Testimony 

Before the Committee on Government 

Reform, House of Representatives 

United States General Accounting Office 

GAO

For Release on Delivery 

Expected at 10:00 a.m. EDT 

June 5, 2003 FEDERAL REAL 

PROPERTY 

Executive and Legislative 

Actions Needed to Address 

Long-standing and Complex 

Problems 

Statement of Bernard L. Ungar 

Director, Physical Infrastructure Issues 

GAO-03-839T 
Over 30 agencies control hundreds of thousands of real property assets 

worldwide, including facilities and land, which are worth hundreds of 

billions of dollars. Unfortunately, much of this vast, valuable portfolio 

reflects an infrastructure based on the business model and technological 

environment of the 1950s. Many of the assets are no longer effectively 

aligned with, or responsive to, agencies’ changing missions and are therefore 

no longer needed. 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 potential terrorism. 

Resolving these problems will require high-level attention and effective 

leadership by both Congress and the administration. Also, because of the 

breadth and complexity of the issues, the long-standing nature of the 

problems, and the intense debate that will likely ensue, current structures 

and processes may not be adequate to address the problems. Thus, as we 

have reported, there is a need for a comprehensive, integrated 

transformation strategy for real property that will focus on some of the 

underlying causes that contribute to these problems, such as competing 

stakeholder interests in real property decisions; various legal and budgetrelated disincentives to businesslike outcomes; inadequate capital planning 

and the lack of governmentwide focus on real property issues. It is equally 

important that Congress and the administration work together to develop 

and enact needed reform legislation to give real property-holding agencies 

the tools they need to achieve better outcomes. This would also foster a 

more businesslike real property environment and provide for greater 

accountability for real property stewardship. 

Long-standing problems with 

excess and underutilized real 

property, deteriorating facilities, 

unreliable real property data, and 

costly space challenges are shared 

by several agencies. These factors 

have multibillion-dollar cost 

implications and can seriously 

jeopardize agencies’ missions. 

Federal agencies face many 

challenges securing real property 

due to the threat of terrorism. This 

testimony discusses long-standing, 

complex problems in the federal 

real property area and what actions 

are needed to address them. 

This testimony discusses 

recommendations that we have 

previously made in GAO reports. 

Generally, there is a need for a 

comprehensive and integrated real 

property transformation strategy 

that could identify how best to 

realign federal real property and 

dispose of unneeded assets; 

address significant real property 

repair and restoration needs; 

develop reliable, useful real 

property data; resolve the problem 

of heavy reliance on costly leasing; 

and minimize the impact of 

terrorism on real property. 

An independent commission or 

governmentwide task force may be 

needed to develop this strategy and 

legislative actions are needed to 

provide agencies with tools—such 

as retaining a portion of disposal 

proceeds—to help them address 

the problems. 

www.gao.gov/cgi-bin/getrpt?GAO-03-839T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Bernard Ungar 

at (202) 512-4232 or ungarb@gao.gov. 

Highlights of GAO-03-839T, a testimony 

before the Committee on Government 

Reform, House of Representatives 

June 5, 2003 

FEDERAL REAL PROPERTY 

Executive and Legislative Actions 

Needed to Address Long-standing and 

Complex Problems 

The Vacant L. Mendel Rivers Federal 

Building, Charleston, S.C. 

Source: Ernst and Young. 

The U.S. Patent and Trademark 

Office (PTO) Construction Project in 

Alexandria, VA (February 2003) 

Source: PTO. 
Page 1 GAO-03-839T 

Mr. Chairman and Members of the Committee: 

We welcome the opportunity to testify on the executive and legislative 

branch 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.1

 My testimony is based on our January 2003 

high-risk report; work we have done to update information on some of the 

example properties from our January 2003 high-risk report; and other GAO 

reports on real property issues, including public-private partnerships.2

 My 

testimony focuses on the problems with federal real property and what 

needs to be done to address them. 

Summary 

Over 30 agencies control hundreds of thousands of real property assets 

worldwide, including facilities and land. These assets are worth hundreds 

of billions of dollars. Unfortunately, much of this vast, valuable portfolio 

reflects an infrastructure based on the business model and technological 

environment of the 1950s. Many of the assets are no longer effectively 

aligned with, or responsive to, agencies’ changing missions and are 

therefore no longer needed. Further, many assets are in an alarming state 

of deterioration; agencies estimate that restoration and repair needs are 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 space needs, 

 1

U.S. General Accounting Office, 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, U.S. General Accounting Office, High-Risk Series: An Update, 

GAO-03-119 (Washington, D.C.: Jan. 2003); these reports are intended to help the new 

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

government. 

2

Under a public-private partnership, a contractual arrangement is formed between public 

and private sector partners that can include a variety of activities that involve the private 

sector in the development, financing, ownership, and operation of a public facility or 

service. In the case of real property, the federal government typically would contribute the 

property and a private sector entity contributes financial capital and borrowing ability to 

redevelop or renovate the property. 
Page 2 GAO-03-839T 

and the cost and challenge of protecting these assets against potential 

terrorism. 

