    Federal Real Property: Progress Made in Reducing Unneeded
    Property, but VA Needs Better Information to Make Further
    Reductions (10-SEP-08, GAO-08-939).

    The Department of Veterans Affairs (VA) operates one of the
    largest healthcare-related real estate portfolios in the nation.
    However, many VA facilities are older and no longer well suited
    to providing care, leaving VA with millions of square feet of
    property it does not use to capacity (underutilized) or at all
    (vacant). VA has various legal authorities that allow it to
    dispose of such property. GAO was asked to identify (1) VA's
    progress in reducing underutilized or vacant property and how
    much VA spends operating the underutilized or vacant property it
    retains; (2) VA's use of its various legal authorities to reduce
    underutilized and vacant property and the extent to which VA
    tracks how these authorities contribute to reductions; and (3)
    the challenges VA faces in minimizing underutilized and vacant
    space and the strategies VA is using to address these challenges.
    To accomplish these objectives, GAO reviewed VA property data,
    and visited eight VA locations based on space utilization, use of
    authorities, and other factors. GAO also interviewed officials
    from various VA offices and stakeholders.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-08-939
        ACCNO:   A84109
      TITLE:     Federal Real Property: Progress Made in Reducing Unneeded
    Property, but VA Needs Better Information to Make Further
    Reductions
         DATE:   09/10/2008
      SUBJECT:   Administrative costs
    	     Comparative analysis
    	     Cost analysis
    	     Federal facilities
    	     Federal property
    	     Federal property management
    	     Health care facilities
    	     Health centers
    	     Land leases
    	     Land management
    	     Land use agreements
    	     Leases
    	     Maintenance costs
    	     Program management
    	     Property
    	     Property disposal
    	     Real estate leases
    	     Real property
    	     Strategic planning
    	     Veterans
    	     Veterans benefits
    	     Program goals or objectives

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    GAO-08-939

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    Report to the Ranking Member, Committee on Veterans' Affairs, House of
    Representatives:

    United States Government Accountability Office:
    GAO:

    September 2008:

    Federal Real Property:

    Progress Made in Reducing Unneeded Property, but VA Needs Better
    Information to Make Further Reductions:

    GAO-08-939:

    GAO Highlights:

    Highlights of GAO-08-939, a report to the Ranking Member, Committee on
    Veterans' Affairs, House of Representatives.

    Why GAO Did This Study:

    The Department of Veterans Affairs (VA) operates one of the largest
    health care-related real estate portfolios in the nation. However, many
    VA facilities are older and no longer well suited to providing care,
    leaving VA with millions of square feet of property it does not use to
    capacity (underutilized) or at all (vacant). VA has various legal
    authorities that allow it to dispose of such property. GAO was asked to
    identify (1) VA�s progress in reducing underutilized or vacant property
    and how much VA spends operating the underutilized or vacant property
    it retains; (2) VA�s use of its various legal authorities to reduce
    underutilized and vacant property and the extent to which VA tracks how
    these authorities contribute to reductions; and (3) the challenges VA
    faces in minimizing underutilized and vacant space and the strategies
    VA is using to address these challenges. To accomplish these
    objectives, GAO reviewed VA property data, and visited eight VA
    locations based on space utilization, use of authorities, and other
    factors. GAO also interviewed officials from various VA offices and
    stakeholders.

    What GAO Found:

    VA has made significant progress in cutting underutilized space in its
    buildings from 15.4 million square feet in fiscal year 2005 to 5.6
    million square feet in fiscal year 2007, and although the number of
    vacant buildings decreased, the amount of vacant space remained
    relatively unchanged at approximately 7.5 million square feet. GAO
    estimated VA spent $175 million in fiscal year 2007 operating
    underutilized and vacant space at its medical facilities, where 98
    percent of such space exists. GAO developed this estimate because VA
    does not track the cost of operating underutilized and vacant building
    space at the building level and has not developed a reliable method for
    doing so.

    VA�s use of various legal authorities such as enhanced-use leases and
    sharing agreements likely contributed to the overall reduction of
    underutilized space, but VA does not track the effect of these
    authorities. Their use provides VA with revenue and services. Revenue
    comes from such diverse sources as rent for space and money paid for
    using buildings as film sets, among other things. For example, at Fort
    Howard, Maryland, in 2006, VA entered into a new enhanced-use lease
    with a developer to build a retirement community where veterans are
    given priority for occupancy. However, the lack of building-level
    information about the extent to which these authorities reduce
    underutilized or vacant space or provide benefits such as revenue or
    services means that VA cannot track, monitor, or evaluate their impact
    or determine which authorities have the greatest effect from year to
    year.

    VA faces several challenges to minimizing underutilized and vacant
    space and is using strategies at some facilities to mitigate them. One
    challenge is location: VA officials reported difficulty finding
    entities interested in using underutilized or vacant property in areas
    with low property values. Another challenge is cost: many of VA�s
    underutilized or vacant buildings are in poor condition and require an
    estimated $3 billion in repairs before they can be fully utilized.
    Finally, competing stakeholder interests and legal and budgetary
    limitations can further impede VA�s efforts. To mitigate these
    challenges, individual VA locations have used strategies such as
    improving communication with veterans groups and other external
    stakeholders, obtaining support from internal stakeholders, and
    entering into public-private partnerships.

    Figure: Photographs: Examples of Vacant Buildings at VA Medical
    Facilities in Marion, Indiana and Dayton, Ohio:

    [See PDF for image]

    Source: GAO.

    [End of figure]

    What GAO Recommends:

    GAO�s recommendations to VA include (1) developing an annual cost
    estimate of spending on underutilized and vacant property and (2)
    collecting and maintaining building-level data by fiscal year. VA
    concurred with the first recommendation but not the second, believing
    its current analysis is adequate, which GAO continues to question.

    To view the full product, including the scope and methodology, click on
    [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-939]. For more
    information, contact Mark Goldstein at (202) 512-2834 or
    goldsteinm@gao.gov.

    [End of section]

    Contents:

    Letter:

    Results in Brief:

    Background:

    VA Reduced Underutilized Space by Nearly Two-thirds, but Vacant Space
    Remained Relatively Unchanged, and the Cost of Operating and
    Maintaining These Types of Space Is Substantial:

    VA Does Not Track the Extent to Which Various Authorities Contribute to
    the Overall Reduction in Underutilized Property:

    Ongoing Challenges Impede VA's Efforts to Minimize and Reduce
    Underutilized and Vacant Property, but Some Locations Have Taken Steps
    to Address These Challenges:

    Conclusions:

    Recommendations for Executive Action:

    Agency Comments and Our Evaluation:

    Appendix I: Objectives, Scope, and Methodology:

    Appendix II: Independent Cost Estimate Methodology:

    Appendix III: Comments from the Department of Veterans Affairs:

    Appendix IV: GAO Contact and Staff Acknowledgments:

    Tables:

    Table 1: Major Types of Authorities Available to VA:

    Table 2: VA's Underutilized Square Feet and Number of Buildings with
    Underutilized Square Feet, Fiscal Years 2005-2007:

    Table 3: VA's Vacant Square Feet and Number of Vacant Buildings, Fiscal
    Years 2005-2007:

    Table 4: Comparison of Cost Estimating Best Practices and VA's Current
    Approach:

    Table 5: Number of VA Buildings Disposed, by Method and Fiscal Year:

    Table 6: Summary of VA's Implementation of Best Practices for Cost
    Estimating in Its Pricing Guide:

    Table 7: 2007 Operations Cost per Square Foot:

    Table 8: 2007 Operations Cost State-level Locality Indices:

    Table 9: 2007 VA Facilities Square Feet of Underutilized and Vacant
    Space:

    Table 10: Percentile Rankings for 2007 Total Costs:

    Figures:

    Figure 1: Map of VA's Healthcare Networks:

    Figure 2: Underutilized and Vacant Square Feet by Usage Type, Fiscal
    Year 2007:

    Figure 3: Age of VA's Buildings with Utilized, Underutilized, and
    Vacant Space, Fiscal Year 2007:

    Figure 4: Old Quarters Now Used to Provide Homeless Housing at
    Milwaukee Medical Center:

    Figure 5: Filming Sites at the Greater Los Angeles Healthcare System:

    Figure 6: Energy Center Located at North Chicago Medical Center:

    Figure 7: Vacant Building in Marion, Indiana, Where Location Is a
    Challenge:

    Figure 8: Vacant Buildings Difficult to Convert to Other Uses:

    Figure 9: Deteriorating Vacant Buildings That Are Not Being Used by VA:

    Figure 10: Vacant Buildings on the National Register of Historic
    Places:

    Figure 11: Cumulative Probability Distribution of Total 2007 Costs:

    Abbreviations:

    EUL: enhanced-use lease:

    GSA: General Services Administration:

    McKinney-Vento Act: Stewart B. McKinney Homeless Assistance Act:

    NCA: National Cemetery Administration:

    OMB: Office of Management and Budget:

    VA: Department of Veterans Affairs:

    VBA: Veterans Benefits Administration:

    VHA: Veterans Health Administration:

    [End of section]

    United States Government Accountability Office:
    Washington, DC 20548:

    September 10, 2008:

    The Honorable Steve Buyer:
    Ranking Member Committee on Veterans' Affairs:
    House of Representatives:

    Dear Mr. Buyer:

    With more than 32,000 acres of land and over 6,200 buildings on
    approximately 300 sites, the Department of Veterans Affairs (VA) is
    among the largest federal property-holding agencies and the operator of
    one of the largest healthcare-related real estate portfolios in the
    nation. However, many of VA's facilities were built more than 50 years
    ago and are no longer well suited to providing care in the current VA
    system. As a result, VA has millions of square feet of property that it
    does not use to capacity (underutilized) or at all (vacant) because of
    age, condition, location, or other factors. Operating and maintaining
    unneeded property requires VA to spend appropriations that could
    otherwise be used to provide direct medical care or other services. For
    all federal agencies, including VA, we have identified real property
    management as a high-risk area due to long-standing problems, including
    underutilized and vacant building space and unneeded land.[Footnote 1]

    Since 1999, VA has placed increased emphasis on reducing underutilized
    and vacant property, including buildings and land. For example, the
    agency initiated a process known as the Capital Asset Realignment for
    Enhanced Services, a comprehensive, long-range assessment of its
    healthcare system's capital asset requirements, to address its obsolete
    infrastructure. VA also has various legal authorities that provide
    options to help reduce its underutilized and vacant property. For
    instance, VA has authority to enter into a particular type of lease,
    called an enhanced-use lease (EUL), which allows the agency to enter
    into long-term agreements with public and private entities for the use
    of VA property, resulting in cash or in-kind consideration for VA.
    Additionally, the Veterans Health Administration (VHA) has authority to
    enter into sharing agreements with entities to provide the use of VHA
    space for the benefit of veterans or nonveterans in exchange for
    payment or services.

    To provide you with information on VA's progress in reducing
    underutilized and vacant property and challenges to VA's efforts, this
    report addresses the following questions: (1) To what extent has VA
    reduced underutilized or vacant property, and how much does it spend
    maintaining the underutilized or vacant property it retains? (2) How
    has VA used its authorities to reduce underutilized and vacant property
    and to what extent does it track how these authorities contribute to
    reductions? (3) What, if any, challenges does VA face in minimizing
    underutilized and vacant property, using EULs and other agreements, and
    what steps is VA taking to address these challenges?

    To identify changes in the amount of underutilized and vacant property,
    we analyzed property data from two VA databases: the Capital Asset
    Inventory database for building-level data from fiscal years 2006 and
    2007, and the Capital Asset Management System for station-level
    [Footnote 2]data from fiscal years 2005 through 2007.[Footnote 3] The
    earliest year for which VA property data were available was fiscal year
    2005 for station-level data and fiscal year 2006 for building-level
    data. We took steps to assess the reliability of the data used in this
    report by interviewing agency officials knowledgeable about the data,
    reviewing systems documentation, performing electronic testing to
    identify obvious errors in accuracy and completeness, and corroborating
    data we received with other sources. We determined that the data we
    used were sufficiently reliable for our purposes. To estimate the cost
    of operating and maintaining VA's underutilized and vacant property, we
    conducted an independent cost estimate because VA did not provide its
    own estimate for such operating costs at the time of our work (further
    information is contained in app. II). To determine the extent to which
    VA enters into agreements to reduce underutilized and vacant property,
    we collected and analyzed data from the Capital Asset Management System
    on the number of agreements VA entered into--such as EULs, sharing
    agreements, and outleases--for fiscal years 2005 through 2007. In
    addition, we visited and conducted interviews at locations where these
    agreements were entered into to understand the benefits VA has received
    from them and their impact on property management. Finally, to identify
    the challenges VA faces when minimizing its underutilized and vacant
    property, we spoke to VA headquarters officials to obtain their views
    on these challenges and any improvements that could help VA better
    utilize its property. We visited locations where VA encountered
    challenges minimizing underutilized and vacant property at its
    facilities and identified strategies for mitigating these challenges.
    We also spoke with stakeholders, such as veterans service organizations
    and lessees, interested in VA's decisions about property. We conducted
    site visits at eight VA medical facilities including Dayton, Ohio; Fort
    Howard, Maryland; Los Angeles, California; Marion, Indiana; Milwaukee,
    Wisconsin; North Chicago, Illinois; Perry Point, Maryland; and North
    Hills (Sepulveda), California. We selected this nonprobability sample
    of sites to obtain a range of examples of VA's experiences with various
    real property authorities; the amount of, or changes in, underutilized
    and vacant property; and geographic dispersion. We also toured a
    Veterans Benefits Administration (VBA) facility in Milwaukee,
    Wisconsin, and a national cemetery in Alexandria, Virginia. While we
    attempted to select varied locations, our sample cannot be
    statistically projected to VA as a whole.

    We conducted this performance audit from July 2007 through September
    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 I
    provides more detail on our objectives, scope, and methodology.

    Results in Brief:

    From fiscal year 2005 through 2007, VA made significant progress in
    reducing underutilized space (space not used to full capacity) in its
    buildings from 15.4 million square feet to 5.6 million square feet.
    Although the number of vacant buildings decreased during this period,
    the amount of vacant space remained relatively unchanged, and the total
    cost of maintaining underutilized and vacant space is substantial. The
    5.6 million square feet of underutilized space accounted for less than
    4 percent of VA's total square feet in fiscal year 2007. Vacant space,
    which totaled approximately 7.3 million square feet in fiscal year
    2007, accounted for 5 percent of VA's total square feet in all 3 fiscal
    years. We estimate that VA spent $175 million operating and maintaining
    underutilized and vacant space at its medical facilities in fiscal year
    2007; 98 percent of underutilized and vacant space were at these
    facilities. We developed this estimate because VA does not track the
    cost of operating and maintaining underutilized and vacant VA space at
    the building level and has not developed a reliable method for
    estimating these costs. Without a reliable cost estimate on operating
    and maintaining vacant and underutilized property, VA cannot account
    for the amount it spends each year on space that provides little or no
    benefit to veterans and taxpayers, some of which could be used to
    provide healthcare or other services. We are recommending that VA
    develop an annual cost estimate for how much it spends on underutilized
    and vacant property and that such estimates be factored into its
    portfolio property practices.

    While VA's use of various legal authorities, such as EULs and sharing
    agreements, likely contributed to VA's overall reduction of
    underutilized space since fiscal year 2005, VA does not track the
    overall effect of the uses of these authorities on space reductions. VA
    has used its authorities to enter into various types of agreements to
    reduce underutilized space, but it does not uniformly track
    information, such as the amount of square footage reduced, that would
    help gauge the impact of such authorities at the building level. VA
    officials we spoke with during the course of the audit acknowledge that
    the ability to track this type of information at the building level is
    desirable. The lack of such information precludes VA from knowing what
    effect these authorities are having on reducing underutilized or vacant
    space or knowing which types of authorities have the greatest effect.
    The use of these authorities, which have remained relatively constant
    in number at around 475 since fiscal year 2005, generates revenue and
    provides services for veterans, such as homeless housing, drug
    rehabilitation, and childcare. In Chicago, for example, VA leased
    vacant land in 2005 to a local hospital in exchange for $28 million; VA
    then used the funds to augment healthcare services for veterans at
    other locations in the Chicago area. As with information on reducing
    underutilized and vacant property, VA does not formally track and
    evaluate information related to such benefits at the building level,
    again leaving itself unable to determine what effect the authorities
    are having. We are recommending that VA track, monitor, and evaluate
    square footage reductions and financial and nonfinancial benefits
    resulting from new agreements at the building level by fiscal year in
    order to provide itself a better understanding of the utility of these
    authorities and the overall effect they are having on underutilized and
    vacant property from year to year.

    VA faces several ongoing challenges--some of which include building
    location, high building repair costs, and competing stakeholder
    interests--to reducing underutilized and vacant property, but is using
    several strategies in some locations to mitigate these challenges.
    Officials reported difficulty finding entities interested in using
    their underutilized or vacant property located in areas with low
    property values. In addition, many of VA's vacant or underutilized
    buildings are in poor condition and require costly repairs and
    renovations before they can be utilized fully by VA or others. Fifty-
    six percent of the buildings that VA determined were in "poor" or
    "critical" condition at the end of fiscal year 2007 were underutilized
    or vacant properties; VA estimated the repair costs for these
    properties to be approximately $3 billion. Moreover, 66 percent of VA's
    underutilized and vacant buildings are historic properties or eligible
    for historic designation, therefore requiring more effort for disposal.
    Disposal options, such as demolition, can be an expensive alternative,
    often because of required remediation for asbestos and other
    environmental problems. VA also cited competing stakeholder interests,
    such as communities or veteran groups that want to limit development in
    their community, as barriers to disposing of underutilized or vacant
    property. For example, in some locations such as West Los Angeles and
    Milwaukee, veterans' groups have opposed arrangements that did not
    result in building uses that provide benefits exclusively for veterans.
    Finally, legal restrictions--such as statutory limits on the length of
    certain authorities--and administrative and budgetary disincentives
    associated with some of VA's available authorities can further affect
    VA's ability to enter into agreements. To address such challenges,
    individual VA locations have used various strategies, including
    communicating with external stakeholders, obtaining support from
    internal stakeholders, and entering into public-private partnerships.
    Federal agencies have other tools available for the disposal of
    unneeded federal properties, including the public benefits conveyance
    program administered by the General Services Administration (GSA). This
    program allows agencies to convey surplus properties to state
    governments, local governments, or nonprofit organizations for public
    uses, such as homeless centers, educational facilities, and public
    parks.

