District of Columbia: Management Issues Concerning Two District Leases
(Letter Report, 05/02/2000, GAO/GGD-00-87).

Pursuant to a congressional request, GAO reviewed issues relating to the
District of Columbia government's mismanagement of two building leases,
focusing on: (1) whether the person or persons who approved the leases
were authorized to do so; (2) the status of properties, leases, costs,
and utilization; and (3) the steps the District has taken or is taking
to ensure that leased properties, in general, are effectively managed
and utilized.

GAO noted that: (1) authorized individuals approved both leases; (2) the
then Mayor of the District signed the lease for the homeless shelters;
(3) although District officials were unable to provide GAO with a signed
copy of the lease for the multiple use facility, GAO concluded that it
was also a properly authorized lease; (4) in that case, the Director of
the Department of Administrative Services, also an authorized leasing
official, signed an acknowledgement form, which is an integral part of
the lease; (5) the homeless shelter buildings have been vacant since
January 1992 and are boarded up; (6) the District has spent over +$2
million in rent while the space has been vacant and is liable for over
$1 million to restore the two buildings; (7) the Department of Human
Services decided to cease using the buildings as homeless shelters
because neglect of maintenance of the buildings had rendered them unfit
as shelters; (8) the District had spent $3.4 million in rent from
December 19, 1986, through fiscal year (FY) 1999, including about $2.3
million since the buildings have been vacant; (9) the lease calls for at
least another $1.9 million, in current dollars, in rent over the 6 years
remaining on the lease; (10) the terms of the lease require the District
at the termination of the lease to restore the buildings to the
condition they were in at the beginning of the lease term; (11) since it
has been estimated that the costs to restore the buildings would exceed
+$1 million, District property management officials have concluded that
it is advantageous to purchase the properties; (12) the multiuse
facility is utilized by three District agencies, although half of the
rented space remained vacant for more than 3 years; (13) from August
1990 through FY 1999, about $11.9 million was paid in rent for the
space; (14) for the remaining 10 years of the lease, at least another
$13 million is to be spent in additional rent for this space; (15) the
District has taken some steps, and plans to take additional ones, to
help it to more effectively manage and monitor its real property
holdings; (16) Congress has passed legislation that requires the
District to take additional steps, such as developing a comprehensive
plan for the management of real property assets, to further strengthen
its real property operations; and (17) on April 5, 2000, the District of
Columbia Council passed an emergency and permanent version of the
Omnibus Government Real Property Asset Management Reform Act of 2000 to
improve management of real property assets, including fully centralizing
asset management authority.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-00-87
     TITLE:  District of Columbia: Management Issues Concerning Two
	     District Leases
      DATE:  05/02/2000
   SUBJECT:  Real estate leases
	     Leasing policies
	     Drug treatment
	     Homelessness
	     Municipal governments
	     State and local procurement
	     Government facilities
	     Real property acquisition
	     Property and supply management
	     Internal controls
IDENTIFIER:  District of Columbia

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GAO/GGD-00-87

United States General Accounting Office
GAO

Report to the Chairman, Subcommittee on the

District of Columbia

Committee on Appropriations

House of Representatives

May 2000

GAO/GGD-00-87

DISTRICT OF COLUMBIA
Management Issues Concerning Two District Leases

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B-284655

Page 13        GAO/GGD-00-87 D.C. Lease Management
     B-284655

     May 2, 2000

     The Honorable Ernest J. Istook, Jr.
Chairman, Subcommittee on the District of Columbia
Committee on Appropriations
House of Representatives

     Dear Mr. Chairman:

     This report responds to your concerns
regarding alleged waste and mismanagement in the
District of Columbia (the District) government's
leasing practices. Your request focused on
millions of dollars spent on two leases, one for
two buildings to be used as homeless shelters that
have been vacant since 1992 and the other a
reportedly underutilized multiuse facility
initially used as a drug treatment clinic. As
agreed with the Subcommittee, the objectives of
our work on the two leases were to determine (1)
whether the person or persons who approved the
leases were authorized to do so; (2) the current
status of the properties, leases, costs, and
utilization; and (3) the steps the District has
taken or is taking to ensure that leased
properties, in general, are effectively managed
and utilized. Our work was limited by the age of
the leases and the documentation available in the
contract files.