Resolving these long-standing problems will require high-level attention 

and effective leadership by both Congress and the administration. Also, 

because of the breadth and complexity of the issues, the long-standing 

nature of the problems, and the intense debate that will likely ensue, 

current structures and processes may not be adequate to address the 

problems. Thus, there is a need for a comprehensive, integrated 

transformation strategy for real property. This strategy should also reflect 

lessons learned and leading practices of public and private organizations. 

Realigning the government’s real property, considering the future federal 

role 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. The U.S. 

government’s fiscal year 2002 financial statements show an acquisition 

cost of more than $335 billion for real property assets held by the federal 

government on September 30, 2002.3

 In terms of facilities, the latest 

available governmentwide data from the General Services Administration 

(GSA) indicated that, as of September 30, 2002, the federal government 

owned and leased approximately 3.4 billion square feet of building floor 

area worldwide.4

 The Department of Defense (DOD), U.S. Postal Service 

(USPS), 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

This value does not include stewardship assets, which are not reported on the 

government’s balance sheet. These assets include wilderness areas, scenic river systems, 

monuments, defense facilities (including military bases), and national defense assets. Also, 

real property data contained in the financial statements of the U.S. government have been 

problematic. As discussed in more detail later, we were unable to express an opinion on 

the U.S. government’s consolidated financial statements for fiscal year 2002. 

4

U.S. General Services Administration, Federal Real Property Profile, as of September 30, 

2002 (Washington, D.C.). 

The Federal Real 

Property Environment
Page 3 GAO-03-839T 

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 held by federal agencies; and GSA is responsible for 

the acts’ implementation.5 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. 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. 

Furthermore, 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. 

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 four 

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

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

Year 2002,6

 which became law in December 2001, gave DOD the authority 

for another round of base realignments and military installation closures 

in 2005. 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 

 5

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. 

6

P.L. 107-107, 115 Stat. 1012, 1342 (2001). 

The Federal 

Government Has 

Many Assets It Does 

Not Need 
Page 4 GAO-03-839T 

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

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

or vacant. Although the Department of Energy (DOE) is no longer 

producing new nuclear weapons, it still maintains a facilities 

infrastructure largely designed for this purpose. 

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. In July 1999, we 

reported that vacant VA space was costing as much as $35 million to 

maintain each year.7

 Costs associated with excess DOE facilities, primarily 

for security and maintenance, exceed $70 million annually.8

 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. 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, or used in a public-private partnership. 

Appendix I discusses some examples of vacant, highly visible properties 

that are in the federal inventory—the L. Mendel Rivers Federal Building in 

Charleston, S.C., St. Elizabeths Hospital in Washington, D.C., and the 

former main post office building in downtown Chicago, Ill. These 

examples demonstrate the challenges agencies face in disposing of 

unneeded property. 

 7

U.S. General Accounting Office, VA Health Care: Challenges Facing VA in Developing an 

Asset Realignment Process, GAO/T-HEHS-99-173 (Washington, D.C.: July 22, 1999). 

8

DOE Office of the Inspector General, Disposition of the Department’s Excess Facilities, 

DOE/IG-0550 (Washington, D.C.: Apr. 3, 2002). 
Page 5 GAO-03-839T 

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. For example: 

• 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. Although DOD no longer reports data on backlog of repairs 

and maintenance, it reported in 2001 that the cost of bringing its facilities 

to a minimally acceptable condition was estimated at $62 billion; the cost 

of correcting all deficiencies was estimated at $164 billion.9

• The Department of the Interior (Interior) has a significant deferred 

maintenance backlog that the Interior Inspector General (IG) estimated in 

April 2002 to be as much as $8 billion to $11 billion. This backlog has 

affected numerous national treasures, such as Ellis Island, Independence 

Hall, Yellowstone National Park, and Mount Rushmore, just to name a few. 

• GSA has struggled over the years to meet the repair and alteration 

requirements identified at its buildings. In March 2000, we reported that 

GSA data showed that over half of GSA’s approximately 1,700 buildings 

needed repairs estimated at about $4 billion.10 More recently, in August 

2002, we reported that this estimated backlog of identified repair and 

alteration needs was up to $5.7 billion.11

 9

U.S. Department of Defense, Report to Congress: Identification of the Requirements to 

Reduce the Backlog of Maintenance and Repair of Defense Facilities (Washington, D.C.: 

Apr. 2001). 

10U.S. General Accounting Office, Federal Buildings: Billions Are Needed for Repairs and 

Alterations, GAO/GGD-00-98 (Washington, D.C.: Mar. 30, 2000). 

11U.S. General Accounting Office, Financial Condition of Federal Buildings Owned by the 

General Services Administration, GAO-02-854R (Washington, D.C.: Aug. 8, 2002). 

The Federal Portfolio 

Is in an Alarming 

State of Deterioration 
Page 6 GAO-03-839T 

Other agencies with repair backlogs that we highlighted in our high-risk 

report include the Department of State (State), DOE, the Smithsonian 

Institution, and USPS. Since issuing our high-risk report, we have updated 

our assessment of facility conditions at DOD and State. 

