General Services Administration: Impact of Overestimation of Rental
Revenue on the Federal Buildings Fund (Letter Report, 08/17/98,
GAO/GGD-98-183).

Pursuant to a congressional request, GAO reviewed the General Services
Administration's (GSA) actions in responding to and managing the recent
funding problems experienced by its Federal Buildings Fund (FBF),
focusing on: (1) verifying, to the extent practical, the amounts GSA
attributed to each reason for overstimation of the FBF rental revenue
projections for fiscal years 1996, 1997, and 1998; (2) whether the
Public Buildings Service's corrective actions appeared to address GSA's
identified reasons for the overestimation; and (3) budgetary impact of
the overestimation on projects and programs in the FBF.

GAO noted that: (1) GSA informed Congress that it expected the total
overestimation of rental revenue for fiscal years 1996 and 1997 to be
$847 million; (2) GAO verified, to the extent practical given available
support, six of GSA's identified seven reasons for the overestimation
and the linkage of specific dollar amounts of the overestimation to each
of the six reasons; (3) GSA was unable to provide documentation showing
how it developed the $86 million it attributed to the remaining
reason--the fiscal year (FY) 1995 rent revenue estimate being higher
than actual revenues; (4) GAO and others identified several weaknesses
in GSA's rental revenue estimation process, such as the lack of
documented policy and procedures for the rental revenue estimation
process and the lack of supporting documentation necessary to verify
forecast information and assumptions; (5) GSA has taken or plans to take
corrective actions that, if effectively implemented, should help improve
future rental revenue estimates; (6) for FY 1997, GSA took action to
prevent the overobligation of FBF revenue by creating a reserve to
ensure that obligational authority totalling $680.5 million would not be
used until revenue was available to cover those obligations; (7) this
action had the potential to affect the projects and programs from which
obligational authority was withheld; (8) recent statements by GSA and
Office of Management and Budget officials indicated that the impact of
the rent estimating problem on the FBF will be resolved by actions taken
through the FY 1998 budget; (9) although the $680.5 million appropriated
in FY 1998 replenishes the $680.5 million to prior projects, GAO do not
believe it necessarily mitigates the effects of not funding GSA's
proposed FY 1998 program of new construction and modernization work;
(10) GSA has stated that the overestimation problem contributed to a
reduction in funding for building operations and basic building repair
and alteration; and (11) this reduction could also result in changes in
future costs for the same reasons previously mentioned as well as
increased repair costs due to more extensive deterioration over time.

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

 REPORTNUM:  GGD-98-183
     TITLE:  General Services Administration: Impact of Overestimation 
             of Rental Revenue on the Federal Buildings Fund
      DATE:  08/17/98
   SUBJECT:  Cost analysis
             Maintenance costs
             Projections
             Budgeting
             Rental rates
             Funds management
             Federal office buildings
             Budget obligations
             Federal agency accounting systems
             Repair costs
IDENTIFIER:  Federal Buildings Fund
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Public Buildings and Economic
Development, Committee on Transportation and Infrastructure
House of Representatives

August 1998

GENERAL SERVICES ADMINISTRATION -
IMPACT OF OVERESTIMATION OF RENTAL
REVENUE ON THE FEDERAL BUILDINGS
FUND

GAO/GGD-98-183

Federal Buildings Fund

(240262)


Abbreviations
=============================================================== ABBREV

  AOUSC -
  FBF -
  GSA -
  OMB -
  PBS -

Letter
=============================================================== LETTER


B-277993

August 17, 1998

The Honorable Jay C.  Kim
Chairman, Subcommittee on Public Buildings
 and Economic Development
Committee on Transportation and Infrastructure
House of Representatives

Dear Mr.  Chairman: 

This report responds to your request that we review the General
Services Administration's (GSA) actions in responding to and managing
the recent funding problems experienced by its Federal Buildings Fund
(FBF).  Your request stemmed from a January 1997 GSA document that
identified (1) the $847 million shortfall in the FBF caused by an
overestimation of revenues, (2) the reasons for the overestimation of
the FBF revenues and attributed a specific dollar amount to each
reason, and (3) various solutions required to remedy the problem. 

As agreed, this report (1) summarizes information we developed to
verify, to the extent practical, the amounts GSA attributed to each
reason for overestimation of the FBF rental revenue projections for
fiscal years 1996, 1997, and 1998; (2) discusses whether the Public
Buildings Service's (PBS) corrective actions appeared to address
GSA's identified reasons for the overestimation; and (3) discusses
the budgetary impact of the overestimation on projects and programs
in the FBF.  In our March 1998 testimony we discussed these three
issues.\1 This report discusses in more detail our findings on the
third issue and recaps our findings on the first two issues. 


--------------------
\1 General Services Administration:  Overestimation of Federal
Buildings Fund Rental Revenue Projections (GAO/T-GGD-98-69, Mar.  5,
1998). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

In January 1997, GSA informed Congress that it expected the total
overestimation of rental revenue for fiscal years 1996 and 1997 to be
$847 million.  We verified, to the extent practical given available
support, six of GSA's identified seven reasons for the overestimation
and the linkage of specific dollar amounts of the overestimation to
each of the six reasons.  For example, GSA had documentation to
support the $209 million it attributed to fiscal year 1995 rental
reductions in 18 metropolitan areas that had not been factored into
its original estimates and the $232 million it attributed to less
leased expansion space being delivered, and at later dates than
expected.  GSA was unable to provide documentation showing how it
developed the $86 million it attributed to the remaining reason--the
fiscal year 1995 rent revenue estimate being higher than actual
revenues.  In addition, we and others identified several weaknesses
in GSA's rental revenue estimation process, such as the lack of
documented policy and procedures for the rental revenue estimation
process and the lack of supporting documentation necessary to verify
forecast information and assumptions. 

