Testimony 

Before the House Committee on 

Government Reform

United States Government Accountability Office

GAO 

For Release on Delivery 

Expected at 10:00 a.m. EDT 

Wednesday, June 22, 2005 FEDERAL REAL 

PROPERTY 

Further Actions Needed to 

Address Long-standing and 

Complex Problems 

Statement of David M. Walker, Comptroller General of the 

United States 

GAO-05-848T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-848T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Mark Goldstein 

at (202) 512-2834 or goldsteinm@gao.gov. 

Highlights of GAO-05-848T, a testimony 

before the House Committee on 

Government Reform 

June 22, 2005

FEDERAL REAL PROPERTY 

Further Actions Needed to Address Longstanding and Complex Problems 

The federal real property portfolio is vast and diverse—over 30 agencies 

control hundreds of thousands of real property assets worldwide, including 

facilities and land worth hundreds of billions of dollars. Unfortunately, many 

of these assets are no longer effectively aligned with, or responsive to, 

agencies’ changing missions. Further, many assets are in an alarming state of 

deterioration; agencies have estimated restoration and repair needs to be in 

the tens of billions of dollars. Compounding these problems are the lack of 

reliable governmentwide data for strategic asset management, a heavy 

reliance on costly leasing, instead of ownership, to meet new needs, and the 

cost and challenge of protecting these assets against terrorism. 

In February 2004, the President added the Federal Asset Management 

Initiative to the President’s Management Agenda and signed Executive Order 

13327. The order requires senior real property officers at specified executive 

branch departments and agencies to, among other things, prioritize actions 

needed to improve the operational and financial management of the agency’s 

real property inventory. A new Federal Real Property Council at OMB has 

developed guiding principles for real property asset management and is also 

developing performance measures, a real property inventory database, and 

an agency asset management planning process. In addition to these reform 

efforts, some agencies such as the Departments of Defense (DOD) and 

Veterans Affairs (VA) have made progress in addressing long-standing 

federal real property problems. For example, DOD is preparing for a round 

of base realignment and closures in 2005. Also, in May 2004, VA announced a 

wide range of asset realignment decisions. 

These and other efforts are positive steps, but it is too early to judge whether 

the administration’s focus on this area will have a lasting impact. The 

underlying conditions and related obstacles that led to GAO’s high-risk 

designation continue to exist. Remaining obstacles include competing 

stakeholder interests in real property decisions, various legal and budgetrelated disincentives to optimal, businesslike, real property decisions, and 

the need for better capital planning among agencies. 

Examples of Vacant GSA, VA, and USPS Facilities 

In January 2003, GAO designated 

federal real property as a high-risk 

area due to long-standing problems 

with excess and underutilized 

property, deteriorating facilities, 

unreliable real property data, and 

costly space challenges. Federal 

agencies were also facing many 

challenges protecting their 

facilities due to the threat of 

terrorism. 

This testimony discusses the 

problems with federal real 

property, particularly those relating 

to excess and deteriorating 

property, and what needs to be 

done to address them. 

What GAO Recommends

Since January 2003, some 

important efforts to address the 

problems have been initiated by the 

administration and executive 

agencies, including Presidential 

Executive Order 13327 on real 

property reform 

The executive order is clearly a 

positive step. However, GAO 

believes there is still a need for a 

comprehensive, integrated 

transformation strategy for real 

property to build upon the 

executive order. More specifically, 

the additional step of developing a 

transformation strategy would 

provide decisionmakers with a 

road map of actions for addressing 

the underlying obstacles, for 

assessing progress 

governmentwide, and for 

enhancing accountability for 

related actions. 
Page 1 GAO-05-848T 

Mr. Chairman and Members of the Committee: 

We welcome the opportunity to testify on the actions that are needed to 

address the long-standing and complex problems that led to our 

designation of federal real property as a high-risk area. As you know, at 

the start of each new Congress since 1999, we have issued a special series 

of reports, entitled the Performance and Accountability Series: Major 

Management Challenges and Program Risks. In January 2003, we 

designated federal real property a high-risk area as part of this series, and 

we issued an update on this area in January 2005.1

 My testimony is based 

on our January 2003 and January 2005 high-risk reports and other GAO 

reports on real property issues. My testimony focuses on the problems 

with federal real property, particularly those relating to excess and 

deteriorating property, and what needs to be done to address them. 

As we reported in February 2005, the physical footprint of agencies is 

outmoded, which reflects the failure to take advantage of opportunities 

provided by new technology to modernize operations and the changing 

nature of agencies’ missions.2

 More than 30 federal agencies control about 

$328 billion in real property assets worldwide, and maintain a “brick and 

mortar” buildings and/or office presence in 11 regions across the nation. 