• 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.12 Too little funding to adequately 

maintain facilities is also aggravated by DOD’s acknowledged retention of 

facilities in excess of its needs. Furthermore, there is a lack of consistency 

in the services’ information on facility conditions, making it difficult for 

Congress, DOD, and the services to direct funds to facilities where they 

are most needed and to accurately gauge facility conditions. And, although 

DOD has a strategic plan for facilities, it lacks comprehensive information 

on the specific actions, time frames, responsibilities, and funding needed 

to reach its goals. In May 2003, we also reported on a similar problem with 

Guard and Reserve facilities.13

• In March 2003, we reported that many of the primary office buildings at 

overseas embassies and consulates were in poor condition.14 In 2002, State 

estimated that its repair backlog was $736 million. In addition, the primary 

office building at more than half of the posts does not meet certain fire/life 

safety standards. State officials stated that maintenance costs would 

increase over time because of the age of many of the buildings, and 

overcrowding has become a problem at several posts. 

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 

 12U.S. General Accounting Office, 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). 

13U.S. General Accounting Office, Defense Infrastructure: Changes in Funding Priorities 

and Management Processes Needed to Improve Condition and Reduce Costs of Guard 

and Reserve Facilities, GAO-03-516 (Washington, D.C.: May15, 2003). 

14U.S. General Accounting Office, Overseas Presence: Conditions of Overseas Diplomatic 

Facilities, GAO-03-557T (Washington, D.C.: Mar. 20, 2003). 
Page 7 GAO-03-839T 

of the problems caused by the delays.15 As discussed above, the overall 

cost could also be affected 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 national 

parks and museums—are deteriorated and in generally poor condition. 

Compounding the problems with excess and deteriorated property is the 

lack of reliable and useful real property data that are needed for strategic 

decisionmaking. GSA’s worldwide inventory database and related reports 

are the only central source of descriptive data on the makeup of the real 

property inventory, such as property address, square footage, acquisition 

date, and property type. However, in April 2002, we reported that the 

worldwide inventory contained data that were unreliable and of limited 

usefulness.16 GSA agreed with our findings and has recently revamped this 

database and produced a new report on the federal inventory, as of 

September 30, 2002.17

In addition to problems with the worldwide inventory, real property data 

contained in the financial statements of the U.S. government have been 

 15U.S. General Accounting Office, Federal Buildings: Funding Repairs and Alterations 

Has Been a Challenge—Expanded Financing Tools Needed, GAO-01-452 (Washington, 

D.C.: Apr. 12, 2001). 

16U.S. General Accounting Office, Federal Real Property: Better Governmentwide Data 

Needed for Strategic Decisionmaking, GAO-02-342 (Washington, D.C.: Apr. 16, 2002).

17U.S. General Services Administration, Federal Real Property Profile as of September 30, 

2002 (Washington, D.C.). 

Key Decisionmakers 

Lack Reliable and 

Useful Data on Real 

Property Assets 
Page 8 GAO-03-839T 

problematic.18 In April 2003, we reported that—for the sixth consecutive 

year—we were unable to express an opinion on the U.S. government’s 

consolidated financial statements for fiscal year 2002.19 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. Aside from the 

problematic financial data, some of the major real property-holding 

agencies—including DOD, State, GSA, and Interior—have faced challenges 

in developing quality management data on their real property assets. The 

problems at these agencies are discussed in more detail in our high-risk 

report. 

As a general rule, building ownership options through construction or 

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

requirements for space. Lease-purchases—where payments are spread out 

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

government— are generally more expensive than purchase or 

construction but are generally less costly than using ordinary operating 

leases to meet long-term space needs.20 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. In 1999, we reported that for nine major 

operating lease acquisitions that GSA had proposed, construction would 

have been the least-cost option in eight cases and would have saved an 

estimated $126 million. Lease-purchase would have saved an estimated 

$107 million, compared with operating leases but would have cost $19 

 18The Chief Financial Officers Act of 1990 (CFO Act), as expanded by the Government 

Management Reform Act, required the annual preparation and audit of individual financial 

statements for the federal government’s 24 major agencies. The Department of the 

Treasury was also required to compile consolidated financial statements for the U.S. 

government annually, which we audit. 

19U.S. General Accounting Office, Fiscal Year 2002 U.S. Government Financial 

Statements: Sustained Leadership and Oversight Needed for Effective Implementation of 

Financial Management Reform, GAO-03-572T (Washington, D.C.: Apr. 8, 2003). 

20In an operating lease, the government makes periodic lease payments over the specified 

length of the lease in exchange for the use of the property. 

Reliance on Costly 

Leasing 
Page 9 GAO-03-839T 

million more than construction.21 A prime example of this problem was the 

Patent and Trademark Office’s long-term requirements in northern 

Virginia, where the cost of meeting this need with an operating lease was 

estimated to be $48 million more than construction and $38 million more 

than lease-purchase. In August 2001, we also reported that GSA reduced 

the term of a proposed 20-year lease for the Department of Transportation 

headquarters building to 15 years so that it could meet the definition of an 

operating lease. GSA’s fiscal year 1999 prospectus for constructing a new 

facility for this need showed the cost of construction was estimated to be 

$190 million less than an operating lease. 

