Federal Real Property: Views on Management Reform Proposals (Testimony,
07/12/2000, GAO/T-GGD-00-175).

S. 2805 would require the General Services Administration (GSA) to take
a leadership role--in collaboration with the heads of federal
landholding agencies--to publish and maintain a current set of real
property asset management principles. H.R. 3285 would require GSA to
establish performance measures to track executive branch agencies'
progress in achieving property management objectives and would compare
the government's performance with that of the private sector. S.2805
would also provide for a Senior Real Property Officer who would oversee
all real property asset management activities and would work with the
respective agency's Chief Financial Officer, Chief Information Officer,
and head of human resources. The Senior Real Property Officer should be
qualified through education, training, experience, and certification. A
comprehensive, reliable listing of federal properties, as envisioned by
S. 2805, is essential to overseeing and managing the government's large
portfolio of federal assets. The bill also would amend current law to
allow each agency to retain the proceeds of real property sales and
deposit them into agency capital asset accounts for real property needs.
The bill would also provide property managers with four new enhanced
management tools: (1) interagency transfers or exchanges, (2) sales to
or exchanges with nonfederal sources, (3) subleases, and (4) outleases.
However, the 20-year limitation generally placed on outleases could
significantly reduce the usefulness of this tool for properties that are
historically significant or in economically depressed areas.

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

 REPORTNUM:  T-GGD-00-175
     TITLE:  Federal Real Property: Views on Management Reform
	     Proposals
      DATE:  07/12/2000
   SUBJECT:  Federal property
	     Proposed legislation
	     Strategic planning
	     Real property
	     Federal property management
	     Performance measures

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GAO/T-GGD-00-175

United States General Accounting Office
GAO

Testimony

Before the Subcommittee on Government
Management, Information, and Technology,
Committee on Government Reform, House of
Representatives

For Release on Delivery
10:00 a.m. EDT
Wednesday
July 12, 2000
GAO/T-GGD-00-175

FEDERAL REAL PROPERTY
Views on Management Reform Proposals

Statement of Bernard L. Ungar
Director, Government Business Operations Issues
General Government Division

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Statement
Federal Real Property:  Views on Management Reform
Proposals
Page 6                           GAO/T-GGD-00-175
Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to assist the
Subcommittee in its consideration of S. 2805, the
Federal Property Asset Management Reform Act of
2000. The purpose of this bill is to amend the
Federal Property and Administrative Services Act
of 1949 (Property Act), to enhance governmentwide
property management and bring the policies and
business practices by which federal agencies
manage their property assets into the 21st
century. You also asked us to review another bill,
H.R. 3285, the Federal Asset Management
Improvement Act of 1999, which provides for  the
use of (1) partnerships with the private sector to
improve and redevelop federal real estate and (2)
performance measures for federal property
management.

The U.S. government is one of the world's largest
property owners, with a real estate portfolio of
over 400,000 defense and civilian buildings and
over half a billion acres of land. Most of the
government's real property holdings are national
parks, forests, other public lands, and military
facilities. According to a 1998 National Research
Council report, federal facilities alone
represented an investment of more than $300
billion tax dollars.1 Overall, government-owned
real estate is under the custody and control of at
least 30 federal organizations, although most is
under the jurisdiction of 8 agencies: the
Departments of Agriculture, Defense, Energy, the
Interior, and Veterans Affairs (VA); the General
Services Administration (GSA); the Tennessee
Valley Authority; and, the U.S. Postal Service.

As we and others have previously reported, federal
asset managers find themselves confronted with
numerous challenges in managing this multibillion
dollar real estate portfolio, including a large
deferred maintenance backlog, obsolete and
underutilized properties, rapid advances in
technology, and the push for a more integrated
work environment.2 These challenges must be
addressed in an environment marked by budgetary
constraints and growing demands to improve
service. To meet these challenges, agencies need
to provide asset managers with the tools that will
help them succeed. While time constraints did not
enable us to fully analyze all of the provisions
of these two bills, it appears that a number of
the provisions in S. 2805 and H.R. 3285 would go a
long way toward recognizing real property as a
major component in carrying out agencies' missions
and improving the federal government's management
of its multibillion dollar real property holdings.

Today, Mr. Chairman, I would like to specifically
comment on the aspects of these bills that are
designed to promote more effective leadership,
obtain and maintain reliable information on
federal assets, and provide the necessary tools
and incentives to make real property management
more effective. These are areas where our past
work showed that improvements were needed and that
best practices of private and public organizations
could be used to achieve better results with
regard to real property management and oversight.
As we have reported, federal agencies can improve
their decisionmaking for the acquisition and
management of assets by following the best
practices of leading government and private sector
organizations.3 I have also included additional
background on the use of public-private
partnerships by some federal organizations in the
attachment to this statement.

