Federal Real Property: An Update on High-Risk Issues
Published: 2007-05-24T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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 is based largely on GAO's April 2007 report on real property high-risk issues (GAO-07-349). The objectives of that report were to determine (1) what progress the administration and major real property-holding agencies had made in strategically managing real property and addressing long-standing problems and (2) what problems and obstacles, if any, remained to be addressed.
section_title: What GAO Found
paragraphs: The administration and real property-holding agencies have made progress toward strategically managing federal real property and addressing long-standing problems. In response to the President's Management Agenda real property initiative and a related executive order, agencies have, among other things, established asset management plans; standardized data reporting; and adopted performance measures. Also, the administration has created a Federal Real Property Council (FRPC) and plans to work with Congress to provide agencies with tools to better manage real property. These are positive steps, but underlying problems still exist. For example, the Departments of Energy (Energy) and Homeland Security (DHS) and the National Aeronautics and Space Administration (NASA) reported that over 10 percent of their facilities are excess or underutilized. Also, Energy, NASA, the General Services Administration (GSA), and the Departments of the Interior (Interior), State (State), and Veterans Affairs (VA) reported repair and maintenance backlogs for buildings and structures that total over $16 billion. The Department of Defense (DOD) reported a $57 billion restoration and modernization backlog. Also, Energy, Interior, GSA, State, and VA reported an increased reliance on leasing to meet space needs. While agencies have made progress in collecting and reporting standardized real property data, data reliability is still a challenge at DOD and other agencies, and agencies lack a standard framework for data validation. Finally, agencies reported using risk-based approaches to prioritize security needs, which GAO has suggested, but some cited obstacles such as a lack of resources for security enhancements. In past high-risk updates, GAO called for a transformation strategy to address the long-standing problems in this area. While the administration's approach is generally consistent with what GAO envisioned, certain areas warrant further attention. Specifically, problems are exacerbated by underlying obstacles that include competing stakeholder interests, legal and budgetary limitations, and the need for improved capital planning. For example, agencies cited local interests as barriers to disposing of excess property, and agencies' limited ability to pursue ownership leads them to lease property that may be more cost-effective to own over time.

section_title: Letter
paragraphs: We welcome the opportunity to testify on the actions that are needed to  address the long-standing 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 updates  on this area in January 2005 and January 2007. My testimony is based  largely on a recent report on federal real property high-risk issues, and  other GAO reports and testimonies on real property issues. My testimony  focuses on the progress made by the administration and major real  property-holding agencies to strategically manage real property and  address long-standing problems, and what problems and obstacles, if any,  remain to be addressed. I will also provide an update of the President’s  Management Agenda (PMA) executive branch management scorecard  results for the real property initiative for the second quarter of fiscal year  2007.
The administration and major real property-holding agencies have made  progress toward strategically managing federal real property and  addressing some long-standing problems. In response to the PMA real  property initiative and a related executive order, agencies covered under  the executive order have, among other things, designated senior real  property officers, established asset management plans, standardized real  property data reporting, and adopted various performance measures to  track progress. The administration has also established a Federal Real  Property Council (FRPC) that supports reform efforts. In addition, the  administration intends to work with Congress to provide agencies with  asset management tools to more effectively manage real property. For  example, VA, NASA, DOD, Energy, Interior, and USPS have limited  authorities that allow the agency to enter into enhanced-use lease (EUL)  agreements. Each agency has been provided its own statutory authority,  and the authority varies from agency to agency. These agencies are also  authorized to retain proceeds from the lease and to use them for items  specified by law, such as improvement of their real property assets.  Additionally, certain agencies such as GSA and VA have been authorized  to retain the proceeds from disposal of their real property and to use these  proceeds for their real property needs.
Although progress toward strategically managing real property and  addressing some long-standing problems has been made, these problems  largely persist and the underlying obstacles remain. For example, Energy,  DHS and NASA reported that over 10 percent of their facilities are excess  or underutilized. In addition, Energy, NASA, GSA, Interior, State, and VA  reported repair and maintenance backlogs that total over $16 billion. DOD  reported a backlog of more than $57 billion, which includes the cost of  restoring and modernizing obsolete buildings. Furthermore, Energy,  Interior, GSA, State, and VA reported an increased reliance on operating  leases—an approach which we have reported is often more costly for long- term space needs. While agencies have made progress in collecting and  reporting standardized real property data, data reliability is still a  challenge at some of the agencies, and agencies lack a standard  framework for data validation. Finally, all of the major real property- holding agencies reported using risk-based approaches to prioritize  security needs, as we have suggested, but cited a lack of resources for  security enhancements as an ongoing problem.
