could take on broader, more complex policy issues such as the
leasing challenge. Nonetheless, with progress being made and increased
commitment by OMB and Congress to address long-standing real property
problems, there is reason to be optimistic that the leasing challenge can
be addressed. We are therefore recommending that OMB, in conjunction with
FRPC and other stakeholders, develop a strategy to reduce agencies'
reliance on leased space for long-term needs when ownership would be less
costly.
OMB generally agreed with the report and its recommendation but asked that
we narrow the recommendation to focus on how to identify those instances
in which agencies are relying on costly leasing. A means of identifying
such leases could logically be part of the strategy we are recommending
and seems worthwhile pursuing. However, our report objectives did not
include how best to identify costly leases, and therefore we chose not to
change our recommendation. OMB also provided technical clarifications,
which we incorporated where appropriate. GSA also agreed with the report
and provided technical clarifications, which we incorporated where
appropriate. USPS and Agriculture did not provide comments on the draft
report.
Background
The federal real property environment has many stakeholders and involves a
vast and diverse portfolio of assets that are used for a wide variety of
missions. Real property is generally defined as facilities, land, and
anything constructed on or attached to land. According to FRPP data, the
federal government owned and leased 1.2 million assets with a replacement
value of $1.5 trillion in fiscal year 2006. The Department of Defense,
USPS, GSA, and the Department of Veterans Affairs hold the majority of the
owned and leased facility space. The makeup of the federal government's
facilities reflects the diversity of agencies' missions and includes
office buildings, prisons, post offices, courthouses, laboratories, and
border stations.
GSA is authorized by law to acquire, manage, utilize, and dispose of real
property for most federal agencies. These authorities are contained in
title 40 of the U.S. Code, and GSA is responsible for its implementation.
Agencies are subject to title 40 authorities unless they have their own
specific real estate authority and are exempted from title 40. Under title
40, GSA is authorized to enter into lease agreements for up to 20 years
that the Administrator of GSA considers to be in the interest of the
federal government and necessary to accommodate a federal agency.^9 GSA
uses this authority to lease space on behalf of many federal government
agencies. In 1996, GSA began a program called "Can't Beat GSA Leasing"
that offered federal agencies the choice of using GSA as their leasing
agent or assuming responsibility for their own leasing. Under this
program, GSA delegated leasing authority for general purpose space to the
heads of all federal agencies. GSA's original delegation consisted of six
conditions, which included the requirements that federal agencies acquire
and utilize leased space in accordance with all applicable laws and
regulations. In December of 2002, GSA revised its regulations to
specifically state that all agencies must follow the budget
scorekeeping^10 guidelines and OMB's requirements for leases, capital
leases, and lease purchases identified in appendixes A and B of OMB
Circular A-11.^11 Federal agencies also may have their own independent
statutory authority related to real property. In November 2007, GSA
amended its delegations of leasing authority to acquire general purpose
office space and special purpose office space. GSA said its basis for
amending these delegations of authority was to increase oversight and to
facilitate compliance with all applicable laws and regulations governing
the acquisition of real property, since several recent audits of its
delegation program found instances in which agencies had failed to meet
the requirements of their leasing delegation. USPS, which is an
independent establishment in the executive branch, is authorized to sell,
lease, or dispose of property under its general powers and is exempt from
most federal laws dealing with real property and contracting.^12
^9 40 U.S.C. S 585.
Since 2003, we have reported that federal real property is a high-risk
area due to excess and deteriorating property, reliance on costly leasing,
unreliable data, and security challenges.^13 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. In February of 2004, the President signed Executive Order
13327 and added real property management to the President's Management
Agenda, which scores agencies on their progress in meeting performance
targets. The order applies to 24 executive branch departments and
agencies,^14 but not to USPS. Agencies under that 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's establishment of FRPC also supports reform efforts.
Furthermore, OMB staff said that the administration intends to work with
Congress to provide agencies with tools to more effectively manage their
real property assets. To meet the order's requirement for standardized
real property data reporting, FRPC worked with GSA to develop FRPP.^15 The
first governmentwide reporting of inventory data for FRPP took place in
December of 2005, and selected data were included in the fiscal year 2005
Federal Real Property Report, published by GSA on behalf of FRPC in June
of 2006. In our April 2007 update on real property high-risk issues, we
reported that the administration and major real-property-holding agencies
had made progress toward strategically managing federal real property and
addressing some long-standing problems.
^10 Budget scorekeeping rules are designed to ensure that the effects of
legislation on the deficit are consistent with established conventions and
comply with statute.
^11 41 C.F.R. S 102-73.135.
^12 39 U.S.C. SS 401 and 410.
^13 See the list of related GAO products at the end of this report.
^14 The executive order applies to the Departments of Agriculture,
Commerce, Defense, Education, Energy, Health and Human Services, Homeland
Security, Housing and Urban Development, the Interior, Justice, Labor,
State, Transportation, the Treasury, and Veterans Affairs; the
Environmental Protection Agency; National Aeronautics and Space
Administration; U.S. Agency for International Development; GSA; the
National Science Foundation, the Nuclear Regulatory Commission; the Office
of Personnel Management; the Small Business Administration; and the Social
Security Administration.
^15 OMB officials told us that Federal Management Regulations require all
executive branch agencies, including independent agencies, to report data
for FRPP. USPS is not subject to the executive order but provided OMB with
data for FRPP in fiscal year 2005 that did not include any usable data on
performance measures.
Federal Agencies Rely Extensively on Leasing, Especially for Office Space Needs;
GSA Predicts It Will Lease More Space Than It Owns in 2008
Federal agencies rely extensively on leasing, occupying about 398 million
square feet of leased building space domestically in fiscal year 2006,
according to data from FRPP. According to fiscal year 2006 FRPP
information, GSA and USPS hold the majority of the federal government's
leased building space, totaling about 270 million square feet, or about 67
percent of the leased inventory of space within the United States and U.S.
territories. Agriculture holds 4 percent of leased space. In fiscal year
2006, GSA, which acts as a leasing agent for other agencies, had 6,750
leases and provided slightly less than 169 million square feet of leased
building space to nearly every department within the federal government.
Table 1 shows the amount of domestically leased space by agency, according
to FRPP.
Table 1: Profile of Building Asset's Leased Square Footage in the United
States and U.S. Territories by Federal Agencies, Fiscal Year 2006
Agency name: GSA;
Leased square footage: 168,929,552.
Agency name: USPS;
Leased square footage: 99,527,123.
Agency name: Army;
Leased square footage: 43,665,656.
Agency name: Agriculture;
Leased square footage: 16,752,216.
Agency name: Air Force;
Leased square footage: 15,800,618.
Agency name: Navy;
Leased square footage: 9,173,844.
Agency name: Transportation;
Leased square footage: 7,854,759.
Agency name: Veterans Affairs;
Leased square footage: 7,589,059.
Agency name: Energy;
Leased square footage: 6,657,275.
Agency name: Health and Human Services;
Leased square footage: 4,160,208.
Agency name: Interior;
Leased square footage: 4,025,243.
Agency name: Labor;
Leased square footage: 3,776,466.
Agency name: Justice;
Leased square footage: 3,227,893.
Agency name: Treasury;
Leased square footage: 1,474,853.
Agency name: Homeland Security;
Leased square footage: 1,470,675.
Agency name: Commerce;
Leased square footage: 1,197,995.
Agency name: National Archives and Records Administration;
Leased square footage: 545,258.
Agency name: National Aeronautics And Space Administration;
Leased square footage: 524,029.
Agency name: Defense/Washington Headquarters Service;
Leased square footage: 499,559.
Agency name: Corps of Engineers;
Leased square footage: 303,769.
Agency name: Environmental Protection Agency;
Leased square footage: 243,732.
Agency name: National Science Foundation;
Leased square footage: 188,527.
Agency name: State;
Leased square footage: 183,848.
Agency name: Office of Personnel Management;
Leased square footage: 91,271.
Agency name: Peace Corps;
Leased square footage: 18,886.
Agency name: U.S. Agency for International Development;
Leased square footage: 3,553.
Agency name: Total;
Leased square footage: 397,885,867.
Source: OMB.
