U.S. Department of Agriculture: State Office Collocation (Correspondence,
06/30/2000, GAO/RCED-00-208R).

Pursuant to a congressional request, GAO provided information on the
Department of Agriculture's (USDA) state office collocation plans,
focusing on: (1) what criteria USDA established to guide its collocation
decisions; (2) whether USDA consistently applied each of the criteria in
making its collocation decisions; (3) how USDA validated the cost data
submitted by the three agencies' state offices to support their
collocation recommendations and whether they included all relevant
costs; and (4) examples of federal agencies that have realized economic
benefits in relocating their offices because they asked communities to
offer financial benefits as an incentive to relocate in those
communities.

GAO noted that: (1) USDA established 10 criteria to be considered in
making collocation decisions; (2) these included several criteria
directly related to cost considerations, such as the one-time costs and
savings resulting from the collocation, as well as other criteria not
directly cost-related; (3) other criteria included the availability of
transportation and the location of the collocated office central to the
agencies' activities and near other USDA, federal, and state government
agencies; (4) USDA did not establish guidance on how state and
headquarters officials should weigh the relative importance of the 10
criteria in making their collocation decisions; (5) as a result, USDA
state agency officials in several states could not reach consensus on
where to locate their combined state offices; (6) the extent to which
USDA used each of the individual criteria in making collocation
decisions or to which it consistently applied each criterion is unclear
because USDA did not establish procedures that required state or
headquarters officials to document the impact that each criterion had on
their decisions; (7) USDA appeared to focus primarily on the one-time
cost of the collocation; (8) this cost item includes the estimated cost
to relocate employees, the expenses of moving offices, and the estimated
savings associated with combined office space; (9) to validate the
reasonableness of the cost data submitted by state office officials to
support their recommendations, USDA headquarters officials asked state
officials to verify that certain cost estimates contained in the
collocation plans were current; (10) USDA did not make sure that all
relevant costs were included in the cost estimates; (11) the omission of
costs and other adjustments that USDA made to the cost estimates tend to
overstate the overall savings expected from its collocation efforts;
(12) concerning the issue of encouraging communities to offer incentives
for relocation, GAO identified one case in which a federal agency
realized economic benefits by encouraging such competition; (13) in
GAO's 1990 report on facilities location policy, GAO noted that the
Bureau of Engraving and Printing was able to generate widespread
competition in meeting its space needs and was able to obtain
considerable savings for the government; (14) however, USDA did not
consider economic incentives in selecting collocation sites; and (15)
USDA's position in this regard is based on a concern that considering
economic incentives could create competition among communities and would
in effect shift the financial burden from the federal government to
local community taxpayers.

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

 REPORTNUM:  RCED-00-208R
     TITLE:  U.S. Department of Agriculture: State Office Collocation
      DATE:  06/30/2000
   SUBJECT:  Federal office buildings
	     Rural economic development
	     Site selection
	     Cost effectiveness analysis
	     Federal facility relocation
	     Cost control
	     Federal/state relations
	     Decision making

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Testimony.                                               **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************

GAO/RCED-00-208R

GAO/ RCED- 00- 208R State Office Collocation United States General
Accounting Office

Washington, DC 20548 Resources, Community, and

Economic Development Division

B- 285644 June 30, 2000 The Honorable Larry Combest Chairman The Honorable
Charles W. Stenholm Ranking Minority Member Committee on Agriculture House
of Representatives

Subject: U. S. Department of Agriculture: State Office Collocation The
Federal Crop Insurance Reform and Department of Agriculture Reorganization
Act of 1994 1 directed the Secretary of Agriculture to streamline and
reorganize the U. S. Department of Agriculture (USDA) to achieve greater
efficiency, effectiveness, and economies in its organization and management
of programs and activities. Following passage of the act, USDA began a major
effort to, among other things, collocate the state offices of its three
field- based agencies- the Farm Service Agency (FSA), the Natural Resources
Conservation Service (NRCS), and Rural Development (RD). 2 These state
offices provide policy interpretation and technical advice to their field
representatives located in USDA county service centers throughout the
nation. The county service centers deliver USDA programs to farmers, rural
residents, and communities. At the time of the act, these three agencies'
state offices could be, and often were, located in different cities within a
given state. Collocation therefore meant locating these three state offices
at one site in order to share space and administrative personnel and,
potentially, to eliminate duplicative overhead expenses. By March 10, 2000,
USDA had collocated state offices in 26 states. At that time, USDA also
announced its collocation decisions for the three agencies' state offices in
the remaining 26 states. These decisions were based on recommendations in
collocation plans submitted by officials in USDA state offices. USDA's
announcement noted that the moves in these latter 26 states were expected to
save $9 million by 2008 and to result in better, more efficient, less costly
service to USDA customers.