But this organization and infrastructure reflects a business model and the 

technological and transportation environment of the 1950s. Many of these 

assets and organizational structures are no longer needed; others are not 

effectively aligned with, or responsive to, agencies’ changing missions; and 

many assets are in an alarming state of deterioration, potentially costing 

taxpayers tens of billions of dollars to restore and repair. In addition, 

federal agencies face problems with their real property data and 

protecting their facilities due to the threat of terrorism. 

Since our designation of this area as high-risk in January 2003, some 

important efforts to address these problems have been initiated by the 

 1

GAO, High-Risk Series: Federal Real Property, GAO-03-122 (Washington, D.C.; Jan. 2003); 

the report on real property is a companion to GAO’s 2003 high-risk update, GAO, High-Risk 

Series: An Update, GAO-03-119 (Washington, D.C.: Jan. 2003); and GAO, High-Risk Series: 

An Update, GAO-05-207 (Washington, D.C.; Jan. 2005); these reports are intended to help 

the new Congress focus its attention on the most important issues and challenges facing 

the federal government. 

2

GAO, 21st Century Challenges: Reexamining the Base of the Federal Government, 

GAO-05-352T (Washington, D.C.; Feb. 16, 2005). 

Summary 
Page 2 GAO-05-848T 

administration and executive agencies, including a Presidential Executive 

Order3

 on real property reform and the Office of Management and Budget’s 

(OMB) development of guiding principles for real property asset 

management. The executive order is clearly a positive step. However, it 

has not been fully implemented, and further actions are necessary to 

address the underlying problems and related obstacles, including 

competing stakeholder interests in real property decisions and legal and 

budget-related disincentives to optimal, businesslike, real property 

decisions. GAO continues to believe that there is a need for a 

comprehensive transformation strategy for real property to build upon the 

executive order. More specifically, the additional step of developing a 

transformation strategy would provide decisionmakers with a road map of 

actions for addressing the underlying obstacles, assessing progress 

governmentwide, and for enhancing accountability for related actions. 

If actions resulting from the transformation strategy and other efforts 

address the long-standing problems are effectively implemented, agencies 

will be better able to recover asset values, reduce operating costs, improve 

facility conditions, enhance security and safety, recruit and retain 

employees, and achieve mission effectiveness. Realigning the 

government’s real property, taking into consideration the future federal 

role, likely organizational structure, geographic presence, and workplace 

needs, will be critical to improving the government’s performance and 

ensuring accountability within expected resource limits. 

The federal real property environment has many stakeholders and involves 

a vast and diverse portfolio of assets that are used for a wide variety of 

missions. Real property is generally defined as facilities; land; and 

anything constructed on, growing on, or attached to land. According to its 

fiscal year 2003 financial statements, the federal government currently 

owns billions of dollars in real property assets. The Department of Defense 

(DOD), U.S. Postal Service (USPS), the General Services Administration 

(GSA), and the Department of Veterans Affairs (VA) hold the majority of 

the owned facility space. 

Federal real property managers operate in a complex and dynamic 

environment. Numerous laws and regulations govern the acquisition, 

management, and disposal of federal real property. The Federal Property 

 3

Presidential Executive Order 13327, Feb. 6, 2004. 

The Federal Real 

Property Environment 
Page 3 GAO-05-848T 

and Administrative Services Act of 1949, as amended (Property Act), and 

the Public Buildings Act of 1959, as amended, are the laws that generally 

apply to real property; and GSA is responsible for the acts’ 

implementation.4

 Agencies are subject to these acts, unless they are 

specifically exempted from them, and some agencies may also have their 

own statutory authority related to real property. Agencies must also 

comply with numerous other laws related to real property. 

Despite significant changes in the size and mission needs of the federal 

government in recent years, the federal portfolio of real property assets in 

many ways still largely reflects the business model and technological 

environment of the 1950s and faces serious security challenges. In the last 

decade alone, the federal government has reduced its workforce by 

several hundred thousand personnel, and several federal agencies have 

had major mission changes. With these personnel reductions and mission 

changes, the need for existing space, including general-purpose office 

space, has declined overall and necessitated the need for different kinds of 

space. At the same time, technological advances have changed workplace 

needs, and many of the older buildings are not configured to 

accommodate new technologies. The advent of electronic government is 

starting to change how the public interacts with the federal government. 

These changes will have significant implications for the type and location 

of property needed in the 21st century. Furthermore, changes in the 

overall domestic security environment have presented an additional range 

of challenges to real property management that must be addressed. 