In our past high-risk reports, we called for a transformation strategy to  address the long-standing problems in this area. The administration’s  approach is generally consistent with what we envisioned, but certain  areas warrant further attention. More specifically, underlying obstacles,  such as competing stakeholder interests, legal and budgetary limitations,  and a need for improved capital planning, persist. For example, some  agencies cited local interests, such as historic preservation advocates or  various advocacy groups that want to keep the federal government in their  community, as barriers to disposing of excess property. Furthermore,  agencies’ limited ability to pursue ownership often leads them to lease  property that may be more cost-effective over time for them to own.  Finally, long-term capital planning efforts to improve the efficiency of  government operations continue to be a challenge, and these efforts are  not clearly linked with the real property initiative. The federal government  has generally not planned or budgeted for capital assets, such as real  property, over the long term. In our April 2007 report, we made  recommendations aimed at (1) ensuring the validity of agency data, (2)  focusing reform efforts to better address the leasing problem and security  challenges, (3) and addressing obstacles that include competing  stakeholder interests and the need for improved capital planning. OMB  agreed with the report and concurred with its recommendations. VA,  Energy, DHS, GSA, and NASA generally agreed with the report. State,  DOD, Interior, and USPS did not state whether they agreed or disagreed  with the report and its recommendations.
subsections: section_title: The Administration and Major Real Property-Holding Agencies Have Taken Actions to Strategically Manage Real Property and Address Some Long- standing Problems
paragraphs: Pursuant to Executive Order 13327, the administration has taken several  key actions to strategically manage real property. FRPC was established in  2004, which subsequently created interagency committees to work toward  developing and implementing a strategy to accomplish the executive  order. FRPC developed a sample asset management plan and published  Guidance for Improved Asset Management in December 2004. In addition,  FRPC established asset management principles that form the basis for the  strategic objectives and goals in the agencies’ asset management programs  and also worked with GSA to develop and enhance an inventory system  known as the Federal Real Property Profile (FRPP). FRPP was designed to  meet the executive order’s requirement for a single database that includes  all real property under the control of executive branch agencies. The  FRPC, with the assistance of the GSA Office of Government-wide Policy,  developed 23 mandatory data elements, which include four performance  measures.  The four performance measures are utilization, condition  index, mission dependency, and annual operating and maintenance costs.   In addition, a performance assessment tool has been developed, which is  to be used by agencies to analyze the inventory’s performance  measurement data in order to identify properties for disposal or  rehabilitation. In June 2006, FRPC added a data element for disposition  that included six major types of disposition, including sale, demolition, or  public benefit conveyance. Finally, to assist agencies in their data  submissions for the FRPP database, FRPC provided standards and  definitions for the data elements and performance measures through  guidance issued on December 22, 2004, and a data dictionary issued by  GSA in October 2005. The first governmentwide reporting of inventory  data for FRPP took place in December 2005, and selected data were  included in the fiscal year 2005 FRPP published by GSA, on behalf of  FRPC, in June 2006. Data on the four performance measures were not  included in the FRPP report.
subsections: section_title: Agencies Have Met Scorecard Standards to Varying Degrees
paragraphs: Adding real property asset management to the PMA has increased its  visibility as a key management challenge and focused greater attention on  real property issues across the government. OMB has identified goals  related to the four performance measures in the inventory for agencies to  achieve in right-sizing their real property portfolios and it is the  administration’s goal to reduce the size of the federal real property  inventory by 5 percent, or $15 billion, by disposing of unneeded assets by  2015. In October 2006, the administration reported that $3.5 billion in  unneeded federal real property had been disposed of since 2004.
To achieve these goals and gauge an agency’s success in accurately  accounting for, maintaining, and managing its real property assets so as to  efficiently meet its goals and objectives, the administration established the  real property scorecard in the third quarter of fiscal year 2004. The  scorecard consists of 13 standards that agencies must meet to achieve  green status, which is the highest status. These 13 standards include 8  standards needed to achieve yellow status, plus 5 additional standards. An  agency reaches “green” or “yellow” status if it meets all of the standards  for success listed in the corresponding column in figure 1 and red if it has  any of the shortcomings listed in the “red” column.