    We provided a draft of this report to VA for review and comment. In
    written comments, VA concurred with two of our three recommendations.
    Specifically, it concurred with our two recommendations that VA develop
    an annual cost estimate of spending on VA's underutilized and vacant
    property and track, monitor, and evaluate square footage reductions and
    financial and nonfinancial benefits when recording new agreements.
    However, VA did not concur with our recommendation that the agency
    collect and maintain building-level data by fiscal year in order to
    correlate characteristics associated with underutilized and vacant
    buildings, which may help to identify unneeded assets. VA stated that
    it collects and analyzes a significant amount of data at the station
    and building level, that it is in compliance with reporting
    requirements established at the Federal Real Property Council, and that
    it uses performance measures to identify unneeded assets that may be
    candidates for disposal. Although we agree that VA collects a
    significant amount of data at the station and building level, we do not
    agree that this information is sufficient to correlate characteristics
    with VA's underutilized and vacant buildings and therefore believe our
    recommendation remains valid. In addition, VA's written comments
    highlighted five areas of disagreement with our report, which we
    address on p. 43 of this report. First, VA said that our report double-
    counted vacant space. In response to this comment, we subtracted the
    double-counted space and we now report that VA had 5.6 million square
    feet of underutilized building space in fiscal year 2007. Second, VA
    said that we overstated unit costs for operations and maintenance of
    underutilized space. We revised this estimate after learning that our
    original estimate had double-counted the costs for vacant space. Third,
    VA said it does have valid cost information from which to make sound
    and prudent decisions and provided examples to support its position. We
    acknowledge that VA maintains certain information important for such
    decision making but believe it needs to maintain more comprehensive
    building-level information by fiscal year in order to determine the
    operations and maintenance costs of underutilized space. Fourth, VA
    stated that our report did not acknowledge VA's efforts to designate
    properties for disposal based on mission dependency, utilization, and
    cost. While we acknowledge VA has taken several steps such as using
    performance measures to identify assets that may be candidates for
    disposal, VA has not estimated the costs of many of the disposals on
    its list, the disposals have not been funded, and the agency's disposal
    plans are not prioritized. Finally, VA said that it does track revenue
    generated, square footage reductions, and services received through
    agreements; however, this is not accomplished systematically. While our
    report generally reflects these facts, we added some additional
    information to the report to clarify that VA does track some
    information on agreements, and VA concurred with our related
    recommendation to track, monitor, and evaluate square footage
    reductions and financial and nonfinancial benefits when recording new
    agreements, as of fiscal year 2008, as noted earlier. VA also provided
    technical comments, which we incorporated, where appropriate.

    Background:

    VA is comprised of three administrations: VHA, VBA, and the National
    Cemetery Administration (NCA). Additionally, seven staff offices and 12
    staff organizations[Footnote 4] provide specific assistance to the
    Secretary of VA. Each administration has a network[Footnote 5] of
    regional facilities, which provides diverse program services to
    veterans and their families including, among others, healthcare-related
    services.

    VHA operates the majority of VA's capital assets, and is primarily
    responsible for VA's healthcare delivery to the veterans enrolled for
    VA healthcare services. In 2007, VA served 5.6 million patients. In
    addition, VHA operates the nation's largest integrated healthcare
    system which includes 155 hospitals, 881 outpatient clinics, 135
    nursing homes, 46 residential rehabilitation treatment programs, and
    207 readjustment counseling centers totaling a combined 144.6 million
    square feet. Within VHA, the management of facilities is decentralized
    to 21 networks (see fig. 1).

    Figure 1: Map of VA's Healthcare Networks:

    [See PDF for image]

    This figure is a map of the United States depicting the following VA
    Healthcare Networks:

    l. New England:
    2. Upstate New York;
    3. New York and New Jersey;
    4. Stars and Stripes;
    5. Capitol;
    6. Mid-Atlantic;
    7. Atlanta;
    8. Sunshine;
    9. Midsouth;
    10. Ohio;
    11. Partnership;
    12. Great Lakes;
    15. Heartland;
    16. South Central;
    17. Heart of Texas;
    18. Southwest;
    19. Rocky Mountain;
    20. Northwest;
    21. Sierra Pacific;
    22. Desert Pacific;
    23. Midwest.

    Sources: U.S. Department of Veterans Affairs; MapArt (map); and GAO.

    Note: In 2002, networks 13 and 14 were merged to create network 23.

    [End of figure]

    VBA is responsible for administering the VA's programs that provide
    financial and other forms of assistance to veterans, their dependents,
    and survivors. These programs include veterans' compensation, veterans'
    pension, survivors' benefits, rehabilitation and employment assistance,
    and education assistance. VBA has 57 regional offices and operates and
    manages 4.3 million square feet of property.

    NCA is responsible for providing burial space for veterans and their
    eligible family members, maintaining national cemeteries, and
    administering grants for establishing or expanding state veterans'
    cemeteries. NCA operates and manages 972,000 square feet of building
    space and 17,000 acres at 125 national cemeteries and 33 soldiers' lots
    in the United States and its territories.

    Since the mid 1990s, VA's healthcare system has undergone a substantial
    transformation, shifting from predominately hospital-based inpatient
    care to primary reliance on outpatient care, which has changed its
    requirements for facilities to treat veterans. VA has taken steps to
    manage its underutilized and vacant property as a result of this
    transformation. For example, in 2007 we reported that VA had
    established 3-year timelines for meeting strategic goals identified in
    its asset management plans and had provided evidence that it was (1)
    implementing these plans; (2) using real property inventory information
    and performance measures in decision making; and (3) managing its real
    property in accordance with its strategic plan, asset management plan,
    and performance measures.[Footnote 6]To monitor progress in meeting its
    strategic goals, VA's portfolio goals include decreasing underutilized
    space as a key performance measure. We also previously reported that VA
    had expanded its sharing agreements to include joint ventures with the
    Department of Defense to construct or share medical facilities.
    Congress and the administration have encouraged VA to look for more
    opportunities for joint ventures as a means of avoiding costs by
    maximizing available resources to build a new facility or to jointly
    use a facility.[Footnote 7]

    VA has a variety of legal authorities available, such as EULs and
    sharing agreements, and others, to help it manage real property (see
    table 1 for types of available authorities).

    Table 1: Major Types of Authorities Available to VA:

    Authority: Enhanced-use leasing (EUL); 38 U.S.C. �� 8161-8169;
    Definition: VA leases underutilized or vacant property to a public or
    private entity for up to 75 years if the agreement enhances the use of
    the property or results in an improvement of services to veterans in
    the network in which the property is located. The EUL shall be for fair
    consideration, and lease payments may be monetary or be made for in-
    kind consideration, such as construction, repair, or remodeling of
    department facilities; providing office, storage, or other usable
    space; or for services, programs, or facilities that enhance services
    to veterans;
    Proceeds: Proceeds generated from the EUL are used to pay for expenses
    incurred by VA in connection with the EUL and can be used for any
    expense incurred in the development of future EULs. Any remaining funds
    are to be deposited in the VA Medical Care Collections Fund. At the
    discretion of the VA Secretary, proceeds also may be deposited into
    construction major project and construction minor project accounts to
    be used for construction, alterations, and improvements of any medical
    facility.

    Authority: Sharing agreements; 38 U.S.C. �� 8151-8153;
    Definition: VA may enter into sharing agreements to provide the use of
    VHA space (including parking, recreational facilities, and vacant land)
    for the benefit of veterans or nonveterans in exchange for payment or
    services if VA's resources would not be used to their maximum effective
    capacity and would not adversely affect the care of veterans. Sharing
    agreements do not convey an interest in real property and can be
    entered into for up to 20 years, with the initial term not to exceed 5
    years;
    Proceeds: Proceeds generated from sharing agreements are to be credited
    to the applicable department medical appropriation of the facility that
    furnished the space.

    Authority: Outlease; 38 U.S.C. � 8122; 38 U.S.C. � 2412;
    Definition: VA's outlease-related authorities include the following:
    Outlease: VA may lease real property to public or private interests
    outside of VA for up to 3 years (10 years for NCA property). Lease
    payments may be made for maintenance, protection, or restoration of the
    property as part of the consideration of the lease; License: Gives a
    nonfederal party permission to enter upon and do a specific act or
    series of acts upon the land without possessing or acquiring any estate
    therein. A license can be revoked at any time; Permit: Gives another
    federal agency permission to enter upon and do a specific act or series
    of acts upon the land without possessing or acquiring any estate
    therein. The permit can be revoked at any time;
    Proceeds: Proceeds generated from outleases of VHA space, minus
    expenses for maintenance, operation, and repair of buildings leased for
    building quarters, are deposited into the Department of the Treasury as
    miscellaneous receipts. Proceeds generated from outleases of NCA
    property are to be deposited into the NCA Facilities Operation Fund and
    are available for costs incurred by NCA for operations and maintenance
    of NCA property. Proceeds generated from licenses and permits are
    deposited into the Department of the Treasury.

    Source: GAO.

    [End of table]

    When disposing of unneeded property, VA must comply with numerous laws
    and regulations. For example, the Stewart B. McKinney Homeless
    Assistance Act (McKinney-Vento Act), as amended, provides that property
    identified by agencies as unnecessary for mission requirements must
    first be made available to assist the homeless.[Footnote 8] In
    addition, the National Historic Preservation Act, as amended, requires
    agencies to manage historic properties under their control and
    jurisdiction and to consider the effects of their actions on historic
    preservation.[Footnote 9]

    VA Reduced Underutilized Space by Nearly Two-thirds, but Vacant Space
    Remained Relatively Unchanged, and the Cost of Operating and
    Maintaining These Types of Space Is Substantial:

    VA has made significant progress reducing underutilized space in its
    buildings by nearly two-thirds from fiscal year 2005 through 2007.
    However, vacant space remained relatively unchanged, although the
    number of vacant buildings decreased. The total cost of operating and
    maintaining underutilized and vacant space is substantial. Nearly all
    underutilized space and vacant space was at VHA facilities. VA does not
    track operations and maintenance costs on a building-by-building basis
    and therefore does not have a reliable cost estimate for what it spends
    on underutilized and vacant space. We estimate that VA spent $175
    million in fiscal year 2007 operating and maintaining underutilized and
    vacant space at VHA facilities. Furthermore, because VA does not
    maintain building-level data, we were unable to determine trends
    related to the reductions in underutilized space at the building level
    during fiscal years 2005 through 2007. The absence of building-level
    data prior to fiscal year 2006 prevented VA from running certain trend
    analyses, including the correlations, if any, between utilization and
    building location, condition, and age--information that can be
    beneficial in identifying assets for disposal.

    VA Reduced Its Underutilized Space by Nearly Two-thirds since Fiscal
    Year 2005:

    VA reduced underutilized space in its buildings by approximately 64
    percent from 15.4 million square feet in fiscal year 2005 to 5.6
    million square feet in fiscal year 2007.[Footnote 10] Further
    demonstrating VA's progress, underutilized space accounted for
    approximately 10 percent of VA's total gross square feet in fiscal year
    2005; by fiscal year 2007 it accounted for less than 4 percent. Ninety-
    eight percent of VA's underutilized space is at facilities operated by
    VHA.[Footnote 11]

    Table 2: VA's Underutilized Square Feet and Number of Buildings with
    Underutilized Square Feet, Fiscal Years 2005-2007:

    Fiscal year: 2005;
    Underutilized square feet: 15,374,292;
    Underutilized buildings: Not available.

    Fiscal year: 2006;
    Underutilized square feet: 9,795,006;
    Underutilized buildings: 2,513.

    Fiscal year: 2007;
    Underutilized square feet: 5,591,257;
    Underutilized buildings: 2,381.

    Source: GAO analysis of data provided by VA.

    [End of table]

    While we were able to identify changes in underutilized space at the
    station level,[Footnote 12] we were unable to determine trends relating
    to the reductions in underutilized space at the building level during
    fiscal years 2005 through 2007.[Footnote 13] The absence of building-
    level data prior to fiscal year 2006 prevented VA from running certain
    trend analyses, including the correlations, if any, between utilization
    and building location, condition, and age. VA does not analyze such
    correlations, according to a VA official, because it does not have the
    staff or time. However, such analyses at the building level can be very
    beneficial when identifying assets for disposal. According to the
    Office of Management and Budget (OMB), prioritizing assets based on
    their importance to mission is one of the most significant criteria
    used in both focusing reinvestment funds and finding candidates for
    disposition. As OMB noted in its Capital Programming Guide,[Footnote
    14] correlating an asset's importance to an agency's mission and
    another characteristic, such as an asset's condition, can help agencies
    identify which assets are acceptable and unacceptable. Because VA uses
    utilization to determine an asset's importance to its mission, it is
    critical to know how this information corresponds to other
    characteristics that may help identify unneeded assets.

    Our analysis of VA's fiscal year 2007 data indicated that the greatest
    number of buildings with underutilized space were in the categories of
    "service," "office," and "warehouse." Together these three categories
    accounted for 50 percent of the buildings with underutilized space.
    These same three categories also had the greatest percentage of
    underutilized buildings. Figure 2 depicts the amount of underutilized
    square feet by building usage type.

    Figure 2: Underutilized and Vacant Square Feet by Usage Type, Fiscal
    Year 2007:

    [See PDF for image]

    This figure is a chart depicting the following data:

    Usage type: Hospital;
    Total square footage: 90,356,019;
    Utilization:
    - Vacant: 1%;
    - Underutilized: 8%;
    - Fully utilized: 91%.

    Usage type: Other institutional uses;
    Total square footage: 20,113,459;
    Utilization:
    - Vacant: 2%;
    - Underutilized: 11%;
    - Fully utilized: 87%.

    Usage type: Office;
    Total square footage: 12,260,419;
    Utilization:
    - Vacant: 6%;
    - Underutilized: 19%;
    - Fully utilized: 75%.

    Usage type: All other;
    Total square footage: 7,790,018;
    Utilization:
    - Vacant: 22%;
    - Underutilized: 18%;
    - Fully utilized: 59%.

    Usage type: Service;
    Total square footage: 6,334,876;
    Utilization:
    - Vacant: 2%;
    - Underutilized: 26%;
    - Fully utilized: 73%.

    Usage type: Warehouses (storage/sheds);
    Total square footage: 5,316,358;
    Utilization:
    - Vacant: 6%;
    - Underutilized: 16%;
    - Fully utilized: 78%.

    Usage type: Laboratories;
    Total square footage: 3,985,763;
    Utilization:
    - Vacant: 1%;
    - Underutilized: 16%;
    - Fully utilized: 83%.

    Usage type: Housing;
    Total square footage: 3,899,666;
    Utilization:
    - Vacant: 20%;
    - Underutilized: 7%;
    - Fully utilized: 74%.

    Usage type: Industrial;
    Total square footage: 1,779,052;
    Utilization:
    - Vacant: less than 1%;
    - Underutilized: 14%;
    - Fully utilized: 86%.

    Usage type: School;
    Total square footage: 877,677;
    Utilization:
    - Vacant: 21%;
    - Underutilized: 5%;
    - Fully utilized: 74%.

    Usage type: Dormitories/Barrackes;
    Total square footage: 440,934;
    Utilization:
    - Vacant: 22%;
    - Underutilized: 8%;
    - Fully utilized: 70%.

    Usage type: Post Office;
    Total square footage: 15,055;
    Utilization:
    - Vacant: 0%;
    - Underutilized: 28%;
    - Fully utilized: 72%.

    Usage type: Communications systems;
    Total square footage: 2,700;
    Utilization:
    - Vacant: 0%;
    - Underutilized: 14%;
    - Fully utilized: 86%.

    Source: GAO analysis of VA data.

    Note: Percentages may not add to 100 percent due to rounding.

    [End of figure]

    VA's underutilized buildings generally are older than the other
    buildings in its portfolio, in poor condition, and no longer useful in
    fulfilling VA's mission. For example, in fiscal year 2007, 68 percent
    of VA's underutilized buildings were aged 51 years or older compared to
    57 percent of utilized buildings.[Footnote 15] As of fiscal year 2007,
    97 percent of underutilized buildings assessed had a component deemed
    to be in "poor" or "critical" condition.[Footnote 16]

    Vacant Space Has Remained Relatively Unchanged since Fiscal Year 2005:

    Our analysis showed that the number of VA's vacant buildings decreased
    from fiscal year 2006 to 2007; however, the amount of vacant square
    feet changed little from fiscal years 2005 through 2007. During this
    time period, VA retained approximately 7.5 million square feet of
    vacant space, which accounted for about 5 percent of its total gross
    square feet.[Footnote 17] According to VA's station-level data, all
    vacant square feet were at VHA-operated facilities.[Footnote 18]

    Table 3: VA's Vacant Square Feet and Number of Vacant Buildings, Fiscal
    Years 2005-2007:

    Fiscal year: 2005;
    Vacant square feet: 7,367,340;
    Vacant buildings: Not Available.

    Fiscal year: 2006;
    Vacant square feet: 7,635,489;
    Vacant buildings: 684.

    Fiscal year: 2007;
    Vacant square feet: 7,297,407;
    Vacant buildings: 482.

    Source: GAO analysis of data provided by VA.

    [End of table]

    As with underutilized space, trends relating to changes in vacant space
    at the building level could not be determined because of the absence of
    data prior to fiscal year 2006. Additionally, snapshots from fiscal
    years 2006 and 2007 were not comparable. Our analysis of VA's fiscal
    year 2007 data indicated that the greatest number of buildings with
    vacant space were in the categories of "housing" and "all
    other."[Footnote 19] Together, these two categories accounted for 63
    percent of VA's vacant buildings that year.