GSA has taken or plans to take corrective actions that, if
effectively implemented, should help improve future rental revenue
estimates.  These actions include documentation of all decisions,
assumptions, and steps involved in the rental revenue estimation
process and implementation of a new information system with a revenue
forecasting module. 

For fiscal year 1997, GSA took action to prevent the overobligation
of FBF revenue by creating a reserve to ensure that obligational
authority totaling $680.5 million would not be used until revenue was
available to cover those obligations.  This action had the potential
to affect the projects and programs from which obligational authority
was withheld.  The $680.5 million included unobligated funds at the
end of fiscal year 1996 and the beginning of fiscal year 1997 from
four budget activities:  $176 million in unobligated funds in rental
of space, building operations, and installment acquisition payments
balances; and $504.5 million of the unobligated funds appropriated
for construction and acquisition of facilities.  The construction
projects that amounted to $504.5 million were projects that, based on
GSA officials' analyses, would not be ready for contract award during
fiscal year 1997.  The information we obtained indicated that only
one of the projects was delayed because its funds were put in the
reserve.  The award of the construction contract for that
project--the Las Vegas, Nevada, courthouse--was delayed about 3
weeks, from September 26, 1997, to October 16, 1997.  According to
the project manager, this delay had no impact on the cost of the
construction contract. 

Recent statements by GSA and Office of Management and Budget (OMB)
officials indicated that the impact of the rent estimating problem on
the FBF will be resolved by actions taken through the fiscal year
1998 budget.  Although the $680.5 million appropriated in fiscal year
1998 replenishes the $680.5 million to prior projects, we do not
believe it necessarily mitigates the effects of not funding GSA's
proposed fiscal year 1998 program of new construction and
modernization work.  That is, the FBF could incur cost changes to
complete the proposed fiscal year 1998 program if it is subsequently
approved, depending upon general and local economic and construction
industry conditions when projects are undertaken.  Further, GSA has
stated that the overestimation problem contributed to a reduction in
funding for building operations and basic building repair and
alteration.  This reduction could also result in changes in future
costs for the same reasons previously mentioned as well as increased
repair costs due to more extensive deterioration over time. 


   BACKGROUND
------------------------------------------------------------ Letter :2

The FBF, which is administered by GSA, is an intragovernmental
revolving fund authorized and established by the Public Buildings
Amendments of 1972.  Beginning in 1975, the FBF replaced
appropriations to GSA as the primary means of financing the operating
and capital costs associated with federal space owned or managed by
GSA.  GSA charges federal agencies rent, and the receipts from the
rent are deposited in the FBF.  Congress exercises control over the
FBF through the appropriations process that sets annual limits on how
much of the fund can be expended for various activities.  In
addition, Congress may appropriate additional amounts for the FBF. 

The FBF operates as follows.  Initially, as part of the President's
budget preparation process, GSA estimates the rental revenue the FBF
is expected to receive.  The rent estimate is prepared about 18
months in advance of the fiscal year.  Through the appropriation
process, Congress establishes annual limits on how much of the fund
can be expended for various activities.  As revenues are received,
they are deposited into the FBF, and, subsequently, GSA is to fund
various projects and programs within the limits set by Congress. 
Descriptions for some of these budget activities are shown in table
1. 



                                Table 1
                
                   FBF's Five Main Budget Activities

Budget activity                     Description
----------------------------------  ----------------------------------
Construction and acquisition of     Funds construction and/or
facilities                          acquisition of new facilities
                                    commensurate with the demand for
                                    new space from PBS client
                                    agencies.

Installment acquisition payments    Funds payments of principal,
                                    interest, and other required
                                    obligations for facilities
                                    financed under either the 1972
                                    purchase contract program or the
                                    1987 installment (lease) purchase
                                    program

Rental of space                     Funds leasing costs, provides for
                                    recurring rent increases, and
                                    provides a very small amount of
                                    expansion space in support of
                                    repair and alteration projects.

Repairs and alterations             Funds both major modernization and
(modernization)                     small projects designed to ensure
                                    the day-to-day operational
                                    continuity of owned facilities and
                                    provide for essential work
                                    preserving capital assets.

Building operations                 Funds the operation of government-
                                    owned facilities and the related
                                    building services where the terms
                                    of the lease do not require the
                                    lessor to furnish such services.
----------------------------------------------------------------------
Source:  PBS Office of Financial and Information Systems. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :3

Our first objective was to verify, to the extent practical, the
amounts GSA attributed to the individual reasons for overestimation
of the FBF rental revenue projections for fiscal years 1996, 1997,
and 1998.  To do this, we developed an understanding of the rental
revenue estimation process that PBS used.  We (l) discussed with PBS
program officials and staff the basic steps involved in the process
used for fiscal years 1996 through 1999; and (2) reviewed studies of
the process done by an internal PBS review team, two consulting
firms, and GSA's Inspector General.  Further, we examined documents
that supplied supporting details, such as a PBS listing of buildings
associated with a particular reason, and we discussed each reason for
the overestimation and the amount attributed to it with PBS program
officials and staff. 