Operating leases have become an attractive option in part because they 

generally look cheaper in any given year. Pursuant to the scoring rules 

adopted as a result of the Budget Enforcement Act of 1990, the budget 

authority to meet the government’s real property needs is to be scored—

meaning recorded in the budget—in an amount equal to the government’s 

total legal commitment. For example, for lease-purchase arrangements, 

the net present value of the government’s legal obligations over the life of 

the lease contract is to be scored in the budget in the first year. For 

construction or purchase, the budget authority for the full construction 

costs or purchase price is to be scored in the first year. However, for many 

of the government’s operating leases—including GSA leases, which, 

according to GSA, account for over 70 percent of the government’s leasing 

expenditures and are self-insured in the event of cancellation—only the 

budget authority to cover the government’s commitment for an annual 

lease payment is required to be scored in the budget.22 Given this, although 

operating leases are generally more costly over time, compared with other 

options, they add much less to a single year’s appropriation total than 

these other arrangements, making an operating lease a more attractive 

option from an annual budget perspective, particularly when funds for 

ownership are not available. Although the requirement for “up-front 

funding” permits disclosure of the full costs to which the government is 

being committed, the budget scorekeeping rules allow costly operating 

 21U.S. General Accounting Office, General Services Administration: Comparison of Space 

Acquisition Alternatives—Leasing to Lease-Purchase and Leasing to Construction, 

GAO/GGD-99-49R (Washington, D.C.: Mar. 12, 1999). 

22According to the scoring rules (OMB Circular A-11, app. B), in cases where the operating 

lease does not have a cancellation clause or is not paid for with federal funds that are selfinsuring, budget authority to cover the total costs expected over the life of the lease is to be 

scored in the first year of the lease. 
Page 10 GAO-03-839T 

leases to “look cheaper” in the short term and have encouraged an 

overreliance on them for satisfying long-term space needs. 

Decisionmakers have struggled with this matter since the scoring rules 

were established and the tendency for agencies to choose operating leases 

instead of ownership became apparent. We have suggested the alternative 

of scoring all operating leases up-front on the basis of the underlying time 

requirement for the space so that all options are treated equally.23 Although 

this could be a viable alternative, there would be implementation 

challenges if this were pursued, including the need to evaluate the validity 

of agencies’ stated space requirements. Another option—which was 

recommended by the President’s Commission to Study Capital Budgeting 

in 1999 and discussed by GAO24—would be to allow agencies to establish 

capital acquisition funds to pursue ownership where it is advantageous, 

from an economic perspective. To date, none of these options has been 

implemented, and debate continues among decisionmakers about what 

should be done. Finding a solution for this problem has been difficult; 

however, change is needed because the current practice of relying on 

costly leasing to meet long-term space needs results in excessive costs to 

taxpayers and does not reflect a sensible approach to capital asset 

management. 

Terrorism is a major threat to federally owned and leased real property 

assets, 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 Oklahoma City bombing, the federal 

government has spent billions of dollars on security upgrades within the 

country and overseas. A study of federal facilities done by the Justice 

Department in 1995 resulted in minimum-security standards and an 

evaluation of security conditions in the government’s facilities. In October 

1995, the President signed Executive Order 12977, which established an 

Interagency Security Committee (ISC) to enhance the quality and 

 23U.S. General Accounting Office, Supporting Congressional Oversight: Budgetary 

Implications of Selected GAO Work for Fiscal Year 2003, GAO-02-576 (Washington, D.C.: 

Apr. 26, 2002). 

24U.S. General Accounting Office, Accrual Budgeting: Experiences of Other Nations and 

Implications for the United States, GAO/AIMD-00-57 (Washington, D.C.: Feb. 18, 2000). 

Security Against 

Terrorism Is an 

Overarching Concern 
Page 11 GAO-03-839T 

effectiveness of security in nonmilitary federal facilities. Since the attacks 

on the World Trade Center and the Pentagon, the focus on security in 

federal buildings has been heightened considerably. Real property-holding 

agencies have gone on high alert and are employing such measures as 

searching vehicles that enter federal facilities, restricting parking, and 

installing concrete barricades. 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. Furthermore, the 1995 

Justice study placed an emphasis on increasing security where large 

numbers of personnel are located. However, a risk-based approach—

which GSA is using for the federal buildings it controls—appears to be 

more desirable in light of this new round of threats. In September 2001, we 

reported that DOD uses a risk-based approach to reduce installation 

vulnerabilities, but this approach was applied primarily to installations 

with 300 or more personnel assigned on a daily basis.25 We recommended 

that DOD improve this approach by ensuring all critical military facilities 

receive a periodic vulnerability assessment conducted by their higher 

headquarters regardless of the number of personnel assigned. DOD 

concurred and began taking action. 