    Similar to underutilized buildings, vacant buildings were generally
    older and in poor condition. Eighty-nine percent of VA's vacant
    buildings were aged 51 years or older and just over half were over 75
    years old[Footnote 20] (see fig. 3). As of fiscal year 2007, 99 percent
    of VA's vacant buildings had a component deemed to be in "poor" or
    "critical" condition.

    Figure 3: Age of VA's Buildings with Utilized, Underutilized, and
    Vacant Space, Fiscal Year 2007:

    [See PDF for image]

    This figure is a stacked vertical bar graph depicting the following
    data:

    Age in years: 10 or less;
    Number of buildings, Utilized: 196;
    Number of buildings, Underutilized: 110;
    Number of buildings, Vancant: 5.

    Age in years: 11 to 25;
    Number of buildings, Utilized: 427;
    Number of buildings, Underutilized: 302;
    Number of buildings, Vancant: 22.

    Age in years: 26 to 50;
    Number of buildings, Utilized: 426;
    Number of buildings, Underutilized: 285;
    Number of buildings, Vancant: 20.

    Age in years: 51 to 75;
    Number of buildings, Utilized: 827;
    Number of buildings, Underutilized: 900;
    Number of buildings, Vancant: 149.

    Age in years: 76 or older;
    Number of buildings, Utilized: 545;
    Number of buildings, Underutilized: 614;
    Number of buildings, Vancant: 233.

    Source: GAO analysis of VA Data.

    [End of figure]

    In addition to identifying vacant and underutilized space in its
    buildings, VA identifies the amount of land it has available for reuse
    by another entity. As with vacant building space, most available acres
    are located at VHA facilities. In fiscal year 2007, VHA had 2,716
    available acres, an increase from 2,356 acres in fiscal year
    2005.[Footnote 21] Over 90 percent of VA's stations had less than 25
    available acres, while 11 of VA's 392 stations had more than 51
    available acres.

    VA Does Not Estimate the Annual Cost to Operate and Maintain
    Underutilized and Vacant VHA Space:

    VA does not track operations and maintenance costs, including building
    repair and utilities, on a building-by-building basis and therefore
    does not calculate what it is spending to operate and maintain
    underutilized and vacant properties.[Footnote 22] VA's cost estimating
    service, within the Office of Construction and Facilities Management,
    developed a pricing guide that contains estimates of operating costs
    per square foot for various levels of occupancy (including vacant
    space). Specifically, the VA pricing guide includes costs associated
    with electricity, water, gas, sewage, major systems maintenance,
    building shell maintenance,[Footnote 23] janitorial services, and
    security. However, the estimates did not meet the best practices we
    identified in our July 2007 report as the basis of effective program
    cost estimating.[Footnote 24] Additionally, there is no formal policy
    across VA on how to develop cost estimates for operating and
    maintaining underutilized and vacant property at the building level.
    For example, the medical facilities we visited either had their own
    process to develop annual cost estimates for underutilized and vacant
    space or did not know what they were spending to operate this type of
    space.

    A reliable cost estimate is critical for informed investment decision
    making, realistic budget formulation and program resourcing, meaningful
    progress measurement, proactive course correction when warranted, and
    accountability for results. Our past research on this issue, which we
    summarized in our July 2007 report, identified best practices for
    effective program cost estimating, which can be grouped into four main
    characteristics--comprehensive, well-documented, accurate, and credible
    (see table 4). VA's current approach does not meet best practices for
    any of the four characteristics. For example, the VA pricing guide
    cannot be used to produce a fully comprehensive cost estimate because
    it does not include such pertinent costs as property management and
    grounds maintenance. Appendix II discusses our comparison of the VA
    pricing guide and industry best practices in more detail.

    Table 4: Comparison of Cost Estimating Best Practices and VA's Current
    Approach:

    Best practice area: Comprehensive;
    Examples of standards: Include both government and contractor costs
    over program's full life cycle;
    Examples of our findings on VA's current approach: VA pricing guide
    does not include all potential operations and support costs or disclose
    some key assumptions, such as labor rates or inflation indexes.

    Best practice area: Well-documented;
    Examples of standards: Estimates should be supported by documented
    descriptions and captured in such a way that the data used can be
    traced back to and verified against sources;
    Examples of our findings on VA's current approach: Calculations and
    methodologies for deriving cost estimates in VA pricing guide are not
    documented; Cost estimates in VA pricing guide are not traced back to
    source data.

    Best practice area: Accurate;
    Examples of standards: Estimates should provide unbiased results and be
    grounded in documented assumptions and a historical record of cost
    estimating and actual experiences on other comparable programs;
    Examples of our findings on VA's current approach: VA pricing guide
    omits pertinent costs associated with general property management and
    grounds maintenance, and contains inconsistencies in how other costs
    were calculated.

    Best practice area: Credible;
    Examples of standards: Limitations in the analysis should be disclosed,
    and estimates should be cross-checked using other methods and
    comparisons with independent cost estimates;
    Examples of our findings on VA's current approach: Cost estimates in VA
    pricing guide are not subject to sensitivity or risk analysis; Cost
    estimates are not cross-checked using independent estimates.

    Source: GAO.

    [End of table]

    We Estimate VA Spent $175 Million in Fiscal Year 2007 to Operate and
    Maintain Underutilized and Vacant VHA Space:

    Because VA does not have a reliable cost estimate for what it is
    spending to operate and maintain underutilized and vacant space, we
    conducted an independent analysis that yielded a cost estimate of $175
    million to operate and maintain underutilized and vacant VHA facilities
    in fiscal year 2007. We developed this estimate using cost model data
    provided by the Whitestone Building Operations Cost Reference--a
    published document reflecting industry standards. We also were able to
    model the cost uncertainty (statistical bounds) of our estimate, which
    enabled us to understand the potential variability of our cost estimate
    should the facts, circumstances, and assumptions change. Our
    sensitivity and risk analyses indicated that this estimate could vary
    from $175 million to $185 million at the 50 percent and 70 percent
    confidence levels, respectively.[Footnote 25] Performing an uncertainty
    analysis enabled us to quantify the risk and uncertainty associated
    with our cost estimate and allowed us to provide a level of confidence
    for our cost estimate by providing us with a statistical perspective on
    the potential variability within it. Appendix II explains in more
    detail our estimating approach and results.

    By not following practices associated with developing reliable cost
    estimates, VA does not have valid cost information from which to make
    sound and prudent decisions. Furthermore, the lack of a reliable cost
    estimate results in VA not knowing how much it spends each year on
    space that provides little or no benefit to veterans or taxpayers. As
    we have previously reported,[Footnote 26] unneeded assets present
    significant potential risks to federal agencies not only for lost
    dollars because such properties are costly to maintain, but also for
    lost opportunities because the properties could be put to more cost-
    beneficial uses, exchanged for other needed property, or sold to
    generate revenue for the government. In addition, continuing to hold
    real property that no longer may be needed does not present a positive
    image of the federal government in local communities. Instead, it can
    present an image of waste and inefficiency that erodes taxpayers'
    confidence and can negatively impact local economies if the property is
    occupying a valuable location and is not used for other purposes, sold,
    or used in a public-private partnership if such a partnership provides
    the best economic value for the government. According to VA, the agency
    is developing requirements for a real property cost accounting system
    that will track costs at the building level.

    VA Does Not Track the Extent to Which Various Authorities Contribute to
    the Overall Reduction in Underutilized Property:

    VA's use of various legal authorities, such as EULs and sharing
    agreements, likely contributed to VA's overall reduction of
    underutilized space since fiscal year 2005, but VA does not track the
    overall effect of these authorities on space reductions and therefore
    does not know what effect they are having.[Footnote 27] VA does not
    systematically track information, such as the amount of square footage
    involved in each agreement, and therefore does not know the cumulative
    effect of its authorities on underutilized and vacant property square
    footage. VA's use of these authorities, which have remained relatively
    constant in number at around 475 since fiscal year 2005, generates
    revenue and provides services for veterans, including homeless housing,
    substance abuse treatment, and childcare. Although VA derives benefits
    from using its authorities, it does not formally track and evaluate
    information related to their overall effect on veterans' care or
    operations. VA continues to explore possibilities for using EULs and
    has efforts underway to further reduce underutilized and vacant
    property.

    VA Uses Various Authorities to Reduce Underutilized and Vacant Property
    but Does Not Know the Full Extent of Their Effect:

    VA has used its legal authorities, such as EULs, sharing agreements,
    and outleases,[Footnote 28] to reduce underutilized and vacant property
    but is not aware of the full extent of their effect.[Footnote 29] In
    fiscal year 2007, VA reported having approximately 46 EULs, 185 sharing
    agreements, and 250 outleases. VA reported similar numbers for its
    authorities in the 2 previous fiscal years.

    According to VA officials, using these authorities often contributes to
    reductions in VA's underutilized and vacant property. For example:

    * In 2005, in Lakeside (Chicago), Illinois, VA reduced its
    underutilized property at the medical center by nearly 600,000 square
    feet by using its EUL authority with Northwestern Memorial Hospital.
    This EUL involved a consolidation of existing services where VA
    relocated inpatient beds and support services to other campus sites and
    leased the property to Northwestern, therefore reducing VA's
    underutilized property at the medical center.

    * In 2006, at Fort Howard, Maryland, VA entered into an EUL that will
    use approximately 297,613 square feet of vacant space to develop a
    retirement community, with priority placement for veterans. While VA
    has retained a portion of space on its medical campus for an outpatient
    clinic, it has largely reduced the vast majority of its total space at
    Fort Howard through the EUL.

    * The medical center in Milwaukee, Wisconsin, has several sharing
    agreements in place, including one with the Milwaukee Housing
    Authority, which is using a formerly vacant 10,635 square foot VA
    building to provide housing for the homeless where veterans are given
    priority (see fig. 4).

    Figure 4: Old Quarters Now Used to Provide Homeless Housing at
    Milwaukee Medical Center (photograph):

    [See PDF for image]

    Source: GAO.

    [End of figure]

    * In 2005, in Leavenworth, Kansas, VA entered into an EUL that leased
    38 vacant historic buildings located on 50 acres of land. According to
    VA, it will save approximately $227,000 annually as a result of the
    EUL.

    While VA has taken strides to reduce underutilized and vacant property
    through its various authorities, the cumulative effect of these
    authorities on reductions is largely unknown.[Footnote 30] According to
    VA officials, the EUL authority is the primary contributing factor to
    reductions in vacant and underutilized property over the long term. VA
    has established capital asset portfolio goals to support its capital
    asset management initiative, which include decreasing underutilized
    capacity in its assets. However, VA does not track the overall impact
    of all agreements on reducing such space at the building level. VA's
    existing data systems limit the ability to compare new agreements,
    including EULs, in a way that identifies and distinguishes resulting
    reductions in underutilized and vacant property. Therefore,
    comprehensive information on square footage reductions that have
    occurred as a result of the implementation of certain agreements is not
    recorded at the building level.

    VA also uses its EUL authority as a method to dispose of unneeded real
    property.[Footnote 31] During the term of an EUL, if VA determines that
    the underlying land and buildings are no longer needed, VA is
    authorized to dispose of the property.[Footnote 32] VA data show that
    in fiscal years 2005 through 2007, VA disposed of 91 buildings through
    EULs.[Footnote 33] VA also can demolish, sell, donate, or dispose of
    property through GSA (see table 5).

    Table 5: Number of VA Buildings Disposed, by Method and Fiscal Year:

    Fiscal year: 2005;
    Number of buildings: Disposed as part of EUL: 38;
    Number of buildings: Demolished: 35;
    Number of buildings: Sold or donated: 1;
    Number of buildings: Disposed through GSA: 3.

    Fiscal year: 2006;
    Number of buildings: Disposed as part of EUL: 52;
    Number of buildings: Demolished: 19;
    Number of buildings: Sold or donated: 4;
    Number of buildings: Disposed through GSA: 2.

    Fiscal year: 2007;
    Number of buildings: Disposed as part of EUL: 1;
    Number of buildings: Demolished: 44;
    Number of buildings: Sold or donated: 0;
    Number of buildings: Disposed through GSA: 1.

    Fiscal year: Total;
    Number of buildings: Disposed as part of EUL: 91;
    Number of buildings: Demolished: 98;
    Number of buildings: Sold or donated: 5;
    Number of buildings: Disposed through GSA: 6.

    Source: GAO analysis of VA data.

    [End of table]

    Use of Authorities Provides VA with Financial and Nonfinancial Benefits
    but Information on These Benefits Is Not Tracked:

    Besides reducing underutilized or vacant property, VA benefits from
    using its various authorities in other ways. Generating revenue is one
    such benefit. For example:

    * In January 2005, VA executed a 75-year EUL with Northwestern Memorial
    Hospital in Chicago, Illinois, for two parcels of land and, in turn,
    received $28 million upon execution of the lease, as well as the right
    to lease back space for 3 years to house its existing outpatient
    clinic. In October 2005, VA determined that it did not need to retain
    this property over the long term and sold it outright to the lessee for
    an additional $22 million, bringing the total amount received to $50
    million. VA officials reported that the transaction resulted in a
    demonstrable improvement of services to eligible veterans by permitting
    VA to use the proceeds of the lease and sale to help with
    implementation of VA's Capital Asset Realignment for Enhanced Services
    in Chicago and other locations, and avoid the future costs of operating
    aging healthcare facilities.

    * The VA Greater Los Angeles Healthcare System enters into a number of
    sharing agreements with the film industry. According to VA officials,
    these agreements are typically temporary arrangements--sometimes
    lasting a few days--during which film production companies use VA
    facilities to shoot television or movie scenes. Figure 5 shows two
    examples of sites used. The second of these examples is a barrack built
    in the 1930s that otherwise sits vacant. According to VA officials,
    these agreements generate roughly $1 million to $2 million a year.

    Figure 5: Filming Sites at the Greater Los Angeles Healthcare System:

    [See PDF for image]

    Photograph: Outpatient clinic in Sepulveda, California;
    Photograph: Barrick in West Los Angeles, California.

    Source: GAO.

    [End of figure]

    * VA's medical center in North Chicago shares space on one of its
    buildings for cell phone tower usage.[Footnote 34] Sprint, VoiceStream,
    and AT&T are part of the sharing agreement, which provides VA with
    revenues of about $40,000 annually. According to one senior VHA
    official, more than half of VHA's sharing agreements involve the use of
    cell phone towers.

    * In 2002, the North Chicago medical center entered into a 35-year EUL
    with a contractor to develop an energy center on 1.3 acres of what had
    been vacant land (see fig. 6).[Footnote 35] The contractor produces and
    sells energy to the medical center. The medical center had been
    purchasing steam from the Navy at above-market rates. The energy center
    also saves VA $4 million per year by selling energy to the Navy to heat
    its new barracks.

    Figure 6: Energy Center Located at North Chicago Medical Center
    (photograph):

    [See PDF for image]

    Source: GAO.

    [End of figure]

    In addition to revenue, such agreements can provide VA or veterans with
    a variety of services. For example:

    * In Dayton, Ohio, the medical center entered into an EUL with Catholic
    Social Services to operate a childcare facility in VA space. Under the
    agreement, VA employees' children receive preferred placement in this
    facility. Catholic Social Services located the childcare center on VHA
    property because it was looking for a long-term lease that would allow
    Catholic Social Services to obtain a loan for building renovations.

    * At the Greater Los Angeles Healthcare System, VA entered into a 50-
    year lease with New Directions, Inc., an organization that provides
    supportive housing and long-term substance abuse treatment to veterans.
    According to a New Directions official, the leased building New
    Directions now occupies had been vacant for 20 years. Benefits to VA,
    according to a New Directions official, include not having to pay
    maintenance costs for the leased building and land. Also, New
    Directions is able to provide service to veterans that VA had been
    unable to fulfill, such as job training and placement, as well as legal
    and financial assistance.

    Although VA receives financial and nonfinancial benefits from certain
    agreements, and has a data system to record the revenue received, the
    information is not complete and therefore VA cannot systematically
    track and monitor related information to determine the authorities'
    effect. According to VA's data system, VA generated roughly $8 million
    for all of its agreements in fiscal year 2007, mostly from sharing
    agreements and outleases; however, we found instances of missing
    agreement data that indicate that this dollar figure may actually be
    higher. For example, VA officials in West Los Angeles had not recorded
    in VA's data systems revenue the West Los Angeles and Sepulveda medical
    centers received as a result of several sharing agreements with the
    filming industry. According to those officials, the total amount of
    revenue VA received was between $1 million and $2 million per year. VA
    produces a comprehensive annual report for Congress that describes the
    financial and nonfinancial impacts of its EULs. For example, the report
    includes estimates of the amount of money VA saves on purchasing energy
    and parking and the value of new services available to veterans or VA
    employees as a result of EULs. However, the agency does not conduct a
    similar analysis for other types of agreements, which greatly outnumber
    the EULs, and VA's data systems do not provide information on the
    nonfinancial benefits it receives from those agreements. This lack of
    information means that VA cannot make year-to-year comparisons or
    determine which types of agreements provide the most benefits. This
    information would be helpful in measuring the utility of each of the
    agreements and ultimately the benefits VA receives in return. For
    example, VA could measure the impact of each of the authorities and the
    benefits each provides, including financial and nonfinancial benefits.
    VA officials we spoke with during the course of this audit acknowledge
    that the ability to track this type of information at the building
    level is desirable.

    VA Continues to Explore New EULs to Further Reduce Underutilized and
    Vacant Property:

    VA continues to explore possibilities for using EULs and has efforts
    underway to further reduce underutilized and vacant property. For
    example, the Dayton medical center is proposing an EUL with Volunteers
    of America for a 50-bed transitional housing unit for the area's
    homeless male and female veterans. This building was constructed in
    1937 for female veterans. According to VA officials, formulation of the
    lease is currently underway. In addition, in Albany, New York, VA has
    proposed an EUL for approximately 3 acres of land for a new 1,220-
    space parking garage with the Albany medical center. According to VA
    officials, as consideration for the lease, VA will receive free use of
    approximately 610 parking spaces in the garage and perhaps other
    negotiated considerations.

