Public-Private Partnerships: Key Elements of Federal Building and
Facility Partnerships (Testimony, 04/29/99, GAO/T-GGD-99-81).

Pursuant to a congressional request, GAO discussed the key elements of
partnerships between the federal government and the private sector,
focusing on: (1) some of the weaknesses that are making it necessary for
agencies to think strategically when managing buildings and facilities;
and (2) the key elements and related experiences of the 6 federal
partnerships that were created to meet these challenges.

GAO noted that: (1) government-owned real estate is under the custody
and control of at least 30 federal agencies, although most is under the
jurisdiction of 8 organizations; (2) GAO's work and that of others over
the last several years has identified several important weaknesses in
federal agencies' management and maintenance of facilities and real
property; (3) the following are a few of the federal agencies'
weaknesses in this area: (a) capital planning; (b) deferred maintenance;
(c) underutilized and unneeded properties; and (d) lack of adequate
data; (4) as federal agencies find themselves confronted with these and
other problems in an environment simultaneously marked by budgetary
constraints and demands to improve service, the importance of their
making the most effective use of capital assets is especially great; (5)
in order to do this, federally owned buildings and land need to be
strategically acquired, managed, and disposed of so that the taxpayer's
return on the investment is maximized; (6) to maximize returns on
buildings and facilities, federal agencies are increasingly interested
in managing them in a more businesslike manner; (7) partnerships between
the federal government and the private sector through contracts or
agreements is one of these approaches; (8) the 6 partnership projects
GAO examined were located in 3 agencies: the National Park Service, the
Department of Veterans Affairs, and the U.S. Postal Service; (9)
although each of the 6 projects tailored its efforts to address its
specific needs and environments, GAO found 5 common elements that
appeared to play a key role in the implementation of the partnerships
reviewed; (10) there was a catalyst for change that led each of the 3
agencies to form a partnership with the private sector; (11) Congress
enacted legislation that provided a statutory basis for the agency to
enter the partnership and keep the revenues it received from that
partnership; (12) the agencies reviewed told GAO that they established
organizational structures and acquired the necessary expertise to
interact with private-sector partners to ensure effective partnership
implementation; (13) asset management officials used business plans or
similar documents to make informed decisions and protect the
government's interests; and (14) support from project stakeholders was
an important factor in developing and implementing the public-private
partnerships.

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

 REPORTNUM:  T-GGD-99-81
     TITLE:  Public-Private Partnerships: Key Elements of Federal
	     Building and Facility Partnerships
      DATE:  04/29/99
   SUBJECT:  Federal property management
	     Interagency relations
	     Joint ventures
	     Federal facilities
	     Private sector practices
	     Real property acquisition
	     Privatization

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PUBLIC-PRIVATE PARTNERSHIPS: Key Elements of Federal Building and
Facility Partnerships (GAO/T-GGD-99-81) PUBLIC- PRIVATE
PARTNERSHIPS

Key Elements of Federal Building and Facility Partnerships

Statement of J. Christopher Mihm, Associate Director Federal
Management and Workforce Issues, General Government Division

United States General Accounting Office

GAO Testimony Joint Hearing Before House Subcommittees on

Government Management, Information and Technology, and on Economic
Development, Public Buildings, Hazardous Materials and Pipeline
Transportation

For Release on Delivery Expected at 10: 00 a. m., EDT Thursday
April 29, 1999

GAO/T-GGD-99-81

  GAO/T-GGD-99-81

Statement Public- Private Partnerships: Key Elements of Federal
Building and Facility Partnerships

Page 1 GAO/T-GGD-99-81

Messrs. Chairmen and Members of the Subcommittees: I am pleased to
be here today to discuss the findings of our recent study on
public- private partnerships, which we initiated at the request of
Chairman Horn. 1 In your request for the study, you asked us to
identify the key elements of partnerships between the federal
government and the private sector that were formed to help the
government acquire and operate federal real estate and facilities
more efficiently and effectively. I am also pleased to provide the
Subcommittees with a glossary of terms, practices, and techniques
related to building and facility partnerships that was released
this week. 2

Today, I will briefly discuss some of the weaknesses that are
making it necessary for agencies to think strategically when
managing buildings and facilities. Then, I will focus on one
response to these challenges public private partnerships and
review the key elements and related experiences of the six federal
partnerships we examined in our report.