Concerned about the reasonableness of the process USDA used to reach the
state collocation decisions announced in March, you asked us to determine
(1) what

1 P. L. 103- 354, Oct. 13, 1994. 2 USDA has 52 state offices, including
offices in the Commonwealth of Puerto Rico and the Territory of Guam.

B- 285644

GAO/ RCED- 00- 208R State Office Collocation 2 criteria USDA established to
guide its collocation decisions, (2) whether USDA

consistently applied each of the criteria in making its collocation
decisions, and (3) how USDA validated the cost data submitted by the three
agencies' state offices to support their collocation recommendations and
whether they included all relevant costs. In addition, in a related matter,
you asked us to identify examples of federal agencies that have realized
economic benefits in relocating their offices because they asked communities
to offer financial benefits as an incentive to relocate in those
communities.

In summary, USDA established 10 criteria to be considered in making
collocation decisions. These included several criteria directly related to
cost considerations, such as the one- time costs and savings resulting from
the collocation, as well as other criteria not directly cost- related. These
other criteria included the availability of transportation and the location
of the collocated office central to the agencies' activities and near other
USDA, federal, and state government agencies. USDA did not establish
guidance on how state and headquarters officials should weigh the relative
importance of the 10 criteria in making their collocation decisions. As a
result, USDA state agency officials in several states could not reach
consensus on where to locate their combined state offices.

The extent to which USDA used each of the individual criteria in making
collocation decisions or to which it consistently applied each criterion is
unclear because USDA did not establish procedures that required state or
headquarters officials to document the impact that each criterion had on
their decisions. According to our review of the limited available
documentation for the final collocation decisions, USDA appeared to focus
primarily on one criterion- the one- time cost of the collocation. This cost
item includes the estimated cost to relocate employees, the expenses of
moving offices, and the estimated savings associated with combined office
space.

To validate the reasonableness of the cost data submitted by state office
officials to support their recommendations, USDA headquarters officials
asked state officials to verify that certain cost estimates contained in
their collocation plans were current. However, USDA did not make sure that
all relevant costs were included in the cost estimates. For example, the
estimates did not consider the costs of severance pay for employees who do
not relocate and the payment of relocation costs and training for
experienced replacement employees drawn from other agency offices. The
omission of these costs, as well as other adjustments that USDA made to the
state cost estimates, tend to overstate the overall savings USDA expects
from its collocation efforts.

Concerning the issue of encouraging communities to offer incentives for
relocation, we identified one, albeit dated, case in which a federal agency
realized economic benefits by encouraging such competition. In our 1990
report on facilities location policy, we noted that the Bureau of Engraving
and Printing was able to generate widespread competition in meeting its
space needs and was able to obtain considerable savings for the government.
However, USDA did not consider economic incentives in selecting collocation
sites. USDA's position in this regard is based on a concern that considering
economic incentives could create competition among

B- 285644

GAO/ RCED- 00- 208R State Office Collocation 3 communities and would in
effect shift the financial burden from the federal

government to local community taxpayers- that is, local taxpayers would be
subsidizing a federal activity.

Background

On March 26, 1998, USDA instructed the FSA, NRCS, and RD state agency
leaders in the states that did not have collocated state offices to develop
collocation plans by June 1,1998. These plans were to include
recommendations for the location of the collocated state office. USDA
divided the states into two groups. The group whose offices were 50 miles or
less apart were projected for collocation by October 1, 2000, and the group
whose offices were more than 50 miles apart were projected for collocation
by December 2002. USDA reviewed and analyzed the data submitted by the state
offices and in some cases requested clarifying or updated information. Using
the results of this analysis, USDA's National Food and Agriculture Council,
composed of the FSA, NRCS, and RD agency heads, recommended collocation
sites to the Secretary of Agriculture. On March 10, 2000, USDA announced the
Secretary's decision on collocation sites for the 26 states that had not
collocated during the intervening period- 18 involved moves of 50 miles or
less; 8 involved moves of more than 50 miles. As of June 1, 2000, none of
the collocations of offices requiring moves of more than 50 miles had been
initiated.