Since 1996, we have produced more than 60 reports and testimonies on the 

federal government’s efforts to combat terrorism. Several of these reports 

have recommended that the federal government use risk management as 

an important element in developing a national strategy.26 We have also 

reported extensively on the security problems and challenges at individual 

real property-holding agencies. Our high-risk report identifies the 

problems and challenges faced by State, DOD, Interior, GSA, USPS, and 

the ISC. More recently, we testified on security conditions of overseas 

diplomatic facilities.27 We found that State has done much over the last 4 

years to improve physical security at overseas posts by, for example, 

constructing perimeter walls, anti-ram barriers, and access controls at 

many facilities. However, even with these improvements, most office 

facilities do not meet security standards. As a result, thousands of U.S. 

 25U.S. General Accounting Office, Combating Terrorism: Actions Needed to Improve DOD 

Antiterrorism Program Implementation and Management, GAO-01-909 (Washington, 

D.C.: Sept. 19, 2001). 

26U.S. General Accounting Office, Homeland Security: A Risk Management Approach Can 

Guide Preparedness Effort, GAO-02-208T (Washington, D.C.: Oct. 31, 2001). 

27GAO-03-557T. 
Page 12 GAO-03-839T 

government employees may be vulnerable to terrorist attacks. 

Furthermore, our work has shown that agency coordination is critical to 

addressing security challenges. In our February 2003 report on threats to 

selected agencies’ critical computer and physical infrastructures, selected 

agencies identified challenges, including coordinating security efforts with 

GSA, which may often be responsible for protecting facilities that house 

critical assets.28 We recommended that steps be taken to complete the 

identification and analysis of their critical assets and their dependencies, 

including setting milestones, developing plans to address vulnerabilities, 

and monitoring progress. 

In addition to the clear challenges agencies will continue to face in 

securing real property assets, the security issue has an impact on the other 

problems that we have discussed. To the extent that more funding will be 

needed to increase security, funding availability for repair and restoration, 

preparing excess property for disposal, and improving real property data 

systems may be further constrained. Furthermore, real property managers 

will have to dedicate significant staff time and other human capital 

resources to security issues and thus may have less time to manage other 

problems. Another broader effect is the impact that increased security will 

have on the public’s access to government offices and other assets. Debate 

arose in the months after September 11, 2001, and continues to this day on 

the challenge of providing the proper balance between public access and 

security. In November 2002, legislation was enacted establishing the 

Department of Homeland Security (DHS).29 DHS was given responsibility 

to protect buildings, grounds, and property owned, occupied, or secured 

by the federal government that were previously under the Federal 

Protective Service, which was part of GSA. In addition, the Act provided 

DHS with authority to protect the buildings, grounds, and property of any 

other agency whose functions were transferred under the Act. In 

September 2002, we reported on the implications that the creation of DHS 

would have on ISC. We concluded that the need to address the ISC’s lack 

 28U.S. General Accounting Office, Critical Infrastructure Protection: Challenges for 

Selected Agencies and Industry Sectors, GAO-03-233 (Washington, D.C.: Feb. 28, 2003); the 

agencies reviewed were the Departments of Health and Human Services, Energy, and 

Commerce, and the Environmental Protection Agency. 

29P.L. 107-296; 116 Stat. 2135 (2002). 
Page 13 GAO-03-839T 

of progress in fulfilling its responsibilities should be taken into account in 

establishing this new department.30

Although the federal government faces significant, long-standing problems 

in the real property area, it is important to give Congress, Office of 

Management and Budget (OMB), GSA, and the major real property-holding 

agencies credit for proposing several reform efforts and other initiatives in 

recent years. Legislative proposals in the 107th Congress (S. 161231 and 

H.R. 394732) were aimed at improving real property data, establishing 

senior real property managers at agencies, developing asset management 

principles, and identifying specific conditions under which GSA and other 

agencies can enter into real property partnerships with the private sector. 

In July 2001, we reported that public-private partnership authority could 

be an important management tool to address problems in deteriorating 

federal buildings, but that further study of this tool was needed.33

Appendix II summarizes this report and discusses two examples of publicprivate partnership opportunities. Another initiative in the National 

Defense Authorization Act for fiscal year 2002 gave DOD the authority for 

another round of base realignment and military installation closures in 

2005. DOD officials testified that these actions could result in recurring 

annual net savings of about $3 billion. Despite these and other initiatives 

agencies have undertaken and the sincerity with which the federal real 

property community has embraced the need for reform, the problems have 

persisted and have been exacerbated by several factors that will require 

high-level attention from Congress and the administration. These factors 

include competing stakeholder interests in real property decisions; various 

legal and budget-related disincentives to businesslike outcomes; the need 

for improved capital planning; and the lack of a strategic, governmentwide 

focus on federal real property issues. More specifically: 

 30U.S. General Accounting Office, Building Security: Interagency Security Committee Has 

Had Limited Success in Fulfilling Its Responsibilities, GAO-02-1004 (Washington, D.C.: 

Sept. 17, 2002). 

31Title III of the Managerial Flexibility Act of 2001 (2001) is entitled Federal Property Asset 

Management Reforms. 

32The Federal Property Asset Management Reform Act of 2002 (2002). 

33U.S. General Accounting Office, Public-Private Partnerships: Pilot Program Needed to 

Demonstrate the Actual Benefits of Using Partnerships, GAO-01-906 (Washington, D.C.: 

July 25, 2001). 

