Embassy Construction: Proposed Cost-Sharing Program Could Speed Construction and Reduce Staff Levels, but Some Agencies Have Concerns
Published: 2004-11-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of State is in the early stages of a proposed multibillion dollar program to build secure new embassies and consulates around the world. Under the proposed Capital Security Cost-Sharing Program, all agencies with staff assigned to overseas diplomatic missions would share in construction costs. This report describes (1) the rationale for and development of the program, (2) agency concerns about the program, and (3) the influence of the program on agencies' overseas staff levels.
section_title: What GAO Found
paragraphs: The administration's proposed Capital Security Cost-Sharing Program has been developed to accelerate the building of 150 new secure embassies and consulates around the world and to ensure that all agencies with overseas staff assign only the number of staff needed to accomplish their overseas missions. The Department of State's Bureau of Overseas Buildings Operations (OBO), which would manage the program, examined several formulas before deciding that all agencies with an overseas presence would share costs, based on a per capita or "head-count" formula. If enacted, nearly 30 U.S. agencies would be assessed a total of $17.5 billion for constructing 150 new embassies by 2018, or 12 years sooner than the projected completion date of 2030. After a gradual phase-in period beginning in fiscal year 2005, the program would generate $1.4 billion annually from fiscal years 2009 through 2018, with State paying $920 million and non-State agencies paying $480 million. Many non-State Department agencies have concerns about the proposed program. They would prefer a formula other than one based on head counts to assess fees, and they are concerned that cost-sharing fees could affect their ability to accomplish their overseas missions. In addition, they stated that it would be useful to establish new interagency mechanisms to discuss and resolve potential implementation issues. We did not assess the mechanisms to be used to implement the program and have taken no position on whether they would be needed. State is concerned that, without accelerated funding, U.S. government employees will remain at risk beyond the 2018 completion date. State is also concerned that, without cost sharing, OBO could overbuild office space due to agencies' imprecise staffing projections. In our prior work, we have noted the importance of achieving interagency consensus and striving to achieve equity while minimizing management burden. Decision-makers need to continually focus on these factors to give the program every opportunity to succeed. If enacted, it is important that Congress and State monitor its implementation and make changes as needed.

section_title: Letter
paragraphs: The Department of State is in the early stages of a proposed  multibillion-dollar program to accelerate the building of secure embassies  and consulates around the world. To help finance construction, the  administration has proposed the Capital Security Cost-Sharing Program,  under which agencies with staff assigned to overseas diplomatic missions  would pay a portion of the construction costs. A provision authorizing the  program is included in legislation currently under consideration by the  Congress. If enacted, the program is scheduled to go into effect in fiscal  year 2005 and would represent a major shift in how the U.S. government  allocates funding for embassy construction, as State historically has paid  for nearly the entire program. The cost-sharing concept, under  development since 1999, gained momentum in 2001 when the President, as  part of his management agenda, directed that all agencies reduce overseas  staff to the minimum levels necessary to meet U.S. foreign policy  objectives. Since then, the administration has stated that cost sharing  would be an important part of the overall embassy “rightsizing” initiative as  it would force each agency to consider the full costs of its overseas  presence, including the costs of building safe facilities, in determining  overseas staffing levels.
This report describes (1) the administration’s rationale for and  development of the Capital Security Cost-Sharing Program, (2) agency  concerns about the program, and (3) the influence of the proposed  program on agencies’ decisions on overseas staff levels. To complete our  work, we obtained documents and discussed the program in Washington,  D.C., with State’s Bureau of Overseas Buildings Operations (OBO), which is  responsible for the embassy construction program; the Office of  Management and Budget (OMB); eight other executive branch departments  and agencies; and the Library of Congress. We selected the executive  branch departments and agencies because they have staff overseas and,  under the current proposal, would have the largest annual cost-sharing  charges. We selected the Library of Congress because it is the only  nonexecutive branch agency that would pay cost-sharing fees. We  conducted our work in accordance with generally accepted government  auditing standards. Appendix I provides more information on our  objectives, scope, and methodology.