One reason the government has many unneeded assets is that some of the 

major real property-holding agencies have undergone significant mission 

shifts that have affected their real property needs. For example, after the 

Cold War, DOD’s force structure was reduced by 36 percent. Despite 

several rounds of base closures, DOD projects that it still has considerably 

more property than it needs. The National Defense Authorization Act for 

Fiscal Year 2002, gave DOD the authority for another round of base 

realignments and military installation closures in 2005. 

 4

For the Property Act, see 40 U.S.C. § 101 et. seq.; the Property Act excludes certain types 

of property, such as public domain assets and land reserved or dedicated for national forest 

or national park purposes; for the Public Buildings Act, see 40 U.S.C. § 3301 et. seq. 

The Federal 

Government Has 

Many Assets it Does 

Not Need 
Page 4 GAO-05-848T 

In addition, various factors may significantly reduce the need for real 

property held by USPS. These factors include new technologies, additional 

delivery options, and the opportunity for greater use of partnerships and 

retail co-location arrangements. A July 2003 Presidential Commission 

report on USPS stated, among other things, that USPS had vacant and 

underutilized facilities that had little, if any, value to the modern-day 

delivery of the nation’s mail.5

 In April 2005 we reported that USPS faces 

future financial challenges due to its declining First-Class Mail volume and 

has excess capacity in its current infrastructure that impedes efficiency 

gains.6

 USPS has stated that one way to increase efficiency is to realign its 

processing and distribution infrastructure. 

In the mid-1990s, VA began shifting its role from being a traditional 

hospital-based provider of medical services to an integrated delivery 

system that emphasizes a full continuum of care with a significant shift 

from inpatient to outpatient services. Subsequently, VA has struggled to 

reduce its large inventory of buildings, many of which are underutilized or 

vacant. 

The magnitude of the problem with underutilized or excess federal 

property puts the government at significant risk for wasting taxpayers’ 

money and missed opportunities. First, underutilized or excess property is 

costly to maintain. DOD estimates that it is spending $3 billion to $4 billion 

each year maintaining facilities that are not needed. It is likely that other 

agencies that continue to hold excess or underutilized property are also 

incurring significant costs for staff time spent managing the properties and 

on maintenance, utilities, security, and other building needs. Second, in 

addition to day-to-day operational costs, holding these properties has 

opportunity costs for the government, because these buildings and land 

could be put to more cost-beneficial uses, exchanged for other needed 

property, or sold to generate revenue for the government. Finally, 

continuing to hold property that is unneeded does not present a positive 

image of the federal government in local communities. Instead, it presents 

an image of waste and inefficiency that erodes taxpayers’ confidence in 

 5

President’s Commission on the United States Postal Service, Embracing the Future: 

Making the Tough Choices to Preserve Universal Mail Service (Washington, D.C.: July 31, 

2003). 

6

GAO, U.S. Postal Service: The Service’s Strategy for Realigning Its Mail Processing 

Infrastructure Lacks Clarity, Criteria, and Accountability, GAO-05-261 (Washington, 

D.C.: Apr. 8, 2005). 
Page 5 GAO-05-848T 

government. It also can have a negative impact on local economies if the 

property is occupying a valuable location and is not used for other 

purposes, sold, redeveloped, or used in a public-private partnership. 

Restoration, repair, and maintenance backlogs in federal facilities are 

significant and reflect the federal government’s ineffective stewardship 

over its valuable and historic portfolio of real property assets. The state of 

deterioration is alarming because of the magnitude of the repair backlog— 

current estimates show that tens of billions of dollars will be needed to 

restore these assets and make them fully functional. This problem has 

accelerated in recent years because much of the federal portfolio was 

constructed over 50 years ago, and these assets are reaching the end of 

their useful lives. As with the problems related to underutilized or excess 

property, the challenges of addressing facility deterioration are also 

prevalent at major real property-holding agencies. In recent discussions, a 

GSA official said that its $5.7 billion backlog, which we reported in 2003, 

has grown to between $6 and $7 billion.7

 In recognition of the importance 

of addressing deferred maintenance, federal accounting standards require 

agencies to report deferred maintenance as supplementary information in 

their financial statements. As of September 30, 2004, the government’s 

consolidated financial statements showed a deferred maintenance cost 

range of $13.4 billion to $25.3 billion for the asset category General 

Property, Plant, and Equipment—which includes federal real property. 

Over the last decade, DOD reports that it has been faced with the major 

challenge of adequately maintaining its facilities to meet its mission 

requirements. In February 2003, we reported that although the amount of 

money the active forces have spent on facility maintenance had increased 

recently, DOD and service officials said that these amounts had not been 

sufficient to halt the deterioration of facilities.8

 Too little funding to 

adequately maintain facilities is also aggravated by DOD’s acknowledged 

retention of facilities in excess of its needs. 