Property Management Leadership
S. 2805 would require the GSA Administrator to
take a leadership role, in collaboration with the
heads of federal landholding agencies, to publish,
and maintain a current set of real property asset
management principles. These principles would be
used by agencies as guidance in making decisions
about property planning, acquisition, use,
maintenance, and disposal. GSA believes that these
principles would, among other things, promote more
efficient and effective use of federal assets and
better communication among the agencies to enhance
overall management functions of the federal
government. H.R. 3285 would require the GSA
Administrator to establish performance measures
designed to track executive branch agencies'
progress in achieving property management
objectives, as well as compare their performance
with the private sector. Agencies would monitor
their performance against standards set by GSA and
report the results to Congress along with the
agency's budget submission.

These provisions would emphasize the importance of
effectively managing the government's multibillion
dollar portfolio of federal real property assets,
helping facilitate a uniform approach to asset
management, and assisting federal managers in
monitoring progress and measuring results. They
are in line with the principles of the Government
Performance and Results Act of 1993 (GPRA), as
well as our prior recommendations that GSA focus
its facilities management role on government
leadership and strategic management.

S. 2805 also would provide for a Senior Real
Property Officer to oversee all real property
asset management activities relating to agency
programs and operations. This provision would
establish accountability in federal agencies with
real property holdings for the management and
oversight of these assets. The Senior Real
Property Officer would work together with three
other senior agency officials-the Chief Financial
Officer (CFO), the Chief Information Officer
(CIO), and the head of human resources-to
integrate the strategic planning of facilities,
financial management, technology, and human
capital planning. The Senior Real Property Officer
would continuously monitor the management of
assets to ensure that they were being used and
invested in a way that supported the goals and
objectives of the agency's strategic plan.

Over a decade ago, in our 1989 management review
of GSA, we said that placing facilities management
closer to the user would improve responsiveness to
changes taking place in the workplace, and that as
part of this process each agency should designate
a senior official who would  serve as its focal
point for facilities management issues and be
responsible for setting agency-level policies and
goals. 4 We believe that today's challenging
environment for managing assets poses a need for
each land-owning federal agency to have a senior
real property manager. At the same time, the
establishment of such a senior real property
manager position would allow each agency to have a
focal point with responsibility for implementing
property management consistently with the agency's
strategic plan.  Further, the senior real property
officers from each agency would be in a position
to form a council or other body, similar to the
CFO Council, to discuss common issues, such as
strategies, best practices, emerging technologies,
and workplace needs.

While we support the proposed requirement for
agencies to designate a Senior Real Property
Officer, we note that the bill does not specify
any minimum qualification requirements for these
individuals. It would be beneficial if these
individuals were qualified through education,
training, experience, and certification, and were
placed at a senior level within the organization.
This should enable these individuals to better
establish and facilitate appropriate real property
asset management policies and practices. These
individuals could be required to have a recognized
professional designation or certification, such as
the Certified Facility Manager or Real Property
Administrator designations. Real property
management and technology are becoming
increasingly complex and the federal portfolio is
large and diverse. As such, this would suggest
that an experienced and qualified individual would
be needed to provide the leadership called for in
the bill. Given this, the Subcommittee may want to
consider adding qualification requirements to the
bill.

Relevant Management Information
S. 2805 would require the GSA Administrator to
accumulate and maintain a single, comprehensive,
worldwide listing of all real property interests
under the custody and control of federal agencies.
Subject to certain limitations, and as deemed
appropriate by the Administrator, portions of this
database would be available to interested
stakeholders and the public. As you know, GSA
currently maintains a worldwide inventory of real
property holdings. However, according to GSA's
Inspector General, GSA has no assurance that this
inventory contains accurate, timely, or complete
data and has no leverage or authority over
property holding agencies to ensure that the data
they voluntarily submit is current, accurate, or
complete.5

Our prior work has shown that data related to the
management and oversight of federal assets are
generally problematic. For example, it is
difficult to determine how many federal buildings
are underutilized or unneeded, or how much money
the federal government as a whole spends on the
maintenance and repair of federal facilities.
Variations exist among agencies with regard to
definitions and methodologies for developing
budgets and accounting and reporting systems for
tracking maintenance and repair expenditures.