    VA also is considering EULs for many of its stations with underutilized
    and vacant property. In 2007, VA's Office of Asset and Enterprise
    Management performed a site review initiative of each of its real
    property assets that included vacant land. The purpose of these reviews
    was to provide the Secretary with a list of the facilities VA believes
    are prime candidates for EULs. Recently, VA identified 15 sites for
    inclusion on the Secretary's EUL priority list for further action.

    Ongoing Challenges Impede VA's Efforts to Minimize and Reduce
    Underutilized and Vacant Property, but Some Locations Have Taken Steps
    to Address These Challenges:

    VA faces several ongoing challenges to reducing underutilized and
    vacant property, including building location, high building repair
    costs, and competing stakeholder interests; however, VA is using
    several strategies in some locations to mitigate these challenges. VA
    officials reported challenges with finding organizations interested in
    using underutilized or vacant property located in areas with low
    property values. In addition, many of VA's vacant and underutilized
    buildings are in poor condition and require an estimated $3 billion in
    repairs before they could be fully utilized by VA or others. Another
    complicating factor is that most VA buildings are eligible for historic
    designation. Challenges to reducing vacant and underutilized properties
    are further exacerbated by competing stakeholder interests. Moreover,
    legal restrictions and budgetary and administrative limitations can
    impede VA's ability to enter into agreements. Some VA locations have
    used strategies to address some of these challenges. In addition,
    federal agencies have other tools available for the disposal of federal
    properties, such as the public benefits conveyance program administered
    by GSA, which allows agencies to convey surplus properties to state
    governments, local governments, or nonprofit organizations for approved
    public benefit uses such as homeless centers, educational facilities,
    and public parks, at a discount of up to 100 percent fair market value.

    Building Location, Condition, and Repair Costs Limit VA's Ability to
    Minimize Underutilized and Vacant Properties:

    Although some vacant and underutilized properties have potential for
    alternate uses, factors such as building location, condition, and
    associated repair costs limit VA's ability to reuse or dispose of them.
    Specifically, VA officials we interviewed at some of the sites we
    visited reported difficulties finding partners interested in using
    underutilized or vacant properties that are either considered not
    desirable or are located in areas with low property values or in
    markets with little or no demand for new space.

    * According to VA officials we interviewed at the medical facility in
    Marion, Indiana, a combination of low property values, a weak market
    demand for property, and low financial development potential made it
    difficult for VA to find partners interested in leasing space. These
    conditions contributed to Marion retaining the greatest amount of both
    vacant and underutilized space in fiscal years 2005 through 2007.
    Additionally, VA did not have any outleases or sharing agreements in
    place for vacant or underutilized properties in Marion (see fig. 7).

    Figure 7: Vacant Building in Marion, Indiana, Where Location Is a
    Challenge (photograph):

    [See PDF for image]

    Source: GAO.

    [End of figure]

    VA officials also cited difficulty finding alternate reuse options for
    properties that are not centrally located within a medical facility, or
    that lacked direct access to roads, making the properties difficult to
    use by VA and other entities. In fiscal year 2008, VA conducted a
    sample review of 15 stations that had been identified as having the
    most vacant space within VA and found that 37 percent of the vacant
    space lacked direct access to a public road.[Footnote 36]

    In addition, officials explained that some vacant and underutilized
    buildings, such as old medical in-patient facilities, cannot easily be
    converted to other uses, which contributed to VA's inability to reuse
    some of its properties. Some of the sites we visited illustrated these
    challenges. For example, in Milwaukee, Wisconsin, VA has a 139-year-old
    building, previously used as a domiciliary, which would require
    extensive upgrades to the electrical system to accommodate a modern
    computer network. Similarly, in Dayton, Ohio, VA has a building
    previously used as a monkey exhibit; the building currently is vacant
    and cannot easily be converted to other uses (see fig. 8).

    Figure 8: Vacant Buildings Difficult to Convert to Other Uses:

    [See PDF for image]

    Photograph: Former monkey exhibit, Dayton, Ohio;
    Photograph: Old hospital, Milwaukee, Wisconsin.

    Source: GAO.

    [End of figure]

    Many of VA's vacant or underutilized buildings are aging or in poor
    condition, requiring an estimated $3 billion in repairs before they can
    be fully utilized by VA or others, an issue which has led to our
    designation of federal real property as high risk.[Footnote 37] VA
    officials reported that VA faces challenges addressing the needs of
    aging and deteriorating buildings as a result of the high costs
    associated with repairs. VA conducts facility condition assessments at
    its facilities every 3 years on a rotating basis and identifies
    buildings in "poor" or "critical" condition, and subsequently estimates
    the useful and remaining life of those systems. Of the buildings that
    VA determined were in "poor" or "critical" condition at the end of
    fiscal year 2007, 56 percent were underutilized or vacant properties;
    VA estimated the repair costs for these properties to be approximately
    $3 billion.[Footnote 38] Twenty-nine percent of VA's underutilized and
    vacant properties require repairs that cost a minimum of $1 million per
    building; 7 percent required repairs costing more than $5 million per
    building (see fig. 9).

    Figure 9: Deteriorating Vacant Buildings That Are Not Being Used by VA:

    [See PDF for image]

    Photograph: Deteriorating ceiling and wall, Dayton, Ohio;
    Photograph: Signs of mold and asbestos on the wall of a vacant
    building, Marion, Indiana;
    Photograph: Yellowed windows, asbestos on wall, peeling paint, and
    floor panels breaking off, West Los Angeles, California;
    Photograph: Greenhouse roof is deteriorating and has several broken
    windows, Marion, Indiana.

    Source: GAO.

    [End of figure]

    Other factors that contribute to high repair costs, according to VA
    officials, include the cost of environmental cleanup associated with
    removing lead paint and asbestos contamination from some buildings.
    Federal agencies are required to assess and pay for needed
    environmental cleanup before renovating or disposing of property--a
    process that can require years of study and result in significant
    costs. High clean-up costs can impede VA's ability to dispose of some
    of its properties. For example, Dayton medical center officials said
    many of the older buildings at the facility have lead paint and
    asbestos, and the associated abatement costs are very high. The
    buildings have remained vacant because the needed repairs are costly
    and other VA projects--mainly those that provide a service to veterans--
    are considered a higher priority.

    Another complicating factor is that most VA buildings are eligible for
    historic designation. In fiscal year 2007, 54 percent of VA's buildings
    were designated as historic properties or eligible for designation; of
    these, 56 percent were underutilized and vacant.[Footnote 39] Under the
    National Historic Preservation Act,[Footnote 40] VA, like other federal
    agencies, is required to manage historic properties under its control
    and to take into account the effects of its action on historic
    preservation. VA consults with the State Historic Preservation Office
    [Footnote 41] before taking any action, including demolition or
    construction, on a property that has been designated as historic. The
    Secretary of the Interior is responsible for establishing standards for
    all national preservation programs and advising federal agencies on the
    preservation of historic properties listed or eligible for listing on
    the National Register of Historic Places. According to VA officials,
    although demolition is not prohibited, it is generally not an option
    for historic buildings because of stakeholder interest in preserving
    the historic properties. Figure 10 shows some of VA's vacant buildings
    that are on the National Register of Historic Places.

    Figure 10: Vacant Buildings on the National Register of Historic
    Places:

    [See PDF for image]

    Photograph: Chapel, West Los Angels, California;
    Photograph: Trolly depot, West Los Angels, California;
    Photograph: Former residence, Dayton, Ohio;
    Photograph: Grist Mill, Perry Point, Maryland.

    Source: GAO.

    [End of figure]

    Moreover, according to VA officials, preserving historic buildings in
    accordance with historic standards is very costly and obtaining funding
    to restore historic sites can be difficult. VA can seek private funding
    with public-private partners for restoring historic properties.
    However, according to VA officials, the cost of restoring historic
    properties can make it prohibitive for some nonprofit organizations to
    use the buildings.

    As summarized below, experiences at medical facilities in West Los
    Angeles and Dayton (shown in fig. 10) illustrate some of the challenges
    associated with a property's historical status:

    * Two vacant properties at the West Los Angeles medical facility are
    listed on the National Register of Historic Places--the chapel and
    trolley depot. Any renovations to these buildings must preserve the
    features of the property that are significant to its historic,
    architectural, and cultural values. According to VA officials at West
    Los Angeles, it will cost approximately $12 million to restore the
    chapel in accordance with historic standards and $1 million to restore
    the trolley depot, which is 600 square feet.

    * The Dayton medical center, originally established as a home for Civil
    War veterans, is the third-oldest site within VA, with several
    buildings listed on the National Register of Historic Places. According
    to officials, some of the historic properties could be converted into
    museums if funding were available, but other properties are not in any
    condition to be occupied or used without prohibitively costly
    renovations. VA officials would have to consult with the Ohio State
    Historic Preservation Office before making any alterations to any of
    these buildings in Dayton.

    Officials reported that some underutilized and vacant buildings are
    unsafe and should be demolished, but obtaining the necessary funds to
    demolish these buildings is a challenge. As we previously reported,
    demolition can be a cost-effective alternative for federal property
    when the associated costs can be recovered within a reasonable period,
    primarily through the avoidance of maintenance costs.[Footnote 42]

    However, some VA officials we spoke with stated that demolishing a
    building also can be costly, particularly when asbestos or other
    hazardous material abatement is required. For example, in fiscal year
    2007, VA spent $3,449,568 demolishing 44 buildings totaling 216,952
    square feet.

    Facility managers can use facility funding to keep up with minimal
    maintenance on vacant buildings and to fund the cost of demolishing a
    building. However, according to VA officials, facility funds are
    generally used for healthcare-related construction projects, which they
    consider a higher priority than demolition projects. Because funds for
    renovations, maintenance, and demolition are limited, necessary repairs
    and maintenance for vacant properties often are deferred because of
    lack of funding. As repairs are delayed, building deterioration can
    worsen and repair costs can escalate. For example, VA officials in
    Marion, Indiana, reported that a lack of funding to demolish unsafe
    deteriorating buildings is the primary challenge at that site. They
    estimated the cost of demolishing four buildings on their site to be $5
    million, much of it resulting from required lead paint and asbestos
    abatement.

    Competing Stakeholder Priorities Affect VA's Ability to Reduce
    Underutilized and Vacant Property:

    Challenges to reducing vacant and underutilized properties are
    exacerbated by competing stakeholder interests in real property
    decisions. Several key stakeholders, including veterans groups,
    community members, state and local governments, historic preservation
    organizations, advocacy groups, and the public in general, have an
    interest in how VA utilizes its properties.

    VA officials reported that disposal often is not an option for some
    properties, in particular historic properties, because of political
    stakeholders and constituencies, including historic building advocates
    or local communities that want VA to maintain these properties. In
    addition, some veterans groups that we met with during our site visits
    were opposed to any reuse of VA property that does not benefit veterans
    directly or provide benefits for veterans exclusively. This was
    illustrated primarily through site visits we conducted in West Los
    Angeles and Milwaukee.

    * In West Los Angeles, community stakeholders and veteran stakeholders
    have opposed several land use agreements that VA has negotiated with
    other entities; several of these agreements generate revenue for VA.
    According to VA officials, many residents of West Los Angeles are
    opposed to any kind of development on the West Los Angeles campus that
    will make traffic in the surrounding area worse than it already is. For
    example, according to VA, community stakeholders were opposed to a mail
    outpatient pharmacy that was previously located on the West Los Angeles
    campus. As a result of the opposition, VA moved the service offsite.
    Similarly, VA had a revenue-generating sharing agreement with the Fox
    Entertainment Group for use of property on the West Los Angeles campus.
    However, VA terminated the agreement because of community stakeholder
    opposition.

    * In Milwaukee, VA negotiated a preliminary EUL concept proposal with
    the City of Milwaukee for approximately 35 acres of vacant land and
    buildings. Under the terms of the proposal, the City planned to build a
    biomedical research park, assisted living apartments, and a
    columbarium--a place for cremation urns--on the property. Additionally,
    VA would have received revenue under the terms of the agreement. The
    City of Milwaukee eventually dropped negotiations for this EUL proposal
    because of opposition from veterans. According to VA officials,
    veterans were opposed to the proposal because it would not benefit
    veterans exclusively. At the request of several members of Congress, a
    moratorium on EULs, except for an EUL of the campus chapel, was put in
    effect in Milwaukee until September 2008. A veterans group that was
    formed to advocate for preserving the Milwaukee VA facility for the
    exclusive benefit of veterans told us that the group was opposed to
    lease agreements that may result in the commercialization of property
    that the group believed should be used instead for healthcare-related
    uses. Veterans said VA land is a symbol of the nation's commitment to
    healthcare for veterans and should be preserved for use by veterans.

    Legal Restrictions and Administrative and Budgetary Disincentives also
    Affect VA's Ability to Reduce Underutilized and Vacant Property:

    Legal restrictions and administrative-and budget-related disincentives
    associated with implementing some authorities affect VA's ability to
    dispose and reuse property in some locations. For example, legal
    restrictions limit VA's ability to dispose and reuse property in West
    Los Angeles and Sepulveda. The Cranston Act of 1988[Footnote 43]
    precluded VA from taking any action to dispose of 109 of 388 acres in
    the West Los Angeles medical center and 46 acres of the Sepulveda
    ambulatory care center. In 1991, when EUL authority was provided to VA,
    VA was prohibited from entering into any EUL relating to the 109 acres
    at West Los Angeles unless the lease is specifically authorized by law
    or for a childcare center.[Footnote 44] The Consolidated Appropriations
    Act of 2008[Footnote 45] expanded the EUL restrictions to include the
    entire West Los Angeles medical center. The Consolidated Appropriations
    Act of 2008 also prohibits VA from declaring as excess or otherwise
    taking action to exchange, trade, auction, transfer, or otherwise
    dispose of any portion of the 388 acres comprising the VA West Los
    Angeles medical center. In addition, until September 2008, there is a
    temporary moratorium on implementing EULs--except for an EUL pertaining
    to the campus chapel--at the Milwaukee medical center.

    Finally, budgetary and administrative disincentives associated with
    some of VA's available authorities may in some instances limit VA's
    ability to utilize these authorities to reduce underutilized and vacant
    property.[Footnote 46] For example:

    * VA cannot retain revenue that it obtains from outleases, revocable
    licenses, or permits; such receipts must be deposited in the Department
    of the Treasury.[Footnote 47] VA has said that, except for EUL
    disposals, restrictions on retaining proceeds from disposal of
    properties are a disincentive for VA to dispose of property. [Footnote
    48]

    * In 2004, VA was authorized until 2011 to transfer real property under
    its jurisdiction or control and to retain the proceeds from the
    transfer in a capital asset fund for property transfer costs, including
    demolition, environmental remediation, and maintenance and repair
    costs. In our previous work, we reported several administrative and
    oversight challenges with using capital asset funds.[Footnote 49]
    Moreover, VA officials told us that this authority has significant
    limitations on the use of any funds generated by disposal. For example,
    VA officials we spoke with reported that the capital asset fund is too
    cumbersome to be utilized, and VA does not have immediate access to the
    funds because they have to be reappropriated before VA can use them.

    * The maximum term for an outlease, according to VHA law, is 3 years;
    according to VA officials, this can discourage potential lessees from
    investing in the property.

    * Implementing an EUL agreement can be a lengthy process. According to
    VA officials, EULs are a relatively new tool, and every EUL is unique
    and involves a learning process. In addition, VA officials commented
    that the EUL process can be complicated. According to VA officials, the
    average time it takes to implement an EUL can range generally from 9
    months to 2 years. The officials noted that land due diligence
    requirements (such as environmental and historic reviews), public
    hearings, congressional notification, lease drafting, negotiation, and
    other phases contribute to the length of the overall process. VA has
    taken actions to reduce the length of time it takes to implement an EUL
    agreement, but despite changes to streamline the EUL process, some
    officials stated that the process is still time consuming and
    cumbersome.

    * VA can dispose of underutilized and vacant property under the
    McKinney-Vento Act to other federal agencies and programs for the
    homeless.[Footnote 50] However, VA officials stated that disposing of
    property under the McKinney-Vento Act also can be a lengthy, cumbersome
    process.[Footnote 51] According to VA officials the process can average
    2 years. Under this law, all properties deemed suitable for homeless
    use by the Department of Housing and Urban Development go through a 60-
    day holding period, during which the property is ineligible for
    disposal for any purpose other than for homeless use. Interested
    homeless representatives submit to the Department of Health and Human
    Services a written notice of intent to apply for a property for
    homeless use during the 60-day holding period. After applicants have
    given notice of intent to apply, they are provided up to 90 days to
    submit their application to the Department, and the Department has the
    discretion to extend the time frame if necessary. Once the Department
    has received an application, it has 25 days to review, accept, or
    decline the application. Furthermore, according to VA officials, VA may
    not receive compensation from agreements entered into under the
    McKinney-Vento Act.

    Strategies Used at Some VA Sites and by Other Agencies to Mitigate
    Stakeholder Challenges and Identify Public-Private Partners Could Be
    Useful in Other Locations:

    At some sites we visited, VA has used several strategies to mitigate
    challenges associated with addressing competing stakeholder interests
    and preserving older and historic properties. The mitigation strategies
    we identified included the following:

    * Communication with external stakeholders. Experiences in three
    locations we visited illustrated how communicating with external
    stakeholders helped VA mitigate stakeholder concerns. At Fort Howard,
    Maryland, VA officials said it was very important to get community
    stakeholders involved when trying to implement an EUL. VA held several
    public forums to explain the terms of the proposed EUL. VA advertised
    these meetings to the local community and according to VA officials,
    more than 200 community members attended each of these meetings. In
    Dayton, Ohio, the medical center also held hearings and public forums,
    which were advertised in local papers, and Dayton officials made
    special efforts to notify veterans groups about proposed EUL plans.
    Similarly, at the North Chicago, Illinois, medical center, VA officials
    reported that although veterans groups in the community expressed
    initial concern about a proposed EUL at that location, VA conducted
    outreach efforts to the community to explain the project. As a result
    of these efforts, VA officials said that these groups voiced little
    opposition to the proposed EUL. VA officials reported that
    communicating often with external stakeholders helped VA obtain
    community buy-in and support for the EUL proposal.