 7

GAO-03-122. 

8

GAO, Defense Infrastructure: Changes in Funding Priorities and Strategic Planning 

Needed to Improve the Condition of Military Facilities, GAO-03-274 (Washington, D.C.: 

Feb. 19, 2003). 

The Federal 

Portfolio Is in an 

Alarming State of 

Deterioration 
Page 6 GAO-05-848T 

Our work over the years has shown that the deterioration problem leads to 

increased operational costs, has health and safety implications that are 

worrisome, and can compromise agency missions. In addition, we have 

reported that the ultimate cost of completing delayed repairs and 

alterations may escalate because of inflation and increases in the severity 

of the problems caused by the delays.9 As discussed above, the overall cost 

could also be reduced by government realignment. That is, to the extent 

that unneeded property is also in need of repair, disposing of such 

property could reduce the repair backlog. Another negative effect, which 

is not readily apparent but nonetheless significant, is the effect that 

deteriorating facilities have on employee recruitment, retention, and 

productivity. This human capital element is troublesome because the 

government is often at a disadvantage in its ability to compete in the job 

market in terms of the salaries agencies are able to offer. Poor physical 

work environments exacerbate this problem and can have a negative 

impact on potential employees’ decisions to take federal positions. 

Furthermore, research has shown that quality work environments make 

employees more productive and improve morale. Finally, as with excess 

or underutilized property, deteriorated property presents a negative image 

of the federal government to the public. This is particularly true when 

many of the assets the public uses and visits the most—such as those at 

national parks and museums—are not well maintained or in generally poor 

condition. 

As we reported in October 2003, in addition to the difficulties with excess 

and deteriorated property, the federal government faces other longstanding real property-related problems.10 For example, there is a lack of 

reliable and useful real property data that are needed for strategic 

decision-making. In April 2002, we reported that the government’s only 

central source of descriptive data on the makeup of the real property 

inventory, GSA’s worldwide inventory database and related real property 

reports, contained data that were unreliable and of limited usefulness.11

GSA agreed with our findings and has revamped this database and 

 9

GAO, Federal Buildings: Funding Repairs and Alterations Has Been a Challenge—

Expanded Financing Tools Needed, GAO-01-452 (Washington, D.C.; Mar. 20, 2001). 

10GAO, Federal Real Property: Actions Needed to Address Long-standing and Complex 

Problems, GAO-04-119T (Washington, D.C.: Oct. 1, 2003). 

11GAO, Federal Real Property: Better Governmentwide Data Needed for Strategic 

Decisonmaking, GAO-02-342 (Washington, D.C.: Apr. 16, 2002). 

Other Long-standing 

Problems Continue to 

Exist 
Page 7 GAO-05-848T 

produced a new report on the federal inventory; we have not evaluated 

GSA’s revamped database and related report. In addition to the problems 

with the worldwide inventory, in February 2005, we reported that as in the 

7 previous fiscal years, certain material weaknesses12 in internal control 

and in selected accounting and financial reporting practices resulted in 

conditions that continued to prevent us from being able to provide an 

opinion as to whether the consolidated financial statements of the U.S. 

government were fairly stated in conformity with U.S. generally accepted 

accounting principles.13 We have reported that because the government 

lacked complete and reliable information to support asset holdings—

including real property—it could not satisfactorily determine that all 

assets were included in the financial statements, verify that certain 

reported assets actually existed, or substantiate the amounts at which they 

were valued. 

In addition to problems with unreliable real property data, the government 

continues to rely on costly leasing for much of its space needs. As a 

general rule, building ownership options through construction or purchase 

are the least expensive ways to meet agencies’ long-term and recurring 

requirements for space. Lease-purchase—under which payments are 

spread over time and ownership of the asset is eventually transferred to 

the government—are generally less costly than using ordinary operating 

leases to meet long-term space needs.14 However, over the last decade, we 

have reported that GSA—as the central leasing agent for most agencies—

relies heavily on operating leases to meet new long-term needs because it 

lacks funds to pursue ownership. Operating leases have become an 

attractive option in part because they generally look cheaper in any given 

year, even though they are generally more costly over time. Budget 

scorekeeping rules allow these costly operating leases to look cheaper in 

the short term and have encouraged an overreliance on them for satisfying 

long-term space needs. Finding a solution for this problem has been 

difficult; however, change is needed because the current practice of 

 12A material weakness is a condition that precludes the entity’s internal control from 

providing reasonable assurance that misstatements, losses, or noncompliance material in 

relation to the financial statements or to stewardship information would be prevented or 

detected on a timely basis. 