In our 1989 review of GSA, we noted that the
agency needed to determine what information was
needed to effectively oversee governmentwide real
property management. We added that we saw major
challenges for GSA in improving the availability
of relevant information to manage the government's
facilities assets and establishing oversight of
facilities management functions. Accordingly, we
recommended that the GSA Administrator ensure the
development of a new facilities management
information structure, redefine the relevant
management information needed to manage facilities
assets strategically, evaluate facilities costs
and performance, and oversee delegated functions.
In addition, we have often reported our concerns
about the reliability of the government's real
property inventory. For example, we noted that the
government's reporting of its real property
inventory was incomplete and unreliable in our
1999 financial report on the government.6

We believe that a comprehensive, reliable listing
of federal properties, as envisioned by S. 2805,
is essential to overseeing and managing the
government's large portfolio of federal assets.
Lack of good data makes it difficult to select an
optimal level of capital spending needed for the
acquisition and maintenance of real property.
Inadequate data also impede the ability to
identify and dispose of real property assets that
are no longer needed or cost effective to retain.
If the government does not have a good perspective
on its property holdings, because of poor data, it
may be incurring opportunity costs needlessly,
since some of its buildings and land could be put
to more cost-beneficial uses, exchanged for other
needed property, or sold.7

Since GSA and most other federal agencies do not
know the market value of their properties, the
costs the government incurs when these properties
are used inefficiently or uneconomically are not
apparent. We would like to point out that while we
support the bill's provision related to a
worldwide inventory of federal real property
holdings, we believe this will be a challenging
task for many agencies because our  previous work
has shown that the government lacks the necessary
systems and processes to ensure complete and
reliable information on its assets.  As a result,
agencies have had limited success in making
effective use of data they gather for the ongoing
management of facilities.

Property Management Flexibility and Incentives
S. 2805 would also provide managers more
flexibility and incentives for better property
management. The bill would amend current law so
that each agency, in selling its real property,
could retain proceeds from such sales and deposit
them into agency capital asset accounts for real
property needs. Furthermore, each agency would be
able to be reimbursed for the costs of property
dispositions from the proceeds of the dispositions
or from its capital asset accounts. Additionally,
S. 2805 provides asset management tools, which in
themselves may be incentives for agency property
managers to better manage federal real estate
assets. The bill would provide four new enhanced
asset management tools for effective management of
federal property-(1) interagency transfers or
exchanges, (2) sales to or exchanges with
nonfederal sources, (3) subleases, and (4)
outleases. These tools would allow each federal
agency to negotiate the movement or use of
property assets that no longer provide the optimum
accommodation for the agency's activities because
of its changing mission requirements, functional
obsolescence, or other activities.

GSA believes these provisions will present
opportunities for cost avoidance, reduce the
number of mission-deficient properties under
federal ownership, and improve the quality and
productivity of federal facilities. Over the
years, we have reported that the government has
not made enough funding available to properly
maintain public assets. As a result, federal
buildings are suffering from years of neglect and
are becoming functionally obsolete. Recently, we
reported that GSA data indicate that about $4
billion was needed to satisfy the repair and
alteration requirements in the government-owned
buildings it manages.8 In 1991, we reported a
similar condition in that buildings were
deteriorating and that billions of dollars were
needed to bring them up to acceptable quality,
health, and safety standards.9

We believe that federal asset managers need the
proper tools to effectively manage and oversee
federal assets. Given this, the tools mentioned
above appear to be steps in the right direction
for exploring opportunities to better utilize
federal assets. However, we believe that the 20-
year limitation generally placed on the use of
outleases in S. 2805 could significantly reduce
the usefulness of this tool for properties that
are historically significant or that are located
in economically depressed areas, and additionally
may discourage private investors. According to
private sector developers, the 20-year period may
not provide enough time to recoup their
investment.

H.R. 3285 also provides a new tool that could be
an incentive for federal property managers to
better manage federal real estate. It allows GSA
to enter into public-private partnerships with
nongovernmental entities to lease federal property
and to develop, rehabilitate, or renovate
facilities on such leased property for use by
executive agencies. The public-private
partnerships could be formed with limited
liability companies, limited partnerships,
corporations, business trusts, or other entities
designated by GSA. Congress has already enacted
legislation that provides certain agencies with a
statutory basis to enter into partnerships and
keep the revenue they receive from them. Our work
has shown that public-private partnerships have
been successfully used by some federal
organizations. The attachment to my statement
further describes federal agencies' involvement
with public-private partnership arrangements.