subsections: section_title: Background
paragraphs: Following the terrorist bombings of U.S. embassies in Kenya and Tanzania  in 1998, the Secretary of State, with the support of the President and  Congress, created an Overseas Presence Advisory Panel (OPAP) to  examine the condition, organization, management, and other aspects of  U.S. diplomatic representation overseas. In 1999, the panel declared that  the U.S. overseas presence was near a state of crisis and that the condition  of U.S. posts and missions abroad was unacceptable. Specifically, the  Panel recommended that major capital improvements be undertaken at  U.S. facilities to strengthen security. The Panel reported that funds for new  overseas facilities should be provided from a variety of sources, including  payments by all the agencies that share space in the facilities. In addition,  the Panel concluded that, at U.S. facilities, linking the number of staff with  mission priorities could achieve significant budget savings by reducing the  size of overstaffed locations. Further, Congress passed legislation in 1999  requiring all U.S. government staff working at posts slated for new  construction to be located on the new embassy compounds unless they are  granted a special colocation waiver.
In 2002, the President’s Management Agenda emphasized the importance of  configuring U.S. overseas staff to the minimum necessary to meet foreign  policy goals. As part of the Agenda, OMB led an effort to develop a  cost-sharing mechanism. OMB also emphasized the need to build  embassies more quickly and recognized that, to do so, all agencies with  overseas staff should be required to contribute their share to the costs. The  administration also emphasized that, by requiring agencies to pay for  overseas staff, agencies would be more likely to closely assess the need   for each position before deciding to place a person overseas, thereby  rightsizing overseas staffing levels at U.S. facilities.
In 2003, we reported on the poor conditions of facilities at embassies and  consulates. For example, we found that the primary office building at 232  posts lacked sufficient security, potentially putting thousands of U.S.  government employees at risk. We also reported, however, that OBO had  begun to institute a number of organizational and management reforms,  beginning in 2001, designed to cut costs, standardize designs and review  processes, and reduce the construction period for new embassies and  consulates. These reforms, along with other actions such as increasing  staff training and expanding outreach to contractors, provided OBO with  the capability to manage its overseas building program more effectively.
The United States currently has a network of embassies and consulates at  251 locations around the world. Nearly 30 agencies have more than 61,000  staff at these locations. Under the proposed program, cost-sharing fees  would be charged for every overseas position. Annual charges for  approximately 25,000 State support staff that provide security,  transportation, and other services to all overseas agencies would be shared  proportionately among over 36,000 program staff from all agencies,  including State. Figure 1 shows the numbers of U.S. agencies’ overseas  staff positions that would pay annual cost-sharing fees under the proposed  program.
Historically, State has borne the costs for constructing nearly all diplomatic  facilities abroad. During the 6-year period from fiscal year 1999 through  2004, OBO received appropriations totaling $3.1 billion for constructing  these facilities. Annual funding amounts generally increased during the  period from about $300 million in fiscal year 1999 to about $750 million in  fiscal year 2004, an amount that is about half of the annual $1.4 billion that  the proposed $17.5 billion program would provide for new embassy  construction when fully implemented.
section_title: Rationale for and Development of the Capital Security Cost-Sharing Program
paragraphs: The Capital Security Cost-Sharing Program was developed so that State  could obtain funds to accelerate the construction of new embassies and  consulates around the world and so that agencies would pay the full costs  associated with their overseas presence. The agencies’ share of embassy  construction costs would be phased in over 5 years. When the proposed  program is fully implemented, from fiscal years 2009 through 2018, it could  result in funding of $1.4 billion annually from nearly 30 agencies, including  State. OBO worked with OMB to develop the program based on a per-capita  allocation of worldwide embassy construction costs for 150 facilities. OBO  devised a fee-assessment plan that would spread the total embassy  construction costs among all agencies with an overseas presence. After  considering and rejecting several ways to charge agencies, OBO approved a  cost-sharing formula based on a per-capita or “head-count” fee because,  according to OBO, it was simple to implement, promoted agency  rightsizing, and minimized agencies’ incentives to move staff to different  locations to avoid cost-sharing charges.