Enclosure I provides information on the current office locations and the
site selected for the collocated office for the 26 states. USDA's
announcement said the collocation of these offices was expected to save $1.3
million during the next 5 years and over $8.9 million by 2008 and to result
in better, more efficient, less costly service to USDA customers.

Criteria for Collocation Decisions

USDA established 10 criteria to be considered in making collocation
decisions. These criteria were (1) space availability in existing state
office locations, (2) the availability of suitable space controlled by the
General Services Administration (GSA) or owned or leased by USDA; (3) a
location, to the extent possible, in a central business area; (4) the
acquisition costs of new space when existing space was not adequate; (5) the
availability of transportation; (6) a location central to all agency
activities, (7) the location of other USDA, federal, and state government
agencies; (8) market conditions, lease costs, and the availability of
potential office locations, (9) unique, mission- related issues, and (10)
one- time relocation costs and savings resulting from collocation. This last
criterion was listed as a separate item for which the states were instructed
to provide detailed information, including estimated office moving expenses,
estimated savings associated with combined office space, and the estimated
cost to relocate employees. The largest cost component- the cost of
relocating an employee- included such items as the sales commissions and
fees on the sale and purchase of an employee's residence as well as the
payment for moving household effects.

B- 285644

GAO/ RCED- 00- 208R State Office Collocation 4 USDA's procedures for making
collocation decisions did not provide guidance on

how headquarters or state officials should weigh the relative importance of
individual criteria in reaching their decisions. The procedures that USDA
used for making collocation decisions consisted primarily of March 1998
guidance to state agency officials directing them to respond to the 10
criteria. The guidance also provided a format for reporting selected cost
items, such as office moving expenses and relocation costs. However, the
guidance provided no directions on which of the criteria were most important
and should be weighed more heavily than others. For example, USDA provided
no elaboration concerning the relative importance of mission- related
criteria to the one- time relocation cost criteria. Furthermore, none of the
criteria provided guidance on the location characteristics that would help
ensure that the selected site was best suited for carrying out the mission
of a collocated state office (for example, a location in the state capital
or a location near a land grant university). As a result, USDA state
officials could not reach consensus on sites for a collocated state office
for seven of the eight states involving the relocation of offices more than
50 miles.

USDA's Use of Criteria Is Unclear

USDA's procedures for making collocation decisions did not require that USDA
state or headquarters officials document the extent to which each of the
individual criteria influenced their decisions. As a result, it is difficult
to determine exactly how each of the criteria was used during the decision-
making process.

In making final collocation decisions, USDA headquarters officials did not
document the extent to which each of the individual 10 criteria influenced
USDA's final decision. However, on the basis of our review of documents
explaining the final decisions, it appears USDA generally focused its
decision on one of the criteria- the one- time cost of the collocation.
Concerning Texas, for example, USDA's explanation noted that Temple was the
lowest cost alternative and stated, “relocating the least number of
employees and families makes Temple the logical alternative for a collocated
state office.” USDA's estimates showed the cost to collocate the
office in Temple was about one- half the cost of the other site under
consideration.

In all but one of the eight states involving relocations of more than 50
miles, USDA selected the location that its estimates showed as the lowest
cost alternative. In Kansas, however, USDA selected a collocation site
primarily because it was located centrally between two alternative sites,
even though it was not the lowest cost alternative. USDA's explanation
stated that the RD, FSA, and NRCS national agency heads believed that this
location best met program performance needs. Furthermore, USDA noted
relocation costs for the chosen collocation site may possibly be lower than
estimated if employees from the other sites commute rather than relocate.