As we and the National Research Council pointed
out in our April 29, 2000, testimonies on asset
management, incentives are needed to encourage
agencies to better manage their assets. Currently,
the law for most federal agencies requires that
all proceeds from the sale of federal land and
buildings go either to the general treasury or the
Land and Water Conservation Fund. This provides
agencies with no monetary incentive to identify
and dispose of excess federal real property. In
our public-private partnership review, we found
that a primary reason for an agency to enter into
partnerships was the incentive to keep, for its
own use, the revenue it would receive from the
partnership.

It appears to us that allowing agencies to retain
the bulk of the funds they would receive from
using the tools set forth in S. 2805 would provide
agencies with incentives, although it reduces the
Congress' ability to oversee these funds.
Permitting individual agencies to retain sales
proceeds could raise questions about capital
allocations should governmentwide priorities
change. Thus, another possible approach would be
to designate the proceeds from real property
transactions to be placed into an account that
would be managed centrally so that decisions on
capital investments could be made based on where
the need is greatest across government. However,
this approach does not directly provide incentives
to the agencies themselves.

Both S. 2805 and H.R. 3285 contain provisions that
would provide Congress with advance notification
of certain transactions as well as information on
their asset practices on an annual basis. However,
it is not clear to us from the bills whether
Congress would receive the specific information it
would need to exercise appropriate control and
oversight over the funds to be retained and used.
Thus, regardless of whether the designated funds
are managed centrally or agency by agency, the
Subcommittee may want to consider requiring
whoever controls the funds to submit a plan to
Congress on how the funds are to be used as well
as providing a report on how the funds were used.
OMB currently requires capital asset plans for
acquisitions and, in its Capital Programming
Guide, encourages agencies to develop plans
covering all of their capital assets.

Conclusions
In a results-oriented environment in which the
federal government operates, much thought must be
devoted to a rationale and strategy for facility
management, maintenance, and accountability for
stewardship that will optimize our limited
resources while protecting the value and
functionality of the nation's real property. S.
2805 should go a long way toward improving the
stewardship of public assets by requiring the
appointment of a Senior Real Property Officer for
each executive land- holding agency and providing
asset managers with better information, greater
flexibility, and more tools with which to optimize
asset performance.

In addition, we believe that the new tools
provided by S. 2805 and H.R. 3285, such as inter-
agency transfers and public-private partnerships,
and the ability to retain funds from real property
transactions should help property managers become
better stewards of the nation's assets and thus
more effectively sustain the taxpayers'
investment. As the Subcommittee deliberates on S.
2805, there are three areas that should be
considered. These are (1) the need for
qualification requirements for Senior Real
Property Officers; (2) the possibility that the 20-
year lease term for outleases may limit the
usefulness of this tool for properties that are
historically significant or that are located in
economically depressed areas; and (3) the type of
congressional review or oversight that would be
appropriate regarding agencies' intended or actual
use of funds they retain from real property
transactions, along with whether the retained
funds should be controlled centrally or agency by
agency.

Mr. Chairman, this concludes my prepared
statement. I would be pleased to answer any
questions you or other members of the Subcommittee
may have.

Contacts And Acknowledgement
For further information contacts regarding this
testimony, please contact Bernard L. Ungar,
Director, Government Business Operations Issues,
on (202) 512-8387. Individuals making key
contributions to this testimony included Ronald
King, Gary Lawson, and Donald Bumgardner.

_______________________________
1 Stewardship of Federal Facilities: A Proactive
Strategy for Managing the Nation's Public Assets,
National Research Council, 1998.
2 The integrated workplace is the result of a
collaborative, multidisciplinary approach to
developing and providing workspace, uniting the
organization's strategic real property plan with
its strategic business goals. It responds to the
people and work practices of each individual and
group, and provides them with the physical space
and tools needed for their success. See The
Integrated Workplace: A Comprehensive Approach to
Developing Workspace, Office of Real Property,
GSA, (June 1999). See also VA Healthcare: Capital
Asset Planning and Budgeting Needs Improvement
(GAO/T-HEHS-99-83, Mar. 10, 1999); National Park
Service: Efforts to Identify and Manage the
Maintenance Backlog (GAO/RCED-98-143, May 14,
1998); and Deferred Maintenance Reporting:
Challenges to Implementation (GAO/AIMD-98-42, Jan.
30, 1998).
3 See U.S. Infrastructure: Funding Trends and
Opportunities to Improve Investment Decisions
(GAO/RCED/AIMD-00-35, Feb., 7, 2000).
4 General Services Administration: Sustained
Attention Required to Improve Performance (GAO/GGD-
90-14, Nov. 1989).
5 See Review of Real Property Reporting for the
Worldwide Inventory (GSA/OIG: Report Number:
A000813/O/W/F00006, Mar. 23, 2000).
6 Financial Audit: 1999 Financial Report of the
United States Government (GAO/AIMD-00-131, Mar.
31, 2000).
7 Federal Real Property: Key Acquisition and
Management Obstacles (GAO/T-GGD-93-42, Jul. 27,
1993).
8 See Federal Buildings: Billions Are Needed for
Repairs and Alterations (GAO/GGD-00-98, Mar. 30,
2000) and Federal Buildings: Billions Are Needed
for Repairs and Alterations (GAO/T-GGD-00-73, Apr.
11, 2000).
9 Federal Buildings: Actions Needed to Prevent
Further Deterioration and Obsolescence (GAO/GGD-91-
57, May 13, 1991).