Various Efforts 

Initiated, but Real 

Property Problems 

Persist Due to Factors 

that Require HighLevel Attention 
Page 14 GAO-03-839T 

• 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 

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. However, most agencies—except 

for DOD, VA, and USPS—are precluded from entering into such 

arrangements.34 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 must 

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—make 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 

 34When agencies have additional flexibilities, we have found that they can still face 

impediments. For example, VA is required to use the proceeds from disposal of property 

for nursing home construction and DOD has lacked personnel with sufficient experience to 

undertake complex real estate transactions. See U.S. General Accounting Office, VA Health 

Care: Improved Planning Needed for Management of Excess Real Property, GAO-03-326

(Washington, D.C.: Jan. 29, 2003); U.S. General Accounting Office, Defense Infrastructure: 

Greater Management Emphasis Needed to Increase the Services’ Use of Expanded 

Leasing Authority, GAO-02-475 (Washington, D.C.: June 6, 2002). 
Page 15 GAO-03-839T 

acquisitions can result in increased long-term costs. GAO, Congress, and 

OMB have identified the need to improve federal decisionmaking 

regarding capital investment. Our Executive Guide,

35 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, the guidance is not required to be used by agencies. 

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. 

• Lack of a Strategic, Governmentwide Focus on Real Property Issues - 

Historically, there has not been a strategic, governmentwide focus on real 

property issues among decisionmakers. Although some efforts in recent 

years have attempted to address real property issues with some limited 

success, the problems have persisted and will continue to grow in 

magnitude unless they are adequately addressed from a governmentwide 

standpoint. Resolving the long-standing problems will require high-level 

attention and effective leadership by Congress and the administration and 

a governmentwide, strategic focus on real property issues. Also, it is 

important that key stakeholders develop an effective system to measure 

results. Having quality data would be critical to evaluate the progress of 

various reforms as they evolve. 

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. Given this, we 

concluded in our high-risk report that a comprehensive and integrated 

transformation strategy for federal real property is needed, and that an 

independent commission or governmentwide task force may be needed to 

develop this strategy. Such a strategy, based on input from agencies, the 

 35U.S. General Accounting Office, Executive Guide: Leading Practices in Capital 

Decision-Making, GAO/AIMD-99-32 (Washington, D.C.: Dec. 1998). 

A Transformation 

Strategy Is Needed 
Page 16 GAO-03-839T 

private sector, and other interested groups, 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; 

• 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; how disposal proceeds should 

be handled; 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 decisionmaking process, make businesslike decisions when 

evaluating and selecting capital assets, evaluate and select capital assets 
Page 17 GAO-03-839T 

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

and develop long-term capital plans; and 

• ensuring credible, 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 

overall success. 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, 

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 work together to develop 

and enact reform legislation to give real property-holding 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. Solving the problems in this area will undeniably require a 

reconsideration of funding priorities at a time when budget constraints 

will be pervasive. However, experimenting with creative financing tools 

where they provide the best economic value for the government and 

allocating sufficient funding will likely result in long-term benefits. 
Page 18 GAO-03-839T 

Without effective tools; top management accountability, leadership, and 

commitment; adequate funding; 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 formed a team within OMB to determine 

how to approach the resolution of these long-standing issues. To assist 

OMB with its efforts, we have agreed to meet regularly to discuss progress 

and are providing 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 Bernard L. Ungar 

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

testimony were made by Kevin Bailey, Christine Bonham, John Brummett, 

Maria Edelstein, Anne Kidd, Mark Little, Susan Michal-Smith, 

David Sausville, and Gerald Stankosky. 

Contacts and 

Acknowledgments 
Page 19 GAO-03-839T 

Three examples of vacant, highly visible federal properties are the L. 

Mendel Rivers Federal Building in Charleston, S.C., St. Elizabeths Hospital 

in Washington, D.C.; and the former main post office in downtown 

Chicago. 

The Charleston building, held by the General Services Administration 

(GSA), is a 7-story, 100,000-square-foot office building on just over 2 acres 

(see fig. 1). The building is contaminated with asbestos and has been 

unoccupied since it sustained damage in 1999, from Hurricane Floyd. In 

July 2001, we reported that although there was a weak federal demand for 

space where the property is located, the property is located in a highly 

desirable location and that there was a strong potential for private sector 

demand.1

 Although the building is vacant, in fiscal year 2002, GSA still 

incurred almost $28,000 in costs related to operations and maintenance, 

such as utilities and fire protection. GSA receives a minimal amount of 

revenue by occasionally renting out the parking lot. According to GSA, 

although it may be advantageous for the government to retain the 

property, there are limited options for redevelopment; and funding has not 

been made available. Furthermore, GSA lacks authority to pursue a publicprivate partnership to address the needs of the property. 

Given this situation, GSA has been in discussion with the city of 

Charleston officials for the last few years to exchange the Rivers building 

for a new building. Under the proposal, the city would construct a 27,000 

square foot building for the federal government in the historic downtown 

business area adjacent to the existing federal building-courthouse in 

exchange for the Rivers building. GSA would also get use of 60 parking 

spaces in a city parking garage. Although the new building would be 

smaller than the Rivers building, data from GSA have shown that the 

exchange sites are of comparable value because of the new building’s 

location in the central business district where land values are high. 