OMB evaluates agencies quarterly on progress and agencies then have an  opportunity to update OMB on their status towards achieving green.  According to PMA real property scorecards, for the second quarter of  fiscal year 2007, the Department of Labor is the only real property-holding  agency included in the real property initiative that failed to meet the  standards for yellow status as shown in figure 2. All of the other agencies,  have, at a minimum, met the standards for yellow status.
Among the 15 agencies under the real property initiative, 5 agencies—GSA  NASA, Energy, State, and VA—have achieved green status. According to  OMB, the agencies achieving green status have established 3-year  timelines for meeting the goals identified in their asset management plans;  provided evidence that they are implementing their asset management  plans; used real property inventory information and performance  measures in decision making; and managed their real property in  accordance with their strategic plan, asset management plan, and  performance measures. Once an agency has achieved green status, OMB  continues to monitor its progress and results through PMA using  deliverables identified in its 3-year timeline and quarterly scorecards. Each  quarter, OMB also provides formal feedback to agencies through the  scorecard process, along with informal feedback, and clarifies  expectations. Yellow status agencies still have various standards to meet  before achieving green.
section_title: Agency Actions Intended to Address Some Long- standing Problems
paragraphs: In addition to addressing their real property initiative requirements, some  agencies have taken steps toward addressing some of their long-standing  problems, including excess and underutilized property and deteriorating  facilities. Some agencies are implementing various tools to prioritize  reinvestment and disposal decisions on the basis of agency needs,  utilization, and costs. For example, GSA officials reported that GSA’s  Portfolio Restructuring Strategy sets priorities for disposal and  reinvestment based on agency missions and anticipated future need for  holdings. In addition, GSA developed a methodology to analyze its leased  inventory in fiscal year 2005. This approach values leases over their life,  not just at the point of award; considers financial performance and the  impact of market rental rates on current and future leasing actions; and  categorizes leases by their risk and value.
Additionally, some agencies are taking steps to make the condition of core  assets a priority and address maintenance backlog challenges. For  example, Energy officials reported establishing budget targets to align  maintenance funding with industry standards as well as programs to  reduce the maintenance backlogs associated with specific programs. In  addition, Interior officials reported that the department has conducted  condition assessments for 72,233 assets as of fourth quarter fiscal year  2006.
section_title: Further Efforts Made to Strategically Manage and Address Problems
paragraphs: As mentioned previously, Executive Order 13327 requires that OMB, along  with landholding agencies, develop legislative initiatives to improve  federal real property management and establish accountability for  implementing effective and efficient real property management practices.  Some individual agencies have obtained legislative authority in recent  years to use certain real property management tools, but no  comprehensive legislation has been enacted. Some agencies have received  special real property management authorities, such as the authority to  enter into EUL agreements. These agencies are also authorized to retain  the proceeds of the lease and to use them for items specified by law, such  as improvement of their real property assets. DOD, Energy, Interior,  NASA, USPS, and VA are authorized to enter into EUL agreements and  have authority to retain proceeds from the lease. These authorities vary  from agency to agency, and in some cases, these authorities are limited.  For example, NASA is authorized to enter into EUL agreements at two of  its centers, and VA’s authority to enter into EUL agreements expires in  2011. In addition, VA was authorized in 2004 to transfer real property  under its jurisdiction or control and to retain the proceeds from the  transfer in a capital asset fund for property transfer costs, including  demolition, environmental remediation, and maintenance and repair  costs. VA officials noted that although VA is authorized to transfer real  property under its jurisdiction or control and to retain the proceeds from  such transfers, this authority has significant limitations on the use of any  funds generated by any disposal under this authority. Additionally, GSA  was given the authority to retain proceeds from disposal of its real  property and to use the proceeds for its real property needs. Agencies with  enhanced authorities believe that these authorities have greatly improved  their ability to manage their real property portfolios and operate in a more  businesslike manner.
Overall, the administration’s efforts to raise the level of attention to real  property as a key management challenge and to establish guidelines for  improvement are noteworthy. The administrative tools, including asset  management plans, inventories, and performance measures, were not in  place to strategically manage real property before we updated our high- risk list in January 2005. The actions taken by major real property-holding  agencies and the administration to establish such tools are clearly positive  steps. However, these administrative tools and the real property initiative  have not been fully implemented, and it is too early to determine if they  will have a lasting impact. Implementation of these tools has the potential  to produce results such as reductions in excess property, reduced  maintenance and repair backlogs, less reliance on leasing, and an  inventory that is shown to be reliable and valid.