Results in Brief
     Authorized individuals approved both leases.
The District is currently trying to purchase the
two buildings used as a homeless shelter for the
tentative purpose, after renovation, of providing
transitional housing for women and families. The
multiuse facility is currently fully utilized. The
District has spent millions for the homeless
shelter and the multiuse facility while they were
vacant or underutilized. While these two cases do
not provide a sufficient basis for drawing overall
conclusions about the District's past or current
property management practices, major legislative
reforms have been enacted by the federal
government and most recently passed by the Council
of the District of Columbia affecting the
District's property management system

     We determined that authorized individuals
approved both leases. The then Mayor of the
District signed the lease for the homeless
shelters. Although District officials were unable
to provide us with a signed copy of the lease for
the multiple use facility, we concluded that it
was also a properly authorized lease. In that
case, the Director, Department of Administrative
Services (DAS), also an authorized leasing
official, signed an acknowledgment form, which is
an integral part of the lease.

     The homeless shelter buildings have been
vacant since January 1992 and are currently
boarded up. The District has spent over $2 million
in rent while the space has been vacant and is
liable for over $1 million to restore the two
buildings. The Department of Human Services (DHS)
decided to cease using the buildings as homeless
shelters because neglect of maintenance of the
buildings had rendered them unfit as shelters.
This neglect of maintenance apparently resulted
from disagreement over whether the problems were
maintenance related or structural in nature.
Reportedly because of the difficulty of finding
property owners willing to lease properties for
use as homeless shelters, the District agreed to a
lease that required the District to provide all
maintenance except for those items that were
considered structural defects, which were the
lessor's responsibility. The District had spent
$3.4 million in rent from December 19, 1986,
through fiscal year 1999, including about $2.3
million since the buildings have been vacant. The
lease calls for at least another $1.9 million, in
current dollars, in rent over the 6 years
remaining on the lease. Further, the terms of the
lease require the District at the termination of
the lease to restore the buildings to the
condition they were in at the beginning of the
lease term. The District is thus responsible for
renovation costs to bring the buildings back to
their 1986 condition. Since it has been estimated
that the costs to restore the buildings would
exceed $1 million, District property management
officials have concluded that it is advantageous
to purchase the properties. They have negotiated
an agreement with the owner, and are awaiting
approval by city officials.

     The multiuse facility is currently utilized
by three District agencies, although half of the
rented space remained vacant for more than 3
years. We visited the facility in February 2000 to
verify its utilization. From August 1990 until the
spring of 1994, according to a District official,
the second floor of the building was vacant
because the District had agreed to lease the whole
building, even though DHS had informed them of its
reduced program funding for the drug treatment
facility. We were not able to determine from the
files whether there were other periods of
underutilization. From August 1990 through fiscal
year 1999, about $11.9 million was paid in rent
for the space. For the remaining 10 years of the
lease, at least another $13 million, in current
dollars, is to be spent in additional rent for
this space.

     The District has taken some steps, and plans
to take additional ones, to help it to more
effectively manage and monitor its real property
holdings. For example, it has established an
Office of Property Management (DC/OPM) to provide
more centralized control over the District's real
property holdings, and is acquiring new
information systems to provide it with improved
management support tools. Further, DC/OPM is
acquiring the ability to do property utilization
studies internally and plans to contract for
condition assessments and utilization studies of
District facilities.

     In addition, Congress has passed legislation
that requires the District to take additional
steps, such as developing a comprehensive plan for
the management of real property assets, to further
strengthen its real property operations.  On April
5, 2000, the Council of the District of Columbia
passed an emergency and permanent version of the
Omnibus Government Real Property Asset Management
Reform Act of 2000 to improve management of real
property assets, including, for example, fully
centralizing asset management authority.