13GAO, Fiscal Year 2004 U.S. Government Financial Statements: Sustained Improvement 

in Federal Financial Management Is Crucial to Addressing Our Nation’s Future Fiscal 

Challenge, GAO-05-284T (Washington, D.C.: Feb 9, 2005). 

14In an operating lease, the government makes periodic lease payments over the specified 

length of the lease in exchange for the use of the property. 
Page 8 GAO-05-848T 

relying on costly leasing to meet long-term space needs results in 

excessive costs to taxpayers and does not reflect a sensible or 

economically rational approach to capital asset management. 

Federal agencies also face challenges in protecting their facilities due to 

the threat of terrorism. Terrorism is a major threat to federally owned and 

leased real property, the civil servants and military personnel who work in 

them, and the public who visits them. This was evidenced by the 1995 

Oklahoma City bombing; the 1998 embassy bombings in Africa; the 

September 11, 2001, attacks on the World Trade Center and Pentagon; and 

the anthrax attacks in the fall of 2001. Since the 2001 attacks, the focus on 

security in federal buildings has been heightened considerably. Real 

property-holding agencies are employing such measures as searching 

vehicles that enter federal facilities, restricting parking, and installing 

concrete bollards. As the government’s security efforts intensify, the 

government will be faced with important questions regarding the level of 

security needed to adequately protect federal facilities and how the 

security community should proceed. 

In February 2004, the President added the Federal Asset Management 

Initiative to the President’s Management Agenda and signed Executive 

Order 13327 to address challenges in this area. The order requires senior 

real property officers at specified executive branch departments and 

agencies15 to, among other things, develop and implement an agency asset 

management plan; identify and categorize all real property owned, leased, 

or otherwise managed by the agency; prioritize actions needed to improve 

the operational and financial management of the agency’s real property 

inventory; and make life-cycle cost estimations associated with the 

prioritized actions. In addition, the senior real property officers are 

responsible, on an ongoing basis, for monitoring the real property assets of 

the agency. The order also established a new Federal Real Property 

Council (the Council) at OMB. 

In April 2005, OMB officials updated us on the status of the 

implementation of the executive order. According to these officials, all of 

the senior real property officers are in place, and the Council has been 

working to identify common data elements and performance measures to 

 15See 31 U.S.C. § 901(b) (1) and (b) (2) for a list of the executive branch departments and 

agencies required to establish a senior real property officer. 

Various Efforts 

Initiated, but Real 

Property Problems 

Persist Due to Factors 

that Require Attention 
Page 9 GAO-05-848T 

be captured by agencies and ultimately reported to a governmentwide 

database. In addition, OMB officials reported that agencies are working on 

their asset management plans. Plans for the DOD, VA, Energy, and GSA 

have been completed and approved by OMB. The Council has also 

developed guiding principles for real property asset management. These 

guiding principles state that real property asset management must, among 

other things, support agency missions and strategic goals, use public and 

commercial benchmarks and best practices, employ life-cycle cost-benefit 

analysis, promote full and appropriate utilization, and dispose of unneeded 

assets. 

In addition to these reform efforts, Public Law 108-447 gave GSA the 

authority to retain the net proceeds from the disposal of federal property 

for fiscal year 2005 and to use such proceeds for GSA’s real property 

capital needs. Also, Public Law 108-422 established a capital asset fund 

and gave VA the authority to retain the proceeds from the disposal of its 

real property for the use of certain capital asset needs such as demolition, 

environmental clean-up, repairs, and maintenance to the extent specified 

in appropriations acts. And, agencies such as DOD and VA have made 

progress in addressing long-standing federal real property problems and 

governmentwide efforts in the facility protection area are progressing. For 

example: 

• VA has established a process called Capital Asset Realignment for 

Enhanced Services (CARES) to address its aging and obsolete portfolio of 

health care facilities. In March 2005, we reported that through CARES, VA 

identified 136 locations for evaluation of alternative ways to align inpatient 

services—99 facilities had potential duplication of services with another 

nearby facility or low acute patient workload.16 VA made decisions to 

realign inpatient health care services at 30 of these locations. For example, 

it will close all inpatient services at 5 facilities. VA’s decisions on inpatient 

alignment and plans for further study of its capital asset needs are tangible 

steps in improving management of its capital assets and enhancing health 

care. Accomplishing its goals, however, will depend on VA’s success in 

completing its evaluations and implementing its CARES decisions to 

ensure that resources now spent on unneeded capital assets are redirected 

to health care. 