section_title: Long-standing Problems in Real Property Largely Persist and Obstacles Remain
paragraphs: Although clear progress has been made toward strategically managing  federal real property and addressing some long-standing problems, real  property remains a high–risk area because the problems persist and  obstacles remain. Agencies continue to face long-standing problems in the  federal real property area, including excess and underutilized property,  deteriorating facilities and maintenance and repair backlogs, reliance on  costly leasing, and unreliable real property data. Federal agencies also  continue to face many challenges securing real property. These problems  are still pervasive at many of the major real property-holding agencies,  despite agencies’ individual attempts to address them.
subsections: section_title: The Federal Government Continues to Hold Many Unneeded Assets
paragraphs: Although the changes being made to strategically manage real property are  positive and some realignment has taken place, the size of agencies’ real  property portfolios remains generally outmoded. As we have reported, this  trend largely 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. While some  major real property-holding agencies have had some success in attempting  to realign their infrastructures in accordance with their changing missions,  others still maintain a significant amount of excess and underutilized  property. For example, officials with Energy, DHS, and NASA—which are  three of the largest real property-holding agencies—reported that over 10  percent of the facilities in their inventories were excess or underutilized.  The magnitude of the problem with underutilized or excess federal real  property continues to put the government at risk for lost dollars and  missed opportunities. Table 1 describes the status of excess and  underutilized real property challenges at the nine major real property- holding agencies.
section_title: Major Real Property- Holding Agencies Still Have Multibillion-Dollar Repair and Restoration Backlogs
paragraphs: Addressing the needs of aging and deteriorating federal facilities remains a  problem for major real property-holding agencies. According to recent  estimates, tens of billions of dollars will be needed to repair or restore  these assets so that they are fully functional. Furthermore, much of the  federal portfolio was constructed over 50 years ago, and these assets are  reaching the end of their useful lives. Energy, NASA, GSA, Interior, State,  and VA reported repair and maintenance backlogs for buildings and  structures that total over $16 billion. In addition, DOD reported a $57  billion restoration and modernization backlog. We found that there was  variation in how agencies reported data on their backlog. Some agencies  reported deferred maintenance figures consistent with the definition used  for data on deferred maintenance included in their financial statements.  Others provided data that included major renovation or restoration needs.  More specifically,    For DOD, facilities restoration and modernization requirements total over  $57 billion. Officials noted that the backlog does not reflect the impact of  2005 Base Realignment and Closures (BRAC) or related strategic rebasing  decisions that will be implemented over the next several years.
For Energy, the backlog in fiscal year 2005 for a portfolio valued at $85.2  billion was $3.6 billion.
For Interior, officials reported an estimated maintenance backlog of over  $3 billion for buildings and other structures.
GSA’s current maintenance backlog is estimated at $6.6 billion.
For State, the maintenance backlog is estimated at $132 million, which  includes all of the deferred/unfunded maintenance and repair needs for  prior fiscal years.
For NASA, the restoration and repair backlog is estimated at over $2.05  billion as of the end of fiscal year 2006.
For VA, the maintenance backlog for facilities with major repair needs is  estimated at $5 billion, and according to VA officials, VA must address this  aged infrastructure while patient loads are changing.
section_title: Despite Long-Term Cost, Several Agencies Reported That Reliance on Leasing to Meet New Space Needs Is Increasing
paragraphs: Many of the major real property-holding agencies continue to rely on  leased space to meet new space needs. As a general rule, building  ownership options through construction or purchase are often the least  expensive ways to meet agencies’ long-term requirements. Lease  purchases—under which payments are spread out over time and  ownership of the asset is eventually transferred to the government— are  often more expensive than purchase or construction but are generally less  costly than using ordinary operating leases to meet long-term space  needs. For example, we testified in October 2005 that for the Patent and  Trademark Office’s long-term requirements in northern Virginia, the cost  of an operating lease was estimated to be $48 million more than  construction and $38 million more than lease purchase. 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 often  more costly over time. Under current budget scorekeeping rules, the  budget generally should record the full cost of the government’s  commitment. Operating leases were intended for short-term needs and  thus, under the scorekeeping rules, for self-insuring entities, only the  amount needed to cover the first year lease payments plus cancellation  costs needs to be recorded. However, the rules have been stretched to  allow budget authority for some long-term needs being met with operating  leases to be spread out over the term of the lease, thereby disguising the  fact that over time, leasing will cost more than ownership. Resolving this  problem has been difficult; however, change is needed because the current  practice of relying on costly leasing to meet long-term space needs result  in excessive costs to taxpayers and does not reflect a sensible or  economically rational approach to capital asset management, when  ownership would be more cost effective.