 Background
     The District leased properties for homeless
shelters because of the enactment of the District
of Columbia Right to Overnight Shelter Initiative
of 1984, D.C. Law 5-146, which gave every homeless
person in the District the right to overnight
shelter. After the enactment of this law, the
number of homeless families assisted by the
District increased about three-fold from fiscal
year 1984 through fiscal year 1990. 1

     One of the primary reasons for leasing
properties for apartment-style homeless shelters
was that District officials believed that this
would be a better and less costly solution to the
growing homelessness problem than its then ongoing
practice of renting hotel rooms.2 On December 19,
1986, the District entered into a 20-year lease,
with a beginning monthly rent of $16,308.33, for
the apartment properties located at 1480 Girard
Street, NW, and 2809 15th Street, NW, for use as
homeless family shelters. The lease for the two
apartment buildings called for housing 23
families. Combined, the two buildings were to have
eight 2-bedroom apartment units, eight 3-bedroom
units, seven 4-bedroom units, and two offices-one
in each building.3 The terms of the lease included
an option for the District to purchase the
premises at specific times during the lease.4

The lease for the drug treatment clinic took
effect on May 10, 1989, for a 20-year term
beginning on August 1, 1990, with an option for an
additional period of up to 10 years. Lease
payments commenced on August 1, 1990, when first
floor modifications were completed, at a monthly
rate of $89,913. An addendum to the lease
agreement required the District to pay as rent 100
percent of the increase in annual real estate
taxes above those imposed for the first year. The
lease runs through July 2010.

The Council of the District of Columbia's
Government Operations Committee conducted an
investigative hearing on this lease on March 7,
1997. The hearing identified such issues as the
high cost of the lease, DHS' paying for space it
did not need, and inadequate documentation of the
leasing process. The Chairman of the Committee
said she wrote to the then Mayor recommending the
lease be terminated. No further action on these
matters is indicated in the file.

Scope and Methodology
     To obtain the relevant information about the
acquisition of the three leased properties, we
reviewed the contract files and District law, and
we interviewed DC/OPM officials. We focused on the
pertinent characteristics of the leases-lease
term, rental rate, lease provisions, who signed
the lease, whether the signer was appropriately
authorized, and other historical information on
the administration of the lease. While a key issue
was whether problems experienced with the homeless
shelter facilities were structural or not, the
information in the lease files was not sufficient
for us to determine the nature of the problems
and, therefore, whether the District or the lessor
would have been responsible for their correction.

     To determine the payments made since the
inception of the contracts, we reviewed payment
records and interviewed officials in DC/OPM and
the Office of Finance and Resource Management
(OFRM).

     To determine the current status of the
properties and their use, we interviewed DC/OPM
and DHS officials. We also contacted the
District's Office of the Inspector General to
determine whether it had done any work relating to
the leases being reviewed. We toured the multiuse
facility, but viewed the apartment properties only
from the outside because the buildings were
boarded up and vacant. We did not review the
current proposal to buy the building since it is
an ongoing procurement action.

     To identify the steps the District has taken
or is taking to ensure that real property holdings
are effectively managed and utilized, we
interviewed officials in DC/OPM and reviewed their
action plan to deal with these issues. We also
reviewed recent legislative actions taken by
Congress and the District Council relating to the
imposition of real property management
requirements on the District government.

     We did not attempt to determine whether the
leasing procedures that were in effect at the time
the leases were awarded were followed. The leases
in question were both awarded over 10 years ago,
and the files contain minimal documentation of the
leasing process. The current administration was
not involved in these efforts and has little
knowledge regarding the history of these lease
acquisitions. Concerning the multiuse facility, we
did not evaluate issues previously reviewed by a
Committee of the Council of the District of
Columbia concerning the cost of the lease, how it
was obtained, DHS' paying for space it did not
need, and the inadequacy of the documentation of
the leasing process, because these issues were
outside the scope of our work.

     We did our work between July 1999 and
February 2000 at the District government
headquarters in Washington, D.C., and at DC/OPM,
OFRM, and DHS. Our work was done in accordance
with generally accepted government auditing
standards. We requested comments on a draft of
this report from the Chairman of the District of
Columbia Financial Responsibility and Management
Assistance Authority (the Authority), the Mayor of
the District of Columbia, and the Chairman of the
Council of the District of Columbia. Their
comments are discussed at the end of this letter.