USDA Conducted a Limited Review of Data Submitted by State Offices and Did
Not Include All Relevant Relocation Costs

USDA's March 1998 guidance required its non- collocated state offices to
provide, by June 1998, a cost analysis that included the costs for the
existing separate state

B- 285644

GAO/ RCED- 00- 208R State Office Collocation 5 offices and estimated costs
for collocated state offices in support of each state's

recommended collocation site. In March 1999, USDA provided a schedule to the
states that contained certain cost information from the original state
submissions- lease costs, office moving costs, and employee relocation
costs. USDA asked the states to verify the accuracy of these data elements.
USDA generally accepted the verified data as presented by the states.

USDA did not require the states to submit estimates of some relevant costs.
For example, most employees who leave the agencies are entitled to severance
pay, and all are entitled to a lump sum payment of annual leave. USDA
estimated that 67 percent of the affected employees would not relocate but
did not estimate the cost of severance pay or the lump sum annual leave
payment for them. Agency officials told us about increased costs, such as
severance pay, lump sum annual leave payments, and training costs, that
could be associated with some or all of those who do not relocate. However,
USDA did not include estimates of these cost elements in projecting total
one- time collocation costs. By ignoring these factors, USDA has understated
the cost of collocation.

Furthermore, USDA made across- the- board adjustments to the estimated
employee relocation costs that tended to overstate its estimate of overall
savings from the collocation effort. For example, USDA estimated that 33
percent of employees would move and that the cost of each move would be
$32,000 or less, and adjusted the statesubmitted cost estimates accordingly.
This adjustment reduced USDA's estimated one- time cost of relocating
employees from $12 million to $4.3 million. However, the adjustment did not
take into account the fact that, in all likelihood, USDA would have to incur
relocation costs for relocating the experienced personnel necessary to
replace those who chose not to relocate. USDA state office officials said
the state office positions typically require employees who are experienced
in administering the agencies' programs, and the positions generally are not
filled at an entry level. As a result, when one employee chooses not to
move, the agency frequently must relocate another person from a district or
county office or from another state to fill the position. If this is the
case, then the costs for relocating personnel could increase from the $4.3
million that USDA currently estimates up to as much as the states originally
estimated, $12 million, depending on how many employees have to be
reimbursed for relocation expenses.

Competition Can Help Agencies Reduce Costs

We found no recent examples in which communities offered financial benefits
as incentives for locating federal facilities or offices in their
communities. However, in our 1990 report on GSA's facility location policy,
3 we noted one instance in which a federal agency- the Bureau of Engraving
and Printing- was able to generate widespread competition among communities
that were interested in meeting the agency's space needs and was able to
obtain considerable savings for the taxpayers

3 Facilities Location Policy: GSA Should Propose A More Consistent and
Businesslike Approach (GAO/ GGD- 90- 109, Sept. 28, 1990).

B- 285644

GAO/ RCED- 00- 208R State Office Collocation 6 as a result. The Bureau
received expressions of interest from 82 localities for an

expansion facility, 4 of which offered no- cost land and buildings. It
ultimately selected the Fort Worth, Texas, offer. The 100 acres of land and
a building shell that the city offered in exchange for locating the federal
facilities in it were valued at over $12 million. Bureau officials were
confident that similar benefits could be obtained by other agencies if they
sought them because of the willingness of communities to develop employment
opportunities.

We recommended that GSA develop a location policy that would require
agencies, in meeting their needs, to maximize competition and select sites
that offer the best overall value to the government. GSA did not act on the
recommendation, citing a view that agencies are better able than GSA to
determine their facility needs. In fact, GSA subsequently revised the
Federal Property Management Regulations to remove the suggestion that
agencies consider incentives from local governments when establishing the
area to be considered for locating federal offices.

USDA did not encourage competition among communities in selecting sites for
collocation. USDA was concerned about the legality of accepting certain
types of incentives that had been suggested by interested communities- such
as employee relocation expenses, job placement services, or job training
funds. USDA viewed the acceptance of other types of incentives, such as
reduced or free rent, to be legal but not sound public policy if used to
select between competing communities. USDA officials said that encouraging
competition among communities would ultimately inappropriately shift the
funding burden from the federal government to local governments. USDA's
policy is that economic incentives will not be considered in selecting the
city for collocation, but they can be accepted once the city is determined.
4