Our second objective was to determine whether PBS' corrective actions
appeared to address GSA's identified reasons for the overestimation. 
We also determined if the corrective actions addressed the weaknesses
in the estimation process that we and others identified.  To do this,
we interviewed PBS officials and staff, reviewed documentation
associated with the actions, and observed the operation of a new
management information system PBS is developing to help it estimate
rental revenues, among other things.  On the basis of our knowledge
of the estimation system and the proposed or actual corrective
actions to the system, we determined whether the corrective actions
appeared to address GSA's identified reasons for the overestimation
and other identified weaknesses. 

Our third objective was to determine the budgetary impact of the
overestimation on projects and programs in the FBF.  To accomplish
this, we developed an understanding of the process by which PBS
identified sources of obligational authority that had the potential
for inclusion in the fiscal year 1997 obligational reserve. 
Specifically, through interviews with PBS officials and review of
documentation they maintained about the process, we developed an
understanding of how PBS became aware of the magnitude of the
overestimation problem--$680.5 million--and the action those
officials took to identify specific sources of obligational
authority. 

We reviewed the process that PBS used to identify unobligated
balances that could be included in the reserve.  Both new
construction and modernization projects potentially could be included
because such projects were experiencing delays that made it unlikely
that they would need the obligational authority available in fiscal
year 1997.  We further developed information on how PBS officials
narrowed the pool of potential new construction and repair and
alteration projects to the final 11 new construction projects
included in the reserve. 

Concerning the sources of the unobligated fiscal year 1996 balances
included in the reserve, we obtained both the regional and
headquarters final fiscal year 1996 allowances and the end-of-year
obligated balances.  However, we did not verify the data on
allowances and the end-of-year obligated balances with regional
officials or regional records.  Finally, PBS headquarters officials
provided us with the reasons they believed the unobligated balances
existed. 

In reviewing the budgetary impact of the overestimation on projects
and programs, we determined if PBS' claim that none of the new
construction projects included in the reserve were delayed from
awarding a construction contract because they were included in the
reserve.  We did so by discussing the projects with PBS headquarters
and regional officials as well as staff of the Administrative Office
of the United States Courts (AOUSC) to obtain general background
information on the projects and the dates and reasons given for
schedule delays.  We did not do a detailed review of the project
files or the history of the projects before they were included in the
reserve. 

Also, we reviewed the GSA and OMB statements that the impact of the
funding problem on the FBF would be eliminated by the end of fiscal
year 1998.  We verified that GSA had proposed a fiscal year 1998
program of new construction and modernization projects and that GSA's
fiscal year 1998 appropriation did not provide obligational authority
for that program.  We discussed the impact of the deletion of funding
for new construction projects with AOUSC officials to identify the
impact on the courts' immediate and long-range construction programs
because the courts' projects constituted the bulk of PBS' proposed
$594.5 million in fiscal year 1998 funding for new construction.  We
did not attempt to estimate the dollar impact on specific projects as
a result of lack of fiscal year 1998 funding because GSA's proposed
program of projects may have been altered by OMB and congressional
reviews prior to obligational authority being provided in GSA's
appropriation law. 

We did our work primarily at GSA headquarters in Washington, D.C.,
between July 1997 and June 1998, in accordance with generally
accepted government auditing standards.  On July 30, 1998, we
requested comments on a draft of this report from GSA's
Administrator.  GSA's comments are discussed at the end of this
report. 


   PBS' OVERESTIMATION OF RENTAL
   REVENUE AND ITS CORRECTIVE
   ACTIONS
------------------------------------------------------------ Letter :4

Beginning with fiscal year 1994 and continuing through fiscal year
1997, PBS' actual annual rental revenues were less than the estimated
rent revenue PBS projected for budget and appropriation purposes. 
PBS, in fiscal year 1997 and 1998, took two actions to deal with the
overestimation.  First, PBS refrained from using about $680.5 million
in obligational authority that Congress had previously provided. 
Second, PBS reduced operating expenses by deferring planned
expenditures until later years.  It also took steps to address the
weaknesses that were identified in the process used to estimate
rental revenues for the budget.  Figure 1 shows FBF's estimated and
actual income for fiscal years 1990 through 1997. 

   Figure 1:  The FBF Estimated
   and Actual Income, (fiscal
   years 1994-98)

   (See figure in printed
   edition.)

Source:  GSA data. 

The FBF's actual rent revenue has grown from about $2.5 billion in
fiscal year 1987 to about $4.8 billion in fiscal year 1997.  GSA's
historical trends of estimated rental revenue versus actual rental
revenue show that actual rental revenues were less than estimated
rental revenues for each of fiscal years 1994 through 1997, by
amounts ranging from about $110.7 million, or 2.4 percent of the
estimate in fiscal year 1995, to about $422.1 million, or 8.2 percent
of the estimate in fiscal year 1996.  For fiscal years 1994 and 1995,
PBS' overestimation of rental revenue was a combined total of $308.1
million.  According to its Chief Financial Officer in fiscal years
1994 and 1995, PBS absorbed the overestimation by reducing planned
expenditures and using unobligated carryover balances without the
need for congressional action. 