Both Leases Were Approved by Authorized District
Officials
     We determined that authorized individuals
approved both leases. In December 1986, the then
Mayor of the District signed a 20-year lease for
the two apartment buildings planned for use as
temporary shelters for homeless families. He was
authorized by the D.C. Code to sign contracts on
behalf of the District.5 The lease had also been
approved by the Assistant Corporation Counsel and
the Office of the Deputy Mayor for Financial
Management as required on the lease form. For the
multiuse facility, neither District officials nor
the lessor was able to provide us with a signed
copy of the lease. However, the lease was reviewed
and approved by the Assistant Corporation Counsel
and the Deputy Mayor for Financial Management as
required on the lease form. In addition, the
Director, DAS, who had contracting authority at
the time, had signed a form on May 10 1989,
witnessed by a Notary Public, acknowledging that
he had entered into the lease on behalf of the
District. Regardless of whether the lease was
actually signed, we determined that it was an
appropriately approved lease because the
acknowledgement form is an integral part of the
lease.

Current Status of the Family Homeless Shelters and
the Multiuse Facility
     Both homeless shelter buildings are
deteriorated and vacant, and the District has
spent millions to rent them and the lease calls
for additional millions. According to District
officials, the District has negotiated with the
lessor to buy the buildings, and the proposal is
awaiting review and approval by appropriate
District officials. The multiuse facility is
currently fully utilized.

Family Homeless Shelters Are Vacant and
Deteriorated
     These two buildings have been vacant since
January 1992; due to the neglect of maintenance,
the buildings deteriorated to the point where they
were unfit for use as shelters according to a
memorandum in the contract file. The District is
still making the monthly lease payments but is
trying to buy the buildings.

     Reportedly, because of the difficulty of
finding landowners willing to lease properties to
the District for use as homeless shelters, the
District agreed to a lease for these properties in
which it deleted several standard provisions and
replaced them with ones that put additional
responsibility on the District. For example, one
of the provisions the District agreed to was to
make all repairs necessary to keep the premises in
good order and repair, except for the lessor's
obligations to make structural repairs to the
building walls and foundations. The District's
responsibility for repairs include, but is not
limited to, painting the building inside and out
at least once every 3 years; promptly repairing
all doors, glass, and leaks; and paying for
maintenance of paved walks and the parking lot,
including keeping paving free of potholes.

     This provision apparently resulted in
disagreement over whether needed repairs were
maintenance related or structural in nature, which
contributed to the deterioration of the
properties. We could not determine from the file
whether the problems were structural or
maintenance related.

The contract file contained numerous internal
District memorandums and letters from the lessor,
beginning in 1987 and continuing through 1991,
documenting the deteriorating condition of these
two buildings throughout the period they were in
use. Documents in the contract file dated June
1987 noted that shortly after occupancy the
basements at both buildings were flooded, the
subflooring was badly deteriorated, the tile on
the lower-level apartment floors was buckled, the
exit doors at 2809 15th Street did not close
properly, and inferior materials were used in the
building renovations. Other documents indicated
that maintenance problems continued throughout the
occupancy period, without evidence of management
attention.

     Documents in the contract file showed that in
June, September, and October 1987, and in June
1988, the lessor took steps to fix some of the
problems. For example, the lessor installed sump
pumps in both buildings, repaired floors in
several apartments, did electrical work, and built
a concrete apron to prevent lower-level flooding.
The lessor also hired an architectural firm and an
engineering firm that had experience in water
runoff management and, under their guidance, did
exterior corrective work. In addition, the lessor
repaired items, such as a ceiling in one apartment
and the front doors to both buildings, that he
claimed were the District's responsibility under
the terms of the lease since they were not
structural problems.

     In June 1987, the lessor informed the
District that, as a goodwill gesture, he had made
repairs, but noted that, in the future, he would
no longer make such repairs, which were the
responsibility of the District. The lessor stated
that unless the District had a qualified repair
crew to make continuous repairs, the properties
would eventually become uninhabitable. He also
noted that the District's on-site manager, a
social worker, was helpless without a repair
system for support.

     An official in the Office of Facilities
Management within DHS informed us that, at the
time, the District did not have much experience in
running a homeless program and did not consider
the need for a full-time maintenance staff for the
homeless shelters.