Office Space Is the Predominant Type of Federally Leased Space
According to FRPP data, over half of the space, in terms of square
footage, is office space, with a mix of other uses including warehouses,
family housing, and schools. The single largest category of federally
leased space--office-related purposes--accounts for approximately 201
million square feet, or 51 percent of all domestic leased building space.
This category includes office space and military headquarters space. The
second largest category of leased space, "all other," includes space for
post offices and laboratories, as well as other buildings that cannot be
classified in other categories. About 104 million square feet of leased
space were reported in this category. In addition, agencies reported
leasing about 29 million square feet of building space for warehouses and
about 22 million square feet for family housing--a category that includes,
among other things, public housing and military personnel housing. Figure
1 shows domestic leased square footage by predominant usage.
Figure 1: Federal Real Property Profile of Leased Square Footage by
Predominant Usage in the United States and U.S. Territories, Fiscal Year
2006
Note: The "other institutional uses" category includes buildings such as
libraries, chapels, museums, and outpatient clinics. The miscellaneous
category includes the remaining leased building space predominant use
categories--laboratories; dormitories/barracks; hospital, prison, and
detention centers; industrial, navigation and traffic aids; communication
systems; and post offices. The service category includes buildings used
for service activities, such as maintenance and repair shops.
As the federal agency that leases the most space, GSA leases space for a
variety of purposes, but about 152 million square feet, or 90 percent of
its leased portfolio, is leased exclusively for offices. GSA also leases
about 15 million square feet, or about 9 percent of its overall leased
portfolio, for warehouses for agencies. Additionally, GSA leases building
space for such purposes as laboratories, family housing, and other
miscellaneous uses. These uses account for about 1 percent of its leased
space. Agriculture had more than 3,700 leases totaling nearly 17 million
square feet of building space in fiscal year 2006. About 92 percent of
Agriculture's leased space, or slightly more than 15 million square feet,
is for offices. Agriculture also has a little over a million square feet
leased under the all other, warehouse, and service categories. According
to FRPP data, USPS has roughly 28,100 leases, which are categorized as all
other. According to OMB staff, because of a USPS data-coding error, the
square footage for USPS assets was included in the "all other" category
and accounts for about 95 percent of the square footage reported for this
category. USPS told us that the majority of its leased buildings are used
primarily for customer service post offices, and a portion of its building
space is used for retail facilities and carrier annexes.^16
We did not develop data on the overall yearly cost of leased space to the
federal government. OMB staff said that variation in costs included in
lease payments among agencies would create data consistency problems. As
an indicator of asset value, FRPP tracks replacement value--or the cost to
replace leased space with owned space--and the estimated replacement value
of the federal government's existing domestic leases totals $48 billion.
Data Quality Remains a Challenge
In April of 2007, we reported that although agencies have made progress in
collecting and reporting standardized real property data for FRPP, data
reliability is still a challenge at some of the agencies, and agencies
lack a standard framework for data validation.^17 For this review, we
assessed the fiscal year 2006 FRPP leasing data and found them to be
generally reliable for the purpose of profiling the leased inventory.
However, we noted some data quality issues that would be cause for concern
if FRPP were used for more than describing the inventory, such as
strategic decision making. For example, USPS categorized its 28,108 leased
assets "mission dependent not critical" and did not include annual
operating costs for each leased asset. The categorization of USPS's leased
facilities as "mission dependent not critical" and "not mission critical"
could be questioned, since USPS's facilities serve as the main channel for
providing mail delivery service to all people residing in the United
States. In our April 2007 report, we recommended that OMB develop a
framework that agencies can use to better ensure the validity and
usefulness of key real property data in FRPP. OMB concurred with this
recommendation and has required agency-specific validation and
verification plans and, according to OMB officials, has developed an FRPP
validation protocol to certify agency data. According to OMB staff, each
score card agency has developed and implemented an agency-specific data
validation and verification plan.
^16 Carrier annexes house the carrier routes without a retail or post
office box operation.
^17 [36]GAO-07-349 .
GSA's Reliance on Leasing Continues to Increase
FRPP is a relatively new inventory, a result of implementing Executive
Order 13327, and therefore governmentwide data on leasing trends were not
available. However, GSA, whose tenants represent a cross-section of
federal agencies, maintains historical data that are useful in examining
trends. The most striking trend in GSA-leased space, GSA predicts, is that
for the first time it will lease more space than it owns in 2008. From
fiscal year 2003 through fiscal year 2006, GSA increased its leased space
from about 160 million square feet to about 172 million square feet while
its owned space decreased from about 180 million square feet to about 174
million square feet. ^18
Besides tracking total leased square footage, as all federal agencies are
required to do for FRPP, GSA captures, analyzes, and evaluates a number of
other leasing trends, including trends in lease extensions, vacancy rates
in leased facilities, negative net operating income leases,^19 and GSA
lease rates compared with market lease rates. GSA conducts trend analysis
using the data from prior years that it retains, or annually archives. GSA
officials stated that annually archiving data is the key to establishing
baselines and conducting trend analysis because it aggregates data for
similar fields over time, which allows for analyses of comparable data
each year. According to GSA officials, these analyses can then be used to
better anticipate and react to market changes, helping to ensure the most
efficient management of the lease portfolio. GSA officials said they can
use annually archived data to isolate key trends, examine the causes of
these trends, and identify potential solutions. According to GSA
officials, they are broadening the use of outside published data to
forecast market conditions and rent for leasing activity.
GSA officials told us that trend analysis with annually archived data can
identify "low- value" leases--those for which the government is currently
paying above-market rates. Such analysis also can identify leases in
markets where rental rates are forecasted to grow quickly and the
government risks paying higher lease rates in the future. Second, trend
analysis of market data comparisons can indicate whether a lease extended
without full competition is more expensive than a lease fully competed in
the free market. GSA estimated that approximately 65 percent of its
expiring leases were extended at the request of tenant agencies. GSA
officials said that leases that are extended could potentially place GSA
at risk, especially in areas where the agency may be overpaying because of
changing market rates. According to GSA officials, information on vacancy
rates is crucial for asset managers to effectively manage and minimize
vacancies.
^18 GSA uses end-of-the-fiscal-year leased square footage calculations for
its State of the Portfolio report, whereas its FRPP submission is based on
data for the end of the calendar year.
^19 A GSA-leased building has a negative net operating income when the
rental payments from tenant agencies generate a negative net return to
GSA.
Decisions to Lease Selected Federal Properties Are Not Always Driven by
Cost-effectiveness Considerations
In the 10 leases we examined, decisions to lease space that would be more
cost-effective to own were driven by the limited availability of capital
for ownership and other considerations, such as operational efficiency and
security. To examine the cost-effectiveness of leasing decisions, we
analyzed economic analyses--30-year net present value calculations--that
GSA provided for seven building leases and that USPS provided for three
leases.^20 We found that leasing was more costly over the long-term than
construction for four of the seven GSA leases, and these four GSA leases
were estimated to be $83.3 million more costly over 30 years than
construction. ^21 Table 2 shows the results of our analyses for the seven
selected GSA lease acquisitions, the comparative cost advantages and
disadvantages of construction versus leasing for these acquisitions, and
the reasons cited by agency officials for leasing. USPS provided similar
data for its leases but requested that we not provide them in this report
because of a Postal Regulatory Commission ruling that such data should not
be disclosed to the public.
^20 A 30-year net present value analysis measures multiyear cash flows in
present-dollar terms, so the value of a dollar received today can be
compared against the value of a dollar received in the future. Such an
analysis allows managers to compare the cost of a multiyear lease, with
payments spread over a number of years, with ownership, which requires
up-front expenditures of capital.
^21 GSA performed the economic analyses for the seven building leases at
our request to demonstrate the long-term costs of construction versus
leasing. GSA had already decided to enter into these leases and used
actual rental rates for the individual leases in its analyses.