Attachment I
Public-Private Partnerships Have Been Successfully
Used by Some Federal Organizations
Page 10                          GAO/T-GGD-00-175
To maximize returns on buildings and facilities,
federal agencies are increasingly interested in
managing them in a more businesslike manner.
Partnerships between the federal government and
the private sector through contracts or agreements
are one of these approaches. These arrangements
typically involve a government agency contracting
with a private partner to renovate, construct,
operate, maintain, and/or manage a facility or
system, in part or in whole, that provides a
public service. Last year, we reported the
findings of our public-private partnerships review
and the key elements and related experiences of
the six federal partnerships we examined in our
report.1

The six partnership projects we examined were
located in three agencies: the National Park
Service (Park Service) within the Department of
the Interior, the Department of Veterans Affairs
(VA), and the U.S. Postal Service (Postal
Service). We selected them based on several
factors, including our consultation with building
and facility management experts from the public
and private sectors. Although each of the six
projects tailored its efforts to address its
specific needs and environment, we found five
common elements that appeared to play a key role
in the implementation of the partnerships we
reviewed.

First, there was a catalyst for change that led
each of the three agencies to form a partnership
with the private sector. For example, community
pressure and fiscal constraints were the catalyst
in the two Park Service projects we reviewed, in
which the Park Service entered into public-private
partnerships mainly to obtain partners that could
finance needed preservation efforts.

Second, for all six projects we reviewed, Congress
enacted legislation that provided a statutory
basis for the agency to enter into the partnership
and keep the revenues it received from that
partnership. The legislation was either project-
specific, as it was for one of the Park Service
projects, or broader in scope, as was the 1991 law
that authorized VA to lease its properties and
retain the resulting revenues. According to
building and facility managers in all of the
projects we reviewed, a primary reason for an
agency to enter into these partnerships was the
ability to keep for its own use the revenue that
it would receive from the partnership.

Third, the agencies we reviewed also told us that
they established organizational structures and
acquired the necessary expertise to interact with
private-sector partners to ensure effective
partnership implementation. For example, VA
established an Office of Asset and Enterprise
Development to promote the partnership concept
within VA to design and implement public-private
partnership projects, and to be a single point of
contact with VA's private-sector partners. The
office was staffed, VA officials said, with
professionals experienced in portfolio management,
architecture, civil engineering, and contracting.

Fourth, in all six projects we reviewed, asset
management officials used business plans or
similar documents to make informed decisions and
protect the government's interests. According to
Postal Service officials, the development and
execution of a business plan, which included
information about the division of risks and
responsibilities between the Postal Service and
its private-sector partner, was critical to its
success in implementing its large-scale real
estate development projects. For each of the
projects we reviewed, business plans were drafted
jointly between the public- and private-sector
parties to help ensure the close involvement of
both parties in the design and implementation of
the project.

Finally, support from project stakeholders was an
important factor in developing and implementing
the public-private partnerships. In all of the
projects we reviewed, agencies had the support of
the local community and other stakeholders to
create the partnership.

_______________________________
1  Public-Private Partnerships: Key Elements of
Federal Building and Facility Partnerships
(GAO/GGD-99-23, Feb. 3, 1999);  See also, Public-
Private Partnerships: Key Elements of Federal
Building and Facility Partnerships (GAO/T-GGD-99-
81, Apr. 29, 1999); Public Private Partnerships:
Terms Related to Building and Facility
Partnerships, (GAO/GGD-99-71, Apr., 1999); and
Federal Real Property Management: Answers to
Hearing Questions, (GAO/GGD-99-130R, Jul. 1,
1999).
*** End of document ***