subsections: section_title: Proposed Cost-Sharing Program Could Accelerate Embassy Construction
paragraphs: Funding through the proposed Capital Security Cost-Sharing Program  could allow significant acceleration of the construction of U.S. diplomatic  missions. Under the proposed program, the total funding amount would  be $1.4 billion annually, a substantial increase over OBO’s historical  funding levels. For example, during the 6-year period from fiscal years 1999  through 2004, OBO’s actual appropriations for embassy construction  totaled $3.1 billion, an average of roughly $522 million annually. Annual  funding amounts generally increased from about $300 million in fiscal year  1999 to about $750 million in fiscal year 2004.
According to OBO, funds from cost sharing would enable the construction  of 150 new embassy and consulate compounds to be completed by 2018, 12  years sooner than OBO’s initial plan, which included a planned completion  date of 2030. After fees are phased in during fiscal years 2005 through 2008,  non-State agencies would pay $480 million annually for a 10-year period  through fiscal year 2018, while State’s annual payment would be $920  million. Figure 2 shows OBO’s existing embassy construction projections  through fiscal year 2030 and how funding generated by the proposed  cost-sharing program could accelerate embassy construction through fiscal  year 2018.
section_title: Proposed Cost Sharing Is Based on a Worldwide Head-Count Formula
paragraphs: In developing the proposed cost-sharing program, OBO, with OMB’s  approval, selected a per-capita or head-count formula based on the number  of agency staff at all overseas locations and the type of office space. To  determine each agency’s cost share, agency officials were encouraged to  scrutinize their overseas staff numbers and determine whether each  position required office space with controlled access, space with  noncontrolled access, or nonoffice space for staff such as custodians,  gardeners, drivers, and others who do not require a specific desk or  workstation. According to OBO officials, it can easily calculate and  periodically revise agencies’ fees by performing a few simple calculations,  without the need for a large number of staff to administer the program.
subsections: section_title: Amounts for Cost-Sharing Positions Would Be Adjusted Every 3 Years
paragraphs: OBO adopted a methodology in which agencies’ cost-sharing fees for the  first 3 years of the program, fiscal years 2005 to 2007, would be based on  the total number of overseas positions that OBO identified in a 2002  worldwide survey. The positions were categorized by the four types of  space. To determine agencies’ fees for the four types of positions, OBO  estimated the construction costs for building each type of space at a typical  new embassy. For example, the annual charge for a position located in a  controlled access area would be $59,318. According to OBO, it plans to  adjust these amounts every 3 years, beginning in fiscal year 2008, based on  changes in the total number of overseas positions. In addition to the basic  head-count fees, agencies’ annual charges would include amounts for their  proportionate share of construction costs for support services’ personnel  under the International Cooperative Administrative Support Services  (ICASS) program. However, agencies’ fees would be reduced, or “offset,”  by the amounts they are currently paying for office space outside embassy  compounds.
Based on input from all participating agencies, OBO plans to update the  head-count numbers for staff annually and adjust cost-sharing fees to  reflect updated headcounts. If the proposed program begins in fiscal year  2005, agencies would be charged for 61,413 positions, including 251  positions in the chief-of-mission areas; 8,432 in controlled access areas;  30,850 in noncontrolled access areas; and 21,880 in nonoffice space. These  positions include direct-hire Americans, locally employed staff,  contractors, continuing part-time staff, and temporary duty  positions. Non-State agency participants and phased-in annual fees are  shown in table 1.
OBO considered two other formulas before deciding on the head-count  method of determining agencies’ shares of embassy construction costs.   One formula considered by OBO and an interagency working group would  have assessed agencies’ charges based on the amount of space (square feet  or meters) occupied in overseas facilities. There was agreement that the  “space occupied” formula would more directly link costs paid to benefits  received. However, OBO rejected the proposed formula because, according  to OBO officials, administering and managing the fee assessments would  require frequent collection and updates of data, which could be  burdensome and labor intensive.