Table 2: Comparative Cost Advantages and Disadvantages of Construction
versus Leasing for Selected GSA Buildings
Square feet in thousands, dollars in millions
Estimated
present-value
acquisition cost Cost
for each advantage/
alternative (disadvantage)
Base
year for
Primary Total present
occupant and square value Construction Acquisition Reason(s) cited
location footage analysis Construction Lease vs. lease decision for decision
FBI, Chicago, 384.5 2005 229.8 270.1 40.3 Lease Limited
Illinois up-front
capital,
security
considerations,
consolidation
of existing
leases
Alcohol, 99 2005 56.4 89.6 33.2 Lease Security
Tobacco, and requirements
Firearms and
Secret Service,
Chicago,
Illinois
FBI, Tampa, 130.3 2005 67.6 74.4 6.8 Lease Limited
Florida up-front
capital,
immediate need
for space
FBI, Dallas, 210.4 2005 101.1 104.1 3 Lease Limited
Texas up-front
capital,
immediate need
for space
Atlanta Federal 1,196.1 2005 597.1 593.5 (3.6) Lease Leasing the
Center, various most
agencies, cost-effective
Atlanta, option,
Georgia immediate need
for space
Centers for 107.2 2005 54 45.8 (8.2) Lease Leasing the
Disease Control most
and Prevention, cost-effective
Atlanta, option,
Georgia immediate need
for space
Social Security 274.5 2005 134.6 111.4 (23.2) Lease Leasing the
Administration, most
Dallas, Texas cost-effective
option,
immediate need
for space
Source: GSA.
Case Examples: FBI Field Offices in Chicago, Illinois, and Tampa, Florida
For FBI's field office in Chicago, Illinois, the 30-year net present value
cost of meeting FBI's long-term space need with an operating lease was
estimated to cost $40 million more than construction. In this instance,
GSA officials stated, limited availability of up-front capital and
security considerations prevented them from pursuing ownership at that
time. According to GSA officials, before deciding to enter into the lease
in 2006 for the new field office, which has a 14-year term, GSA pursued
other options for its tenant agency, including repair and alteration and
building construction. Ultimately, these options proved unfeasible
because, according to GSA officials, massive repairs were needed at one of
the proposed facilities and existing facilities could not meet new
building security requirements established after the September 11, 2001,
terrorist attacks.
For the FBI field office in Tampa, Florida, the 30-year net present-value
cost of meeting FBI's long-term space need with an operating lease was
estimated at about $7 million more than construction over a 30-year period
in 2005. According to a GSA official, building construction was never
considered as a viable option because of the perceived lack of necessary
up-front capital. A GSA official stated that FBI had outgrown existing
space in several leased facilities throughout the city and cited enhanced
security requirements, anticipated expansion, and the immediacy of FBI's
space need as major reasons for consolidating existing leases into one
central location. The term of the lease is 15 years. Primarily because of
the amount of square footage required, virtually all downtown Tampa
locations were eliminated. GSA is using operating leases to help FBI meet
long-term needs for field offices. For instance, GSA is using operating
leases in 40 of 41 new FBI field office locations across the country.
Figure 2 shows the FBI field offices in Chicago and Tampa.
Figure 2: FBI Field Office in Chicago, Illinois, and Tampa, Florida
Case Example: Bureau of Alcohol, Tobacco, and Firearms and Secret Service,
Chicago, Illinois
GSA entered into 10-year operating leases in Chicago for the Bureau of
Alcohol, Tobacco, and Firearms and the Secret Service in the same
building, estimated at a 30-year net present value to cost $33 million
more than construction. GSA officials said that the prior leases for both
agencies, which also were housed previously in the same facility, expired
and the original lessor opted not to retain the agencies as tenants for
various reasons, including the need for enhanced security requirements.
GSA did not have any owned federal space available in its existing
inventory to meet the specialized security needs of both agencies, so
finding another location that met their security needs was a major factor
in choosing the new space.
Funds for Ownership Are Limited
For GSA, limited funding for construction is exacerbated by federal budget
scorekeeping rules which require, for ownership and capital leases, that
the full cost of the government's commitment be recorded up front in the
budget. In contrast, for operating leases, only the amount needed to cover
yearly lease payments plus cancellation costs is required to be recorded
in the budget, thereby making operating leases "look cheaper" in any given
year.^22 This is a long-standing problem, and overreliance on leasing is
one of the major reasons we designated federal real property management as
a high-risk area. The budget scorekeeping issue and efforts to resolve it
will be discussed at length later in this report.
GSA real property officials in the regions we visited told us that for
most space requests they fulfill, constraints on capital funding
influenced their pursuit of ownership as a realistic option. While several
of the GSA officials we spoke with noted that construction funds are
available for capital projects in their region, these dollars tend to be
designated for the construction of agency headquarters, courthouses, and
border stations and typically are not used for federal office space, such
as that needed to fulfill FBI's field office needs. Specifically, for
fiscal years 2006 through 2008, the President requested funding for GSA
primarily for courthouses or border stations, although for all 3 years GSA
requested funds to cover other construction and repair and alteration
projects. According to GSA real property officials, these types of
constraints on construction funding for federal office space often limit
their ability to pursue ownership for general purpose office space.
For this review, GSA developed and provided a 30-year net present-value
analysis of leasing versus ownership for the building leases we selected.
When proposing a lease, GSA no longer provides this type of analysis to
Congress. According to GSA officials, until the submission of the fiscal
year 1995 capital investment and leasing program, GSA included the results
of a 30-year net present-value analysis of housing alternatives in lease
prospectuses. Now, according to GSA officials, GSA instead performs a
scoring analysis for all lease prospectuses. The scoring analysis, GSA
officials said, includes an estimate of construction costs. Other
estimated costs include those for the proposed asset's design, management,
and inspection and site acquisition. According to GSA, these combined
estimates provide a total asset value based on cost that forms the basis
for determining whether the proposal scores as a capital or an operating
lease. GSA officials said GSA's authorizing committees requested that they
provide this information with lease prospectuses in lieu of the 30-year
net present value analysis.
^22For GSA operating leases, only the budget authority needed to cover the
annual lease payment is required. According to scorekeeping guidelines,
for funds that are self-insuring under existing authority, only the amount
of budget authority needed to cover the annual lease payment is required
to be scored. In November 2005, OMB clarified its requirements by stating
that the only funds that are considered self-insuring are certain
revolving funds in GSA.
Although USPS is self-financed and not dependent on appropriations or
subject to the scorekeeping rules that apply to other federal agencies,
USPS officials said that limited up-front capital to fund construction
projects is also a hindrance to ownership. USPS's leasing guidance states
that a lease-versus-purchase analysis is to be conducted when new
construction leasing or the purchase of a building is the recommended
building acquisition alternative. These lease-versus-purchase analyses
consider the net present value and the return on investment of acquisition
alternatives. The lease-versus-purchase analysis at USPS includes the
purchase of a newly constructed building, but also can include the
exercise of options available in certain lease contracts to purchase a
currently leased building. USPS officials at the three facilities service
offices we visited said major reductions in capital funding dictated many
of their decisions about leasing and ownership. In particular, USPS
headquarters officials stated that they would prefer to own all of the
larger facilities, such as mail-processing facilities, but that capital
constraints can prevent ownership of all such facilities.
Operational Considerations Also Drive Decisions to Lease
While GSA and USPS officials emphasized that the limited availability of
capital was a major impediment to building ownership, they also cited
operational requirements-- such as changes to an agency's mission,
immediate space needs, security requirements, or a desire for
flexibility--as drivers of the decision to lease rather than own space.
Other factors, such as shorter-term or smaller space needs, also may
influence agencies' decisions to lease space. GSA and USPS officials cited
agency mission as a reason they chose to pursue leasing rather than
building ownership for certain projects. For instance, USPS officials said
they strive to locate postal service buildings in areas that will optimize
the efficiency of mail delivery. Thus, when deciding between leasing and
constructing a building, they may consider operational factors such as the
size of a facility, traffic routes, access to parking, and convenience for
the customer. USPS officials noted, particularly for customer service post
offices, that leasing in existing retail space, rather than constructing a
new facility, is usually the optimal way to reach customers. However, as
we have previously reported,^23 significant challenges remain related to
USPS's planning and implementation of its infrastructure realignment,
which is designed to reduce excess capacity as well as reflect changes in
operations. Further challenges persist related to USPS's identification
and disposal of excess property. We previously have recommended that USPS
develop a facilities plan that includes a strategy for how USPS intends to
rationalize the postal facilities network and remove excess processing
capacity and space from the network.^24 In some instances, officials told
us that operational requirements take precedence over economic
considerations. For instance, automation at USPS has affected operational
planning requirements for future facilities by changing the expected need
for square footage. GSA officials also cited changes in a tenant agency's
mission as dictating an immediate need for space. For instance, expanding
mission requirements for the Department of Homeland Security created
additional space requirements. Faced with a changing mission and
relatively immediate space needs, agencies may opt for lease construction
rather than federal construction, GSA officials told us, because lease
construction is perceived to take less time than federal construction.