    * Obtaining buy-in and support from internal stakeholders, particularly
    from high-level senior management. Strategies in this area also have
    helped VA address challenges to reducing vacant and underutilized
    properties, as demonstrated by experiences in some locations. For
    example, at Fort Howard and Dayton, medical center directors were
    supportive and active in outreach efforts to minimize vacant and
    underutilized properties. Directors at these medical centers sought out
    entities to enter into EULs and other agreements. In addition,
    directors at these facilities maintained regular communication with
    potential lessees when negotiating lease agreements. For example, VA
    entered into an EUL with a private developer for a property in Fort
    Howard. VA communicated regularly with the developer. According to the
    developer, VA did a good job informing the public of the plans for Fort
    Howard and took a very open approach, which according to the director,
    made the transition easier.

    * Use of partnerships. VA also has entered into various public-private
    partnerships to help improve the use of some of its vacant and
    underutilized property. We previously reported that public-private
    partnership authority could be an important management tool to address
    problems in deteriorating federal buildings, and we stated that further
    study of how the tool would work and its benefits compared to other
    options is needed. In addition, we recommended that Congress consider
    providing the Administrator of GSA with the authority to proceed with a
    pilot program to demonstrate the actual benefits that may be
    achieved.[Footnote 52] We also have reported that although public-
    private partnership arrangements can be beneficial, they also increase
    the need for effective implementation and monitoring by agencies to
    ensure that the government's interests are protected.[Footnote 53]
    Examples cited earlier in this report include several in which VA
    entered into partnerships with service providers and received such
    services as childcare for VA employees and substance abuse treatment
    for veterans. In addition, under VA's disposal policy, VA may enter
    into partnerships or agreements with public or private entities
    dedicated to historic preservation to facilitate transfer of properties
    listed on the National Register of Historic Places. VA has entered into
    public-private partnerships with organizations to renovate and preserve
    historic properties. In West Los Angeles, for example, VA has sought
    out private partners to fund and undertake the restoration of the
    chapel on the campus. The Getty Foundation funded an architectural
    study that included renovation plans for the chapel. In Dayton, VA
    partnered with the local American Veterans Heritage Center for historic
    facility preservation and development of the historic district. The
    Veterans of Foreign Wars received a Veteran National Heritage Award of
    $1 million to restore and stabilize the floor of the Protestant Chapel.
    In addition, GSA has other practices for reducing unused property. GSA
    administers the public benefits conveyance program, which is a means of
    disposing of federal real property.[Footnote 54] Under the program,
    state or local governments and certain tax-exempt nonprofit
    organizations can obtain real property for approved public benefit
    uses, including homeless centers, educational facilities, and public
    parks, at a discount of up to 100 percent of fair market value.
    [Footnote 55]

    Conclusions:

    VA has made progress in managing many aspects of its real property
    portfolio--specifically, in reducing underutilized space in its
    buildings in fiscal years 2005 through 2007. The agency also has
    efforts underway to make further reductions. However, VA continues to
    face challenges with the vacant building space in its portfolio, which
    has remained relatively unchanged during this period. Stakeholders can
    have competing interests as to how vacant and underutilized properties
    should be reused or disposed of. In addition, VA faces challenges
    reducing underutilized or vacant properties that have been designated
    historic, and that require prohibitively high repair costs.
    Nevertheless, the managers of several VA facilities have overcome some
    of these challenges through effective stakeholder outreach efforts, by
    obtaining buy-in support from internal stakeholders, and by entering
    into various public-private partnerships.

    Underutilized and vacant properties detract from mission effectiveness
    by utilizing resources that could be used more effectively to support
    other mission priorities. Without complete building-level data that are
    comparable from year to year, it is difficult for VA to analyze
    correlations between building utilization and location, condition, and
    age--information that can be beneficial in identifying assets for
    disposal. Furthermore, we estimated that VA spent about $481,000 each
    day on underutilized and vacant VHA property in fiscal year 2007.
    However, VA has not developed its own estimate and therefore does not
    know how much it is spending maintaining underutilized and vacant
    property, money that could be better spent providing healthcare
    services to veterans. Without a reliable cost estimate to serve as a
    benchmark from which to measure progress in decreasing these costs over
    time, VA has no means to assess progress in reducing annual costs on
    underutilized and vacant property.

    VA's reduction of underutilized space by nearly two-thirds over the
    last 2 fiscal years represents significant progress. However, VA's
    inability to clearly identify the extent to which its use of
    authorities contributed to reductions in underutilized space is a
    matter of concern. While VA's use of various legal authorities has been
    a likely contributor to these reductions, the extent of this
    contribution is unknown because VA does not track how the use of these
    authorities has helped reduce underutilized or vacant space or resulted
    in monetary and other benefits that can improve services for veterans.
    While VA's portfolio management goals include decreasing underutilized
    space in its assets, further progress in reducing underutilized and
    vacant space will largely depend on VA developing a better
    understanding for why changes occurred and the impact of these
    agreements. Although VA data systems limit their ability to analyze the
    effect of agreements on underutilized and vacant property, archiving
    and analyzing this data by fiscal year would allow VA to make year-to-
    year comparisons. This type of information can better aid VA in
    decision making and managing its underutilized and vacant property.

    Recommendations for Executive Action:

    We recommend that the Secretary of Veterans Affairs take the following
    three actions:

    To provide VA with an accurate picture of what it spends annually on
    maintaining underutilized and vacant property and a benchmark from
    which to work in decreasing these costs, develop an annual cost
    estimate for how much it spends on underutilized and vacant property,
    so that the estimate is comprehensive, accurate, well-documented, and
    credible.

    To provide VA with a better understanding of the overall effect of
    various efforts on its underutilized and vacant property and to
    identify properties for disposal: (1) collect and maintain building-
    level data by fiscal year in order to correlate characteristics
    associated with underutilized and vacant buildings, which may help to
    identify unneeded assets; and (2) track, monitor, and evaluate square
    footage reductions and financial and nonfinancial benefits when
    recording new agreements as of fiscal year 2008.

    Agency Comments and Our Evaluation:

    We provided a draft of this report to VA for review and comment. VA
    provided written comments, which are reprinted in appendix III. VA
    concurred in principle with two of our three recommendations.
    Specifically, VA concurred with our two recommendations that VA develop
    an annual cost estimate of spending on VA's underutilized and vacant
    property and track, monitor, and evaluate square footage reductions and
    financial and nonfinancial benefits when recording new agreements.
    However, VA did not concur with our recommendation that the agency
    collect and maintain building-level data by fiscal year in order to
    correlate characteristics associated with underutilized and vacant
    buildings, which may help to identify unneeded assets. In addition,
    VA's written comments highlighted five areas of disagreement with our
    report. VA also provided technical clarifications, which we
    incorporated, where appropriate. VA's comments are discussed in more
    detail below.

    VA did not concur with our recommendation regarding collecting and
    maintaining building-level data because the agency maintains that it
    collects and analyzes a significant amount of data at the station and
    building-level. Furthermore, VA stated that it is in compliance with
    reporting requirements established by the Federal Real Property Council
    and that it uses performance measures to identify unneeded assets that
    may be candidates for disposal.

    Although we agree that VA collects a significant amount of data at the
    station and building level, we do not agree that that this information
    is sufficient to correlate characteristics with VA's underutilized and
    vacant buildings. Because VA does not maintain and analyze building-
    level data by fiscal year, VA was unable to determine trends relating
    to reductions in underutilized space at the building level during
    fiscal years 2005 through 2007. The absence of data prior to fiscal
    year 2006 prevented VA from running certain trend analyses, including
    the correlations, if any, between utilization and building location,
    condition, and age--information that can be beneficial in identifying
    assets for disposal. Furthermore, while VA does use performance
    measures to identify assets that may be candidates for disposal, the
    agency does not estimate the costs of these disposals, and they have
    not been funded. In addition, the agency's disposal plans are not
    prioritized. Because of the need to better correlate characteristics
    associated with underutilized and vacant property, which may help to
    identify unneeded assets, we believe this recommendation remains valid.

    VA's first disagreement with our report was that we had double-counted
    vacant space; this issue, however, was resolved prior to our receiving
    VA's written response. After we sent our draft report to VA for
    official agency comment, VA officials told us, for the first time, that
    their data on underutilized square footage include vacant square
    footage, and that these categories of space are not mutually exclusive
    as we had previously identified. We subsequently provided VA officials
    with revisions to our draft report and analysis on August 1, 2008,
    reflecting VA's vacant square footage as a subset of underutilized
    square footage. We are now reporting that VA had 5.6 million square
    feet of underutilized building space in fiscal year 2007. VA officials
    did not consider this revised information and the resulting changes we
    made to the draft report in their subsequent agency comments.

    VA's second and related disagreement was that we had overstated the
    unit costs for operations and maintenance of underutilized space. Two
    factors contributed to this comment. First, as noted previously, VA
    said that we had double-counted vacant space. Therefore, we revised our
    cost estimate after learning that our original estimate had double-
    counted vacant space--from $307 million to $175 million--to reflect
    that vacant square footage is a subset of its underutilized space (see
    above). We provided VA officials with updated report language on August
    1, 2008, including a newly revised cost estimate of $176 million (later
    revised to $175 million) for VA's underutilized and vacant square
    footage for fiscal year 2007. VA officials did not provide comments on
    our revised cost estimates in their subsequent written agency comments.
    Second, VA commented that VA and GAO differ in the approaches and
    methodologies used to estimate unit costs for operating and maintaining
    underutilized space. Because of these different methodologies, our
    revised cost estimate of $175 million is higher than the estimate that
    VA provided in its comments of $85.2 million.[Footnote 56] We did not
    evaluate VA's $85.2 million estimate because the agency did not provide
    this estimate during the course of our review, and its written comments
    did not include the underlying cost elements or methodology for
    comparison. Furthermore, VA concurred with our recommendation to
    develop an annual cost estimate for how much it spends on underutilized
    and vacant property, so that the estimate is comprehensive, accurate,
    well-documented, and credible.

    Regarding VA's third area of disagreement--that it does have valid cost
    information from which to make sound and prudent decisions-
    -we acknowledge that VA maintains some information important for such
    decision making, but believe it needs to retain more comprehensive
    building-level data by fiscal year. As discussed earlier, VA's prorated
    approach to cost estimating does not lend itself to determining the
    maintenance cost associated with underutilized or vacant property.
    While we recognize that VA does collect current year building-level
    data, such as square footage and type, VA does not archive this data in
    its Capital Asset Inventory database and prior to 2006, overwrote
    building-level data collected each year. VA maintains historical
    inventory and financial data at the station level. However, VA has not
    used its building-or station-level data to develop a reliable method
    for estimating operating and maintenance costs for underutilized and
    vacant properties. VA's written comments also note that it is
    developing requirements for a real property cost accounting system to
    replace VA's existing financial management system, and this new system
    may allow VA to better track operations and maintenance for
    underutilized and vacant properties. While this could be a significant
    step in improving its ability to make decisions regarding vacant and
    underutilized property, reviewing VA's plans for this cost accounting
    system was outside the scope of this engagement.

    VA's fourth area of disagreement was that our report did not
    acknowledge VA's efforts to designate properties for disposal based on
    mission dependency, utilization, condition, and cost; however, we
    believe that more needs to be done in this area. We commend VA for
    using performance measures to identify assets that may be candidates
    for disposal, and we note in our report that VA has a plan that
    includes a list of such assets. We also recognize VA's significant
    reduction in its underutilized property since fiscal year 2005 and
    provide examples throughout our report of ongoing VA efforts to make
    further reductions. For instance, VA continues to identify potential
    opportunities for EUL agreements. As previously noted, VA has not
    estimated the costs of many of the disposals on its list, the disposals
    have not been funded, and the agency's disposal plans are not
    prioritized. For these reasons, we recommended that the VA collect and
    maintain building-level data by fiscal year in order to correlate
    characteristics associated with underutilized and vacant buildings,
    which may help further identify unneeded assets.

    VA's fifth area of disagreement was that VA does track revenue
    generated, square footage reductions, and services received through
    agreements, although this is not accomplished systematically. While we
    believe that our report generally reflected these facts, in response to
    VA's comments and new information provided, we added language to the
    report stating that VA prepares a comprehensive annual report for
    Congress that describes financial and nonfinancial impacts of its EULs.
    VA officials brought this report to our attention after we had
    submitted our draft for their comment. However, we note that VA does
    not conduct a similar analysis for other agreements, which greatly
    outnumber EULs. Our report also notes that VA receives financial and
    nonfinancial benefits from certain agreements, and now also states that
    VA has a data system to record the revenue received. However, we also
    note that the information is not complete and therefore VA cannot
    systematically track and monitor related information to determine the
    effect the authorities are having, as VA acknowledged. VA concurred
    with our related recommendation to track, monitor, and evaluate square
    footage reductions and financial and nonfinancial benefits when
    recording new agreements, as of fiscal year 2008.

    We are sending copies of this report to the Secretary of Veterans
    Affairs and other interested parties. We also will make copies
    available to others on request. In addition, the report will be
    available at no charge on the GAO Web site at [hyperlink,
    http://www.gao.gov].

    If you have any questions about this report, please contact me at (202)
    512-2834 or goldsteinm@gao.gov. 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 major contributions to this
    report are listed in appendix IV.

    Sincerely yours,

    Signed by:

    Mark L. Goldstein:
    Director, Physical Infrastructure Issues:

    [End of section]

    Appendix I: Objectives, Scope, and Methodology:

    Our objectives were to identify (1) to what extent the Department of
    Veterans Affairs (VA) has reduced underutilized or vacant property, and
    how much it spends maintaining the underutilized or vacant property it
    retains; (2) how VA has used its authorities to reduce underutilized
    and vacant property and to what extent it tracks how these authorities
    contribute to reductions; (3) what, if any, challenges VA faces in
    minimizing underutilized and vacant property, using enhanced-use leases
    (EUL) and other agreements, and what steps VA is taking to address
    these challenges.

    To better understand the actions taken by VA to reduce its
    underutilized and vacant property, we reviewed relevant documents,
    including asset management plans, policy handbooks and directives, and
    the most recent strategic plan. We reviewed VA's performance goals and
    measures related to reducing underutilized and vacant property. For
    instance, we reviewed VA's 5-Year Capital Plan, a key document that
    identifies how VA manages its real property and outlines its capital
    portfolio goals. To identify changes in the amount of underutilized and
    vacant property, we analyzed property data from two VA databases: the
    Capital Asset Inventory database for building-level data from fiscal
    years 2006 and 2007 and the Capital Asset Management System for station-
    level data from fiscal years 2005 through 2007.[Footnote 57] Since
    building-level data were snapshots taken at different points in time,
    the data were not comparable. As a result, we only reported
    correlations relating to a building's utilization and characteristics,
    including age and condition, in fiscal year 2007. To estimate the cost
    of operating and maintaining VA's underutilized and vacant property, we
    used space utilization information from the Capital Asset Inventory and
    industry data on maintaining space to develop our own independent cost
    estimate, which included conducting an uncertainity and sensitivity
    analysis. Further information on the methodology used to conduct our
    independent cost estimate is provided in appendix II.

    To determine the extent to which VA tracks the impact of its
    authorities on reducing underutilized and vacant property, we collected
    and analyzed data from the Capital Asset Management System on the
    number of asset-related agreements (including EULs, sharing agreements,
    and outleases). Specifically, we reviewed VA's use of various real
    property authorities from fiscal years 2005 through 2007. We attempted
    to measure the impact these authorities had on underutilized and vacant
    property, including whether they may have resulted in square footage
    reductions, generated revenue, or provided various services to VA. We
    attempted to quantify this information where possible. In addition, we
    visited and conducted interviews at locations where these agreements
    were entered into to understand the benefits VA has received from them
    and their impact on property management.

    Finally, to identify the challenges VA faces when minimizing its
    underutilized and vacant property, we spoke to VA headquarters
    officials to obtain their views on these challenges and any
    improvements that could be made to allow VA to better utilize its
    property. We visited selected locations where VA encountered challenges
    minimizing underutilized and vacant property and identified strategies
    for mitigating these challenges. We also spoke with stakeholders,
    including veterans service organizations and lessees, interested in
    VA's real property decisions. We conducted our site visits at eight VA
    medical facilities including Dayton, Ohio; Fort Howard, Maryland; Los
    Angeles, California; Marion, Indiana; Milwaukee, Wisconsin; North
    Chicago, Illinois; Perry Point, Maryland; and North Hills (Sepulveda),
    California. We selected this nonprobability sample of sites to obtain a
    range of examples of VA's experiences with various real property
    authorities; the amount of, or changes in, underutilized and vacant
    property; and geographic dispersion. We also toured a Veterans Benefits
    Administration (VBA) facility in Milwaukee and a national cemetery in
    Alexandria, Virginia. While we attempted to select varied locations,
    our sample cannot be statistically projected to VA as a whole. We also
    analyzed condition data from VA's Facility Condition Assessment
    database for fiscal years 2006 and 2007 to identify estimated repair
    costs for buildings that received a D or F rating.

    To assess the reliability of the data from each of the VA databases
    used in our work, we (1) obtained information from the system owner or
    manager on their data reliability procedures, (2) reviewed systems
    documentation, (3) performed electronic testing to identify obvious
    errors in accuracy and completeness, (4) compared the data with
    information we obtained from each of the site visits, and (5) compared
    the building-and station-level data with various national data reports
    that VA provided. When we found obvious discrepancies, such as abrupt
    changes in the amount of a station's underutilized property or data
    that did not match what we observed during site visits, we brought them
    to the attention of agency management for corrective action. After
    reviewing possible limitations of all the data sources, we determined
    that the data provided were sufficiently reliable for the purposes for
    which we have used them in this report.