The U. S. government is one of the world's largest property
owners, with a real estate portfolio of almost 435,000 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. Overall, government- owned real
estate is under the custody and control of at least 30 federal
agencies, although most is under the jurisdiction of 8
organizations: the Departments of Agriculture, Defense, Energy,
the Interior, and Veterans Affairs; the General Services
Administration; the Tennessee Valley Authority; and the U. S.
Postal Service.

Our work and that of others over the last several years has
identified several important weaknesses in federal agencies'
management and maintenance of facilities and real property. 3 The
following are a few of the federal agencies' weaknesses in this
area:

1 Public- Private- Partnerships: Key Elements of Federal Building
and Facility Partnerships (GAO/ GGD99- 23, Feb. 3, 1999). 2
Public- Private Partnerships: Terms Related to Building and
Facility Partnerships (GAO/GGD-99-71, Apr. 1999). This glossary
was developed to help facilitate a better understanding of asset
management terms as they are used in the federal government.

3 See, for example, VA Healthcare: Capital Asset Planning and
Budgeting Needs Improvement (GAO/THEHS-99-83, Mar. 10, 1999);
Stewardship of Federal Facilities: A Proactive Strategy for
Managing the Nation's Public Assets, National Research Council,
Oct. 1998; National Park Service: Efforts to Identify and Manage
the Maintenance Backlog (GAO/RCED-98-143, May 14, 1998); Portfolio
Investment Initiative Pilot Program, General Services
Administration, Apr. 1998; Deferred Maintenance Reporting:
Challenges to Implementation (GAO/AIMD-98-42, Jan. 30, 1998);
Governmentwide Review of Property The Need to

Strategically Manage Federal Facilities and Assets

Statement Page 2 GAO/T-GGD-99-81

 Capital planning: The relationship of facilities to agency
missions has not been recognized adequately in federal strategic
planning and budgeting processes. This situation has been
exacerbated by the relatively common agency practice of using
funds originally intended for maintenance as a contingency fund to
meet other needs encountered throughout the year. Furthermore,
ineffective governmentwide asset disposal policies, when combined
with traditional facility management practices, often restrict
agencies from taking fullest advantage of their capital assets.

 Deferred maintenance: The deferral of necessary maintenance for
public buildings has also often resulted in the permanent
reduction of both the facilities' useful life and costly losses in
their asset value. The backlog of necessary maintenance has grown
so large that the cost of eliminating this situation will likely
be in the tens of billions of dollars.

 Underutilized and unneeded properties: Over time, numerous
agencies have accumulated excess and unneeded facilities that have
deteriorated. Federal agencies own and are responsible for more
facilities than they need to support their missions or than they
can maintain with current and/ or projected budgets. Rather than
treating these surplus facilities as resources that, properly
handled, might be used to advance an agency's mission, agencies
often allow them to lay fallow and unused, their potential
unrealized.

 Lack of adequate data: Agencies have had limited success in
making effective use of data they gather for either timely budget
development or the ongoing management of facilities. 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. Definitions and calculations vary with regard
to facilities related budget items, methodologies for developing
budgets, and accounting and reporting systems for tracking
maintenance and repair expenditures.

As federal agencies find themselves confronted with these and
other problems in an environment simultaneously marked by
budgetary constraints and demands to improve service, the
importance of their making the most effective use of capital
assets is especially great. 4 In

Disposal Policy, General Services Administration, Aug. 15, 1997;
Deferred Maintenance: Reporting Requirements and Identified Issues
(GAO/AIMD-97-103R, May 23, 1997); Defense Infrastructure:
Demolition of Unneeded Buildings Can Help Avoid Operating Costs
(GAO/NSIAD-97-125, May 13, 1997); Committing to the Cost of
Ownership: Maintenance and Repair of Public Buildings, National
Research Council, 1990.

4 See Executive Guide: Leading Practices in Capital Decision-
Making (GAO/AIMD-99-32, Dec. 1998) and Budget Issues: Budgeting
for Capital (GAO/T-AIMD-98-99, Mar. 6, 1998).

Statement Page 3 GAO/T-GGD-99-81

order to do this, federally owned buildings and land need to be
strategically acquired, managed, and disposed of so that the
taxpayer's return on the investment is maximized. 5

To maximize returns on buildings and facilities, federal agencies
are increasingly interested in managing them in a more
businesslike manner. Partnership between the federal government
and the private sector through contracts or agreements is 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.