Under lease construction, an agency works with the private sector to
design and build a building that the government leases to meet the
agency's mission needs. The private developer finances the construction of
the building and agrees to lease the finished building to the agency. This
arrangement allows an agency to obtain a new building suited to its needs
without having to pay the up-front costs associated with federal
construction. GSA officials said that it is highly challenging to
determine when a tenant agency's mission may change and what space needs
may subsequently emerge.
^23 GAO, High-Risk Series: An Update, [37]GAO-07-310 (Washington, D.C.:
Jan. 19, 2007).
Both GSA and USPS cited the need for flexibility in their space
assignments as a reason for leasing rather than owning space. Certain
agencies that GSA obtains space for, such as the Social Security
Administration, try to locate their facilities close to their customers.
As demographic shifts occur in certain areas of the country, customers can
potentially move to new areas. GSA real property officials stated that
leasing rather than ownership is frequently used to give these agencies
the flexibility to relocate closer to their customers, if necessary.
Postal officials also cited flexibility as a reason for leasing retail
post office space. According to Postal Service officials in the Southwest
Facilities Service Office, recent population increases in Texas and
Northwestern Arkansas may expand the need for retail postal facilities in
these areas. Because the majority of the space USPS obtains in the region
is small and subject to demographic shifts, leasing provides flexibility
to meet changing operational needs.
^24 GAO, U.S. Postal Service: Bold Action Needed to Continue Progress on
Postal Transformation, [38]GAO-04-108T (Washington, D.C.: Nov. 5, 2003).
Security Considerations Can Lead to Leasing
Due to the expansion of security requirements in recent years, such as
those for blast-resistant building exteriors and the need for greater
setbacks, GSA officials said that agency requirements have become more
stringent and complex. In some circumstances, GSA officials said, these
security needs cannot be met in existing federal buildings, causing
agencies to pursue lease construction. When acquiring space for the FBI
field office in Chicago, GSA first pursued the option of repair and
alteration and then building purchase. GSA officials said that after
reviewing the federal inventory and investigating the site with the most
potential, GSA determined that the repairs needed to make existing federal
building space comply with post-September 11 security requirements would
be cost prohibitive. Given the costliness of the repair and alteration
method and the limited availability of capital for construction, GSA
officials selected lease construction as the method to acquire a building
for FBI. Similarly, when looking for new space to consolidate FBI
operations in Tampa, GSA real estate specialists told us they eliminated
downtown Tampa--where existing federal buildings were located--as a site
because of the difficulty of locating space with the required 100-foot
building setbacks. GSA did find, however, a private developer for a lease
construction project away from the downtown area on the Western Shore of
Tampa.
Leasing Can Meet Short-term Needs and Is Sometimes Practical
An additional factor that may cause agencies to lease space is a
customer's temporary or short-term space needs. For instance, GSA
officials said that over 200 GSA-owned and leased buildings were damaged
by Hurricane Katrina, necessitating the relocation of 2,600 federal
employees from 28 federal agencies, many of which were GSA tenant
agencies. To meet this emergency need, GSA expanded its use of leases to
house agencies in temporary space to fulfill a short-term need. GSA
Regional officials told us they still have a number of Hurricane
Katrina-related leases in their portfolio.
Agencies also choose leasing over ownership because it is a practical way
to address issues such as a limited amount of available federal space in a
geographic area or a need for a small amount of square footage. GSA
officials stated that in certain rural locations, construction would not
be economically advantageous. The amount of square footage needed also may
dictate whether an agency chooses to lease rather than own space. For
instance, more than 80 percent of GSA's leases are for 20,000 square feet
or less. When agencies require less than 20,000 square feet, GSA officials
stated, leasing is usually cost-competitive with ownership, and federal
construction is an unlikely option. Additionally, USPS officials told us
that many of their assignments are for 3,000 square feet or less and that
for assignments of this size, construction is not often practical.
Various Alternatives for Addressing the Leasing Challenge Have Been Debated, but
No Action Has Been Taken to Resolve This Difficult Issue
The administration has made considerable progress in focusing on
long-standing problems in the real property area such as poor data and
excess property. The executive order on real property management,
establishment of FRPC, and other related initiatives have given greater
emphasis to improving real property management and bringing a more
strategic focus to fixing the problems. However, the administration's
efforts to address the leasing challenge have been limited. As mentioned
previously, building ownership through construction or purchase is often
the least expensive way to meet agencies' long-term requirements.^25 For
operating leases, only the amount needed to cover yearly lease payments
plus cancellation costs is required to be recorded in the annual budget,
thereby making operating leases "look cheaper" in any given year even
though they are generally more costly over time. We have raised this issue
for almost 20 years in several reports and testimonies. For example, we
have reported as follows:
"Efforts to increase ownership are ... hampered by a budgetary bias
against capital investment. GSA must record in 1 year's budget the total
cost of a newly constructed or purchased building, but is required to
record only 1 year's lease payments for a leased building. As a result,
leasing appears to be less costly for the current year despite its greater
long-term costs" (December 1989, [39]GAO/GGD-90-11 ).
"...consideration [should] be given to revisiting the scoring of operating
leases. In principle, those leases that are perceived by all sides as
long-term federal commitments ought to be scored in a way that is
comparable to direct federal ownership. Applying the principle of full
recognition of the long-term costs to all instruments is more likely to
promote the emergence of the most cost-effective alternative" (October
1993, [40]GAO/T-AIMD-GGD-94-43 ).
^25 In assessing alternatives to address the leasing challenge, we did not
focus on USPS, which is not subject to OMB guidance related to leasing.
"...GSA's economic analysis for 55 ... leases it proposed showed that
federal construction would have been a less costly alternative and would
have saved approximately $700 million (present value) over a 30-year
period" (July 1995, [41]GAO/T-GGD-95-149 ).
"...a GSA present value cost analysis estimated that the recently leased
U.S. Patent and Trademark Office-complex currently being constructed in
Alexandria, Virginia, by a private company, cost taxpayers about $48
million more to lease over the 20-year lease period than it would have
cost to purchase it" (April 2003, [42]GAO-03-609T ).
"Federal real property is a high-risk area due to excess and deteriorating
property, reliance on costly leasing, unreliable data, and security
challenges ... Energy, Interior, GSA, State, and VA reported an increased
reliance on leasing to meet space needs" (April 2007, [43]GAO-07-349 ).
A complete listing of these reports appears at the end of this report in
the Related GAO Products section.
It is important to recognize in any discussion about the budget
scorekeeping rules that their intended purpose is rooted in sound budget
principles and transparency. For Congress to efficiently allocate
resources, it needs to know and vote on the full cost of any program it
approves at the time the funding decision is made. Hence, the scorekeeping
rules require that budget authority for the cost of purchasing an
asset--whether through construction or purchase--be recorded in the budget
when it can be controlled, that is, up front, so that decision makers have
the information needed and an incentive to take the full cost of their
decisions into account. Under current budget scorekeeping rules, the
budget records the full cost of the government's commitment in the year
the commitment is made. As a result, for operating leases, only the amount
needed to cover the first year lease payments plus cancellation costs need
to be recorded, thereby disguising the fact that over time, leasing will
cost more than ownership.^26
^26 An operating lease is a lease that meets the six criteria listed in the
scorekeeping guidelines in OMB Circular A-11, app. A. Specifically, (1)
ownership of the asset remains with the lessor during the term of the
lease and is not transferred to the government at or shortly after the end
of the lease term; (2) the lease does not contain a bargain-price purchase
option; (3) the lease term does not exceed 75 percent of the estimated
economic life of the asset; (4) the asset is a general purpose asset, it
is not for a special purpose of the government, and it is not built to the
unique specifications of the government lessee; (5) there is a private
sector market for the asset; and (6) the present value of the minimum
lease payments over the life of the lease does not exceed 90 percent of
the fair market value of the asset at the beginning of the lease term.