    We conducted this performance audit from July 2007 to September 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.

    [End of section]

    Appendix II: Independent Cost Estimate Methodology:

    Using a methodology based on best practices, we estimate that VA spent
    $175 million in fiscal year 2007 operating and maintaining
    underutilized and vacant Veterans Health Administration (VHA) property.
    We developed our own independent cost estimate for what VA is spending
    on underutilized and vacant property using cost model data provided by
    the Whitestone Building Operations Cost Reference--a document published
    and updated annually that reflects industry standards and surveys
    building operations costs. Our analysis used average cost per square
    foot for each operations cost element, such as security and maintenance
    and repair, and adjusted for variations in cost by locality.

    A reliable cost estimate is critical for informed investment decision
    making, realistic budget formulation and program resourcing, meaningful
    progress measurement, proactive course correction when warranted, and
    accountability for results. According to the Office of Management and
    Budget (OMB),[Footnote 58] programs must maintain current and well-
    documented estimates of program costs, and these estimates must
    encompass the full life cycle of the program. Among other things, OMB
    states that generating reliable program cost estimates is a critical
    function to supporting OMB's capital programming process. Without this
    capability, agencies are at risk of experiencing program cost overruns,
    missed deadlines, and performance shortfalls.

    Our research has identified a number of best practices that are the
    basis of effective program cost estimating. We have grouped these
    practices into four characteristics of a high-quality and reliable cost
    estimate:[Footnote 59]

    * Comprehensive. The cost estimates should include both government and
    contractor costs of the program over its full life cycle, from
    inception of the program through design, development, deployment, and
    operation and maintenance to retirement of the program. They also
    should provide a level of detail appropriate to ensure that cost
    elements are neither omitted nor double counted, and they should
    document all cost-influencing ground rules and assumptions.

    * Well-documented. The cost estimates should have purposes that are
    clearly defined, and be supported by documented descriptions of key
    program or system characteristics (e.g., relationship to other systems,
    performance parameters, etc.) Additionally, it should capture in
    writing such things as the source data used and their significance, the
    calculations performed and their results, and the rationale for
    choosing a particular estimating method or reference. Moreover, this
    information should be captured in such a way that the data used to
    derive the estimate can be traced back to, and verified against their
    sources. The final cost estimate should be reviewed and accepted by
    management to ensure that there is a high level of confidence in the
    estimating process and the estimate itself.

    * Accurate. The cost estimates should provide for results that are
    unbiased, and they should not be overly conservative or optimistic
    (i.e., should represent most likely costs). In addition, the estimates
    should be updated regularly to reflect material changes in the program,
    and steps should be taken to minimize mathematical mistakes and their
    significance. Among other things, the estimate should be grounded in
    documented assumptions and a historical record of cost estimating and
    actual experiences on other comparable programs.

    * Credible. The cost estimates should discuss any limitations in the
    analysis performed due to uncertainty or biases surrounding data or
    assumptions, and their derivation should provide for varying major
    assumptions and recalculating outcomes based on sensitivity analyses,
    and the associated risk and uncertainty inherent in estimates should be
    disclosed. Further, the estimates should be verified based on cross-
    checks using other methods and by comparing the results with
    independent cost estimates.

    We found that VA does not have a reliable cost estimate for operating
    and maintaining underutilized and vacant VHA property because it does
    not have a system for tracking operations and maintenance costs on a
    building-by-building basis. In recognizing this shortcoming, VA's
    office responsible for cost estimating calculated operating costs for
    VA medical facilities with various levels of occupancy, including fully
    utilized, mothballed adjacent, and mothballed standalone.[Footnote 60]
    Using the data VA provided to us on the number of underutilized and
    vacant square feet it has retained in 2007, we multiplied these figures
    with cost estimates from the VA pricing guide to determine the amount
    VA spends to operate buildings at VHA facilities. Our estimate using
    the VA pricing guide showed that VA may be spending $148 million a year
    on operating and maintaining underutilized and vacant property. To test
    the reliability of this cost estimate, we assessed the VA pricing guide
    against our four characteristics of a high-quality and reliable cost
    estimate and found it did not fully reflect best practices associated
    with a reliable cost estimate, including being comprehensive, well-
    documented, accurate, and credible (see table 6).

    Table 6: Summary of VA's Implementation of Best Practices for Cost
    Estimating in Its Pricing Guide:

    Cost estimation best practice characteristic: Comprehensive;
    Addressed in cost estimate?: Partial.

    Cost estimation best practice characteristic: Well-documented;
    Addressed in cost estimate?: No.

    Cost estimation best practice characteristic: Accurate;
    Addressed in cost estimate?: No.

    Cost estimation best practice characteristic: Credible;
    Addressed in cost estimate?: No.

    Source: GAO analysis of VA pricing guide.

    [End of table]

    The annual cost estimate of $148 million is not fully comprehensive
    because it does not include all potential operations and maintenance
    costs. Specifically, the VA pricing guide includes costs associated
    with electricity, water, gas, sewage, major systems maintenance,
    building shell maintenance,[Footnote 61] janitorial services, and
    security. However, it does not include other pertinent costs such as
    property management, grounds maintenance, and pavement clearance. The
    VA official responsible for the development of the pricing guide said
    that these costs were omitted because the estimates he included were
    those directly related to the buildings and not the surrounding area.
    Our site visits to VHA medical facilities revealed that costs
    associated with engineering project management, which we consider to be
    similar to real property management, and grounds maintenance are annual
    costs that should be considered. Moreover, the Federal Real Property
    Council requires agencies to report annually the following operating
    costs: recurring maintenance and repair costs, utilities (includes
    plant operation and purchase of energy), cleaning and janitorial costs
    (includes pest control, refuse collection, and disposal to include
    recycling operations), and roads and grounds expenses (includes grounds
    maintenance, landscaping, and snow and ice removal from roads, piers,
    and airfields). Therefore, we determined that because some costs were
    omitted, the cost estimate is not comprehensive and is likely
    underestimated. Moreover, although the VA official who developed the
    pricing guide identified some key assumptions, such as the cost
    elements included in the estimate, other key assumptions, such as labor
    rates and inflation indexes, were not known.

    The cost estimate does not meet best practices for being well-
    documented. For example, VA has neither documented the calculations and
    results used to derive the cost estimate, including the methodologies
    used, nor has it traced the cost estimate back to source data (e.g.,
    vendor invoices, salary data, etc.) The VA official responsible for
    developing the pricing guide described the estimating approach used,
    such as contacting the Defense Health Program, Marshall Erdman, McFaul
    & Lyons, Marshall & Swift, and the Building Owners and Managers
    Association to collect data on utility (i.e., gas, electric, and
    sewer), janitorial, security and maintenance costs in the Washington,
    D.C., area, but could not provide detailed documentation of the
    estimate that showed the methodology used to arrive at the total costs
    of each of these elements and how they were summed to arrive at the
    overall cost estimate. Therefore, the lack of documentation to support
    the program's cost estimate raises questions about its accuracy.

    The cost estimate does not meet best practices for accuracy in that it
    does not reflect an assessment of the costs most likely to be incurred.
    Specifically, the cost estimate omits pertinent costs associated with
    general property management and grounds maintenance, which results in
    underestimating the total annual costs. In addition, the data used to
    develop the cost estimate are not accurate as some judgment calls had
    to be made because the agencies VA contacted did not calculate
    operations and maintenance costs consistently. For example, McFaul &
    Lyons calculated heating and cooling costs but not maintenance costs.
    Marshall Erdman did not include water and sewer costs. Moreover, the
    Building Owners and Managers Association's costs were based on 10 hours
    of operation per day whereas VA is a 24 hour/7 days a week operation.
    Finally, VA warns users of the VA pricing guide that the data should be
    used for strategic planning purposes only and not for budgeting because
    the costs shown are averages to be used for establishing an order of
    magnitude. It further cautions that actual costs will vary depending on
    the complexity and unique conditions of each project.

    The cost estimate does not meet best practices for being credible in
    that cross-checks were not performed on the cost estimate for key cost
    drivers, and sensitivity analysis and risk analysis were not conducted
    on the cost estimate. While VA claimed that other organizations
    reviewed the validity of the cost estimates in the VA pricing guide, it
    provided no documentation for us to verify. A sensitivity analysis
    reveals how the cost estimate is affected by a change in a single
    assumption or cost driver, such as rising energy costs, while holding
    all other parameters constant. By contrast, a risk analysis assesses
    the aggregate variability of the cost estimate to determine a
    confidence range around the estimate.[Footnote 62] Conducting a
    sensitivity analysis could have enabled VA to estimate the potential
    cost impacts due to rising energy costs and to capture the differences
    in costs from one location to another. Conducting a sensitivity
    analysis also could have enabled VA to estimate potential cost impacts
    due to differences in costs from one location to another. In performing
    a risk analysis, an organization varies the effects of multiple factors
    on costs and, as a result, can express a level of confidence in the
    cost estimate. Because VA has not conducted any analysis of
    uncertainty, it has not produced a credible cost estimate. Absent this
    analysis, VA's ability to identify and focus on major cost drivers,
    better understand the potential for cost growth, quantify the risk and
    uncertainty associated with the cost estimate, and provide a level of
    confidence for the cost estimate is impeded. Further, VA did not have
    an independent cost estimate prepared to try to validate its annual
    cost estimate.

    The senior VA official responsible for cost estimating stated that VA
    does not have the resources it needs to develop cost estimates in
    accordance with the best practices identified in our Cost Assessment
    Guide. Additionally, there is no formal policy within VA on how to
    develop cost estimates for operating and maintaining underutilized and
    vacant space. For example, the medical facilities we visited either had
    their own processes to develop annual cost estimates or did not know
    what they were spending. By not following practices associated with
    developing reliable cost estimates, VA does not have valid cost
    information from which to make sound and prudent decisions.
    Furthermore, the lack of a reliable cost estimate results in VA not
    knowing how much it spends each year on space that provides no benefit
    to veterans or taxpayers. Without a full accounting of the cost to
    operate underutilized and vacant space, VA will continue to spend
    millions of dollars each year on property it does not utilize.

    The results of a high-quality, reliable cost estimate should be cross-
    checked using an independent cost estimate to determine whether other
    estimating methods produce similar results. An independent cost
    estimate is considered to be one of the most reliable validation
    methods. An independent cost estimate typically is performed by
    organizations higher in the decision-making process than the office
    performing the baseline cost estimate, using different estimating
    techniques and, where possible, different data sources from those used
    to develop the baseline cost estimate.

    Given the VA pricing guide did not meet best practices, we felt it was
    imperative to test the reasonableness of the $148 million estimate we
    derived from using the VA pricing guide. In response, we developed our
    own independent cost estimate for what VA is spending on underutilized
    and vacant property using cost model data provided by the Whitestone
    Building Operations Cost Reference--a document published and updated
    annually, which reflects industry standards and surveys building
    operations costs.[Footnote 63] This source provided an independent set
    of raw data for operation cost elements.

    * Energy includes all expenses related to the purchase, generation,
    distribution, and conservation of energy and source fuels necessary to
    operate a building; utilities maintenance and supervision are not
    included.
    * Maintenance and repair include all activities to keep a building in
    good working order. Preventative maintenance, unscheduled maintenance,
    and component repair and replacement costs are considered maintenance
    and repair activities, while restoration and modernization are not.

    * Property management includes services common to a large commercial
    facility: public works, business services, contracts, material
    procurement, facility data, furnishings, real estate, and engineering
    services.

    * Water and sewer include potable water, irrigation water, and sewage
    service.

    * Custodial includes services for cleaning offices, work areas,
    restrooms, and common areas. Trash removal is not included in this cost
    element.

    * Grounds maintenance includes maintenance of exterior areas, such as
    landscaping, sidewalks, and external parking lots.

    * Telecom includes voice and data equipment and service subscriptions.

    * Pest control includes both indoor and outdoor pest control programs.

    * Refuse is trash collection and disposal, pick-up services, fees,
    recycling operations and administration, composting, and more. Handling
    and disposal of hazardous materials are not included.

    * Security ensures the physical security of buildings and occupants,
    including monitoring equipment, guards, and patrol services.

    * Pavement clearance includes sweeping sand and debris and removing
    snow and ice from paved areas, including sidewalks, walkways, and
    parking lots.

    From the Whitestone Building Operations Cost Reference, operations data
    were presented for many different structure types, but a small subset
    of VHA analogous facilities were selected for our analysis, including
    hospitals and medical clinics. Based on a sample set of structures, we
    calculated an average cost per square foot for each operations cost
    element. In addition, costs were normalized for location using locality
    indices. Since cities were not a one-for-one match with VHA cities, we
    rolled the data up to the state level. Our analysis using average cost
    per square foot for each operation's cost element and normalized for
    state-level locality indices yielded a most likely cost estimate of
    $175 million for 2007. In addition, the Whitestone publication provided
    nominal upper bounds and lower bounds for each cost element. We modeled
    the data dispersion using triangular probability distributions defined
    by the lower bound and upper bound extended to two standard deviations,
    and most likely values.[Footnote 64] Table 7 displays the 2007 cost per
    square foot data range used in our cost uncertainty modeling.

    Table 7: 2007 Operations Cost per Square Foot:

    Cost element: Energy;
    Lower bound: $4.18;
    Most likely: $8.63;
    Upper bound: $10.36.

    Cost element: Maintenance and repair;
    Lower bound: $2.16;
    Most likely: $4.13;
    Upper bound: $7.74.

    Cost element: Real property management;
    Lower bound: $0.00;
    Most likely: $3.90;
    Upper bound: $7.63.

    Cost element: Custodial services;
    Lower bound: $0.64;
    Most likely: $3.82;
    Upper bound: $7.20.

    Cost element: Water/waste water;
    Lower bound: $0.00;
    Most likely: $1.71;
    Upper bound: $10.18.

    Cost element: Telecom;
    Lower bound: $0.16;
    Most likely: $0.42;
    Upper bound: $0.64.

    Cost element: Security;
    Lower bound: $0.19;
    Most likely: $0.35;
    Upper bound: $2.91.

    Cost element: Grounds maintenance;
    Lower bound: $0.05;
    Most likely: $0.21;
    Upper bound: $0.39.

    Cost element: Refuse collection;
    Lower bound: $0.00;
    Most likely: $0.10;
    Upper bound: $0.34.

    Cost element: Pest control;
    Lower bound: $0.02;
    Most likely: $0.07;
    Upper bound: $0.10.

    Cost element: Pavement clearance;
    Lower bound: $0.00;
    Most likely: $0.02;
    Upper bound: $0.04.

    Subtotal operations costs;
    Most likely: $23.36.

    Subtotal mothball costs;
    Most likely: $8.70.

    Source: GAO.

    [End of table]

    Mothball costs for vacant property were based on a subset of operations
    costs; some cost elements were modeled at a reduced service level.

    * Cost estimates for grounds maintenance, pest control, and pavement
    clearance were based on 100 percent service.

    * Energy costs were modeled with factor of full service, using a
    triangular probability distribution ranging from 25 percent to 50
    percent.

    * Maintenance and repair costs were modeled with factor of full
    service, using a triangular probability distribution ranging from 25
    percent to 75 percent.

    * Property management costs were modeled with factor of full service,
    using a triangular probability distribution ranging from 50 percent to
    100 percent.

    * Security costs were modeled with factor of full service, using a
    triangular probability distribution ranging from 25 percent to 50
    percent.

    * No custodial or telecom costs were included for vacant property.

    Costs were normalized for location using locality indices. Since the
    cities used in the Whitestone publication were not a one-for-one match
    with VA cities, data were rolled up to the state level. For each state,
    city-level locality indices were grouped. The grouped data were used to
    calculate an average and a standard deviation. Our analysis used these
    calculated average state-level locality indices to adjust for
    differences in costs across the country. Table 8 displays the locality
    indices and standard deviations associated with each state.

    Table 8: 2007 Operations Cost State-level Locality Indices:

    State: AK;
    Mean: 1.045;
    Standard deviation: 0.015.

    State: AL;
    Mean: 0.862;
    Standard deviation: 0.017.

    State: AR;
    Mean: 0.808;
    Standard deviation: NA.

    State: AZ;
    Mean: 0.878;
    Standard deviation: 0.017.

    State: CA;
    Mean: 1.026;
    Standard deviation: 0.044.

    State: CO;
    Mean: 0.890;
    Standard deviation: 0.021.

    State: CT;
    Mean: 1.062;
    Standard deviation: 0.030.

    State: DC;
    Mean: 1.000;
    Standard deviation: NA.

    State: DE;
    Mean: 0.973;
    Standard deviation: NA.

    State: FL;
    Mean: 0.879;
    Standard deviation: 0.023.

    State: GA;
    Mean: 0.861;
    Standard deviation: 0.043.

    State: HI;
    Mean: 1.287;
    Standard deviation: 0.031.

    State: IA;
    Mean: 0.882;
    Standard deviation: 0.023.

    State: ID;
    Mean: 0.812;
    Standard deviation: 0.015.

    State: IL;
    Mean: 0.933;
    Standard deviation: 0.028.

    State: IN;
    Mean: 0.883;
    Standard deviation: 0.016.

    State: KS;
    Mean: 0.866;
    Standard deviation: 0.021.

    State: KY;
    Mean: 0.863;
    Standard deviation: 0.011.

    State: LA;
    Mean: 0.874;
    Standard deviation: 0.016.

    State: MA;
    Mean: 1.057;
    Standard deviation: 0.035.

    State: MD;
    Mean: 0.960;
    Standard deviation: NA.

    State: ME;
    Mean: 0.929;
    Standard deviation: NA.

    State: MI;
    Mean: 0.905;
    Standard deviation: 0.044.

    State: MN;
    Mean: 0.921;
    Standard deviation: 0.029.

    State: MO;
    Mean: 0.889;
    Standard deviation: 0.053.

    State: MS;
    Mean: 0.844;
    Standard deviation: 0.018.

    State: MT;
    Mean: 0.837;
    Standard deviation: 0.011.