Vacant Family Homeless Shelters Could Cost the
District Additional Millions
     From December 19, 1986, through the end of
fiscal year 1999, the District paid $3.4 million
in rent for the homeless shelter buildings,
including about $2.3 million since January 1992,
when the buildings became vacant. Over the
remaining 6-year term of the lease, we estimate
the District would have to pay, in current
dollars, at least $1.9 million more in additional
rent. Further, another provision of the lease
states that the District must surrender the
premises at the end of term or other termination
of the lease in as good condition as they were at
the beginning of the term, except for reasonable
use and damage by the elements. According to a
District official, the costs to restore the
buildings were estimated to be more than  $1
million.

District's Efforts to Dispose of the Family
Homeless Shelters
     According to documents in the contract files,
beginning in April 1992, the District started
exploring legal options to terminate the lease for
these two buildings. For example, the DHS Attorney-
Advisor noted the following legal options, among
others, in an April 1992 memorandum to the
Corporation Counsel:

ï¿½    eminent domain, in which the District could
seize property for any public or quasi-public use;
ï¿½    fraud, in which a party to the negotiations
perpetrated a fraud by making misrepresentations
or false promises during negotiations; and
ï¿½    equitable estoppel, in which an officer or
agent of a municipality irregularly or defectively
exercises power granted to him and executes a
contract not in the best interests of the
municipality.

 The memorandum noted that, if the District
initiated a condemnation proceeding to secure the
leased property, the owners could challenge the
proceeding as an attempt to circumvent the
provisions of the lease, and then seek damages for
expenses incurred and the loss of benefits of the
lease. If a complaint were initiated against the
lessors for fraud, the memorandum noted, the
District might find it difficult to prove intent
to defraud.

     In commenting on the April 1992 DHS
memorandum in August 1994, the Deputy Corporation
Counsel indicated that the District could notify
the lessor of the alleged structural defects and
request repair within a reasonable time. The
Deputy Corporation Counsel further stated that, if
the lessor did not repair the structural problems
after such notice, the District could argue that
this constituted a breach of the lease, and
thereby terminate the lease. Alternatively, he
said the District could argue that the landlord's
continued failure to correct structural problems
resulted in the District's being constructively
evicted from the building, and that this could be
the basis for the District's refusing to pay
additional rent. Neither the DHS Attorney-Advisor
memorandum nor the Corporation Counsel memorandum
indicated what the structural problems were.

     The Corporation Counsel's memorandum also
noted that, with regard to the assertions that the
properties were deficient at the beginning of the
lease, the issuance of the certificates of
occupancy weigh against the District. We could not
find any documentation in the contract files
indicating that any legal proceedings were ever
undertaken against the lessor.

     A May 1995 memorandum from DAS to the owner
presented two options regarding the property,
namely, an early termination of the lease or
contracting with the owner to complete necessary
repairs to the property. There was no response to
this solicitation in the contract files, and there
were no more memorandums or letters addressing
this issue in the files.

     A District official told us that the Office
of Property Management has negotiated an offer to
buy the buildings outright from the owner.6 This
offer is currently under review by the District's
Chief Financial Officer (CFO).  As part of its
review, the CFO is to determine whether funds are
available to buy the buildings. To acquire the
buildings, the District would also need the
approval of the City Council. Assuming the
District gets the necessary approval to purchase
the buildings, a District official estimated the
purchase could be finalized by spring of 2000.

     DC/OPM officials said they believed that it
would be more advantageous to purchase the
properties than to continue to pay the monthly
rent to the landlord as well as renovation costs
to bring the buildings back to their original
condition. After purchase, there is a tentative
plan to restore the buildings and use them for
transitional housing for women and families.