According to a GSA official, as of April 2003, GSA and the city of 

Charleston developed a memorandum of understanding (MOU) that 

outlines the conditions under which the L. Mendel Rivers Building would 

be exchanged. The MOU is currently with the city of Charleston and is 

expected to be signed shortly. Figure 1 shows the vacant Charleston 

building and its rear parking lot. The federal government owns the lot on 

the left side where the tent is located. 

 1

GAO-01-906.

Appendix I: Examples of Vacant Federal 

Property 

L. Mendel Rivers Federal 

Building, Charleston, S.C. 
Page 20 GAO-03-839T 

Figure 1: The Vacant L. Mendel Rivers Federal Building and Parking Lot in Charleston, S.C. 

 

The west campus of St. Elizabeths, which has 61 mostly vacant buildings 

containing about 1.2 million square feet of space on 182 acres, is held by 

the Department of Health and Human Services (HHS). During the Civil 

War, the hospital was used to house soldiers recuperating from 

amputations, and the property contains a civil war cemetery. In 1990, the 

property—which contains magnificent vistas of the rivers and the city—

was designated a national historic landmark. This is the same designation 

given to the White House, the U.S. Capitol building, and other buildings 

that have historic significance. HHS has not needed the property for many 

years. In April 2001, we reported that the property had significantly 

deteriorated and had environmental and historic preservation issues that 

St. Elizabeths Hospital, 

Washington, D.C. 
Page 21 GAO-03-839T 

would need to be addressed in order for the property to be disposed of or 

transferred to another federal agency.2

In the last year, GSA, the District of Columbia (the District), HHS, and 

various public interest groups have been working to resolve the situation 

at St. Elizabeths. In May 2002, the Urban Land Institute formed an advisory 

panel that reported on several options for redeveloping the site.3

 The panel 

recommended that the federal government transfer the west campus to the 

District and that the District should identify a master developer for the 

site. The panel further recommended that the master developer consider 

redeveloping the site into four campus areas without changing the 

character of the surrounding neighborhoods and without displacing 

existing residents. The panel recommended preserving the historic 

buildings through adaptive use and sensitive addition of new buildings. In 

addition to the panel, an executive steering committee and a working 

group, each consisting of representation from the District, HHS, GSA, and 

public interest groups, have been established and HHS and GSA have 

proceeded with a number of actions to prepare the property for disposal. 

These include preparing the property for “mothballing,” which is work 

done to minimize further deterioration of the property while the disposal 

process proceeds; determining the extent of environmental remediation 

needed; and conducting community outreach. Figure 2 shows the vacant, 

boarded-up Center Building, which opened in 1855 and served as the main 

hospital building. 

 2

U.S. General Accounting Office, St. Elizabeths Hospital: Real Property Issues Related to 

the West Campus, GAO-01-434 (Washington, D.C.: Apr. 16, 2001). 

3

Urban Land Institute, An Advisory Services Panel Report: Saint. Elizabeths Campus, 

Washington, D.C. (Washington, D.C.: May 2002). 
Page 22 GAO-03-839T 

Figure 2: The Vacant Center Building, St. Elizabeths Hospital, District of Columbia 

Note: Photograph taken in January 2001. 

The former Chicago main post office is a 2.5 million square foot facility 

that was vacated when it was replaced with a new facility in 1997. The U.S. 

Postal Service (USPS) is incurring about $2 million in annual holding costs 

for the property. According to USPS, the property was listed for sale and 

publicly offered. About five offers were received and the property was 

placed under contract of sale for $17 million. According to USPS, 

completion of the sale has been delayed due to the weakness of the 

Chicago real estate market and the lack of an agreement between the 

Former Chicago Main Post 

Office 
Page 23 GAO-03-839T 

developer and the city of Chicago that would abate real estate taxes on a 

portion of the redevelopment cost for a number of years. According to 

USPS, this situation has created a “chicken and egg” situation for the 

developer. Potential tenants are unwilling to commit to the project unless 

they are sure it will go ahead. The city appears unwilling to grant the tax 

abatement until the users of the building are known. USPS is hopeful that 

the city will begin to address the issue. 

In addition to the holding costs USPS is incurring, a deteriorating façade 

will add additional repairs costs to USPS’s annual budget. Furthermore, 

deterioration of the system that funnels train exhaust up through eight 

shafts to the roof of the building is a problem that will have to be 

addressed. The estimated cost of repair is about $10 million and is a 

condition of the sale. According to USPS, another factor, which bears on 

the cost of redevelopment, is that the State Historic Preservation Office 

wants to impose requirements on the redevelopment of the building. 