    State: NC;
    Mean: 0.822;
    Standard deviation: 0.014.

    State: ND;
    Mean: 0.815;
    Standard deviation: 0.006.

    State: NE;
    Mean: 0.848;
    Standard deviation: NA.

    State: NH;
    Mean: 0.999;
    Standard deviation: NA.

    State: NJ;
    Mean: 1.080;
    Standard deviation: 0.027.

    State: NM;
    Mean: 0.853;
    Standard deviation: 0.023.

    State: NV;
    Mean: 0.924;
    Standard deviation: 0.001.

    State: NY;
    Mean: 1.084;
    Standard deviation: 0.084.

    State: OH;
    Mean: 0.926;
    Standard deviation: 0.012.

    State: OK;
    Mean: 0.836;
    Standard deviation: 0.013.

    State: OR;
    Mean: 0.893;
    Standard deviation: 0.011.

    State: PA;
    Mean: 0.951;
    Standard deviation: 0.042.

    State: RI;
    Mean: 1.021;
    Standard deviation: NA.

    State: SC;
    Mean: 0.818;
    Standard deviation: 0.006.

    State: SD;
    Mean: 0.792;
    Standard deviation: 0.022.

    State: TN;
    Mean: 0.851;
    Standard deviation: 0.023.

    State: TX;
    Mean: 0.879;
    Standard deviation: 0.025.

    State: UT;
    Mean: 0.822;
    Standard deviation: 0.005.

    State: VA;
    Mean: 0.823;
    Standard deviation: 0.019.

    State: VT;
    Mean: 0.926;
    Standard deviation: 0.001.

    State: WA;
    Mean: 0.892;
    Standard deviation: 0.024.

    State: WI;
    Mean: 0.911;
    Standard deviation: 0.022.

    State: WV;
    Mean: 0.866;
    Standard deviation: 0.001.

    State: WY;
    Mean: 0.788;
    Standard deviation: NA.

    Source: GAO.

    [End of table]

    Square footage across sites was sorted and summed to the state level.
    Table 9 presents space claims for underutilized and vacant facilities.

    Table 9: 2007 VA Facilities Square Feet of Underutilized and Vacant
    Space:

    State: Alaska;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): [Empty].

    State: Alabama;
    Summarized: Underutilized 2007 (sq ft): 434,641;
    Summarized: Vacant 2007 (sq ft): 382,873.

    State: Arkansas;
    Summarized: Underutilized 2007 (sq ft): 136,243;
    Summarized: Vacant 2007 (sq ft): 58,824.

    State: Arizona;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): 13,618.

    State: California;
    Summarized: Underutilized 2007 (sq ft): 411,243;
    Summarized: Vacant 2007 (sq ft): 803,820.

    State: Colorado;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): 12,799.

    State: Connecticut;
    Summarized: Underutilized 2007 (sq ft): 41,635;
    Summarized: Vacant 2007 (sq ft): 59,175.

    State: District of Columbia;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): [Empty].

    State: Delaware;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): 15,184.

    State: Florida; Summarized:
    Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): 23,104.

    State: Georgia;
    Summarized: Underutilized 2007 (sq ft): 136,834;
    Summarized: Vacant 2007 (sq ft): 251,728.

    State: Hawaii;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): [Empty].

    State: Iowa;
    Summarized: Underutilized 2007 (sq ft): 69,686;
    Summarized: Vacant 2007 (sq ft): 275,140.

    State: Idaho;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): 4,276.

    State: Illinois;
    Summarized: Underutilized 2007 (sq ft): 260,319;
    Summarized: Vacant 2007 (sq ft): 558,152.

    State: Indiana;
    Summarized: Underutilized 2007 (sq ft): 289,985;
    Summarized: Vacant 2007 (sq ft): 473,365.

    State: Kansas;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): 25,833.

    State: Kentucky;
    Summarized: Underutilized 2007 (sq ft): 136,940;
    Summarized: Vacant 2007 (sq ft): 302,567.

    State: Louisiana;
    Summarized: Underutilized 2007 (sq ft): 261,843;
    Summarized: Vacant 2007 (sq ft): 9,604.

    State: Massachusetts;
    Summarized: Underutilized 2007 (sq ft): 148,210;
    Summarized: Vacant 2007 (sq ft): 260,730.

    State: Maryland;
    Summarized: Underutilized 2007 (sq ft): 72,652;
    Summarized: Vacant 2007 (sq ft): 93,779.

    State: Maine;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): 25,594.

    State: Michigan;
    Summarized: Underutilized 2007 (sq ft): 312,247;
    Summarized: Vacant 2007 (sq ft): 235,761.

    State: Minnesota;
    Summarized: Underutilized 2007 (sq ft): 18,372;
    Summarized: Vacant 2007 (sq ft): 27,322.

    State: Missouri;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): 140,718.

    State: Mississippi;
    Summarized: Underutilized 2007 (sq ft):[Empty];
    Summarized: Vacant 2007 (sq ft): 7,367.

    State: Montana;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): 107,457.

    State: North Carolina;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): 54,456.

    State: North Dakota;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): [Empty].

    State: Nebraska;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): 65,552.

    State: New Hampshire;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): [Empty].

    State: New Jersey;
    Summarized: Underutilized 2007 (sq ft): 160,728;
    Summarized: Vacant 2007 (sq ft): 186,621.

    State: New Mexico;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): [Empty].

    State: Nevada;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): [Empty].

    State: New York;
    Summarized: Underutilized 2007 (sq ft): 865,651;
    Summarized: Vacant 2007 (sq ft): 868,299.

    State: Ohio;
    Summarized: Underutilized 2007 (sq ft): 226,486;
    Summarized: Vacant 2007 (sq ft): 352,457.

    State: Oklahoma;
    Summarized: Underutilized 2007 (sq ft): 54,596;
    Summarized: Vacant 2007 (sq ft): 8,733.

    State: Oregon;
    Summarized: Underutilized 2007 (sq ft): 22,672;
    Summarized: Vacant 2007 (sq ft): 62,257.

    State: Pennsylvania;
    Summarized: Underutilized 2007 (sq ft): 407,547;
    Summarized: Vacant 2007 (sq ft): 173,098.

    State: Puerto Rico;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): [Empty].

    State: Rhode Island;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): 100.

    State: South Carolina;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): 67,369.

    State: South Dakota;
    Summarized: Underutilized 2007 (sq ft): 44,773;
    Summarized: Vacant 2007 (sq ft): 60,145.

    State: Tennessee;
    Summarized: Underutilized 2007 (sq ft): 290,566;
    Summarized: Vacant 2007 (sq ft): 102,406.

    State: Texas;
    Summarized: Underutilized 2007 (sq ft): 121,707;
    Summarized: Vacant 2007 (sq ft): 277,042.

    State: Utah;
    Summarized: Underutilized 2007 (sq ft): 68,940;
    Summarized: Vacant 2007 (sq ft): [Empty].

    State: Virginia;
    Summarized: Underutilized 2007 (sq ft): 239,458;
    Summarized: Vacant 2007 (sq ft): 161,154.

    State: Vermont;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): [Empty].

    State: Washington;
    Summarized: Underutilized 2007 (sq ft): 10,217;
    Summarized: Vacant 2007 (sq ft): 37,788.

    State: Wisconsin;
    Summarized: Underutilized 2007 (sq ft): [Empty];
    Summarized: Vacant 2007 (sq ft): 396,053.

    State: West Virginia;
    Summarized: Underutilized 2007 (sq ft):
    Summarized: Vacant 2007 (sq ft): 19,139.

    State: Wyoming;
    Summarized: Underutilized 2007 (sq ft): 6,734;
    Summarized: Vacant 2007 (sq ft): 29,886.

    Total;
    Summarized: Underutilized 2007 (sq ft): 5,250,925;
    Summarized: Vacant 2007 (sq ft): 7,091,345.

    Source: GAO.

    [End of table]

    For each cost element, the operations cost per square foot was
    multiplied by the underutilized and vacant square footage, and the
    result was adjusted for locality using a state-index.

    Given the importance of sensitivity and uncertainty analyses[Footnote
    65] for producing a high-quality cost estimate, we conducted these
    analyses for our independent cost estimate. Using the Whitestone data,
    we were able to model the cost uncertainty (statistical bounds) of our
    independent cost estimate, which enabled us to understand the potential
    variability of our cost estimate should the facts, circumstances, and
    assumptions change. Performing an uncertainty analysis enabled us to
    quantify the risk and uncertainty associated with our cost estimate and
    allowed us to provide a level of confidence for our cost estimate by
    providing us with a statistical perspective on the potential
    variability within it.

    Based on this analysis we estimate that the annual cost of operating
    and maintaining underutilized and vacant VHA space could vary from $175
    million to $185 million at the 50 percent and 70 percent confidence
    levels, respectively (see fig. 11).

    Figure 11: Cumulative Probability Distribution of Total 2007 Costs:

    [See PDF for image]

    This figure is a line graph depicting the following data:

    Percentage:
    Dollars in millions: $116;
    Percentage: 0.02%.

    Dollars in millions: $134;
    Percentage: 0.88%.

    Dollars in millions: $152;
    Percentage: 8.78%.

    Dollars in millions: $170;
    Percentage: 36.7%.

    Dollars in millions: $175;
    Percentage: 48.52%.

    Dollars in millions: $185;
    Percentage: 70.6%.

    Dollars in millions: $187;
    Percentage: 73.94%.

    Dollars in millions: $205;
    Percentage: 94.62%.

    Dollars in millions: $240;
    Percentage: 100%.

    Source: GAO.

    [End of figure]

    When compared to the $148 million cost estimate we produced using the
    VA pricing guide, there is less than a 10 percent probability that the
    estimate will be $148 million or lower based on the amount of variation
    that exists within the operating cost elements and locality indices
    (see table 10). The analysis also revealed that energy, maintenance,
    and property management are the cost drivers and contribute the most
    variability within the independent cost estimate.

    Table 10: Percentile Rankings for 2007 Total Costs:

    Percentile: 0%;
    Value: $116,486,663.

    Percentile: 10%;
    Value: $153,184,555.

    Percentile: 20%;
    Value: $160,645,545.

    Percentile: 30%;
    Value: $166,572,771.

    Percentile: 40%;
    Value: $171,012,617.

    Percentile: 50%;
    Value: $175,463,250.

    Percentile: 60%;
    Value: $180,112,142.

    Percentile: 70%;
    Value: $185,090,415.

    Percentile: 80%;
    Value: $190,506,295.

    Percentile: 90%;
    Value: $199,187,043.

    Percentile: 100%;
    Value: $240,229,959.

    Source: GAO.

    [End of table]

    The estimate at this confidence level represents an assumption that the
    inputs--i.e., VA's data on underutilized and vacant square footage--are
    accurate. According to VA officials, the data on vacant square feet are
    inputted directly into the Capital Asset Inventory. Underutilized
    square footage, on the other hand, is calculated by subtracting ideal
    square footage from the total square footage available at each station.
    Ideal square footage, in turn, is imputed using a VA program--
    SpaceDriver--from many inputs, including patient workloads and medical
    service standards. Moreover, according to VA officials, underutilized
    square footage includes vacant square footage. To calculate
    underutilized square footage for this report, we subtracted the vacant
    square footage from VA's reported underutilized square footage. There
    were several VHA stations for which vacant square footage exceeded the
    reported underutilized square footage, however, resulting in a negative
    number. A VA official said that these were due to reporting
    deficiencies, where common space and other incidental space were not
    properly recorded in the Capital Asset Inventory. In addition, we
    identified some other data errors during the course of our audit that
    VA is working to correct. We do not know the extent to which such
    reporting deficiencies or errors are prevalent in the system. VA is in
    the process of completing an audit of the Capital Asset Inventory
    database to determine if the data at the station level reflect the
    actual utilization of VA's assets. The outcome of this audit could
    affect our cost estimate.

    [End of section]

    Appendix III: Comments from the Department of Veterans Affairs:

    The Secretary Of Veterans Affairs:
    Washington:

    August 14, 2008:

    Mr. Mark Goldstein:
    Director:
    Physical Infrastructure:
    U.S. Government Accountability Office:
    441 G Street, NW:
    Washington, DC 20548:

    Dear Mr. Goldstein:

    The Department of Veterans Affairs (VA) has reviewed your draft report,
    Federal Real Property: Progress Made in Reducing Unneeded Property, but
    VA Needs Better Information to Make Further Reductions GAO-08-939. VA
    officials appreciate the opportunity to comment.

    VA concurs in principle with the majority of your recommendations. Our
    response highlights five areas of concern and provides additional focus
    on important distinctions. VA manages its portfolio of capital assets
    aggressively and the use of special authorities is critical to the
    success of our efforts. The continuing implementation of the Capital
    Asset Realignment for Enhanced Services (CARES) decisions, coupled with
    the site review initiative and other targeted projects, demonstrate
    that VA is taking appropriate steps to ensure a well-grounded strategy
    to managing its real property. Not only has VA made great strides in
    reducing its underutilized and vacant property inventory over the past
    3 years, but significant initiatives are underway.

    The enclosures provide details and context to address VA's concerns.
    The enclosures are: VA's five key points of disagreement; a listing of
    VA's fiscal years 2008 to 2012 planned disposals; VA's response to
    GAO's recommendations; and technical comments on the draft report.

    Sincerely, yours,

    Signed by:

    James B. Peake, M.D.

    Enclosures:

    Enclosure:

    Department of Veterans Affairs (VA) Comments to Government
    Accountability Office (GAO) Draft Report Federal Real Property:
    Progress Made in Reducing Unneeded Property, but VA Needs Better
    Information to Make Further Reductions (GAO-08-939):

    Five Key Points of Disagreement Between VA and GAO:

    Following is a brief summary of the five major points of disagreement
    between VA and GAO:

    1. Vacant space is double counted.

    GAO based its calculations throughout the draft report on a combination
    of underutilized and vacant square footage (sq ft), adding the two
    together. (For example, for fiscal year (FY) 2007 GAO used 11,604,885
    sq ft of underutilized space plus 7,297,407 sq ft of vacant space for a
    total of more than 19 million sq ft.) This calculation is not correct.
    VA includes vacant square footage as a subset of its underutilized
    space. For the same FY, VA's underutilized and vacant space totaled
    11,058,491 sq ft.

    2. Unit costs for operations and maintenance of underutilized space is
    overstated.

    VA and GAO differ in approach and methodologies used to estimate unit
    costs for operating and maintaining (O&M) underutilized space. No one
    in the Federal government links O&M costs to an accounting system by
    building. Instead, VA uses actual monthly costs at the station level
    and prorates these costs based on hours of operation and predominant
    use. This approach has been approved by Office of Management and Budget
    (OMB) and the Federal Real Property Council (FRPC). GAO developed an
    independent cost model for this report that produced a unit cost over
    $14 more per sq ft than VA's approach. This resulted in a difference of
    close to $222 million in the estimated total O&M costs for FY 2007 (GAO
    estimated $307 million; VA prorated the same costs at $85.2 million).

    3. VA does have valid cost information from which to make sound and
    prudent decisions.

    This report raises questions about VA's ability to develop
    "comprehensive, accurate, well-documented, and credible" annual cost
    estimates of the overhead expenses required to maintain our inventory
    of underutilized and vacant properties. In fact,

    a) VA reports prorated building costs to the FRPC annually based on an
    OMB approved methodology. The prorated costs are based on actual
    stations' costs and adjusted for hours of operation and predominant
    use.

    b) VA maintains current year building level inventory, including square
    footage, type, condition, corrections costs and disposals (planned and
    actual).

    c) VA maintains historical inventory and financial data at the station
    level in VA's capital asset management system (CAMS) for FY 2005-2007,
    and the data is updated monthly.

    d) VA is developing requirements for a real property (asset level) cost
    accounting system that will replace VA's existing financial management
    system (FMS).

    4. VA does analyze data with respect to FRPC Tier 1 metrics (mission
    dependency, utilization, condition, cost).

    VA was instrumental in developing the disposal algorithm used by the
    Federal community. The algorithm is used to identify assets that are
    nonmission-dependent, underutilized, in poor condition, and with high
    costs as potential buildings for disposal. VA develops and updates a 5-
    year disposal plan annually and provides OMB with a quarterly report of
    disposals. This extensive plan is a key component of VA's short and
    long-term capital asset management strategy, yet it is omitted from
    GAO's report. Over the next 5 years, VA plans to dispose of 72
    buildings and 1,118,653 sq ft based on FRPC Tier 1 metrics, using our
    disposal authorities. In short, VA is aware of its underutilized and
    vacant properties and is using numerous strategies to dispose of or
    find alternative uses for these capital assets.

    5. VA does track revenue generated, sq ft reductions and services
    received through agreements; however it is not done systematically or
    in a standard way across all agreement types.

    VA does track and can provide the amount of revenue generated for space
    and services at a local level, although the data is not systematically
    or uniformly entered across all agreement types in a single data
    system. Revenue generated through enhanced-use leasing, outleases,
    sharing and other partnership agreements are tracked using revenue
    source codes. VA provided GAO with the revenue generated through
    agreements from FY 2005-2007. Annual one-time payments included $28
    million in FY 2005 and $22 million in FY 2006. Annual recurring revenue
    from outleased space generated $1.4 million in FY 2005; $.9 million in
    FY 2006; and $1.1 million in FY 2007. VA tracks, monitors and evaluates
    square foot reduction by building by disposal type. GAO received a list
    of FY 2005-2007 disposals and the list of FY 2008-2012 planned
    disposals is attached. VA will redouble its effort to ensure that data
    is captured consistently and uniformly, especially for services
    received through agreements. The new accounting system is being
    designed in part to track real property asset level costs and capture
    more uniformly all revenues generated.

    Responses to GAO Recommendations:

    Recommendation 1: To provide VA with an accurate picture of what it
    spends annually on maintaining underutilized and vacant property and a
    benchmark from which to work in decreasing these costs, develop an
    annual cost estimate for how much it spends on underutilized and vacant
    property, so that the estimate is comprehensive, accurate, well-
    documented, and credible.