 16GAO, VA Health Care: Important Steps Taken to Enhance Veterans’ Care By Aligning 

Inpatient Services with Projected Needs, GAO-05-160 (Washington, D.C.: Mar. 2, 2005). 
Page 10 GAO-05-848T 

• In DOD’s support infrastructure management area, which we identified as 

high-risk in 1997, DOD has made progress and expects to continue making 

improvements. In May 2005, we testified that DOD implemented the 

recommendations from the previous BRAC rounds within the 6-year 

period mandated by law.17 As a result, DOD estimated that it reduced its 

domestic infrastructure by about 20 percent, as measured by the cost to 

replace the property; about 90 percent of unneeded BRAC property is now 

available for reuse. Substantial net savings of approximately $29 billion 

have been realized over time. DOD’s expectations for the 2005 BRAC 

round include further eliminating unneeded infrastructure and achieving 

savings. It also expects to use BRAC to further transformation and related 

efforts such as restationing of troops from overseas as well as efforts to 

further joint basing among the military services. The results of the 2005 

BRAC round will be known later this year, once the legislatively mandated 

Defense Base Closure and Realignment Commission completes its work 

and its recommendations are considered by the President and the 

Congress. 

• In light of the need to invest in facility protection since September 11, 

2001, funding available for repair and restoration and preparing excess 

property for disposal may be further constrained. The Interagency 

Security Committee (ISC), which is chaired by the Department of 

Homeland Security (DHS), is tasked with coordinating federal agencies’ 

facility protection efforts, developing standards, and overseeing 

implementation. In November 2004, we reported that ISC had made 

progress in coordinating the government’s facility protection efforts by, for 

example, developing security standards for leased space and design 

criteria for security in new construction projects. Despite this progress, we 

found that its actions to ensure compliance with security standards and 

oversee implementation have been limited. Nonetheless, the ISC serves as 

a forum for addressing security issues, which can have an impact on 

agencies’ efforts to improve real property management. 

The inclusion of real property asset management on the President’s 

Management Agenda, the executive order, and agencies’ actions are 

clearly positive steps in an area that had been neglected for many years. 

However, despite the increased focus on real property issues in recent 

years, the underlying conditions—such as excess and deteriorating 

properties and costly leasing—continue to exist and more needs to be 

 17GAO, Military Base Closures: Observations on Prior and Current BRAC Rounds, 

GAO-05-614 (Washington, D.C.: May 3, 2005). 
Page 11 GAO-05-848T 

done to address various obstacles that led to our high risk designation. For 

example, the problems have been exacerbated by competing stakeholder 

interests in real property decisions, various legal and budget related 

disincentives to businesslike outcomes, and the need for better capital 

planning among real property-holding agencies. 

More specifically: 

• Competing Stakeholder Interests - In addition to Congress, OMB, and the 

real property-holding agencies themselves, several other stakeholders also 

have an interest in how the federal government carries out its real 

property acquisition, management, and disposal practices. These include 

foreign and local governments; business interests in the communities 

where the assets are located; private sector construction and leasing firms; 

historic preservation organizations; various advocacy groups; and the 

public in general, which often views the facilities as the physical face of 

the federal government in local communities. As a result of competing 

stakeholder interests, decisions about real property often do not reflect 

the most cost-effective or efficient alternative that is in the interests of the 

agency or the government as a whole but instead reflect other priorities. 

• Legal and Budgetary Disincentives -The complex legal and budgetary 

environment in which real property managers operate has a significant 

impact on real property decisionmaking and often does not lead to 

economically rational and businesslike outcomes. For example, we have 

reported that public-private partnerships might be a viable option for 

redeveloping obsolete federal property when they provide the best 

economic value for the government, compared with other options, such as 

federal financing through appropriations or sale of the property. Resource 

limitations, in general, often prevent agencies from addressing real 

property needs from a strategic portfolio perspective. When available 

funds for capital investment are limited, Congress should weigh the need 

for new, modern facilities with the need for renovation, maintenance, and 

disposal of existing facilities, the latter of which often gets deferred. In the 

disposal area, a range of laws intended to address other objectives—such 

as laws related to historic preservation and environmental remediation— 

makes it challenging for agencies to dispose of unneeded property. 

• Need for Improved Capital Planning - Over the years, we have reported 

that prudent capital planning can help agencies to make the most of 

limited resources, and failure to make timely and effective capital 

acquisitions can result in increased long-term costs. GAO, Congress, and 
Page 12 GAO-05-848T 

OMB have identified the need to improve federal decisionmaking 

regarding capital investment. Our Executive Guide,18 OMB’s Capital 

Programming Guide, and its revisions to Circular A-11 have attempted to 

provide guidance to agencies for making capital investment decisions. 

However, agencies are not required to use the guidance. Furthermore, 

agencies have not always developed overall goals and strategies for 

implementing capital investment decisions, nor has the federal 

government generally planned or budgeted for capital assets over the long 

term. 