Currently, according to USPS, these requirements will add millions of 

dollars to the redevelopment costs and the buyer and USPS are reviewing 

them. USPS said that this project is challenging because of the large 

amount of space that needs to be developed. According to USPS, a 

breakthrough in current market conditions will have to be achieved, 

together with an agreement with the city before this project can move 

forward. Figure 3 shows downtown Chicago with the vacant post office 

building highlighted. 
Page 24 GAO-03-839T 

Figure 3: The Former Main Post Office in Downtown Chicago 
Page 25 GAO-03-839T 

Under a public-private partnership, a contractual arrangement is formed 

between public and private sector partners that can include a variety of 

activities that involve the private sector in the development, financing, 

ownership, and operation of a public facility or service. In the case of real 

property, the federal government typically would contribute the property 

and a private sector entity contributes financial capital and borrowing 

ability to redevelop or renovate the property. Public-private partnerships 

can be a viable option for redeveloping obsolete federal property if they 

provide the best economic value for the government, compared with other 

options, such as federal financing through appropriations or sale of the 

property. However, most agencies are precluded from entering into such 

arrangements. DOD, VA, and USPS, however, have this authority. 

Proposed real property reform legislation in the last Congress—S. 1612 

and H.R. 3947—would have allowed most agencies to enter into such 

partnerships. In May 2002, the Congressional Budget Office concluded that 

the partnerships, like lease-purchase arrangements, should be recorded up 

front in the budget. S.1612 and H.R. 3947 were not enacted by the 107th 

Congress. 

Public-private partnerships need to be carefully evaluated to determine 

whether they offer the best economic value for the government, compared 

with other available options. In July 2001,1

 we reported that 8 of 10 GSA 

properties were strong to moderate candidates for a partnership because 

there were potential benefits for both the private sector and the 

government. The potential internal rates of return (IRR)2

 for the private 

partner ranged from 13.7 to 17.7 percent. It should be noted that we did 

not calculate the IRR for the government if the government had financed 

the entire project. Furthermore, public-private partnerships will not 

necessarily work or be the best option available to address the problems 

in all federal properties. Two examples of properties that were strong 

candidates for a partnership were the Internal Revenue Service (IRS) 

Service Center in Andover, MA and an office building in Portland, Ore. that 

houses the Immigration and Naturalization Service known as the 511 

Building. Since we profiled these properties in 2001, GSA officials said that 

they have been unable to pursue public-private partnerships for these 

 1

GAO-01-906. 

2

IRR is the present value interest rate received for an investment consisting of payments 

and income that occur at regular periods; IRR measures the return, expressed as an 

interest rate, that an investor would earn on an investment. 

Appendix II: Use of Public-Private 

Partnerships to Redevelop Federal Property 
Page 26 GAO-03-839T 

properties because GSA continues to lack authority to enter into such 

arrangements. 

The Andover Service Center was a strong candidate for a partnership in 

terms of strong federal demand, moderate private sector interest in 

development, and strong nonfederal demand for use of the property. The 

property is a 375,000 square foot, single story, highly secured building that 

is in need of capital repairs on 37 acres. At the time of our review, the IRS 

was leasing about 336,000 square feet in additional space in the area. GSA 

and IRS would like to consolidate IRS’s operations, and the property 

would be desirable for the city of Andover and local developers to 

develop. The redevelopment strategy involved a partnership to develop a 

small office park consisting of six, 5-acre pads. Under this plan, the project 

could progress as follows: 

• Year 1: Build a new 4-story, 700,000 square foot IRS facility and parking 

structure for current and expiring IRS leases; the complex would be at 

rear of site to allow for security and a phased development of the rest of 

the site. 

• Year 2: IRS moves into the new facility and the old building is demolished; 

the partnership constructs another 250,000 square foot federal office 

building for non-IRS expiring leases. 

• Years 3 and 4: Partnership constructs two more 250,000 square foot federal 

office buildings for compatible agency and private sector occupancy. 

The analysis of this strategy projected a 14.4 percent lifetime IRR for the 

private partner and a 9.4 percent lifetime IRR for the government. Figure 4 

is an aerial view of the IRS Service Center in Andover, Mass. 

IRS Service Center, 

Andover, Mass. 
Page 27 GAO-03-839T 

Figure 4: IRS Service Center, Andover, Mass. 

The 511 building was also a strong candidate for a partnership in terms of 

strong federal demand, strong private sector interest in development, and 

moderate nonfederal demand for use of the property. The 511 building is 

an historic, 6-floor building in a desirable location between downtown 

Portland and the trendy “Pearl District” that housed offices of the 

Immigration and Naturalization Service. The property includes a parking 

lot that was sought by the city for a pedestrian mall. The redevelopment 

strategy included renovating the existing historic office building, to 

include storage use in the basement and retail or restaurant on the first 

floor. In addition, the strategy included acquiring an additional site for 

construction of a 240,000 square foot, federal office building across the 

street. This strategy projected a 15.7 percent lifetime IRR for the private 

partner and a 12.7 percent lifetime IRR for the government. Figure 5 shows 

the 511 building (building in center of the picture). 

Portland, Ore., 511 

Building 
Page 28 GAO-03-839T 

Figure 5: 511 Building, Portland, Ore. 

If the federal government were to completely finance the Andover and 

Portland projects, it would not have to share returns with a private sector 

partner. However, we did not determine what the returns would be in such 

a situation and how the returns would compare to the returns under a 

partnership arrangement. 

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