Multiuse Facility Is Currently Fully Utilized
The multiuse facility is currently fully utilized,
although half of the rented space initially
remained vacant for several years. Payments have
been made on a monthly basis to the owner of the
building since August 1990. Initially, DHS
requested the entire building, but changed its
request to the first-floor space because of
reduced program funding.  However, DAS rented the
entire building and said that DHS would have to
pay for both floors of the building because,
according to an October 1990 internal memorandum,
DHS had verbally agreed to find another DHS tenant
for the second floor. Modifications to the second
floor started in the summer of 1993. The lessor
provided an amount for the basic modification.7 In
the spring of 1994, more than 3-ï¿½ years after the
lease began, the 2nd floor modifications were
completed, and the space was occupied by the
District's Addiction, Prevention, and Recovery
Administration (APRA). Since the modifications to
the second floor cost more than the allowance, the
additional cost was paid by APRA. The District has
paid the rent for the entire building since the
commencement of the lease.

When we visited the clinic in September 1999, the
building had two full-time tenants:

ï¿½    APRA ,which is part of the Department of
Health, and
ï¿½    the Woodridge Clinic, which is part of the
Public Benefit Corporation.
At that time, a job training program called A Real
Chance, which is part of DHS, was in the process
of moving out of the building, and the Family
Services Administration Administrative Offices,
also part of DHS, had not yet moved in. The latter
group moved into the building in December 1999. We
visited the building again in February 2000 and
verified that the building was fully utilized.

The building contains a total of 59,942 square
feet. The breakdown of space is as follows: 14,506
square feet are assigned to Family Services
Administration Administrative Offices, 37,309
square feet are assigned to APRA, and 8,127 square
feet are assigned to the Woodridge Clinic. The
space in the building includes a number of meeting
rooms that a District official said are used by
the tenant agencies to support their programs. He
informed us that even though the meeting rooms are
not constantly in use and may not be utilized to
full capacity when they are used, they
nevertheless are an integral part of the drug
treatment program. He said he considered the
building to be fully utilized.

Through fiscal year 1999, the District had paid a
total of $11.9 million for the space. We estimate
that over the remainder of the 20-year term of
this lease, which expires in July 2010, the
District would pay, in current dollars,
approximately $13 million more in rent.

Actions Taken or Planned to Address Property
Management Weaknesses
The District and Congress have implemented plans
to help the District improve its property
management. The Council of the District of
Columbia has passed legislation that would require
the District to take additional steps that should
further strengthen its management of real property
assets.

The District's Efforts to Improve Real Property
Management
The District has taken some steps, and plans to
take additional steps, to help it more effectively
manage and monitor its real property holdings
through the addressing of operational problems.

The District established the DC/OPM in October
1998 to provide more centralized control over its
real property holdings. DC/OPM serves as the
District's facility manager and also handles its
real property acquisition. DC/OPM is in the
process of acquiring new information systems that
are intended to provide it with the management
support tools needed to establish visibility and
gain control over the District's owned and leased
real property inventory. DC/OPM has also hired a
contractor to do a due diligence review of all
active leases, to ensure that only correct
information is loaded into the new lease
management system. Further, DC/OPM is acquiring
the ability to do property utilization studies
internally and plans to contract for condition
assessments and utilization studies of District
facilities.

Congress' Efforts to Improve the District's Real
Property Management
     In addition, the fiscal year 2000 District of
Columbia Appropriations Act required the District
to take several actions, including submitting a
comprehensive plan for the management of the
District's real property assets as well as
quarterly reports with details about all its real
estate leases.8

     This act requires that, beginning 60 days
after its enactment, the District cannot use funds
appropriated under the act to enter into a lease
for real property, purchase real property, or
manage real property unless the following
conditions are met:

ï¿½    the Mayor and the D.C. Council certify that
existing real property is not suitable for the
purposes intended;
ï¿½    surplus property is made available for sale
or lease as determined by the Mayor, unless
members of the Council override the Mayor's
determination;
ï¿½    the Mayor and D.C. Council implement a
program to do a periodic survey of all District
property to determine whether it is surplus to the
District's needs; and
ï¿½    the Mayor and D.C. Council, within 60 days of
the enactment date of the act, submit a
comprehensive plan for the management of District
real property assets and begin implementing the
plan.

 According to a DC/OPM official, the District
submitted the required comprehensive plan to
Congress on January 31, 2000.

     Further, this act provides that, if the
District enacts legislation to reform the
practices and procedures with regard to entering
into real property leases and the disposition of
surplus real property, the legislation enacted by
the District will supersede the requirement noted
immediately above.