OBO proposed a second formula based on comparable rental costs  apportioned on a per-capita basis. The formula included factors such as  commercial cost of rent by location, the net amount of space occupied, and  other variables. According to OBO officials, this option was eventually  rejected because it would not result in sufficient up-front funding needed  for the construction and would also be labor intensive to compile and  manage the data. The space occupied and rent formulas also lacked the support of OBO’s Industry Advisory Panel (IAP), whose members stated  that agency officials could dispute the amount of office space for which  they were charged, complain about the quality of their space, assert that  other agencies’ staff were using a disproportionate share of space, and  raise other issues that could be difficult to manage.
OBO and OMB worked to develop fee assessments based on a per-capita or  head-count fee for the full costs of construction in early 2002. OBO officials  stated that the formula would be the simplest to manage because fees are  based on a flat rate for four different types of office space, regardless of  where the position is located worldwide. Charges assessed to each agency  would be generated on the basis of a consistent, standardized formula.  Each agency can easily compute the cost of adding or removing an  employee from overseas duty. In addition, OBO officials stated that a  per-capita or head-count formula would not require intensive labor to  administer and could readily provide a steady flow of up-front funding to  expedite embassy construction. OBO also claimed that, because all  agencies’ staff positions are included in the worldwide cost-sharing  methodology, each agency would pay its share for occupied workspace.  OBO’s initial proposal included charging for office space in controlled and  noncontrolled access areas only. In response to other agencies’ requests,  OBO established per-capita fee assessments for all four types of positions  in its current proposed program.
section_title: Several Agencies Have Concerns about the Program
paragraphs: Officials from several agencies have concerns about the development and  implementation of the proposed program. Some non-State agencies would  prefer a formula other than the head-count formula to more closely link the  fees paid to the services received. Non-State officials are also concerned  about potential implementation issues, including concerns about the  resolution of interagency differences and uncertainty about consistent  congressional support for increasing budget requests that include cost  shares, which could impact their international missions. State officials are  concerned that, if the program is not funded, OBO will be unable to  accelerate construction and that if some agencies are exempted, overall  support for the program would be seriously eroded.
subsections: section_title: Some Non-State Agencies Prefer Formulas Other Than the Head-Count Formula
paragraphs: Officials from some non-State agencies are concerned that the program’s  head-count formula may result in disproportionate costs to some agencies.  They indicated that they would prefer a formula based on one of three  options: (1) the amount of office space occupied worldwide, (2) the  amount of office space occupied at a specific location, (3) a head count of  staff at locations where new embassies would be built. They added that  these formulas would more closely link the fees paid to the benefits  received. We examined these alternative formulas and describe them, along  with OBO’s current proposed head-count formula, in table 2.
We found that the cost-sharing fees of seven selected agencies would vary  under different scenarios. Specifically, we examined two formulas that  OBO had developed during its initial planning phase of the program: one  based on the amount of office space occupied worldwide and the other  based on comparable cost for renting office space locally. We compared  these two formulas with OBO’s current head-count formula. Using OBO  data that we determined to be reliable, we computed the amount of space  occupied by agencies worldwide and at each overseas location. We found  that, because agencies use different amounts of office space, the  Departments of Agriculture, Defense, Health and Human Services, and  State would pay higher cost-sharing fees under the space-occupied  formula; the Department of Commerce and USAID would pay less; and the  Library of Congress’ fee would be similar to its fee under the head-count  formula.
Several agency officials stated that they would be in favor of a formula  similar to the standard U.S. government approach for rent as used  domestically by the General Services Administration (GSA), which  manages many government buildings by renting space to other U.S.  government agencies. GSA’s fees are based on numerous factors, including  comparable costs for commercial space, number of square feet, and the  location and condition of the building. We found that, under the formula  based on comparable local rental costs, State, USAID, and Health and  Human Services would pay less than under OBO’s current head-count  charge because they have staff based in numerous locations where rental  costs are inexpensive. In contrast, many Defense, Commerce, and  Department of Agriculture staffs are based in cities with higher rents for  commercial space. Thus, their rental fee would be higher than a fee based  on head counts. Finally, fees for the Library of Congress using both the  amount of office space occupied and comparable rental costs would be  relatively similar to fees under the head-count formula, as shown in table 3.