Five of the nine largest real property-holding agencies—Energy, Interior,  GSA, State, and VA—reported an increased reliance on operating leases to  meet new space needs over the past 5 years. According to DHS officials,  per review of GSA’s fiscal year 2005 and 2006 lease acquisition data for  DHS, there has been no significant increase in GSA acquired leased space  for DHS. In addition, officials from NASA and USPS reported that their  agency’s use of operating leases has remained at about the same level over  the past 5 years.
We did not analyze whether the leasing activity at these agencies, either in  the aggregate or for individual leases, resulted in longer-term costs than if  these agencies had pursued ownership. For short-term needs, leasing  likely makes economic sense for the government in many cases. However,  our past work has shown that, generally speaking, for long-term space  needs, leasing is often more costly over time than direct ownership of  these assets.
section_title: Governmentwide Real Property Data Inventory Is in Early Stages, and Data Reliability Is Still a Problem at the Agency Level
paragraphs: While the administration and agencies have made progress in collecting  standardized data elements needed to strategically manage real property,  the long-term benefits of the new real property inventory have not yet  been realized, and this effort is still in the early stages. The federal  government has made progress in revamping its governmentwide real  property inventory since our 2003 high-risk designation. The first  governmentwide reporting of inventory data for FRPP took place in  December 2005, and GSA published the data on behalf of FRPC, in June  2006. According to the 2005 FRPP report, the goals of the centralized  database are to improve decision making with accurate and reliable data,  provide the ability to benchmark federal real property assets, and  consolidate governmentwide real property data collection into one system.  According to FRPC, these improvements in real property and agency  performance data will result in reduced operating costs, improved asset  utilization, recovered asset values, and improved facility conditions,  among others.
It is important to note that real property data contained in the financial  statements of the U.S. government have also been problematic. The CFO  Act, as expanded by the Government Management Reform Act, requires  the annual preparation and audit of individual financial statements for the  federal government’s 24 major agencies. The Department of the Treasury  is also required to compile consolidated financial statements for the U.S.  government annually, which we audit. In March 2007, we reported that— for the tenth consecutive year—certain material weaknesses in internal  controls and in selected accounting and financial reporting practices  resulted in conditions that continued to prevent us from being able to  provide the Congress and the American people with 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. Further, we also reported that the federal government did not  maintain effective internal control over financial reporting (including  safeguarding assets) and compliance with significant laws and regulations  as of September 30, 2006.
section_title: Individual Agencies Continue to Struggle with Data Reliability Issues
paragraphs: While agencies have made significant progress in collecting the data  elements from their real property inventory databases for the FRPP, data  reliability is still a problem at some of the major real property-holding  agencies and agencies lack a standard framework for assessing the validity  of data used to populate the FRPP. Quality governmentwide and agency- specific data are critical for addressing the wide range of problems facing  the government in the real property area, including excess and unneeded  property, deterioration, and security concerns. Despite the progress made  by the administration and individual agencies in recent years, decision  makers historically have not had access to complete, accurate, and timely  data on what real property assets the government owns; their value;  whether the assets are being used efficiently; and what overall costs are  involved in preserving, protecting, and investing in them. Also, real  property-holding agencies have not been able to easily identify excess or  unneeded properties at other agencies that may suit their needs. For  example, in April 2006, the DOD Inspector General (IG) reported  weaknesses in the control environment and control activities that led to  deficiencies in the areas of human capital assets, knowledge management,  and compliance with policies and procedures related to real property  management. As a result, the military departments’ real property  databases were inaccurate, jeopardizing internal control over transactions  reported in the financial statements.
Compounding these issues is the difficulty each agency has in validating  its real property inventory data that are submitted to FRPP. Validation of  individual agencies’ data is important because the data are used to  populate the FRPP. Because a reliable FRPP is needed to advance the  administration’s real property initiative, ensuring the validity of data that  agencies provide is critical. In general, we found that agencies’ efforts to  validate the data for the FRPP are at the very early stages of development.  For example, according to Interior officials, the department had designed  and was to begin implementing a program of validating, monitoring, and  improving the quality of data reported into FRPP in the last quarter of  fiscal year 2006.