In January 1997, PBS informed Congress that it expected its total
overestimation of rental revenue for fiscal years 1996 and 1997 to be
$847 million.  As shown in table 2, PBS identified seven reasons for
the overestimation and linked specific dollar amounts to each reason. 



                                Table 2
                
                 PBS' Reasons for the Overestimation of
                Revenue for Fiscal Years 1996-97 (as of
                             January 1997)

                         (Dollars in millions)

Reason for overestimation                                       Amount
--------------------------------------------------------  ------------
Less leased expansion space was delivered than was                $232
 expected, and at later dates than expected.
Fiscal year 1995 rental reductions in 18 metropolitan              209
 areas were not factored into the original estimates.
Estimates of the effect of government-owned space                  142
 increases were too high.
The fiscal year 1995 rental revenue estimate was                    86
 generally higher than actual fiscal year 1995 revenues.
 Because of the timing of the budget, these higher
 estimates were used as the basis for fiscal years 1996
 and 1997 projections.
Assumptions concerning the costs of leased and                      82
 government space were changed to make them less
 conservative.
A technical error was made in calculating the effect of             66
 indefinite authority in the rental of space.
Rental revenue decreases from buildings, or portions of             30
 buildings, becoming unoccupied were not factored into
 the original estimate.
======================================================================
Total                                                             $847
----------------------------------------------------------------------
Source:  GSA officials. 

In July 1997, PBS increased the overestimation figure for fiscal year
1997 by $86.8 million and reported a potential overestimation in
fiscal year 1998 of about $109.2 million.  As a result, the total
anticipated overestimation for fiscal years 1996 through 1998 was
about $1.04 billion.  However, after it closed its fiscal year 1997
books, PBS reported the actual budget impact of its overestimation to
be $634.4 million for fiscal years 1996 and 1997 and reduced its
fiscal year 1998 overestimation to $28.3 million. 

In our March 1998 testimony on PBS' overestimation of the FBF rental
revenue projections, we reported that PBS provided documentation
supporting the amount of the overestimation for six of the seven
reasons shown in table 2.\2 Although we examined the documentation
PBS provided to explain its overestimation, we did not trace all the
data compiled by PBS back to the original source documents.  PBS
could not provide documentation showing how it developed the $86
million attributed to the reason that the original fiscal year 1995
rent revenue estimate was higher than actual fiscal year 1995
revenues. 

We also reported in our testimony that during the course of our work,
we determined that weaknesses in PBS' estimation process contributed
to the rental income overestimation.  Through discussions with PBS
staff and review of studies done by (l) the firms of Ernst and Young
and Arthur Andersen--consultants hired by PBS, (2) the GSA Inspector
General, and (3) the Rent Revenue Forecasting GO Team--an internal
GSA review team established to look at PBS' rental revenue estimation
process--we identified several weaknesses in the process for
estimating rental revenues.  These weaknesses included the following: 

  -- lack of documented policy and procedures for the estimating
     process;

  -- unclear lines of responsibility and accountability for revenue
     estimates below the level of the PBS Commissioner;

  -- lack of supporting documentation necessary to verify forecast
     information and assumptions; and

  -- use of national averages, rather than project-specific data, to
     forecast occupancy schedules and rental rates. 

Finally, we reported that GSA was aware of the identified weaknesses
in its revenue estimation process and had corrective actions to
improve this process either already under way or planned.  These
corrective actions included the following: 

  -- Documentation is to be required for all decisions, assumptions,
     and steps involved in the rental revenue estimation process. 

  -- The Office of Financial and Information Systems, with overall
     responsibility for the rental revenue forecasting process, was
     established. 

  -- Project-specific data is to be used in occupancy schedules and
     rental rates instead of national averages. 

  -- A new information system is being implemented to manage, track,
     and access data, with plans for a revenue forecasting module to
     be added to the system. 

We concluded that it appeared that the actions PBS had under way and
planned to improve the process it uses to estimate rental revenue
address the weaknesses that we and others had identified.  If
effectively implemented, these actions should help improve future
revenue estimates.  However, as PBS points out, because its rental
revenue estimate is a forecast, it is unlikely to produce a figure
that is identical to actual rental revenue.  Although some variance
is to be expected in any estimating process, variances that go beyond
a certain level can be indicative of estimating problems that need to
be addressed. 

In this regard we stated in our testimony that PBS had not
established an acceptable margin of error against which it could
measure the success of its estimation process.  We said that having
such a benchmark would put PBS in a better position to identify
variances that need to be investigated so that it can explore and fix
the causes of excessive variances, improve its estimation process,
and determine its effectiveness over time.  We recommended that the
PBS Commissioner establish an acceptable margin of error for its
rental revenue estimates, as well as a process for exploring and
resolving causes of variances outside the margin adopted.  In a
letter dated June 11, 1998, the GSA Administrator notified us that
PBS had established 2 percent as a reasonable margin of error and is
developing a reconciliation process.  Considering the need to prepare
estimates 18 months in advance and the steps involved in the
estimating process, such as identifying revenue changes for each
building, 2 percent does not seem to be an unreasonable margin of
error. 


--------------------
\2 GAO/T-GGD-98-69, Mar.  5, 1998. 