As you know, GSA is required by law to charge agencies for renting space 

in federal office buildings, courthouses, and other assets GSA owns. The 

rental receipts are deposited into the Federal Buildings Fund (FBF), a 

revolving fund used to fund GSA real property services, including space 

acquisition and asset management for federal facilities that are under 

GSA’s control. Over the years, there have been various efforts to restrict or 

exempt agencies from paying rent to GSA for some or all of their space. 

This, however, can have a negative impact on the government’s ability to 

“re-invest” in its portfolio. Currently, the federal judiciary is seeking such 

an exemption. This is a very important issue, since it would serve to 

provide a precedent with significant governmentwide implications. 

More specifically, GSA has historically been unable to generate sufficient 

revenue through FBF and has thus struggled to meet the requirements for 

repairs and alterations identified in its inventory of owned buildings. We 

reported in 2003 that the estimated backlog of repairs had reached $5.7 

billion, and consequences included poor health and safety conditions, 

higher operating costs, restricted capacity for modern information 

technology, and continued structural deterioration. Restrictions imposed 

on the rent GSA could charge federal agencies have compounded the 

agency’s inability to address its backlog in the past. Consequently, we 

recommended in 1989 that Congress remove all rent restrictions and not 

mandate any further restrictions, and most rent restrictions have been 

lifted. The GSA Administrator has the authority to grant rent exemptions, 

and all of the current exemptions are limited to single buildings or were 

granted for a limited duration. Together, these current exemptions 

represent about $170 million, a third of the $483 million permanent 

exemption the judiciary is requesting from GSA. The judiciary has 

 18GAO, Executive Guide: Leading Practices in Capital Decision-making, 

GAO/AIMD-99-32 (Washington, D.C.: Dec. 1998). 
Page 13 GAO-05-848T 

requested the exemption, equal to about half of its annual rent payment, 

because of budget problems that it believes its growing rent payments 

have caused. GSA data show that one reason the judiciary’s rent is 

increasing is that the space it occupies is also increasing. We are currently 

studying the potential impact of such an exemption on FBF, however our 

past work shows that rent exemptions were a principal reason why FBF 

has accumulated insufficient money for capital investment. 

The magnitude of real property-related problems and the complexity of 

the underlying factors that cause them to persist put the federal 

government at significant risk in this area. Real property problems related 

to unneeded property and the need for realignment, deteriorating 

conditions, unreliable data, costly space, and security concerns have 

multibillion-dollar cost implications and can seriously jeopardize mission 

accomplishment. Because of the breadth and complexity of the issues 

involved, the long-standing nature of the problems, and the intense debate 

about potential solutions that will likely ensue, current structures and 

processes may not be adequate to address the problems. In addition, a 

governmentwide perspective regarding the extent of excess or 

underutilized space, deferred maintenance, and the costs of real property 

would improve transparency. That is, all stakeholders would know the 

condition of the problem and overall, the government could better manage 

its real property. Given this, we concluded in our high-risk report and in 

our update in January 2005, and still believe that a comprehensive and 

integrated transformation strategy for federal real property is needed. 

Such a strategy could build upon the executive order by providing 

decisionmakers with a road map of actions for addressing the underlying 

obstacles, assessing progress governmentwide, and for enhancing 

accountability for related actions. Based on input from agencies, the 

private sector, and other interested groups, the strategy could 

comprehensively address these long-standing problems with specific 

proposals on how best to 

• realign the federal infrastructure and dispose of unneeded property, taking 

into account mission requirements, changes in technology, security needs, 

costs, and how the government conducts business in the 21st century; 

• address the significant repair and restoration needs of the federal 

portfolio; 

A Transformation 

Strategy Is Needed 
Page 14 GAO-05-848T 

• ensure that reliable governmentwide and agency-specific real property 

data—both financial and program related—are available for informed 

decisionmaking; 

• resolve the problem of heavy reliance on costly leasing; and 

• consider the impact that the threat of terrorism will have on real property 

needs and challenges, including how to balance public access with safety. 

To be effective in addressing these problems, it would be important for the 

strategy to focus on 

• minimizing the negative effects associated with competing stakeholder 

interests in real property decisionmaking; 

• providing agencies with appropriate tools and incentives that will facilitate 

businesslike decisions—for example, consideration should be given to 

what financing options should be available; whether agencies should keep 

some of the disposal proceeds to recoup the costs of preparing properties 

for disposal; what process would permit comparisons between 

rehabilitation/renovation and replacement and among construction, 

purchase, lease-purchase, and operating lease; and how public-private 

partnerships should be evaluated; 

• addressing federal human capital issues related to real property by 

recognizing that real property conditions affect the federal government’s 

ability to attract and retain high-performing individuals and the 

productivity and morale of employees; 

• improving real property capital planning in the federal government by 

helping agencies to better integrate agency mission considerations into the 

capital decision-making process, make businesslike decisions when 

evaluating and selecting capital assets, evaluate and select capital assets 

by using an investment approach, evaluate results on an ongoing basis, 

and develop long-term capital plans; and 

• ensuring credible, rational, long-term budget planning for facility 

sustainment, modernization, or recapitalization. 