     In addition, the act requires the District to
prepare a quarterly report, covering all property
leased by the District, that includes

ï¿½    the location of the property;
ï¿½    the names of the owners of record;
ï¿½    the names of the lessors;
ï¿½    the rate of payment and period of time
covered by the lease;
ï¿½    the extent to which the property is or is not
occupied by the District as of the end of the
reporting period; and
ï¿½    if the property is not occupied by the
District as of the end of the reporting period,
the plan for occupying and utilizing the property,
or efforts by the District to terminate or
renegotiate the lease.

 According to a DC/OPM official, the District
delivered the initial report on January 31, 2000.

Council of the District of Columbia's Proposal to
Improve Real Property Management
     The Council of the District of Columbia has
proposed legislation to reform, consolidate, and
amend District laws related to the procurement,
leasing, management, and disposition of real
property assets owned or leased by the District
and to repeal certain redundant or unnecessary
laws relating to real property.

     Among other things, the legislation proposes
the following:

ï¿½    The Chief Management Officer shall be the
exclusive authority for all procurement, leasing,
and disposition of real property assets, as well
as exercising contracting and management authority
with regard to real property assets.
ï¿½    Within 18 months after the effective date of
the legislation, the Director, DC/OPM, shall
submit to the Mayor a detailed inventory of owned
or leased real property assets. The inventory
shall be maintained in a centralized automated
database.

ï¿½    After submission of the initial inventory,
the Director, DC/OPM, shall submit to the Mayor,
no later than 90 days prior to the expiration of
each fiscal year, an annual update of the
inventory.
ï¿½    The Mayor shall submit to the Council, for
information purposes, a copy of the initial
inventory and each annual update.
ï¿½    Within 18 months after the effective date of
the legislation, all real property assets owned or
leased by the District shall be classified or
reclassified, as appropriate, within one of the
following categories: (1) fully utilized, (2)
underutilized, or (3) surplus.
ï¿½    Within 18 months after the effective date of
the legislation, and at least every 3 years
thereafter, each real property asset shall be
audited to verify the inventory of real property
assets and determine the appropriate
classification of each asset.

An emergency and permanent version of the Omnibus
Government Real Property Asset Management Reform
Act of 2000 was passed by the Council on April 5,
2000, and as of April 5, was awaiting approval by
the Mayor and the Authority.

Agency Comments and Our Evaluation
On March 28, 2000, we received written comments
from the Executive Director of the Authority (see
app. I).  The Authority raised some specific
issues about the lease of the two buildings for
homeless shelters and general issues about the
overall leasing practices.

Concerning the homeless shelter lease, the
authority said that, because of the District's
incomplete and unclear records, the report does
not contain sufficient information to properly
analyze the District's initial decisionmaking
process.  We agree the District's files did not
contain sufficient records to fully recreate the
initial decisionmaking process, but we were able
to answer the more limited objectives of this
report.

The Authority also raised several questions about
the District's current plans to purchase the two
homeless shelters that were not answered by the
report.  The questions included what options were
considered, why the District chose to purchase the
property and what the terms of the negotiation
are, how the fair market value of the property
would be arrived at, and how the property will be
used after it is purchased.  Further, the
Authority concluded that because the District had
not ascertained the cost of repairs to the
property, it could not have evaluated the
variables of the available options.  We believe
that the Authority raises important questions
concerning the current procurement activity, but
we could not address them for this report because
they involve an ongoing procurement. However,
based on new information recently provide by the
District, we included the District's estimate of
the renovation costs of the two buildings and the
District's tentative plan for restoration and use
of the buildings.

Concerning the District's overall leasing
practices, the Authority concluded that the
District needs to continually monitor its owned
and leased properties and utilization of space,
and that DC/OPM needs to be given the tools needed
to thoroughly analyze property before it is
leased, purchased, or sold.  The Authority said
that it is clear from the report that the District
(1) needs to improve its recordkeeping for leases,
(2) should complete substantial due diligence
before entering property obligations, (3) must
ascertain and provide for the long-term budgetary
impact of leases, and (4) should arrange to occupy
the entire leased space before it signs the lease.
Although our work on the two leases does not
provide a sufficient basis for drawing such
overall conclusions from the District's current
leasing practices, we agree in principle with
these observations and note that Congress, the
Council of District of Columbia, and DC/OPM have
all taken recent actions to improve the District's
real property management.