   ACTIONS TAKEN BY PBS IN FISCAL
   YEAR 1997 TO ENSURE
   OBLIGATIONAL INTEGRITY OF FBF
------------------------------------------------------------ Letter :5

In late spring 1996, PBS identified a potential revenue gap for
fiscal years 1996 and 1997.  During fiscal year 1997, PBS officials
acted to address the FBF overestimation problem by preventing the use
of the FBF obligational authority that could not be met from the FBF
resources.  PBS determined the size of the obligational authority
that was in excess of the FBF resources using both actual fiscal year
1996 operating data and estimates for fiscal year 1997 (see table 3). 



                                Table 3
                
                   The FBF Resources Shortfall (as of
                             January 1997)

                         (Dollars in millions)

                                                      Estimate
                                              Actual         d
                                             FY 1996   FY 1997   Total
------------------------------------------  --------  --------  ======
New obligational authority                  $5,114.7  $5,510.6      \a
Resources available                          4,817.8   5,127.0      \a
Authority in excess of resources               296.9     383.6  $680.5
----------------------------------------------------------------------
\a Not applicable

Source:  Office of the PBS Chief Financial Officer. 

To address the $680.5 million in obligational authority in excess of
available resources, PBS officials created an obligational reserve at
the beginning of fiscal year 1997.  The intent of the reserve was to
ensure that available obligational authority would not be used until
revenue was available to cover those obligations.  The reserve was
composed of funds from the four FBF budget activities, as shown in
table 4. 



                                Table 4
                
                 The FBF Obligational Reserve by Budget
                               Authority

                         (Dollars in millions)

Budget activity                                         Reserve amount
--------------------------------------------------  ------------------
Installment acquisition payments                                 $12.0
Rental of space                                                  $68.0
Building operations                                              $96.0
Construction and acquisition of facilities                      $504.5
======================================================================
Total                                                           $680.5
----------------------------------------------------------------------
Note:  After creating the initial reserve, Congress directed PBS to
transfer $54 million from the rental of space reserve.  PBS replaced
the $54 million with $54 million from the construction and
acquisition of facilities budget activity, thus adjusting the reserve
amounts to $14 million from rental of space and $558.5 from
construction and acquisition of facilities. 

Source:  PBS Office of Financial and Information Systems. 


      PROCESS USED TO ESTABLISH
      THE RESERVE AMOUNTS
---------------------------------------------------------- Letter :5.1

To identify sources of obligational authority that could potentially
be included in the reserve, PBS officials told us that they initially
identified the FBF activities that had unobligated balances at the
close of fiscal year 1996.  As a result of those efforts, PBS
officials identified and included in the reserve $176 million.  To
identify the additional $504.5 million needed for the reserve, in
October and November 1996, PBS officials analyzed the FBF new
construction and acquisition, and repair and alteration budget
activities.  They identified 11 new construction projects, with
$591.6 million in unobligated funds, for inclusion in the reserve. 
Details of the sources of the funds included in the reserve are
discussed below. 


      INSTALLMENT ACQUISITION
      PAYMENT AMOUNT
---------------------------------------------------------- Letter :5.2

To fund development of some facilities, PBS initially borrows the
required funds and subsequently makes regular payments to the lender. 
The FBF spending authority that funds these annual payments is the
installment acquisition payment budget activity.  In fiscal years
1996 and 1997, the new obligation authority appropriated for this
budget activity amounted to about $182 million and $173 million,
respectively. 

PBS officials told us that when they initially reviewed the various
FBF budget activities for available fiscal year 1996 unobligated
balances, the installment acquisition payment budget activity had an
unobligated balance of about $12 million.  We discussed the reasons
for this unobligated balance with PBS officials who told us that it
was partially a result of lower interest rates for short-term
construction loans on projects and for the long-term 30-year notes on
the facilities.  In addition, they told us that total interest needs
were lower than they had budgeted for because the projects had been
slower to use borrowed funds.  They said that their estimates of both
interest rates and the rate at which funds would be needed by
projects had projected higher interest costs than actually were
incurred.  Therefore, the budget activity had closed the fiscal year
with an unobligated balance. 

The PBS officials told us that the $12 million pertained to
transactions involving the following nine lease-purchase projects. 

  -- Foley Square, New York;

  -- Woodlawn, Maryland, Health Care Financing Administration;

  -- Chamblee, Georgia, Centers for Disease Control Offices;

  -- Memphis, Tennessee, Internal Revenue Service;

  -- Atlanta, Georgia, Centers for Disease Control;

  -- Miami, Florida, Federal Building;

  -- Chicago, Illinois, Federal Building;

  -- Oakland, California, Federal Building; and

  -- District of Columbia, Ronald Reagan Federal Building and
     International Trade Center. 

They told us that without a detailed funding analysis of each
project, including the funding used versus what was budgeted and the
interest rate incurred versus what was budgeted, they could not
assign portions of the unobligated balance to each project. 


      RENTAL OF SPACE RESERVE
      AMOUNT
---------------------------------------------------------- Letter :5.3

PBS officials told us that when they initially reviewed the various
FBF budget activities for unobligated balances at the end of fiscal
year 1996, the rental of space budget activity had an unobligated
balance of about $71 million, an accumulation of fiscal years 1995
and 1996 unobligated balances.  They said $68 million of the $71
million would be used as part of the reserve. 