Scoring Can Have an Effect on Public-Private Partnerships
In addition to encouraging the use of operating leases, the budget
scorekeeping rules have a clear impact on public-private partnerships. One
type of partnership that agencies such as the Department of Veterans
Affairs and the Department of Defense have specific statutory authority to
enter into is called an enhanced use lease agreement. Such an agreement is
a lease agreement for property under an agency's control or custody that
the agency can (1) enter into with a public or private entity and (2)
receive as payment under the lease either cash or other consideration,
such as repairs of the property. According to the Congressional Budget
Office (CBO), in a public-private partnership, a business entity is
created by public and private parties for a single, specified purpose with
activities that are predetermined by the contracts and other arrangements
between the parties involved.
The scoring of H.R. 3947, the Federal Property Asset Management Reform Act
of 2002, illustrates how scoring has, and will continue to have, an impact
on the prospects for greater use of public-private partnerships. The
bill--which was not enacted--would have authorized most federal
real-property-holding agencies, including GSA, to enter into partnerships
and other business arrangements with private firms to improve the
government's real property. Agencies could have sold, leased, or conveyed
government property as part of the business arrangements and retained or
spent the proceeds without further appropriations. CBO expected that many
of the ventures that agencies would enter into would be used to finance
investment on behalf of the government. Because of the extent of the
government's control and use of the projects likely to be undertaken, CBO
concluded that spending by the ventures associated with that financing
should be treated as governmental and recorded as budget authority and
outlays. CBO reported that spending would increase by $1 billion between
2004 and 2012. CBO's report contains a full explanation of CBO's
conclusions.^27
Alternatives to the Current Budget Scorekeeping Rules Have Been Proposed
Over the nearly 20 years that we have been raising the scorekeeping issue
as a problem that needs to be addressed, several alternatives have been
discussed by, for example, the President's Commission to Study Capital
Budgeting and us. In addition to improving capital planning overall so
that the most cost-effective capital investments can be identified, other
alternatives have included scoring operating leases up front and
establishing capital acquisition funds at agencies to fund ownership.
Although these alternatives would pose various implementation challenges,
they serve to illustrate proposals that have been considered.
^27Congressional Budget Office, The Budgetary Treatment of Leases and
Public/Private Ventures (Washington, D.C., February 2003).
Scoring Long-term Leases Up Front
An alternative that could result in long-term savings for the government,
proposed in the past by us, would be to recognize that many operating
leases are used for long-term needs and should be treated on the same
basis as ownership. This would make such instruments comparable in the
budget to direct federal ownership and would foster more cost-effective
decision making by OMB and Congress. Applying the principle of full,
up-front recognition of the long-term costs to all options for satisfying
long-term space needs--whether through construction, purchase,
lease-purchase, or operating lease--is more likely to result in the
selection of the most cost-effective alternative than using the current
scoring rules. It is important to note that there would be implementation
challenges if this option were pursued. Additionally, it would be
challenging to reach consensus on what constitutes long-term space needs
that would warrant this up-front budgetary treatment.
In commenting on various options for correcting the scoring issue, CBO
reported that ending the distinction between various types of leases has
been considered in the private sector. According to CBO, the Financial
Accounting Standards Board--noting that private firms often devise leases
that barely fall within the limits for operating leases--has considered
requiring firms to capitalize all leases in their books, rather than
maintain the current distinction between capital leases and operating
leases. In the context of federal budgeting, CBO reported that
capitalizing all leases could mean scoring all leases up front on the
basis of the present value of lease payments over the lease term, without
attempting to distinguish between leases that are equivalent to
purchases--capital leases--and those that are not--operating leases.
Establishing Capital Acquisition Funds to Pursue More Ownership
The President's Commission to Study Capital Budgeting recommended in 1999
that Congress and the executive branch have one or more agencies with
capital-intensive operations establish a separate capital acquisition fund
(CAF) within their budget that would receive appropriations for the
construction and acquisition of large capital projects.^28 CAFs would use
authority to borrow from Treasury's general fund and then charge operating
units within the agency rents equal to the debt service (interest and
amortization costs) on those projects. Although the Commission's
discussion of CAFs was within the context of identifying measures short of
capital budgeting that the government could adopt, CAFs have implications
for the scoring issue because they represent a vehicle for providing
up-front funding for ownership. The main advantage of CAFs, according to
the Commission, is that they should improve agencies' planning and
budgeting. If units or divisions within agencies are charged the true
costs of their space and of other large capital items, they are likely to
make more efficient uses of those assets, according to the Commission
report. The report said that CAFs would not replace the Federal Buildings
Fund, GSA's governmentwide revolving fund. Authority to acquire buildings
through CAFs could be delegated by GSA as agencies demonstrate their
effectiveness in using this instrument. In 2005, we reported that
implementation issues could overwhelm the potential benefits of CAFs,
which could be achieved through simpler means.^29
^28 President's Commission to Study Capital Budgeting, Report of the
President's Commission to Study Capital Budgeting (Washington, D.C.,
February 1999).
Real Property Initiative Has Not Yet Addressed the Leasing Challenge
In our April 2007 report updating our designation of federal real property
as a high-risk area, we recommended that OMB, in conjunction with FRPC,
develop an action plan for how FRPC will address key problems, including
the continued reliance on costly leasing when ownership would be more
cost-effective over the long term. OMB agreed with our recommendation and
developed an action plan that included, as a priority action, "analyz[ing]
real property budget scoring issues." OMB staff added that in their view,
basic improvements, such as developing a reliable, governmentwide
inventory of space and establishing performance measures had to occur
before the administration could take on broader, complex policy issues
such as how to address the leasing challenge. As a result, the current
real property reform initiative has lacked a comprehensive analysis of
alternatives and potential solutions to the leasing challenge. Without
such an analysis, agencies' reliance on costly leasing is likely to
continue and opportunities for using other instruments, such as
public-private partnerships, may be limited. OMB staff said that efforts
to resolve the leasing challenge could benefit from the input not only of
FRPC, but also of other outside stakeholders, including Congress. At a
minimum, consensus on resolving this difficult issue would involve
analyzing current and past legislative and administration proposals that
address the budget scorekeeping issue in relation to real property,
gauging stakeholders' perspectives on what proposals are most viable, and
determining the conditions under which leasing is an acceptable
alternative even if it is not the most cost-effective option.
^29 GAO, Capital Financing: Potential Benefits of Capital Acquisition Funds
Can Be Achieved through Simpler Means, [44]GAO-05-249 (Washington, D.C.:
Apr. 8, 2005).
Conclusions
The leasing challenge--under which agencies have become overreliant on
costly operating leases to meet long-term space needs--has persisted for
many years. We have reported since the late 1980s that this problem has
cost taxpayers hundreds of millions of dollars and needs to be addressed.
Overreliance on costly leasing was, and continues to be, a major reason
why real property management is on GAO's high-risk list. Trends show
continued reliance on significant amounts of leased space. In particular,
GSA predicts that in 2008 it will lease more space than it owns--an
unprecedented situation. The predilection for leasing has been driven, in
part, by federal budget scorekeeping rules, which make operating leases an
attractive alternative to ownership. The scorekeeping rules, though rooted
in sound budget policy and intended to improve transparency, have had this
undesirable effect. Various alternatives have been proposed to remedy the
problem, but it persists, and reaching a resolution will not be easy.
Whatever change is under consideration--whether it involves scoring leases
up front like ownership or using other methods to spur ownership--will
involve making choices among competing priorities for limited federal
resources. Whether to increase funding for federal real property at the
expense of other programs and initiatives is properly a policy decision
that only Congress and the President can make. Nonetheless, with the
improvements in federal real property management made thus far and
increased commitment by OMB and Congress to address long-standing real
property problems, there is reason to be optimistic that stakeholders can
reach a consensus on how to address the leasing challenge.