The transformation strategy should also reflect the lessons learned and 

leading practices of organizations in the public and private sectors that 

have attempted to reform their real property practices. Over the past 

decade, leading organizations in both the public and private sectors have 

been recognizing the impact that real property decisions have on their 
Page 15 GAO-05-848T 

overall success. For example, we at GAO are currently leasing space to the 

U.S. Army Corps of Engineers to better utilize our space, generate 

revenue, and reduce the Corps’ need to lease space from the private 

sector. The revenue we receive provides us with an incentive to efficiently 

manage our space. Better managing real property assets in the current 

environment calls for a significant departure from the traditional way of 

doing business. Solutions should not only correct the long-standing 

problems we have identified but also be responsive to and supportive of 

agencies’ changing missions, security concerns, and technological needs in 

the 21st century. If actions resulting from the transformation strategy 

comprehensively address the problems and are effectively implemented, 

agencies will be better positioned to recover asset values, reduce 

operating costs, improve facility conditions, enhance safety and security, 

recruit and retain employees, and achieve mission effectiveness. 

In addition to developing a transformation strategy, it is critical that all the 

key stakeholders in government—Congress, OMB, and real propertyholding agencies—continue to work diligently on the efforts planned and 

already under way that are intended to promote better real property 

capital decisionmaking, such as enacting reform legislation, assessing 

infrastructure and human capital needs, and examining viable funding 

options. Congress and the administration could continue to work together 

to develop and enact additional reform legislation to give real propertyholding agencies the tools they need to achieve better outcomes, foster a 

more businesslike real property environment, and provide for greater 

accountability for real property stewardship. These tools could include, 

where appropriate, the ability to retain a portion of the proceeds from 

disposal and the use of public-private partnerships in cases where they 

represent the best economic value to the government. Congress and the 

administration could also elevate the importance of real property in policy 

debates and recognize the impact that real property decisions have on 

agencies’ missions. 

Regarding this Committee’s draft legislation known as the “Federal Real 

Property Disposal Pilot Program and Management Improvement Act of 

2005,” we believe that the objectives of the legislation and several of its 

provisions have strong conceptual merit. For example, it would establish a 

pilot program for the expedited disposal of excess, surplus, or 

underutilized real property assets identified and would enact many of the 

requirements of Executive Order 13227 into law. In particular, pursuing 

this pilot program, as outlined in Title I, would allow for assessing lessons 

learned and help determine the merits of the program and whether it 

should continue. Furthermore, making the requirements of the executive 
Page 16 GAO-05-848T 

order law, as outlined in Title II, would serve to elevate their importance 

and show that Congress and the administration are unified in pursuing real 

property reform. We would respectfully suggest that the Committee give 

consideration to including a requirement that a transformation strategy for 

federal real property be developed, as we have recommended. 

Solving the problems in this area will undeniably require a reconsideration 

of funding priorities at a time when budget constraints will be pervasive. 

Without effective incentives and tools; top management accountability, 

leadership, and commitment; adequate funding; full transparency with 

regard to the government’s real property activities; and an effective system 

to measure results, long-standing real property problems will continue and 

likely worsen. However, the overall risk to the government and taxpayers 

could be substantially reduced if an effective transformation strategy is 

developed and successfully implemented, reforms are made, and propertyholding agencies effectively implement current and planned initiatives. 

Since our high-risk report was issued, OMB has informed us that it is 

taking steps to address the federal government’s problems in the real 

property area. Specifically, it has established a new Federal Real Property 

Council to address these long-standing issues. To assist OMB with its 

efforts, we have agreed to meet regularly to discuss progress and have 

provided OMB with specific suggestions on the types of actions and 

results that could be helpful in justifying the removal of real property from 

the high-risk list. 

Mr. Chairman, this concludes my prepared statement. I would be happy to 

respond to any questions you or other Members of the Committee may 

have at this time. 

For further information on this testimony, please contact Mark Goldstein 

on (202) 512-2834 or at goldsteinm@gao.gov. Key contributions to this 

testimony were made by Christine Bonham, Daniel Hoy, Anne Izod, Susan 

Michal-Smith, and David Sausville. 

Contacts and 

Acknowledgements 

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