PBS officials told us that having an unobligated balance in a budget
activity is not unusual because regional offices do not have to
obligate the entire allowance they receive.  Regarding the specific
reasons why the rental of space budget activity had an unobligated
balance at the close of fiscal year 1996, PBS officials cited
incorrect estimates of when leases would start to incur obligations
so that lease payments were lower than anticipated.  Another reason
provided by PBS officials involved the number of lease cancellations. 

They said there were more cancellations than PBS had budgeted, which
resulted in lower obligations.  However, they were not able to
provide specific dollar amounts by lease.  Rather, PBS officials
provided us with a breakdown of the fiscal year 1996 regional
allowances and unobligated balances (see table 5). 



                                Table 5
                
                 Rental of Space, Unobligated Balances
                   (as of Close of Fiscal Year 1996)

                         (Dollars in millions)

GSA region                                         Unobligated balance
----------------------------------------  ----------------------------
1                                                                $0.68
2                                                                 0.86
3                                                                 1.52
4                                                                 6.90
5                                                                 0.22
6                                                                 0.52
7                                                                 3.56
8                                                                 2.11
9                                                                 4.15
10                                                                2.25
11                                                                1.96
Regional total                                                   24.74
Central office                                                    2.59
Unallowed\a                                                      43.47
======================================================================
Total                                                           $70.80
----------------------------------------------------------------------
Note:  Totals may not add due to rounding. 

\a "Unallowed" is the holdback in headquarters that can be given to
regional offices but was not in fiscal year 1996. 

Source:  PBS Financial Services Division. 

PBS staff advised us that although the actual figure, about $71
million, was a little higher than the $68 million included in the
reserve, their plan at the time the reserve was established was to
include only $68 million in the reserve.  However, events during
fiscal year 1997 precluded using most of the $68 million for funding
of the reserve.  In particular, in August 1997, PBS sought
congressional approval to transfer about $110 million in funds within
the FBF budget activities to meet needs it considered crucial for
rental of space.  In September 1997, congressional committees
approved the transfer request but directed that PBS use $54 million
in fiscal year 1996 unobligated balances, which was part of the
reserve, to fund part of the transfer.  PBS officials told us that
the $54 million was used in fiscal year 1997, and additional
unobligated construction and acquisition of facilities budget
activity funds were used to replace the $54 million in the reserve to
maintain full funding of the $680.5 million reserve. 


      BUILDING OPERATIONS RESERVE
      AMOUNT
---------------------------------------------------------- Letter :5.4

PBS funds the operations of government-owned and -leased facilities
and pays other government agencies for building operations performed
by them in GSA-controlled facilities through the building operations
budget activity.  Functions budgeted from this activity include
cleaning services, utilities, and protection services for facilities. 

PBS officials told us that when they reviewed the budget activities
at the close of fiscal year 1996, the building operations activity
had an unobligated balance of about $51 million.  This was combined
with $45 million in unapportioned fiscal year 1997 funds for a total
unobligated balance in the building operations budget activity of $96
million.  The officials explained that on a fiscal year basis, a
portion of the overall appropriation available for regional building
operations is divided into initial allowances against which regions
plan and operate their programs.  During a fiscal year, according to
PBS officials, the initial allowance may be revised to reflect
unforeseen needs.  These adjustments are funded from money held back
by PBS headquarters when the initial allowances are given to the
regions. 

PBS officials told us that the existence of an unobligated balance in
a budget activity at the close of a fiscal year is not unusual
because regional offices do not have to obligate the entire allowance
they receive.  At the end of fiscal year 1996, building operations'
unobligated balance was about $51 million.  According to a PBS
document, the balances were associated with delays in moves, deferred
equipment purchases, delays in contract awards, delays in new
workload coming on line, and savings achieved through
cost-containment measures.  This amount, along with $45 million in
unapportioned fiscal year 1997 funds, created an unobligated balance
of $96 million in the building operations budget activity.  Table 6
presents the unobligated balance on a region-by-region basis. 



                                Table 6
                
                Building Operations Unobligated Balances
                  (as of the Beginning of Fiscal Year
                                 1997)

                         (Dollars in millions)

Region                                             Unobligated balance
----------------------------------------------  ----------------------
1                                                                 $0.3
2                                                                  1.5
3                                                                  3.5
4                                                                  2.6
5                                                                  0.8
6                                                                  2.4
7                                                                  0.2
8                                                                  0.7
9                                                                  3.8
10                                                                 4.3
11                                                                 0.6
Regional total                                                    20.7
Central office                                                    30.3
Unobligated balance end of FY 96                                  51.0
FY 97 not apportioned\a                                           45.0
======================================================================
Total                                                            $96.0
----------------------------------------------------------------------
\a According to a PBS official, this $45 million is fiscal year 1997
appropriated budget authority, which OMB never apportioned; thus, it
was unobligated. 

Source:  PBS Financial Services Division. 


      CONSTRUCTION AND ACQUISITION
      OF FACILITIES RESERVE AMOUNT
---------------------------------------------------------- Letter :5.5

According to PBS staff, the FBF's construction and acquisition of
facilities budget activity involves large unobligated balances from
year to year; and thus, this budget activity became the focus of
planners for funding the balance of the $680.5 million obligational
reserve.  According to PBS officials, early in fiscal year 1997 they
were looking to identify about $504.5 million in obligational
authority to complete the reserve.  Initially, PBS officials
considered both the construction and the modernization programs in
developing a list of potential projects for funding the reserve. 
They evaluated individual projects using the following three
criteria. 