Recommendation for Executive Action
The Director of the Office of Management and Budget should direct the
Deputy Director for Management, Office of Management and Budget, in
conjunction with the Federal Real Property Council and in consultation
with key stakeholders including Congress, to develop a strategy to reduce
agencies' reliance on leased space for long-term needs when ownership
would be less costly. The strategy should, at a minimum, analyze current
and past legislative and administration proposals that addressed the
budget scorekeeping issue in relation to real property, gauge
stakeholders' perspectives on what proposals are most viable, and identify
the conditions, if any, under which leasing is an acceptable alternative
even if it is not the most cost-effective option.
Agency Comments and Our Evaluation
We provided a draft of this report to OMB, GSA, Agriculture, and USPS for
review and comment. OMB generally agreed with the report and concurred
with our recommendation. OMB also provided technical clarifications, which
we incorporated, where appropriate. OMB's comments are discussed in more
detail below. OMB's letter is contained in appendix II. GSA also agreed
with the report and provided technical clarifications, which we
incorporated where appropriate. GSA's letter appears in appendix III
without the enclosure that contained the technical clarifications. USPS
and Agriculture did not provide comments on the draft report.
While generally agreeing with our report and recommendation, OMB asked us
to narrow the scope of the recommendation and identified other issues
inherent to the acquisition of leased space, including (1) leasing as a
more practical option in certain situations, (2) the validity of the
30-year net economic analysis comparing the acquisition costs of owned and
leased space, and (3) challenges associated with pursuing building
ownership. OMB asked us to narrow the scope of the recommendation to
identify instances in which agencies are relying on costly, long-term
leasing. A means of identifying such leases could logically be part of the
strategy we are recommending and seems worthwhile pursuing. However, our
report objectives did not include how best to identify costly leases, and
therefore we chose not to change our recommendation. Over the last decade,
our work has shown that GSA relies heavily on operating leases to meet new
long-term space needs and that building ownership often costs less than
operating leases, especially for long-term space needs. In these reports,
we cite examples of leases that were estimated to cost millions of dollars
more than construction over the long-term, including operating leases for
the Patent and Trademark Office in Northern Virginia and the Department of
Transportation's headquarters building and the Securities and Exchange
Commission building in Washington, D.C. In this report, we identify
examples in which the comparative cost advantage of building ownership
would result in significant financial savings over the long term,
including the FBI field office buildings in Chicago, Illinois, and Tampa,
Florida (see table 2). Also, OMB said that we carefully selected long-term
lease arrangements in our report. Our report methodology clearly indicates
that we chose GSA's regional offices in Atlanta, Georgia; Chicago,
Illinois; and Fort Worth, Texas; and USPS facility service offices in
Lawrenceville, Georgia; Bloomingdale, Illinois; and Dallas, Texas, because
these locations had a high number of larger-dollar-value leases and were
geographically diverse.
OMB said that our report recognizes 80 percent of GSA's leases are for
20,000 square feet or less. OMB also said that when there is general
purpose office space available in a competitive marketplace, leasing may
be a more viable option. Our report acknowledges that leasing is a
practical way to address issues such as a limited amount of available
federal space in a geographic area or a need for a small amount of square
footage. In addition, we cite operational requirements-- such as changes
to an agency's mission, immediate space needs, security requirements, or a
desire for flexibility--as drivers of the decision to lease rather than
own space. OMB said that the 30-year economic comparison of leasing to
ownership will almost always show that ownership is more cost-effective
than leasing, especially when including land values, and that the federal
government may not recoup the value the 30-year comparison suggests. We
believe that the 30-year net present-value analysis, which GSA has used
for decades and that measures multiyear cash flows in present-dollar terms
so the value of a dollar received today can be compared against the value
of a dollar received in the future, remains a valid measure for evaluating
long-term costs of leasing versus building ownership. Finally, OMB states
that in instances where there is a long-term need or if there is a need
for a special purpose facility not readily available in the leasing
market, that acquisition is an appropriate strategy and that agencies
should budget accordingly. Our report discusses at length GSA's and USPS's
concerns that they lack the up-front capital to pursue building ownership
for facilities. For example, GSA officials we spoke with in the field said
that construction funds are available for capital projects in their region
but these dollars tend to be designated for the construction of agency
headquarters, courthouses, and border stations and typically are not used
for federal office space, such as that needed to fulfill FBI's field
office needs.
As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from
the report date. At that time, we will send copies of this report to the
Director and Deputy Director of OMB, the Administrator of GSA, and the
Postmaster General of the United States. Additional copies will be sent to
interested congressional committees. We also will make copies available to
others upon request, and the report will be available at no charge on the
GAO Web site at [45]http://www.gao.gov .
If you have any questions about this report, please contact me at (202)
512-2834 or at [email protected]. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. GAO staff who made key contributions to this report are
listed in appendix IV.
Mark L. Goldstein
Director, Physical Infrastructure Issues
Appendix I: Objectives, Scope, and Methodology
Our objectives were to identify (1) the profile of domestically held,
federally leased space, including the overall amount and type of space
agencies lease, and discuss any related trends; (2) the factors that drive
agencies to lease space that may be more cost-effective to own; and (3)
the actions, if any, the administration has taken, and what alternative
approaches have been proposed, to address agencies' reliance on costly
leased space.
To identify the profile of domestically held, federally leased space, we
examined the Federal Real Property Profile (FRPP), the government's real
property database, and federal fiscal year 2006 leasing data and obtained
breakouts of leased building space by federal agency and predominant
usage. FRPP is maintained by the General Services Administration (GSA) on
behalf of the Federal Real Property Council, which controls access to the
data. We eliminated federal agencies from consideration that lease their
building space overseas. We identified three civilian
real-property-holding agencies that are the largest in terms of leased
building space held within the United States and U.S. territories for a
more detailed analysis and assessment of FRPP data. These agencies are
GSA, the U.S. Postal Service (USPS), and the U.S. Department of
Agriculture (Agriculture), which collectively hold 71 percent of domestic,
federally leased space. We analyzed GSA's, USPS's, and Agriculture's
fiscal year 2006 FRPP leasing data, including the data for elements such
as real property type, use, legal interest, status, reporting agency,
using organization, size, rate of utilization, value, condition index,
mission dependency, annual operating and maintenance costs, and general
location. To analyze the major trends in leased space, we were not able to
use FRPP, since fiscal year 2005 was the first year federal agencies were
required to submit information on their leased real property assets to
FRPP. Therefore, we reviewed annually archived GSA leasing data for fiscal
years 2003 through 2006, including analyses of certain aspects of the
leased portfolio such as vacancy rates in leased buildings, lease
extensions, and leases that are operating at a negative net operating
income. Because GSA leases a variety of different space types for many
government agencies, its leased portfolio provides a governmentwide
perspective on federally leased building space. Issues related to
collection techniques and availability precluded USPS and Agriculture from
providing us with an electronic copy of annually archived leasing data,
and therefore we could not include information from these agencies in our
analysis of trends under this objective. We also reviewed GSA's System for
Tracking and Administering Real Property and GSA-generated reports on real
property, including the State of the Portfolio and the Lease Portfolio
Reports. We assessed the reliability of the leasing data provided by the
Office of Management and Budget (OMB) and GSA and interviewed OMB
officials because OMB oversees the implementation of Executive Order
13327, which addresses real property management and FRPP. We determined
that these data were sufficiently reliable and valid for the purposes of
this review.