Several agency officials noted that the proposed head-count formula  assesses blanket fees worldwide, not specifically where agencies’ staff are  located or where new embassies would be built. As a result, some agencies  would be assessed fees, although some of their staff may not benefit  directly from new construction. For example, the Library of Congress (the  Library) is one of several agencies opposed to the head-count formula.  According to Library and OBO data, only 45 (22 percent) Library  staff—located in three cities—are likely to benefit from new embassy  construction scheduled from fiscal years 2004 through 2009. In addition,  many of the Library’s positions are currently located in rented space  outside embassy compounds, where the Library’s annual office-space costs  are substantially less than it would pay under the cost-sharing program. For  example, Library officials stated that they currently pay roughly $1,200  each for several positions in Islamabad, an amount that is considerably less  than the $28,144 per position that would be assessed under the cost-sharing  program. According to OBO officials, the Library has numerous staff in  several cities, including Islamabad and five other locations, where  construction is planned during fiscal years 2010 through 2018. The officials  added that the Library would receive rent credit offsets for the costs of  renting office space outside embassy compounds and noted that current  law requires the Secretary of State, in selecting sites for new U.S.  diplomatic facilities abroad, to ensure that all U.S. personnel under chief of  mission authority be located on-site.
We examined what agencies’ head-count fees could be under the formula  requiring only agencies with a presence at the new location to pay. We  selected a typical location where a new embassy, with 247 staff  representing four agencies, is projected to be built in fiscal year 2006 at a  cost of $92.2 million. Agencies with no positions at this location would not  be required to pay any cost-sharing fees. Our analysis, based on comparing  the costs for types of space occupied at this typical embassy, shows that  one-time fees for all four agencies would be higher at this one location than  the current proposed head-count fees for all positions under this formula.  For example, the one-time fee for a position in the noncontrolled access  area would be about $357,000 for each person, substantially higher than the  $28,144 annual fee used to calculate the current head-count formula.  However, the same agency’s overall fees would be higher due to its paying  $28,144 annually, over a 14-year period. According to OBO officials,  allowing agencies to pay cost-sharing fees only where their staffs are based  would not support the goal of rightsizing because it would encourage  agencies to avoid cost-sharing fees. Specifically, agencies could “game the  system” by moving staff, even to potentially less secure locations, where no  construction was planned. OBO acknowledged, however, that some  non-State agencies’ would be unlikely to move staff due to country-specific  missions and the costs involved with moving.
section_title: Agencies Have Other Concerns about the Program
paragraphs: Some non-State agencies have other concerns about the proposed  program, including how potential disputes would be resolved and how  cost-sharing fees would affect their ability to accomplish their overseas  missions. In addition, State is concerned that, if the program were not  implemented, OBO would be unable to accelerate construction; and, if  some agencies are exempted, overall support for the program could be  seriously eroded.
Non-State agency officials indicated that the existing interagency working  group may not be an effective mechanism for resolving disputes. Some  non-State agencies are concerned that, when the program is implemented,  the Interagency Facilities Committee, an interagency advisory group  established by OBO to facilitate communication among agency officials,  would not provide a credible forum for discussing program issues and  resolving disputes. For example, some non-State agency officials said that  they have no assurance that OBO would provide them with space in the  embassy compound if conditions become crowded. According to one  agency, all agencies should have participated in the formative stage  discussions of the proposed program, such as the participatory and  transparent discussions that were held during the development of the  ICASS Program. In contrast, according to OBO officials, the Interagency  Facilities Committee is a credible forum for discussing office space issues.  OBO officials added that, in planning embassy size, a certain amount of  contingency, or “spill-over” space, in anticipation of staff increases is  incorporated into the plan.