On April 6, 2000, we received written comments
from the Chairman of the Council of the District
of Columbia (see app. II). The Chairman did not
express an opinion on the report, but did advise
us that the Council had taken action on the
Omnibus Government Real Property Asset Management
Reform Act of 2000, which will take effect upon
approval by the Mayor and the Authority. This
information has been included in the report. The
Chairman also provided comments from the Chair of
the Council's Government Operations Committee that
provided information on a Committee investigation
of the lease for the multiuse property. This
information has been incorporated into the report
where appropriate.

On April 6, 2000, DC/OPM's Deputy Director for
Portfolio Management, responding for the Mayor,
provided oral comments on the draft report. He
told us that District basically agreed with the
contents of the report, but had no knowledge of
the accuracy of the information concerning DHS. He
also provided some additional information that has
been included in the report where appropriate.

We are sending copies of this report to Senator
Kay Bailey Hutchison, Senator Richard J. Durbin,
and Senator George V. Voinovich and to
Representative Tom Davis, Representative Eleanor
Holmes Norton, and Representative James P. Moran
in their capacities as Chair or Ranking Minority
Member of Senate and House Subcommittees with
jurisdiction over District of Columbia matters. We
are also sending copies to the Honorable Anthony
A. Williams, Mayor, District of Columbia; Ms.
Alice Rivlin, Chair, District of Columbia
Financial Responsibility and Management Assistance
Authority; Mr. Charles C. Maddox, Esq., Inspector
General, District of Columbia; and other
interested parties. Copies will also be made
available to others upon request.

     If you have any questions about this report,
please call me or Ron King on (202) 512-8387. Key
contributors to this assignment were Tom Keightley
and Michael Yacura.

Sincerely yours,

JayEtta Hecker
Associate Director, Government
 Business Operations Issues
_______________________________
1The provision guaranteeing overnight shelter was
rescinded with the enactment of the District of
Columbia Emergency Overnight Shelter Amendment Act
of 1990, D.C. Law 8-197, effective March 6, 1991.
2At the time when the District considered leasing
properties for homeless shelters, each hotel room
cost about $48.50 per day, while the apartment
rooms were estimated to cost about $8.00 per day.
In addition, the apartments were intended to
provide family-like living conditions for the
homeless.
3In March 1988, the use of apartment-style units
was mandated by D.C. Law 7-86, the Emergency
Shelter Services for Family Reform Act of 1987,
enacted on March 11, 1988.  At the time the lease
was executed, the law allowed for the use of hotel
or motel rooms rather than apartments if (1)
unforeseen circumstances left no alternative and
(2) the placement was for no longer than 15
calendar days.
4The District was permitted to exercise this
option during the last month of the 5th, 10th, and
15th years following the lease commencement date
and during the final month of the lease. The price
the District would pay to purchase the buildings
was stipulated as the amount equal to 96 percent
of the fair market value of the premises at that
time as determined by an appraisal of the
premises.
5District of Columbia Code 1981, section 1-336,
leasing authority. This section of the D.C. Code
authorized the Mayor to enter into lease
agreements. D.C. law 11-259, section 301, dated
April 12, 1997, substituted the Director of the
Office of Contracting and Procurement for the
Mayor of the District of Columbia.
6As part of a District contract to provide general
real estate services, such as negotiating leases
and locating properties, a real estate management
firm assisted the District in getting the
respective parties together and negotiating the
terms of the proposal presented to the owner.
7There was a lessor's allowance for the
modifications to the second floor. It was the same
amount as the allowance for the first floor.
8 P.L. 106-113, 113 STAT.  1524-1526 (Nov. 29,
1999).

Appendix I
Comments From the D.C. Financial Management and
Assistance Authority
Page 19        GAO/GGD-00-87 D.C. Lease Management

Appendix II
Comments From the D.C. Council
Page 21        GAO/GGD-00-87 D.C. Lease Management

*** End of Document ***