To determine the factors that drive agencies to lease building space that
may be more cost-effective to own, we focused on GSA and USPS, the two
agencies that lease the most building space. To determine the major
factors that guide these decisions, we interviewed GSA and USPS
headquarters and regional officials with authority over leasing building
space. In addition, we visited GSA regional offices and USPS facility
service offices that are either in the same metropolitan area or near to
it. We visited GSA regional offices in Atlanta, Georgia; Chicago,
Illinois; and Fort Worth, Texas; and USPS facility service offices in
Lawrenceville, Georgia; Bloomingdale, Illinois; and Dallas, Texas. We
selected these locations because they had space leased to multiple
agencies and a high number of larger-dollar-value leases and were
geographically diverse. The leases we selected were among the
larger-dollar-value leases within these locations. To determine the cost
of leasing versus the cost of new construction ownership, we selected
seven GSA and three USPS building leases. For GSA buildings, we used GSA
economic analyses we requested that compared the estimated costs of
leasing with the estimated costs of ownership, while for USPS buildings,
we reviewed analyses previously prepared by USPS officials comparing these
estimated costs. For GSA properties, we worked with budget allocation
specialists from GSA's real property division to estimate the costs of
leasing versus ownership over a 30-year period. We developed this estimate
through a net present value analysis of both leasing and purchasing using
GSA's The Automated Prospectus System (TAPS). To estimate leasing costs,
we used data from the selected leases for each of the sample buildings,
such as usable square footage, tenant alteration costs, services and
utilities, and lease terms. If this information could not be located on a
particular GSA lease, TAPS program defaults were used. Certain rental
rates, such as "step rents" that increase over a period of years, were
adjusted to present-value terms, as appropriate. To estimate the costs of
new construction ownership, we used cost data from GSA's General
Construction Cost Review Guide (for estimated construction costs),
commercial real estate data from CoStar (for estimated land costs), and
the Public Building Service's Design and Construction Professional
Services Budget Estimating Tool (for estimated design and review and
management and inspection costs). All inputs for both estimated leasing
and ownership costs were adjusted to 2005 dollars using OMB inflation and
interest rate data and certain TAPS program defaults from that year. We
selected 2005 as the base year because it was the most recent year for
which the General Construction Cost Review Guide contained updated actual
construction data, rather than estimates. After estimating the costs of
both leasing and ownership, we compared these amounts to determine which
method of financing would have greater financial savings over the long
term. Our findings from visits to, and economic analyses of, federally
leased space cannot be generalized to federally leased space nationwide.
To assess the actions, if any, the administration has taken, and what
alternative approaches have been proposed, to address agencies' reliance
on costly leased space, we reviewed previously issued GAO reports on real
property management and leasing. We also reviewed past proposals for
reforming federal leasing policy, including reports by the President's
Commission to Study Capital Budgeting and by the Congressional Budget
Office on budget scoring. We also interviewed OMB officials about efforts
to address agencies' reliance on leasing as part of ongoing reform
efforts. We conducted this performance audit from July 2006 to January
2008 in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Appendix II: Comments from the Office of Management and Budget
Executive Office Of The President:
Office Of Management And Budget:
WASHINGTON. D. C 20503:
Mr. Mark Goldstein:
Director, Physical Infrastructure:
U.S. Government Accountability Office:
440 G Street, NW:
Washington, DC 20548:
Dear Mr. Goldstein:
Thank you for the opportunity to comment on the Government
Accountability Office's (GAO's) draft report entitled "Federal Real
Property: Strategy Needed to Address Agencies Long-standing Reliance on
Costing Leasing" GAO-08-197. In general, the Office of Management and
Budget (8&4B) agrees with your assessment of the need for a strategy to
optimize agencies' use of and spending on leased space. We recommend
that GAO narrow the scope of the recommendation to more specifically
address how to identify those instances where agencies are relying on
costly leasing. As GAO recognized in its report, the Federal government
has built a strong foundation for right-sizing the government's real
property inventory since the President signed Executive Order (EO)
13327. Federal Real Property Management. Central to this foundation has
been developing the tools to better manage this inventory. Since the
President signed the EO:
1. all agencies established Asset Management addressing maintenance,
and disposition of their real property assets;
2. the Federal Real Property Council (FRPC) established a standard
taxonomy and identified 24 data elements. including four performance
measures, that are captured on all assets in the Federal portfolio;
3. all agencies, for the third consecutive year, reported the required
constructed asset level inventory and performance data to the Federal
Real Property Profile; and:
4. agencies have reliable performance information to assist them in
identifying underperforming assets suitable for investment or
disposition.
As a direct result of these accomplishments, we know what assets we
own, their location, and how they are performing. This has led to the
disposal of over $7 billion in unneeded assets since 2004. Congress
also recently introduced legislation to further reform real property
disposal by providing agencies needed authorities to expedite the
disposal, through sale or demolition, of unneeded assets.
Now that new tools for improved asset management are in place, OMB, the
FRPC, and the Congress are better prepared to address more complex
policy issues such as the leasing challenges raised in this report. Our
plan is to separate our analysis and effort in two distinct pieces.
First, we will identify opportunities to improve the management of
existing leases, including opportunities to optimize the leases the
government currently manages. Then. we will analyze prospects for
improving the acquisition of new leases.
As we perform our review. we will keep in mind a number of factors that
we believe should influence the decision as to whether the Government
should own or lease space. GAO's report, which is based on a review of
several carefully selected long term lease arrangements, suggests that
the Government is overly reliant on long-term leasing to its financial
detriment. We believe there are broader considerations in evaluating
the Federal government's approach to leasing that are not addressed in
your report. Specifically:
* As your report recognizes 80 percent of GSA leases are for 20,O00
square feet or less. In cases where the space needs are relatively
small in scale, the economic analysis more typically points to a lease
arrangement as the most practical or viable option. Therefore, for a
significant percentage of GSA's lease inventory, the leasing
alternative is a sensible option.
* A 30-year economic comparison of leasing to ownership w ill almost
always show that ownership is more cost effective than leasing due to
the residual value of appreciated land values. However, agencies' needs
are not static: they need to grow. decline and move operations to
better meet their needs. Leasing affords agencies the flexibility to
adapt to changing requirements. Such flexibility is not contemplated in
a 30-year comparison where value is derived from ownership.
* Further, productive ownership depends upon the owners' ability to
dispose of the asset when requirements change or better economic
options are available. As GAO has noted, the Federal Government faces
challenges in disposing of assets. While we are making strides in
improving the management of the owned inventory, historical experience
suggests that there can be additional costs that may not included in
the owned to leased comparison. In an ownership scenario, the Federal
Government may not ultimately recoup the value that a 30-year
comparison suggests.
* Ownership also requires periodic investment to maintain physical
infrastructure. Agencies and Congress often defer needed maintenance to
fund other needs, resulting in facilities that require greater repair'
and renovation costs than would have been needed if properly
maintained. As an alternative, leasing can offer a consistent level of
service.
* Government ownership is advantageous in cases where there is a
Government need for facilities that are not available on the leasing
market. However, if general purpose office space is available in a
competitive marketplace, leasing is typically a cost effective option.
* Finally the budget scorekeeping rules referred to in the draft report
are modeled on the Financial Accounting Standards Boards' standards for
operating and capital leases. They are designed to ensure that capital
leases and purchase options are treated the same way. The scoring rules
encourage agencies to seek the lower cost option when acquiring
space by requiring the full cost of capital leases to be scored upfront
in the same manner as purchase and construction.
We agree with GAO that there are some instances where the Government
should have pursued ownership rather than leasing an asset. However,
the assumption should not be made that the information available today
was known at the time the leasing decision was made. In instances where
there is a long term need or there is a need for a special purpose
facility that is not readily available in the leasing market, we
believe that acquisition is an appropriate strategy and that agencies
should budget accordingly. We believe GAO, along with the Executive
branch, would be well served to consider how to identify instances
where operating leases are most likely to be misused to the
Government's financial detriment.
We are continuing our work to ensure that government-wide efforts will
ultimately lead to improved asset management and the removal of Federal
real property management from the GAO High Risk list. We want to thank
GAO for the opportunity to comment on this draft report and we look
forward to our continuing work in the area of improving Federal Real
Property Asset Management.
Sincerely,
Signed by:
Danny Werfel:
Acting Controller:
Appendix III: Comments from the General Services Administration
GSA Administrator:
January 7, 2008:
The Honorable David M. Walker:
Comptroller General of the United States:
Government Accountability Office:
Washington, DC 20548:
Dear Mr. Walker:
The U.S. General Services Administration (GSA) appreciates the
opportunity to review and comment on the U.S. Government Accountability
Office's (GAO) draft report, "Federal Real Property: Strategy Needed to
Address Agencies' Long-standing Reliance on Costly Leasing," (GAO-08-
197). GAO recommends that the U.S. Office of Management and Budget
(OMB), in conjunction with the Federal Real Property Council, consult
with key stakeholders and Congress and develop a strategy to reduce
agencies' reliance on leased space for long-term needs when ownership
would be less costly.