  -- Project had not proceeded to construction contract award. 

  -- Obligational authority for the project had not been allotted to
     a regional office for obligation. 

  -- Both regional and headquarters officials believed the project
     would not meet a planned fiscal year 1997 construction contract
     award schedule. 

As a result of their analysis, PBS officials developed a list of new
construction and modernization projects with obligational authority
totaling about $1.5 billion.  Recognizing that the list of potential
projects resulted in obligational authority in excess of the $504.5
million required, PBS officials told us that the decision was made to
exclude modernization projects from the reserve and to focus solely
on new construction projects.  PBS officials pointed out that this
decision provided enough funding for PBS' priority of maintaining the
buildings already in the inventory. 

Table 7 lists the new construction projects from which obligational
authority was reserved, showing the project location, the amount of
the full appropriation, and the amount available for reserve.  PBS
officials told us that the obligational authority reserved, $591.63
million, represented their thinking of the funding necessary to meet
the $680.5 million before they knew how much would be available in
end of the fiscal year unobligated carryover funds from other budget
activities. 



                                Table 7
                
                   New Construction Reserve, Project
                  Location, and Amount (as of November
                                 1996)

                         (Dollars in millions)

                                            Appropriatio
Location                                               n       Reserve
------------------------------------------  ------------  ------------
Portland, Oregon, Consolidated Law Federal        $36.19        $31.44
 Office Building
Youngstown, Ohio, Courthouse                       20.44         15.81
Maryland Federal Drug Administration              146.92         32.77
 Consolidation
Columbia, South Carolina, Courthouse Annex         43.85         40.85
Corpus Christi, Texas, Courthouse                  30.61         24.16
Cleveland, Ohio, Courthouse                       170.54        127.29
Brooklyn, New York, Courthouse                    242.84        187.18
Blaine, Washington, Border Station                 21.39         13.92
London, Kentucky, Courthouse                       16.64         14.42
Las Vegas, Nevada, Courthouse                      98.03         93.80
Washington, D.C., Southeast Federal Center         20.00         10.00
======================================================================
Total                                            $847.45       $591.63
----------------------------------------------------------------------
Note:  Totals may not add due to rounding. 

Source:  PBS schedule of new construction projects included in
reserve. 

PBS officials told us that, as of November 1996, it was their opinion
that each of the 11 projects listed above had a probability of
experiencing a schedule slippage that would move the planned
construction contract award date beyond fiscal year 1997.  Therefore,
they felt that reserving the obligational authority of these projects
would not delay their overall progress.  Our discussions with PBS
officials, both in headquarters and the regional offices, and with
officials of AOUSC confirmed that with one exception, discussed
below, the schedule slippage on each project was sufficient to delay
the construction contract award past the close of fiscal year 1997. 

In the one instance where the delay was solely because the project's
funding was moved to the reserve--the Las Vegas, Nevada,
courthouse--the delay of the construction contract award was about 3
weeks, from September 26 to October 16, 1997.  The GSA Project
Manager told us that the delay did not affect the construction award
amount because the contractor agreed to a contract at the price he
bid in September 1997. 

The scheduled construction contract award dates at the time each
project was identified for possible inclusion in the reserve, the
current construction contract award dates as of the spring of 1998,
and reasons for the delays are presented in table 8. 



                                     Table 8
                     
                      New Construction Reserve and Schedule
                                      Delays

                            Original
Location                    date\a          Current date\b  Reasons for delay
--------------------------  --------------  --------------  --------------------
Portland, Oregon            TBD             On hold         No schedule in
                                                            effect.

Youngstown, Ohio            TBD             On hold         Judiciary may not
                                                            require project.

Montgomery and Prince       3-1-97          TBD             GSA contractor
George's Counties,                                          studying potential
Maryland                                                    for public/private
                                                            partnership to
                                                            construct facility.

Columbia, South Carolina    6-30-97         12-20-98        Design delays and
                                                            extra design effort
                                                            to resolve floor-
                                                            by-floor courtroom
                                                            layout.

Corpus Christi, Texas       9-13-97         6-30-98         10% reduction in
                                                            project budget,
                                                            design schedule
                                                            slippage owing to
                                                            tenant changes, and
                                                            architect/engineer
                                                            delays and proposals
                                                            for construction
                                                            were over budget.

Cleveland, Ohio             TBD             Phase I 9-15-   Delay owing to
                                            97 Phase II 6-  redesign for budget
                                            98              reasons.
                                            Phase III 9-
                                            98

Brooklyn, New York          8-21-97         May-June 98     Delay to incorporate
                                                            security features
                                                            when construction
                                                            drawings 80%
                                                            complete,
                                                            coordination of bid
                                                            documents, lawsuit
                                                            settlement in
                                                            September 1997, and
                                                            removal of hazardous
                                                            waste.

Blaine, Washington          7-26-97         5-1-98          Delay to divide
                                                            procurement because
                                                            of site conditions.

London, Kentucky            2-3-97          10-98           Delay because of
                                                            procurement process
                                                            being used, tight
                                                            budget status of
                                                            project.