Observations

Well- founded USDA collocation decisions are important because they will
significantly affect how effectively and efficiently the Department carries
out its mission for many years to come. We did not determine the validity of
the individual collocation decisions that USDA made- this was beyond the
scope of our study. However, the process used to reach these decisions
raises doubt about whether the chosen collocation sites put USDA in the best
position to meet its mission over the long term. In particular, USDA's
process did not include developing procedures that provided guidance on how
to weigh the relative importance of cost and missionrelated factors.
Furthermore, the process did not incorporate all relevant costs in
estimating costs associated with collocated sites. Finally, USDA's process
did not allow communities to compete for state office locations by offering
economic incentives for locating offices in their communities. The problems
we identified raise doubts about the adequacy of the basis for its
collocation decisions- especially for

4 For a number of years, USDA accepted free space under cooperative
agreements with various local governments, universities, and soil and water
districts. In this regard, USDA reports that it currently accepts free space
in over 200 sites across the country.

B- 285644

GAO/ RCED- 00- 208R State Office Collocation 7 those eight decisions
involving major relocations of employees and their families

(office relocations of more than 50 miles).

Agency Comments

We provided USDA with a draft of this report for its review and comment.
USDA said that the draft report was incorrect in stating that USDA
established 10 criteria to be considered in making collocation decisions.
According to our review of USDA's guidance to the states, it is clear to us
that USDA established 10 criteria. The tenth criteria- one- time costs/
savings for collocation- was listed separately from the other nine criteria,
but it was included in the guidance. USDA also expressed concern that the
draft implied that USDA downplayed or ignored regulatory or programmatic
criteria in favor of cost considerations. USDA said the documentation may
not have clearly established the weight given to the non- cost criteria but
stated that the degree of involvement by the state leaders and agency heads
in the process provides some indication that these factors were considered
and evaluated. We agree that there is some evidence that state leaders and
agency heads considered non- cost criteria, but such evidence was not
adequate to show the extent to which the cost and non- cost criteria were
used to make the decisions. More importantly, however, USDA did not
establish guidance to ensure that the various factors were applied
consistently in making the collocation decisions. USDA also expressed
concern that the Bureau of Engraving and Printing example in the draft was
different from the situation facing USDA in that the example related to an
expansion of a production facility rather than the relocation of a
professional and managerial facility. Our intent was not to imply that the
situation was identical but merely to provide an example of a federal
agency's successful use of competition. USDA also provided technical
clarifications, which we incorporated as appropriate. USDA's comments and
our responses are presented in detail in enclosure II.

Scope and Methodology

We reviewed relevant documents and interviewed cognizant USDA headquarters
officials to obtain information on USDA's collocation site selection
process. To obtain perspective on the issues and to better understand the
state submissions, we visited the FSA, RD, and NRCS state offices in
Illinois, Kansas, and Texas. To obtain information about policies and
practices for locating federal facilities, we interviewed

B- 285644

GAO/ RCED- 00- 208R State Office Collocation 8 GSA headquarters officials.
We performed our work from March through June 2000

in accordance with generally accepted government auditing standards. ---
Please call me at (202) 512- 5138 if you or your staff have any questions
about this report. Key contributors to this report were Ronald E. Maxon,
Jr.; Robert R. Seely, Jr.; and Dale A. Wolden.

Robert E. Robertson Associate Director, Food

and Agriculture Issues Enclosures - 2

Enclosure I

GAO/ RCED- 00- 208R State Office Collocation 9

USDA State Office Collocation Sites

State Current locations USDA- selected collocation site

Alabama a Farm Service Agency (FSA)- Montgomery Natural Resources
Conservation Service (NRCS)- Auburn Rural Development (RD)- Montgomery