Furthermore, according to OMB staff, there is no comprehensive review or  validation of data once agencies submit their real property profile data to  OMB. OMB staff reported that both OMB and GSA review agency data  submissions for variances from the prior reporting period. However,  agencies are required to validate their data prior to submission to the GSA- managed database. OMB staff reported that some agencies, as part of the  PMA initiative, have provided OMB with plans for ensuring the quality of  their inventory and performance data. OMB staff reported that OMB has  not, to date, requested these plans of all agencies. OMB staff reported that  agencies provide OMB with information that includes the frequency of  data updates and any methods used for data validation. In addition,  according to OMB staff, OMB relies on the quality assurance and quality  control processes performed by individual agencies. Also, OMB staff noted  that they rely on agency IGs, agency financial statements, and our reviews  to establish the validity of the data. Furthermore, OMB staff indicated that  a one-size-fits-all approach to data validation would be difficult to  implement. Nonetheless, a general framework for data validation that  could guide agencies in this area would be helpful, as agencies continue  their efforts to populate the FRPP with data from their existing data  systems. A framework for FRPP data validation approaches could be used  in conjunction with the more ad hoc validation efforts OMB mentioned to,  at a minimum, suggest standards for frequency of validation, validation  methods, error tolerance, and reporting on reliability. Such a framework  would promote a more comprehensive approach to FRPP data validation.  In our recent report, we recommended that OMB, in conjunction with the  FRPC, develop a framework that agencies can use to better ensure the  validity and usefulness of key real property data in the FRPP.
section_title: Physical Security Is Still a Problem for Major Real Property-Holding Agencies
paragraphs: The threat of terrorism has increased the emphasis on physical security  for federal real property assets. All of the nine agencies reported using  risk-based approaches to some degree to prioritize facility security needs,  as we have suggested; but some agencies cited challenges, including a  lack of resources for security enhancements and issues associated with  securing leased space. For example, DHS officials reported that the  department is working to further develop a risk management approach  that balances security requirements and the acquisition of real property  and leverages limited resources for all its components. In many instances,  available real property requires security enhancements before government  agencies can occupy the space. Officials reported that these security  upgrades require funding that is beyond the cost of acquiring the property,  and, therefore, their acquisition is largely dependent on the availability of  sufficient resources.
While some agencies have indicated that they have made progress in using  risk-based approaches, some officials told us that they still face  considerable challenges in balancing their security needs and other real  property management needs with their limited resources. According to  GSA officials, obtaining funding for security countermeasures, both  security fixtures and equipment, is a challenge, not only within GSA, but  for GSA’s tenant agencies as well. In addition, Interior and NASA officials  reported that their agencies face budget and resource constraints in  securing real property. Interior officials further noted that despite these  limitations, incremental progress is made each year in security.
Given their competing priorities and limited security resources, some of  the major real property-holding agencies face considerable challenges in  balancing their security and real property management needs. We have  reported that agencies could benefit from specific performance  measurement guidance and standards for facility protection to help them  address the challenges they face and help ensure that their physical  security efforts are achieving the desired results. Without a means of  comparing the effectiveness of security measures across facilities,  particularly program outcomes, the U.S. government is open to the risk of  either spending more money for less effective physical security measures  or investing in the wrong areas. Furthermore, performance measurement  helps ensure accountability, since it enables decision makers to isolate  certain activities that are hindering an agency’s ability to achieve its  strategic goals. Performance measurement can also be used to prioritize  security needs and justify investment decisions so that an agency can  maximize available resources.
Despite the magnitude of the security problem, we noted that this area is  largely unaddressed in the real property initiative. Without formally  addressing security, there is a risk that this challenge could continue to  impede progress in other areas. The security problem has an impact on the  other problems that have been discussed. For example, to the extent that  funding will be needed for a sustained investment in security, the funding  available for repair and restoration, preparing excess property for  disposal, and improving real property data systems may be further  constrained. Furthermore, security requires significant staff time and other  human capital resources and thus real property managers may have less  time to manage other problems.
section_title: Underlying Obstacles Hamper Agency Real Property Reform Efforts Governmentwide
paragraphs: In past high-risk reports, we called for a transformation strategy to address  long-standing real property problems. While the administration’s current  approach is generally consistent with what we envisioned and the  administration’s central focus on real property management is a positive  step, certain areas warrant further attention. Specifically, problems are  exacerbated by underlying obstacles that include competing stakeholder  interests and legal and budgetary limitations. For example, some agencies  cited local interests as barriers to disposing of excess property. In  addition, agencies’ limited ability to pursue ownership often leads them to  lease property that they could more cost-effectively own over time.  Another obstacle—the need for improved long-term capital planning— remains despite OMB efforts to enhance related guidance.