Las Vegas, Nevada           8-18-97         10-16-97        Delay because of
                                                            lack of funding from
                                                            PBS headquarters and
                                                            to add new security
                                                            requirements to the
                                                            plan.

Washington, D.C.            11-15-96        11-15-98        Delay because of
                                                            lawsuit over
                                                            environmental
                                                            remediation, now
                                                            settled.
--------------------------------------------------------------------------------
Legend
TBD - To be determined

\a Original date:  Schedule as of Nov.  13, 1996, list of potential
reserve projects. 

\b Current date:  Last scheduled date per PBS official.as of the
spring of 1998. 

Source:  PBS Nov.  13, 1996, list of potential projects, and PBS
update of project data. 


   RESTORATION OF OBLIGATIONAL
   AUTHORITY IN FISCAL YEAR 1998
   COULD CREATE NEW PROBLEMS FOR
   FBF
------------------------------------------------------------ Letter :6

Congress provided new obligational authority for the projects and
programs in the $680.5 million reserve for fiscal year 1998.\3
Therefore, the FBF revenues received in fiscal year 1998 are now
available to be obligated for the budget activities used to create
the $680.5 million reserve in fiscal year 1997.  OMB and PBS
officials have stated that the actions taken through the fiscal year
1998 budget will eliminate the impact of the rent estimating problem
on the FBF.  However, as noted below, elimination of funding for new
construction and modernization and reduced funding for building
operations and basic building repair and alteration for fiscal year
1998 could have adverse effects on the FBF. 

In September 1996, GSA submitted proposed new construction and
modernization programs for fiscal year 1998 to OMB totaling about
$1.4 billion.  However, according to GSA officials, OMB budget
decisions required that $680.5 million of fiscal year 1998 budget
authority be used to offset the funds reserved in fiscal year 1997 so
that previously funded projects could proceed.  Congress appropriated
no fiscal year 1998 funding for new construction or modernization. 
In addition, in discussing the impact of the fiscal year 1998 budget
decision, a GSA official, in responding to a question during an April
24, 1997, congressional hearing, stated "Absent direct appropriations
and with the requirement to earmark $680 million in FY 98 Federal
Building Fund budget authority to prior year capital projects, GSA
will operate below prudent funding levels for building operations and
repair and alterations for FY 98."

It is not clear how many, if any, of the proposed new construction or
modernization projects would have been included in the President's
budget or funded by Congress in fiscal year 1998 had it not been for
the overestimation problem.  However, to the extent the
overestimation problem resulted in lack of funding for new projects
and these proposed projects are funded in the future, the government
could experience cost changes.  For example, additional costs could
occur from price changes in the future, which could, of course, vary
depending upon general and local economic and construction industry
conditions.  In addition, delays in basic repair and alteration work
could also result in additional future cost to the extent prices for
these services increase in the future and to the extent delays cause
further deterioration.  The maintenance of government-owned assets
has been a long-standing concern.  In 1993, the U.S.  Advisory
Commission on Intergovernmental Relations reported that maintenance
often does not receive adequate attention, especially in times of
tight budgets, and that deferring maintenance can result in
poor-quality facilities, reduced public safety, higher subsequent
repair cost, and poor service to the public.\4


--------------------
\3 Treasury and General Government Appropriations Act, 1998, P.L. 
105-61, 111 Stat.  1297. 

\4 Deferred Maintenance Reporting:  Challenges to Implementation
(GAO/AIMD-98-42, Jan.  30, 1998). 


   CONCLUSIONS
------------------------------------------------------------ Letter :7

As we stated in our testimony on March 5, 1998, the actions PBS has
under way and planned to improve its rental revenue estimation
process address the weaknesses that we and others have identified
and, if effectively implemented, these actions should help improve
future revenue estimates. 

The actions taken by PBS to establish an obligational reserve to
prevent the overobligation of the FBF revenue did not delay 10 of the
11 new construction projects included in the reserve.  The
construction contract award amount for one project, which was delayed
for about 3 weeks, was not affected by the delay. 

Finally, although both OMB and PBS have stated that the impact of the
FBF funding problem will be resolved by the end of fiscal year 1998,
we believe that it could affect the FBF obligational authority beyond
fiscal year 1998.  We did not quantify the possible obligational
impact; however, the delay in construction and modernization projects
could result in price changes in the future, which could vary
depending upon general and local economic and construction industry
conditions.  In addition, deferred maintenance could result in
increased future cost. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

On July 30, 1998, we requested comments on a draft of this report
from the Administrator, GSA.  On August 6, 1998, we received oral
comments from the Chief Financial Officer, Public Buildings Service,
and other PBS staff.  These officials generally agreed with the
information in the report. 


---------------------------------------------------------- Letter :8.1

We are sending copies of this report to the Ranking Minority Member
of your Subcommittee; the Chairmen and the Ranking Minority Members
of the Senate Committee on Environment and Public Works and the House
Committee on Transportation and Infrastructure; and the Administrator
of GSA.  Copies will be made available to others upon request. 

Major contributors to this report are Ronald King, Assistant
Director; Thomas Johnson Evaluator-in-Charge; Thomas Keightley,
Evaluator-in-Charge; and Hazel Bailey, Communications Analyst.  If
you have any questions about the report, please call me on (202)
512-8387. 

Sincerely yours,

Bernard L.  Ungar
Director, Government Business
 Operations Issues


*** End of document. ***