    Concur- Over the last 3 years, VA has focused its efforts on reducing
    the amount of underutilized and vacant buildings and land parcels in
    its real property inventory. VA has developed a 5-year disposal plan
    that identifies 460 properties for disposal over the next 5 fiscal
    years. The 5-year plan includes eliminating 72 specific properties
    using our disposal authorities. VA has also identified 49 sites through
    its site review initiative to develop as transitional housing for
    homeless veterans. VA uses a combination of actual prorated operational
    and maintenance costs and a disposal algorithm as a basis for making
    well-informed capital asset management and disposal decisions. VA has
    the strategies and plans in place to continue monitoring and taking
    action to reduce its real property inventory. VA will, however,
    investigate the use of additional estimating tools and commercial
    benchmarks.

    Recommendation 2: Collect and maintain building-level data by fiscal
    year in order to correlate characteristics associated with
    underutilized and vacant buildings which may help to identify unneeded
    assets.

    Non Concur- VA collects and analyzes a significant amount of data at
    the station and building level. VA is in full compliance with all
    reporting requirements of the Office of Management and Budget, the
    President's Management Agenda Initiative on Federal Real Property Asset
    Management, and the Federal Real Property Council at both the station
    and building levels. In addition, VA already identifies unneeded assets
    using a disposal algorithm and targeted programs such as the site
    review initiative and implementation of the Capital Asset Realignment
    for Enhanced Services (CARES) decisions.

    Recommendation 3: When recording new agreements, as of fiscal year
    2008, track, monitor, and evaluate square footage reductions and
    financial and non-financial benefits.

    Concur- VA records information on all types of agreements. We agree
    with the need to improve the consistency of data on some types of
    agreements, especially sharing agreements, and to report in a more
    centralized manner. VA will work to make these improvements.

    [End of section]

    Appendix IV GAO Contact and Staff Acknowledgments:

    GAO Contact:

    Mark Goldstein, Director, Physical Infrastructure, (202) 512-2834 or
    GoldsteinM@gao.gov:

    Staff Acknowledgments:

    Individuals making key contributions to this report include Lisa
    Canini, Jeff Cherwonik, Cindy Gilbert, Ed Laughlin, Jessica Lucas-Judy,
    Maria Mercado, Susan Michal-Smith, John Mingus, Karen Richey, Stan
    Stenersen, and Gary Stofko.

    [End of section]

    Footnotes:

    [1] We have reported that more than 30 federal agencies, including VA,
    control a valuable portfolio of facilities and land that is at high
    risk due to vulnerabilities to waste, fraud, abuse, and mismanagement
    or major challenges associated with managing it in an efficient or
    effective manner. See GAO, Federal Real Property: Progress Made Toward
    Addressing Problems, but Underlying Obstacles Continue to Hamper
    Reform, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-349]
    (Washington, D.C.: Apr. 13, 2007); Federal Real Property: Excess and
    Underutilized Property Is an Ongoing Problem, [hyperlink,
    http://www.gao.gov/cgi-bin/getrpt?GAO-06-248T] (Washington, D.C.: Feb.
    6, 2006); and High-Risk Series: Federal Real Property, [hyperlink,
    http://www.gao.gov/cgi-bin/getrpt?GAO-03-122] (Washington, D.C.:
    January 2003).

    [2] For the purposes of this report, the term "station" refers to a VA
    medical center, Veterans Benefit Administration office, national
    cemetery, or staff office. Stations can be composed of multiple
    buildings.

    [3] Fiscal year 2005 represented the first year all data elements were
    fully collected in the Capital Asset Management System.

    [4] VA's staff offices include the Office of Public and
    Intergovernmental Affairs; Office of Management; Office of Information
    and Technology; Office of Human Resources and Administration; Office of
    Operations, Security and Preparedness; Office of Policy and Planning;
    and the Office of Congressional and Legislative Affairs. VA's staff
    organizations include the Board of Veterans' Appeals, Office of General
    Counsel, Inspector General, Veterans Service Organizations Liaison,
    Center for Minority Veterans, Center for Women Veterans, Employment
    Discrimination Complaint Adjudication, Office of Regulation Policy and
    Management, Small and Disadvantaged Business Utilization, Center for
    Veterans Enterprise, Center for Faith-Based and Community Initiatives,
    and Office of Construction and Facilities Management.

    [5] A network is a group of facilities located in the same geographic
    area of the country.

    [6] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GA0-07-349].

    [7] GAO, VA Health Care: Additional Efforts to Better Assess Joint
    Ventures Needed, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-
    399] (Washington, D.C.: Mar. 28, 2008).

    [8] 42 U.S.C. � 11411. VA properties that are leased to another party
    under an EUL are not considered to be unutilized or underutilized for
    purposes of the McKinney-Vento Act.

    [9] 16 U.S.C. � 470 et seq.

    [10] The underutilized square footage numbers we are reporting are
    different from the utilization numbers that VA reports. Our analysis
    only included underutilized square feet, whereas when VA measures its
    rate of utilization, it adds together underutilized square feet and
    overutilized square feet (additional square feet needed at a facility).

    [11] VHA's underutilized space made up 98 percent of VA's total
    underutilized space in fiscal years 2006 and 2007, and made up 99
    percent in fiscal year 2005.

    [12] Station" refers to a VA medical center, VBA office, national
    cemetery, or staff office. Stations can be composed of multiple
    buildings.

    [13] According to the VA official responsible for data management,
    building-level data for fiscal years prior to 2006 were unavailable
    because VA overwrote the data in its Capital Asset Inventory database.
    VA began archiving the data in fiscal year 2006 by taking snapshots of
    the data, but because these were taken at different points in time,
    data from fiscal years 2006 and 2007 are not comparable for purposes of
    our analysis.

    [14] OMB, Capital Programming Guide: Supplement to Circular A-11, Part
    7, Planning, Budgeting, and Acquisition of Capital Assets (Washington,
    D.C., Executive Office of the President, June 2006).

    [15] This analysis is based on 5,061 buildings that had age data
    available. VA does not know the age of 1,151 of its buildings.
    According to VA officials, VA does not maintain detailed information
    for small miscellaneous buildings, such as sheds, which could account
    for the lack of age data.

    [16] VA assesses the condition of its buildings' structure and systems
    (for example, structural, mechanical, and plumbing) to estimate
    remaining useful life and identify buildings that need immediate
    attention. Each facility is rated on an A to F grade scale. Buildings
    rated "D" are considered to be in "poor" condition, and buildings
    receiving a rating of "F" are in "critical" condition. The buildings
    are assessed in a 3-year cycle; approximately one-third are assessed
    each year.

    [17] There was a small increase in vacant space from fiscal year 2005
    through 2006 as a result of consolidating services at medical centers
    in Biloxi/Gulfport, Mississippi; Lexington, Kentucky; and Murfreesboro,
    Tennessee.

    [18] During the course of our work we learned NCA had vacant space at
    its cemetery lodges, but did not report it to VA's central office.
    According to our analysis, NCA had 9 vacant buildings totaling 10,459
    square feet in fiscal year 2007 as compared to VHA's 473 vacant
    buildings totaling 7,297,407 square feet. NCA is now entering vacant
    space information in VA's database, according to VA officials.

    [19] Although VA's database did not contain information on the number
    of vacant square feet at the building level, we identified this
    information based on our own analysis of the data.

    [20] This analysis is based on 5,061 buildings that had age data
    available. As previously noted, VA does not know the age of 1,151 of
    its buildings.

    [21] In 2007, VA identified 20 NCA sites with more than 100 undeveloped
    acres. However, NCA intends to use these sites for future burials, with
    the exception of 54 acres in the Dallas/Ft. Worth, Texas, area.

    [22] VA does track operations and maintenance costs at the station
    level. VA is implementing a pilot program to meter its buildings so
    that it can track utility usage at the building level. According to VA
    officials, there are no criteria for operating and maintaining vacant
    buildings; each medical center relies on its own judgment to determine
    requirements. Locations we visited reported making judgments on utility
    use and maintenance based on the perceived future use of the building.

    [23] Shell maintenance includes tuck pointing (i.e., the replacement of
    mortar), roof repair, and window replacement.

    [24] GAO, Cost Assessment Guide: Best Practices for Estimating and
    Managing Program Costs--Exposure Draft, [hyperlink,
    http://www.gao.gov/cgi-bin/getrpt?GAO-07-1134SP] (Washington, D.C.:
    July 2007).

    [25] An uncertainty analysis provides decision makers with a
    perspective on the potential variability of the estimate should the
    facts, circumstances, and assumptions change. By examining the effects
    of varying the estimate elements, a degree of uncertainty about the
    estimate can be expressed, possibly as an estimated range or qualified
    by some factor of confidence. The 50 percent confidence level, $175
    million in the case of our estimate, is the median and therefore the
    most likely outcome. The 70 percent confidence level is provided to
    offset the risk of underestimating. The $175 million estimate
    represents an assumption that VA's data on underutilized square footage
    are correct; however, we have some concerns about the accuracy of those
    numbers. VA is conducting an audit of its data systems, the outcome of
    which could affect our estimate. See app. II for more information.

    [26] See GAO, Federal Real Property: Vacant and Underutilized
    Properties at GSA, VA, and USPS, [hyperlink, http://www.gao.gov/cgi-
    bin/getrpt?GAO-03-747] (Washington, D.C.: Aug. 19, 2003).

    [27] At some of the locations we visited, VA officials identified other
    factors that may have contributed to changes in its underutilized and
    vacant space, including consolidation of services, reconfiguring space,
    increased workloads, and reclassification of certain space types. For
    example, VA's efforts to consolidate healthcare services could result
    in reductions in underutilized space but increases in vacant space.
    Because these factors were outside of the scope of our work, we did not
    evaluate the extent to which they contributed to reductions in
    underutilized and vacant property.

    [28] VA includes permits and licenses within its outlease category in
    the Capital Asset Management System.

    [29] VA has other authorities available but uses them to a far lesser
    extent, if at all. For example, VA has the authority to: transfer
    property and deposit the proceeds in a Capital Asset Fund until 2011
    (38 U.S.C. � 8118); transfer any interest in real property to a state
    for use as a state nursing home or domiciliary (38 U.S.C. � 8122); or
    transfer the real property to GSA for disposal (38 U.S.C. � 8122).

    [30] Our past work has shown that whether agreements are beneficial
    governmentwide is largely dependent on individual circumstances. We did
    not formally evaluate, verify, or validate the impact of these
    agreements or measure their overall effect.

    [31] According to VA officials, VA only disposes of property if it is a
    "win-win" situation, meaning that the disposal provides both a benefit
    to the veterans and is acceptable to the local community.

    [32] 38 U.S.C. � 8164.

    [33] According to VA officials, VA plans to dispose of 436 buildings
    from fiscal year 2008 through fiscal year 2012; however, VA has not
    estimated the costs of these disposals and they have not yet been
    funded.

    [34] VHA allows a company to place a cell phone tower on VA property in
    exchange for financial compensation.

    [35] For more information on this EUL, see GAO, Capital Financing:
    Partnerships and Energy Savings Performance Contracts Raise Budgeting
    and Monitoring Concerns, GAO-05-55 (Washington, D.C.: Dec. 16, 2004).

    [36] Stations reviewed included Northern Indiana Healthcare System
    (Marion Campus), Indiana; West Los Angeles, California; Tuskegee,
    Alabama; Milwaukee, Wisconsin; Montrose, New York; Sepulveda (North
    Hills), California; Hines, Illinois; Knoxville, Iowa; Waco, Texas;
    Dayton, Ohio; Augusta (Lenwood), Georgia; Lexington/Leestown, Kentucky;
    Marlin, Texas; Northport, New York; and Lyons, New Jersey; with a total
    of 4,101,038 vacant square feet, representing 57 percent of all VA
    vacant space.

    [37] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-122].

    [38] This estimate is just for underutilized and vacant buildings. VA's
    estimated repair cost for all buildings in "poor" or "critical"
    condition was $6.5 billion.

    [39] For the purposes of this report, historic properties include
    properties that have been designated as National Historic Landmarks,
    have been listed or are eligible to be listed in the National Register,
    or have a contributing element in a National Historic Landmark or
    National Register Listed district.

    [40] 16 U.S.C. 470 �et seq. The Act establishes roles and
    responsibilities of the federal government to preserve and protect
    historic properties.

    [41] The State Historic Preservation Office is a state government
    agency that has legal responsibilities under the National Historic
    Preservation Act to, among other things, consult federally funded
    undertakings that affect historic properties.

    [42] GAO, Improved Planning Needed for Management of Excess Real
    Property, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-326]
    (Washington D.C.: Jan. 29, 2003).

    [43] P.L. No. 100-322, Section 421(b)(2), 102 Stat. 487, 553 (1988).

    [44] 38 U.S.C. � 8162(c).

    [45] P.L. No. 110-161, Section 224(a), 121 Stat. 1844, 2272 (2007).

    [46] In GAO-07-349, we discuss the administration's focus on real
    property management as a positive step but note that certain areas
    warrant further action. Specifically, problems are exacerbated by
    underlying obstacles, such as legal and budgetary limitations that, in
    some cases, may be barriers to agencies disposing of excess property.

    [47] 38 U.S.C. � 8122.

    [48] 38 U.S.C. � 8164.

    [49] GAO, Capital Financing: Potential Benefits of Capital Acquisition
    Funds Can Be Achieved through Simpler Means, [hyperlink,
    http://www.gao.gov/cgi-bin/getrpt?GAO-05-249] (Washington, D.C.: Apr.
    8, 2005).

    [50] As noted earlier, VA properties that are leased to another party
    under an EUL are not considered to be unutilized or underutilized for
    purposes of the McKinney-Vento Act (see 38 U.S.C. � 8162).

    [51] We have reported elsewhere on this process. See GAO, Federal Real
    Property: Most Public Benefit Conveyances Used as Intended, but
    Opportunities Exist to Enhance Federal Oversight, GAO-06-511
    (Washington, D.C.: June 21, 2006).

    [52] GAO, Public-Private Partnerships: Pilot Program Needed to
    Demonstrate the Actual Benefits of Using Partnerships, [hyperlink,
    http://www.gao.gov/cgi-bin/getrpt?GAO-01-906] (Washington, D.C.: July
    25, 2001).

    [53] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-55].

    [54] VA is authorized to provide real property to GSA for disposal
    after the VA secretary determines the property is no longer needed by
    the department in carrying out its functions and is not suitable to be
    used to provide services to homeless veterans under an EUL (see 38
    U.S.C. � 8122).

    [55] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-511].

    [56] The Federal Real Property Council requires federal agencies to
    report annual operation and maintenance costs at the constructed asset
    (i.e., building) level. Because VA does not meter its buildings, the
    agency uses a prorated distribution of actual operations and
    maintenance costs at the station level to estimate operational costs at
    the building level. However, VA officials told us that this approach
    does not lend itself to determining the operations and maintenance
    costs associated with underutilized or vacant property. We therefore
    developed an independent cost estimate for what VA is spending on
    underutilized and vacant property using cost model data provided by the
    Whitestone Building Operations Cost Reference--a document published and
    updated annually, which reflects industry standards and surveys
    building operations costs.

    [57] The earliest year in which VA property data were available was
    fiscal year 2005 for station-level data and fiscal year 2006 for
    building-level data. Fiscal year 2005 represented the first year all
    data elements were fully collected in the Capital Asset Management
    System.

    [58] OMB, Circular No. A-11, Preparation, Submission, and Execution of
    the Budget (Washington, D.C., Executive Office of the President, June
    2006); Circular No. A-130 Revised, Management of Federal Information
    Resources (Washington, D.C., Executive Office of the President, Nov.
    28, 2000); and Capital Programming Guide: Supplement to Circular A-11,
    Part 7, Preparation, Submission, and Execution of the Budget
    (Washington, D.C., Executive Office of the President, June 2006).

    [59] GAO, Cost Assessment Guide: Best Practices for Estimating and
    Managing Program Costs--Exposure Draft, [hyperlink,
    http://www.gao.gov/cgi-bin/getrpt?GAO-07-1134SP]. (Washington, D.C.:
    July 2007).

    [60] Mothballed-adjacent properties are sections of a building that are
    vacant (e.g., a wing that has been shut down), but are attached to a
    building that is still in operation. Mothballed-adjacent properties
    incur more maintenance costs due to leakage from ventilation systems,
    the possibility of a pipe bursting and flooding the vacant area, etc.
    Mothball-standalone properties are vacant properties.

    [61] Shell maintenance includes tuck pointing (i.e., the replacement of
    mortar), roof repair, and window replacement.

    [62] A risk analysis can be accomplished by the use of Monte Carlo
    simulation, which involves the use of random numbers and probability
    distributions to examine random outcomes.

    [63] Our independent cost estimate was developed only for VHA
    facilities since those were the facilities VA developed cost estimates
    for in its pricing guide, and we wanted the estimates to be comparable.
    Furthermore, the majority of underutilized and vacant space is at VHA
    facilities.

    [64] The data printed in the Whitestone publication represent nominal
    bounds. We extended both tails of the distribution from one standard
    deviation to two standard deviations to reflect 95 percent of all
    possible outcomes based on discussion with the publication lead author.

    [65] An uncertainty analysis is a technique used to quantitatively
    assess the extent to which the variability of an outcome variable is
    caused by uncertainty in the input parameters. Inputs to the model are
    assigned probability distributions, and values from these distributions
    are selected randomly and inserted into the cost model. The model then
    yields a point estimate according to these randomly selected inputs.
    Using Monte Carlo simulation, this process is repeated thousands of
    times to construct a distribution of all possible final output costs.
    Percentiles of this final output distribution may then be compared to
    the percentile represented by the model's original point estimate to
    measure the risk associated with the point estimate. Using Crystal Ball
    software, we ran the calculations through a Monte Carlo simulation of
    5,000 trials in which costs (and indices) are pulled from the defined
    probability distributions as previously described. This process yielded
    a cost estimate of $175 million for fiscal year 2007.

    [End of section]

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