Some non-State officials said that OBO has shown little flexibility in  adopting agencies’ suggestions in Interagency Facilities Committee  meetings. For example, OBO currently requires that the employing agency  pay cost-sharing fees for staff temporarily assigned to another agency. In  contrast, some agency officials would prefer that cost-sharing fees be paid  by the agency to which the staff member is detailed, not by the permanent  employer. According to one non-State official, OBO should not be  concerned about which agency pays the fees and should allow the agencies  to resolve this issue. OBO officials stated, however, that it would be  complicated and burdensome to keep track of detailees to maintain an  accurate account of overseas staff positions. OBO officials added that  agencies could coordinate with other agencies to reimburse funding for  detailees.
OBO officials stated that they have made adjustments to the program based  on agency suggestions, including charging more for the chief-of-mission  position based on larger office space, and providing rent offsets to agencies  for staff working outside embassy compounds. OBO also created certain  procedures that agencies can use to challenge decisions. According to OBO  officials, these procedures establish OMB as the final arbiter for resolving  interagency disputes. OBO officials stated that these procedures and  standard OMB processes had already been used to resolve some disputes.  One non-State agency stated, however, that when disputes arise, OMB is  likely to favor OBO’s position because OBO has overall responsibility for  implementing the proposed program.
If the proposed program is implemented, some agencies are also concerned  that annual cost-sharing fees could affect their ability to accomplish their  international missions. USAID officials expressed concern that, without  adequate funding, they may have to downsize and with fewer staff would  not be able to accomplish some of their overseas missions. Commerce and  Agriculture had similar concerns. Officials from both agencies stated that,  without additional funding, their agencies would have to cut their overseas  staff and some ongoing activities at numerous locations. For example,  Commerce has projected that it may have to close offices at as many as 51  posts by fiscal year 2009, reducing staff levels by 498 persons, to reduce  annual costs by roughly $27.4 million. A Commerce official stated that post  closings and reductions in staff could affect overseas sales for some U.S.  firms because Commerce would have fewer staff to represent U.S.  businesses in foreign markets. Finally, the Library of Congress’ $6.4 million  annual cost-sharing fee, set to take effect in fiscal year 2009, would  represent over 70 percent of its total fiscal year 2004 international budget.   Library officials indicated that, if the Library were required to pay such a  large amount without receiving additional funding, the mission of their  international program would be seriously affected.
State is concerned that, if the program is not fully funded, OBO would be  unable to accelerate construction and, if some agencies are exempted,  overall support for the program could be seriously eroded. Congress is  currently considering the proposed program but, until it is enacted, State  will not be able to implement the accelerated building schedule. In  addition, State is concerned about the potential impact of granting agencies  exemptions from the program. Specifically, State noted that if one or more  agencies were exempted, other agencies’ funding levels would have to be  increased to generate the $1.4 billion needed annually for the construction  program.
section_title: Program Has Influenced Some Agencies’ Decisions to Reduce the Number of Overseas Staff
paragraphs: Although it is too early to tell how the cost-sharing program, if  implemented, could influence all agencies’ overseas staff levels, some  agencies have already begun to rightsize staff in an effort to reduce their  potential cost-share bill. Faced with expenditures they have not paid in the  past, agencies have had additional incentives to closely review staffing  levels and, in consultation with OMB and their appropriations committees,  consider new ways of meeting their missions with fewer overseas staff. We  found that, as of July 2004, at least five agencies had reduced their  employee rosters by as many as 473 overseas positions. Two of these five  agencies stated that the staff reductions were made specifically to reduce  cost-sharing fees. OBO plans to use agencies’ adjusted staffing numbers to  revise its embassy construction plans. However, the full effect of the  cost-sharing program would not be felt until 2009, after the 5-year phase-in  period ends, which would likely bring increased pressure for agencies to  further reduce their overseas staff.