The six partnership projects we examined in our report 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). 6 We selected them on several grounds, 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 environments, we found five common elements
that appeared to play a key role in the implementation of the
partnerships we reviewed. These elements are shown in figure 1.

5 Federal Real Property: Key Acquisition and Management Obstacles
(GAO/T-GGD-93-42, July 27, 1993). 6 See appendix I of this
testimony for a brief description of these projects. Appendixes II
through IV of GAO/GGD-99-23 contain detailed descriptions of these
projects. Public- Private

Partnerships

Statement Page 4 GAO/T-GGD-99-81

Note: The sequence in which these key elements occurred during
implementation varied by project. a Business plans may identify
issues that require legislative action.

Source: GAO analysis of selected federal building and facility
public- private partnerships.

Figure 1: Key Elements of Public- Private Partnerships

Statement Page 5 GAO/T-GGD-99-81

First of all, 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. For example, in the two Park Service projects,
community leaders who were worried about Five Key Factors in the

Implementation of Partnerships

Statement Page 6 GAO/T-GGD-99-81

preserving historic structures without over commercializing them
became sponsors of the projects.

In addition to presenting this framework of key elements, our
report also contains profiles that provide additional details on
each of the partnerships we reviewed. These profiles present
specifics on the form of the partnership used in each case, any
constraining or facilitating factors present, and the reported
results.

_ _ _ _ _ In conclusion, Messrs. Chairmen, the set of common
elements that we identified appear to be key to the implementation
of the six partnerships we examined. Of particular importance was
the critical role played by Congress, which had to provide the
authority for the projects to occur.

As both we and the National Research Council have reported over
the last decade, the condition of the federal government's
portfolio of public assets is deteriorating. In 1993, we reported
that over half of the government's office buildings were over 40
years old and were designed and located to meet the needs of an
earlier era. 7 Given the deteriorating condition of these
structures, Congress and federal agencies need to continue to work
together to find approaches that will encourage prudent management
of federal buildings and facilities. When accompanied by good
financial management and appropriate congressional oversight,
public- private partnerships may be one approach to facilitate
effective building and facility management at a time when it is
increasingly needed.

This concludes my prepared statement. I would be pleased to answer
any questions you or other Members of the Subcommittees may have.

7 GAO/T-GGD-93-42.

Page 7 GAO/T-GGD-99-81

Attachment Public- Private Partnership Projects We Reviewed

Page 8 GAO/T-GGD-99-81

Projects and related agencies Type Brief description of projects
Department of the Interior, National Park Service

1. Fort Mason Foundation, San Francisco, CA, 1976, extended in
1984.. Cooperative agreement to develop/

operate (20 years) 2. Thoreau Center at the Presidio, San
Francisco, CA, 1995 Lease/ develop/ operate (55 years)

These two urban parks were once military bases and contain many
historic but deteriorating structures. In each instance, the Park
Service contracted with a private sector partner to obtain funding
to restore historic structures while keeping the park in public
use. The partners rent the restored structures to nonprofit
tenants.

Department of Veterans Affairs

3. VA Regional Office, Houston, TX, 1993. a Design/ build/ operate
(35 years) 4. Cold Spring Medical Facility, Indianapolis, IN,
1995. a Lease/ develop/ operate (35 years)

VA used statutory authority to enter into revenue- generating
leases for both projects. In Texas, a private developer
constructed a VA regional office building on VA's medical campus.
VA then leased land to the developer on the medical campus. The
developer constructed buildings on the land and rents space in
them to commercial businesses. VA must approve the buildings'
tenants. In Indiana, the state leased underutilized land and
facilities from VA to use as a psychiatric care facility. The
leasing revenue that VA receives from both sites is to be used to
fund veterans programs.

U. S. Postal Service

5. Grand Central Station Post Office, New York, NY, 1987. Lease/
develop/ operate (99 years) 6. Rincon Center Post Office, San
Francisco, CA, 1985. Lease/ develop/ operate (65 years)

In both cities, the Postal Service owned an outdated, historic
building in a highly desirable downtown location. It leased each
property to private developers who built a commercial building
adjacent to and/ or on top of the historic structure. The Postal
Service earns revenue from its lease with the developer, and the
developer earns revenue from renting out commercial space in the
new and historic buildings. a Both of these projects fall under
the authority granted under VA's Enhanced- Use Lease (EUL)

legislation.

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