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) VAï¿½s progress in reducing underutilized or vacant property 
and how much VA spends operating the underutilized or vacant property 
it retains; (2) VAï¿½s 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. 

VAï¿½s 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 VAï¿½s 
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 VAï¿½s 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: 

GAOï¿½s 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 
[email protected]. 

[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. ï¿½ï¿½ 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. ï¿½ï¿½ 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. ï¿½ 8122; 38 U.S.C. ï¿½ 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 [email protected]. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made 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 
[email protected]: 

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. ï¿½ 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. ï¿½ 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. ï¿½ 8118); transfer any interest in real property to a state 
for use as a state nursing home or domiciliary (38 U.S.C. ï¿½ 8122); or 
transfer the real property to GSA for disposal (38 U.S.C. ï¿½ 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. ï¿½ 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 ï¿½et 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. ï¿½ 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. ï¿½ 8122. 

[48] 38 U.S.C. ï¿½ 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. ï¿½ 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. ï¿½ 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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