subsections: section_title: Several Agencies Cited Competing Stakeholder Interests as Impeding Real Property Management Decision Making
paragraphs: Some major real property-holding agencies reported that competing local,  state, and political interests often impede their ability to make real  property management decisions, such as decisions about disposing of  unneeded property and acquiring real property. For example, VA officials  reported that disposal is often not an option for most properties because  of political stakeholders and constituencies, including historic building  advocates or local communities that want to maintain their relationship  with VA. In addition, VA officials said that attaining the funding to follow  through on Capital Asset Realignment for Enhanced Services (CARES)  decisions is a challenge because of competing priorities. Also, Interior  officials reported that the department faces significant challenges in  balancing the needs and concerns of local and state governments,  historical preservation offices, political interests, and others, particularly  when coupled with budget constraints. Other agencies cited similar  challenges related to competing stakeholder interests. If the interests of  competing stakeholders are not appropriately addressed early in the  planning stage, they can adversely affect the cost, schedule and scope of a  project.
Despite its significance, the obstacle of competing stakeholder interests  has gone unaddressed in the real property initiative. It is important to note  that there is precedent for lessening the impact of competing stakeholder  interests. BRAC decisions, by design, are intended to be removed from the  political process, and Congress approves BRAC decisions as a whole.  OMB staff said they recognize the significance of the obstacle and told us  that FRPC would begin to address the issue after the inventory is  established and other reforms are initiated. Without addressing this issue,  however, less than optimal decisions that are not based on what is best for  the government as a whole may continue.
section_title: Legal and Budgetary Limitations Continue to Hamper Agencies’ Disposal Efforts
paragraphs: As discussed earlier, budgetary limitations that hinder agencies’ ability to  fund ownership leads agencies to rely on costly leased space to meet new  space needs. Furthermore, the administrative complexity and costs of  disposing of federal property continue to hamper some agencies’ efforts to  address their excess and underutilized real property problems. Federal  agencies are required by law to assess and pay for any environmental  cleanup that may be needed before disposing of a property—a process  that may require years of study and result in significant costs. As valuable  as these legal requirements are, their administrative complexity and the  associated costs of complying with them create disincentives to the  disposal of excess property. For example, we reported that VA, like all  federal agencies, must comply with federal laws and regulations governing  property disposal that are intended, for example, to protect subsequent  users of the property from environmental hazards and to preserve  historically significant sites. We have reported that some VA managers  have retained excess property because the administrative complexity and  costs of complying with these requirements were disincentives to  disposal. Additionally, some agencies reported that the costs of cleanup  and demolition sometimes exceed the costs of continuing to maintain a  property that has been shut down. In such cases, in the short run, it can be  more beneficial economically to retain the asset in a shut-down status.
Given that agencies are required to fund the costs of preparing property  for disposal, the inability to retain any of the proceeds acts as an  additional disincentive. It seems reasonable to allow agencies to retain  enough of the proceeds to recoup the costs of disposal, and it may make  sense to permit agencies to retain additional proceeds for reinvestment in  real property where a need exists. However, in considering whether to  allow federal agencies to retain proceeds from real property transactions,  it is important for Congress to ensure that it maintains appropriate control  and oversight over these funds, including the ability to redistribute the  funds to accommodate changing needs. In our recent report, we  recommended that OMB, in conjunction with the FRPC, develop an action  plan for how the FRPC will address key problems, including the continued  reliance on costly leasing in cases where ownership is more cost effective  over the long term, the challenges of securing real property assets, and  reducing the effect of competing stakeholder interests on businesslike  outcomes in real property decisions.
section_title: Need for Improved Capital Planning Still Exists
paragraphs: 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 acquisitions that cost more  than anticipated, fall behind schedule, and fail to meet mission needs and  goals. In addition, Congress and OMB have acknowledged the need to  improve federal decision making regarding capital investment. A number  of laws enacted in the 1990s placed increased emphasis on improving  capital decision-making practices and OMB’s Capital Programming  Guide and its revisions to Circular A-11 have attempted to address the  government’s shortcomings in this area.