subsections: section_title: Cost Sharing Has Promoted Greater Consideration of Costs in Staffing Decisions
paragraphs: In the 2001 President’s Management Agenda, the administration took the  position that, if agencies are required to pay a greater share of the costs  associated with their overseas presence, they would weigh cost  considerations more carefully before posting personnel overseas. The  administration’s position is that by minimizing the growth of overseas staff,  the U.S. government will benefit by reducing the numbers of people  exposed to security risks, terrorist attacks, kidnapping, and other risks that  are inherent in the overseas presence, and by reducing the costs of  constructing embassy compounds. With the added incentive to scrutinize  staff numbers, agencies would be required to consider whether they could  afford each staff member. This rightsizing effort is important to ensure that,  governmentwide, the correct numbers of people are working at each  embassy. OBO officials stated that growth in overseas positions has been  generated by both State and non-State agencies and that, for the first time,  the Capital Security Cost-Sharing Program would provide a mechanism for  controlling growth. By reexamining staffing numbers and types of office  space, some agencies have already reduced their future cost-sharing fees.
In preparing for the program, many agencies have already scrutinized the  numbers of staff positions overseas and the types of office space they  require. As a result, one agency eliminated numerous unfilled overseas  positions, some of which had been unfilled for several years. One agency  official stated that, prior to the cost-sharing program, many overseas  positions had not been formally removed because retaining the positions  allowed the agency the ability to quickly reassign staff as their missions and  priorities changed. For example, beginning in fiscal year 2005, State,  Commerce, the Treasury, and Homeland Security had already reduced  overseas positions. State cut 263 positions and Commerce reduced its  overseas staff by 191 positions, eliminating 168 unfilled positions and  cutting 23 other positions. Finally, Treasury removed 17 positions, and  Homeland Security removed 2 positions.
Some agencies have reassessed the types of office space required for their  employees stationed overseas. These agencies decided that some positions  located in controlled access areas could be relocated to noncontrolled  access areas, thereby reducing their cost-sharing fees. For example, the  Foreign Broadcast Information Service reclassified six positions previously  located in noncontrolled access areas to less costly nonoffice areas.
By scrutinizing their numbers of overseas positions and determining the  types of space they require, State, Commerce, the Treasury, and Homeland  Security, and the Foreign Broadcast Information Service significantly  reduced their cost-sharing assessments for fiscal year 2006 and, at the same  time, reduced the number of staff that would be exposed to terrorist  attacks and other overseas security risks. For example, State reduced its  projected fees by more than $15 million, and Commerce reduced its fees by  nearly $6 million. Other agencies’ staff numbers have either increased, did  not change, or were being finalized as of September 2004. Table 4 shows  selected agencies’ estimated savings in annual cost-sharing fees (fiscal year  2005 to 2006) after reducing their overseas positions and/or reassessing the  types of space needed.
OBO officials stated that the fundamental building block for planning a new  embassy compound is the projected numbers and types of positions that  must be accommodated in the new facilities. Without these details, the U.S.  government risks building new facilities that are designed for the wrong  number of staff. To prepare for the initial implementation of the  cost-sharing program, OBO asked agencies to submit updated information  on overseas staff numbers. OBO has since revised the agencies’ data so that  it can begin the program with the most current staffing levels. Because the  size and cost of new embassy facilities are directly related to anticipated  staffing requirements, OBO stated that it would continue to obtain  periodically revised staff numbers and, when appropriate, change its  embassy construction plans or adjust cost-sharing fees that agencies would  be required to pay.
section_title: Gradual Phase-in of Program Would Likely Bring Increasing Pressure to Reduce Overseas Staff
paragraphs: For selected agencies, international program budgets would have to  increase substantially to cover the gradual phase-in of annual cost-sharing  fees. Therefore, agencies are likely to face increased pressure to scrutinize  their overseas staff levels and ensure that only essential personnel are  staffed at overseas posts. As agencies are required to pay more each year  until the proposed program is fully implemented in fiscal year 2009, agency  officials may decide to further reduce their overseas staff numbers to  reduce their fees.