GSA agrees with GAO's findings and recommendation, and, as appropriate,
we will work with OMB and the Federal Real Property Council to support
real property reform efforts. We have enclosed technical comments that
update and clarify statements in the draft report.
If you would like to discuss the contents of this letter further, or if
you have any additional questions or concerns, please do not hesitate
to contact me. Staff inquiries may be directed to Mr. Kevin Messner,
Associate Administrator, Office of Congressional and Intergovernmental
Affairs, at (202) 501-0563.
Cordially,
Signed by:
Lurita Doan:
Administrator:
Enclosure:
cc: Mark L. Goldstein, Director, Physical Infrastructure
Administration:
Appendix IV: GAO Contact and Staff Acknowledgments
GAO Contact
Mark Goldstein, (202) 512-2834 or [46][email protected]
Staff Acknowledgments
In addition to the contact person named above, Elizabeth Repko, Susan
Michal-Smith, David Sausville, Gary Stofko, and Adam Yu also made key
contributions to this report.
Related GAO Products
Federal Real Property: Progress Made toward Addressing Problems, but
Underlying Obstacles Continue to Hamper Reform. [47]GAO-07-349 .
Washington, D.C.: April 13, 2007.
High-Risk Series: An Update. [48]GAO-07-310 . Washington, D.C.: January
2007.
Federal Real Property: NIH Has Improved Its Leasing Process, but Needs to
Provide Congress with Information on Some Leases. [49]GAO-06-918 .
Washington, D.C.: September 8, 2006.
Federal Real Property: Reliance on Costly Leasing to Meet New Space Needs
Is an Ongoing Problem. [50]GAO-06-136T . Washington, D.C.: October 6,
2005.
Federal Real Property: Further Actions Needed to Address Long-standing and
Complex Problems. [51]GAO-05-848T . Washington, D.C.: June 22, 2005.
U.S. Postal Service: Bold Action Needed to Continue Progress on Postal
Transformation. [52]GAO-04-108T . Washington, D.C.; November 5, 2003.
Budget Issues Alternative Approaches to Finance Federal Capital.
[53]GAO-03-1011 . Washington, D.C.: August 21, 2003.
General Services Administration: Factors Affecting the Construction and
Operating Costs of Federal Buildings. [54]GAO-03-609T . Washington, D.C.:
April 2, 2003.
High-Risk Series: Federal Real Property. [55]GAO-03-122 . Washington,
D.C.: January 2003.
Budget Scoring: Budget Scoring Affects Some Lease Terms but Full Extent Is
Uncertain. [56]GAO-01-929 . Washington, D.C.: August 31, 2001.
General Services Administration: Comparison of Space Acquisition
Alternatives--Leasing to Lease-Purchase and Leasing to Construction.
[57]GAO/GGD-99-49R . Washington, D.C.: March 12, 1999.
General Services Administration Opportunities for Cost Savings in the
Public Buildings Area. [58]GAO/T-GGD-95-149 . Washington, D.C.: July 13,
1995.
Budget Issues: Budget Scorekeeping for Acquisition of Federal Buildings.
[59]GAO/T-AIMD-94-189 . Washington, D.C.: September 20, 1994.
Public Buildings Budget Scorekeeping Prompts Difficult Decisions,
[60]GAO/T-AIMD-GGD-94-43 . Washington, D.C.: October 28, 1993.
Federal Office Space Increased Ownership Would Result in Significant
Savings. [61]GAO/GGD-90-11 . Washington, D.C.: December 22, 1989.
(543177)
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Highlights of [69]GAO-08-197 , a report to the Subcommittee on Federal
Financial Management, Government Information, Federal Services, and
International Security, Committee on Homeland Security and Governmental
Affairs, U.S. Senate
January 2008
FEDERAL REAL PROPERTY
Strategy Needed to Address Agencies' Long-standing Reliance on Costly
Leasing
In January 2003, GAO designated federal real property as a high-risk area,
citing the government's overreliance on costly, long-term leasing as one
of the major reasons. GAO's work over the years has shown that building
ownership often costs less than operating leases, especially for long-term
space needs. GAO was asked to identify (1) the profile of domestically
held, federally leased space including the overall amount and type of
space agencies lease, and any related trends; (2) the factors that drive
agencies to lease space that may be more cost-effective to own; and (3)
any actions taken by the administration and alternative approaches
proposed to address this issue. GAO reviewed fiscal year 2006 Federal Real
Property Profile (FRPP) leasing data and relevant documents and
interviewed officials from the General Services Administration (GSA), the
Office of Management and Budget (OMB), and the U.S. Postal Service (USPS).
GAO also reviewed 10 building leases that were among those with the
largest dollar value in 3 locations GAO visited.
[70]What GAO Recommends
OMB, in conjunction with the Federal Real Property Council (established by
the administration to help support reform efforts in real property), and
in consultation with key stakeholders, should develop a strategy to reduce
agencies' reliance on leased space for long-term needs when ownership
would be less costly. OMB generally agreed with the report and GAO's
recommendation.
Federal agencies rely extensively on leasing, occupying about 398 million
square feet of leased building space domestically in fiscal year 2006,
according to FRPP data. GSA, USPS, and the U.S. Department of Agriculture
lease about 71 percent of this space, mostly for offices, with the
military services leasing another 17 percent. GSA is increasing its use of
leased space and predicts that in 2008 it will, for the first time, lease
more space than it owns.
In the 10 GSA and USPS leases GAO examined, decisions to lease space that
would be more cost-effective to own were driven by the limited
availability of capital for building ownership and other considerations,
such as operational efficiency and security. For example, for four of the
seven GSA leases GAO analyzed, leasing was more costly over time than
construction--by an estimated $83.3 million over 30 years. Although
ownership through construction is often the least expensive option,
federal budget scorekeeping rules require the full cost of this option to
be recorded up-front in the budget, whereas only the annual lease payment
plus cancellation costs need to be recorded for operating leases, making
them "look cheaper" in any year even though they generally are more costly
over time. USPS is not subject to the scorekeeping rules and cited
operational efficiency and limited capital as its main reasons for
leasing.
While the administration has made progress in addressing long-standing
real property problems, efforts to address the leasing challenge have been
limited. GAO has raised this issue for almost 20 years. Several
alternative approaches have been discussed by various stakeholders,
including scoring operating leases the same as ownership, but none have
been implemented. The current real property reform initiative, however,
presents an opportunity to address the leasing challenge.
GSA Operating Leases for the Federal Bureau of Investigation (FBI) Field
Offices in Chicago, Illinois, and Tampa, Florida
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34. http://www.gao.gov/cgi-bin/getrpt?GAO-07-349
35. http://www.gao.gov/cgi-bin/getrpt?GAO-07-349
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48. http://www.gao.gov/cgi-bin/getrpt?GAO-07-310
49. http://www.gao.gov/cgi-bin/getrpt?GAO-06-918
50. http://www.gao.gov/cgi-bin/getrpt?GAO-06-136T
51. http://www.gao.gov/cgi-bin/getrpt?GAO-05-848T
52. http://www.gao.gov/cgi-bin/getrpt?GAO-04-108T
53. http://www.gao.gov/cgi-bin/getrpt?GAO-03-1011
54. http://www.gao.gov/cgi-bin/getrpt?GAO-03-609T
55. http://www.gao.gov/cgi-bin/getrpt?GAO-03-122
56. http://www.gao.gov/cgi-bin/getrpt?GAO-01-929
57. http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-99-49R
58. http://www.gao.gov/cgi-bin/getrpt?GAO/T-GGD-95-149
59. http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-94-189
60. http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-GGD-94-43
61. http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-90-11
62. http://www.gao.gov/
63. http://www.gao.gov/
64. http://www.gao.gov/fraudnet/fraudnet.htm
65. mailto:[email protected]
66. mailto:[email protected]
67. mailto:[email protected]
68. http://www.gao.gov/cgi-bin/getrpt?GAO-08-197
69. http://www.gao.gov/cgi-bin/getrpt?GAO-08-197
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