Montgomery Alaska b FSA- Palmer

NRCS- Anchorage RD- Palmer

Palmer Arizona b FSA- Phoenix

NRCS- Phoenix RD- Phoenix

Phoenix Connecticut b FSA- Windsor

NRCS- Storrs Storrs

Delaware b FSA- Dover NRCS- Dover RD- Camden

Dover Hawaii a FSA- Honolulu

NRCS- Honolulu RD- Hilo

Honolulu Illinois a FSA- Springfield

NRCS- Champaign RD- Champaign

Champaign Iowa b FSA- Des Moines

NRCS- Des Moines RD- Des Moines

Des Moines Kansas a FSA- Manhattan

NRCS- Salina RD- Topeka

Manhattan Maryland b FSA- Columbia

NRCS- Annapolis Annapolis

Mississippi b FSA- Jackson NRCS- Jackson RD- Jackson

Jackson Montana b FSA- Bozeman

NRCS- Bozeman RD- Bozeman

Bozeman Nebraska b FSA- Lincoln

NRCS- Lincoln RD- Lincoln

Lincoln Nevada b FSA- Reno

NRCS- Reno RD- Carson City

Reno New Hampshire b FSA- Concord

NRCS- Durham Durham

New Jersey b FSA- Bordentown NRCS- Somerset RD- Mt. Holly

Trenton North Dakota a FSA- Fargo

NRCS- Bismarck RD- Bismarck

Bismarck Oregon b FSA- Tualatin

NRCS- Portland RD- Portland

Portland Puerto Rico b FSA- Santurce Hato Rey

Enclosure I

GAO/ RCED- 00- 208R State Office Collocation 10

NRCS- Hato Rey RD- Hato Rey South Carolina b FSA- Columbia

NRCS- Columbia RD- Columbia

Columbia Tennessee b FSA- Nashville

NRCS- Nashville RD- Nashville

Nashville Texas a FSA- College Station

NRCS- Temple RD- Temple

Temple Vermont b FSA- Burlington

NRCS- Winooski Burlington

Washington a FSA- Spokane NRCS- Spokane RD- Olympia

Spokane Wisconsin a FSA- Madison

NRCS- Madison RD- Stevens Point

Madison Wyoming b FSA- Casper

NRCS- Casper RD- Casper

Casper a Collocation of sites more than 50 miles apart. b Collocation of
sites located 50 miles or less apart, including at one site within a
metropolitan area from multiple locations within the area.

Source: USDA.

Enclosure II

GAO/ RCED- 00- 208R State Office Collocation 11

Comments From the U. S. Department of Agriculture

Note: GAO comments supplementing those in the report text appear at the end
of this enclosure.

Enclosure II

GAO/ RCED- 00- 208R State Office Collocation 12

Enclosure II

GAO/ RCED- 00- 208R State Office Collocation 13

Enclosure II

GAO/ RCED- 00- 208R State Office Collocation 14

Enclosure II

GAO/ RCED- 00- 208R State Office Collocation 15

GAO Comments

1. We deleted reference to USDA's relocation reimbursement policy, and we
revised our discussion to reflect that USDA's guidance separated the non-
collocated states into two groups, with those 50 miles or less apart
scheduled for earlier collocation action than those more than 50 miles
apart.

2. We revised the report to clarify that USDA's legal concerns related to
the acceptance of certain types of incentives and not to the issue of
competition between communities.

3. We disagree that the draft was incorrect in stating that USDA established
10 criteria. On the basis of our review of USDA's guidance to the states, it
is clear to us that USDA established 10 criteria. The tenth criteria- one-
time costs and savings for collocation- was listed separately from the other
nine criteria, but it was included in the guidance.

4. We revised our discussion to reflect that these costs could be associated
with some or all of those who do not relocate.

5. We revised the report to reflect that the costs could increase up to as
much as the states originally estimated, depending on how many employees
have to be reimbursed for relocation expenses.

6. We revised our report to make it clear that our intent was not to imply
that the situation faced by USDA was identical to the example, but rather to
simply provide an example of a federal agency that had successfully used
competition.

7. We revised our report to include the information that the General
Services Administration revised the Federal Property Management Regulations
to remove suggestions that agencies consider incentives from local
governments when establishing the area to be considered for locating federal
offices.

8. We disagree that our report places a negative connotation on USDA's level
of concern with cost factors. The report simply notes that USDA focused on
costs in making collocation decisions.

9. We revised our report to note our agreement that there is some evidence
that state leaders and agency heads considered non- cost criteria. However,
such evidence was not adequate to show the extent to which the cost and non-
cost criteria were used to make the decisions. More importantly, USDA did
not establish guidance to ensure the various factors were applied
consistently in making the collocation decisions.

10. We did not change the location of the statement in the report because we
believe it is appropriately placed.

(150185)
*** End of document. ***