Our prior work assessing agencies’ implementation of the planning phase  principles in OMB’s Capital Programming Guide and our Executive  Guide found that some agencies’ practices did not fully conform to the  OMB principles, and agencies’ implementation of capital planning  principles was mixed. Specifically, while agencies’ capital planning  processes generally linked to their strategic goals and objectives and most  of the agencies we reviewed had formal processes for ranking and  selecting proposed capital investments, the agencies have had limited  success with using agencywide asset inventory systems and data on asset  condition to identify performance gaps. In addition, we found that none of  the agencies had developed a comprehensive, agencywide, long-term  capital investment plan. The agency capital investment plan is intended to  explain the background for capital decisions and should include a baseline  assessment of agency needs that examines existing assets and identifies  gaps and help define an agency’s long-term investment decisions. In  January 2004, we recommended that OMB begin to require that agencies  submit long-term capital plans to OMB. Since that report was issued, VA— which was one of our initial case study agencies—issued its first 5-year  capital plan. However, the results of follow-up work in this area showed  that although OMB now encourages such plans, it does not collect them,  and the agencies that were included in our follow-up review do not have  agency wide long-term capital investment plans. OMB agreed that there  are benefits from OMB review of agency long-term capital plans, but that  these plans should be shared with OMB on an as-needed basis depending  on the specific issue being addressed and the need to view supporting  materials.
Shortcomings in the capital planning and decision-making area have clear  implications for the administration’s real property initiative. Real property  is one of the major types of capital assets that agencies acquire. Other  capital assets include information technology, major equipment, and  intellectual property. OMB staff said that agency asset management plans  are supposed to align with the capital plans but that OMB does not assess  whether the plans are in alignment. We found that guidance for the asset  management plans does not discuss how these plans should be linked with  agencies’ broader capital planning efforts outlined in the Capital  Programming Guide. In fact, OMB’s asset management plan sample,  referred to as the “shelf document,” which agencies use to develop the  asset management plans, makes no reference to the guide. Without a clear  linkage or crosswalk between the guidance for the two documents, there  is less assurance that agencies will link them. Furthermore, there could be  uncertainty with regard to how real property goals specified in the asset  management plans relate to longer term capital plans.
section_title: Federal Real Property Reform Efforts Still in Early Stages
paragraphs: The executive order on real property management and the addition of real  property to the PMA have provided a good foundation for strategically  managing federal real property and addressing long-standing problems.  These efforts directly address the concerns we raised in past high-risk  reports about the lack of a governmentwide focus on real property  management problems and generally constitute what we envisioned as a  transformation strategy for this area. However, these efforts are in the  early stages of implementation, and the problems that led to the high-risk  designation—excess property, repair backlogs, data issues, reliance on  costly leasing, and security challenges—still exist. As a result, this area  remains high risk until agencies show significant results in eliminating the  problems by, for example, reducing inventories of excess facilities and  making headway in addressing the repair backlog. Furthermore, the  current efforts lack an overall framework for helping agencies ensure the  validity of real property data in FRPP and do not adequately address the  costliness of long-term leases and security challenges. While the  administration has taken several steps to overcome some obstacles in the  real property area, the obstacle posed by competing stakeholder interests  has gone largely unaddressed, and the linkage between the real property  initiative and broader agency capital planning efforts is not clear. Focusing  on these additional areas could help ensure that the problems and  obstacles are addressed.
We made three recommendations to OMB’s Deputy Director for  Management in our April 2007 report on real property high risk issues.  OMB agreed with the report and concurred with its recommendations.  We recommended that the Deputy Director, in conjunction with FRPC,  develop a framework that agencies can use to better ensure the validity  and usefulness of key real property data in the FRPP. At a minimum, the  framework would suggest standards for frequency of validation methods,  error tolerance, and reporting on reliability. OMB agreed with our  recommendation and reported that it will work with the FRPC to take  steps to establish and implement a framework. For our second  recommendation to develop an action plan for how the FRPC will address  key problems, OMB said that the FRPC is currently drafting a strategic  plan for addressing long-standing issues such as the continued reliance on  costly leasing in cases where ownership is more cost effective over the  long-term, the challenge of securing real property assets, and reducing the  effect of competing stakeholder interests on businesslike outcomes in real  property decisions. OMB agreed that it is important to build upon the  substantial progress that has been realized by both the FRPC and the  federal real property community in addressing the identified areas for  improvement. OMB said that it will share the strategic plan with us once it  is in place and will discuss strategies for ensuring successful  implementation. For our third recommendation to establish a clearer link  or crosswalk between agencies’ efforts under the real property initiative  and broader capital planning guidance, OMB stated that as agencies  update their asset management plans and incorporate updated guidance  on capital planning, progressive improvement in this area will be realized.
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.
section_title: Contact and Acknowledgments
paragraphs: 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 Anne Izod, Susan Michal-Smith, and David  Sausville.
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