We selected four agencies and estimated how much their international  program budgets would need to increase to meet cost-sharing fees. We  found, for example, that Commerce’s Foreign and Commercial Service  budget would have to increase by 11 percent from fiscal year 2005 to fiscal  year 2007 and by as much as 18 percent from fiscal year 2005 to fiscal year  2009 to cover cost-sharing fees. The estimated amount and percentage of  budget increases needed to pay cost-sharing fees for fiscal years 2007 and  2009 for sampled agencies—Agriculture, Commerce, USAID, and the  Library of Congress—are shown in table 5.
section_title: Conclusion
paragraphs: The principle of cost sharing is consistent with the Overseas Presence  Advisory Panel’s findings and recommendations that agencies share in the  cost of constructing new secure embassies and that agencies’ staffing  levels be linked with their overseas missions. If the proposed cost-sharing  program is enacted and funded, it could result in expedited construction of  new embassies and, at the same time, increased incentives for agencies to  ensure that only essential staff are based overseas. Providing secure  facilities for U.S. employees overseas is a high priority for the U.S.  government, and the proposed Capital Security Cost-Sharing Program is  one way to accelerate the construction of these facilities.  Requiring  agencies to pay a share of embassy construction costs would also  encourage them to consider the full cost of their overseas presence and to  determine the number of people they need to meet critical overseas  missions.
Several non-State agencies have raised concerns about the proposed  cost-sharing formula and implementation issues that could adversely affect  their overseas missions. According to our analysis, agencies’ cost-sharing  fees under other formulas would vary widely, with some agencies  benefiting at the expense of others. While we take no position on which  formula should be used, some type of cost-sharing mechanism could  provide a disciplined approach to the staffing projection and rightsizing  processes and accelerate the capital construction program.
Several agencies suggested that it would be useful to establish new  interagency mechanisms to discuss and resolve potential disputes. We did  not assess the mechanisms to be used to implement the program, if  Congress enacts it. Therefore, we have taken no position on whether new  interagency mechanisms would be needed. Nevertheless, in our prior work,  we have noted the importance of achieving interagency consensus and  striving to achieve equity, while minimizing management burden.  Decision-makers need to continually focus on these factors in order to give  the program every opportunity to succeed. There is time to address these  and other potential implementation issues during the 5-year phase-in  period of the program. If the proposed program is enacted, it is important  that Congress and State monitor the program’s implementation and make  changes as needed.
section_title: Agency Comments and Our Evaluation
paragraphs: We received written comments on a draft of this report from eight  executive departments and agencies (Departments of Agriculture,  Commerce, Health and Human Services, Homeland Security, Justice, State,  the Treasury, and the U.S. Agency for International Development) and the  Library of Congress. The Department of State said that the report is a fair  and accurate representation of the issue. The other departments and  agencies raised a number of concerns regarding accountability and equity  issues if the program is implemented. Their comments, along with our  responses to specific points, are reprinted in appendixes II-X. Several  agencies also provided technical comments, which we have incorporated  into the report where appropriate.
Several agencies stated that using a cost-sharing formula based on the  number of personnel overseas was not equitable. We have taken no  position on the formula to be used. Our report points out the advantages  and disadvantages of potential formulas and that some agencies may  benefit at the expense of others, depending on the formula used.
We are sending copies of this report to interested congressional  committees. We are also providing copies of this report to the Secretaries  of Agriculture, Commerce, Defense, Health and Human Services,  Homeland Security, Justice, State, and the Treasury; the Administrator, U.S.
Agency for International Development; the Director, Office of Management  and Budget; and the Librarian of Congress. We will also make copies  available to others upon request. In addition, this report will be available at  no charge on the GAO Web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me on (202) 512-4128. John Brummet, Lynn Cothern, Martin De Alteriis,  Mary Moutsos, Julia A. Roberts, and George Taylor made key contributions  to this report.
section_title: Objectives, Scope, and Methodology
paragraphs: Our objectives were to examine (1) the Department of State’s rationale for  and development of the proposed Capital Security Cost-Sharing Program,  (2) agency concerns about the program, and (3) the influence of the  proposed program on agencies’ decisions on overseas staff levels. To  complete our work, we analyzed data, reviewed documents, and discussed  the program in Washington, D.C., with officials of State’s Bureau of  Overseas Buildings Operations (OBO), which is responsible for the  embassy construction program; the Office of Management and Budget  (OMB); and eight other executive branch departments and agencies,  including the Departments of Agriculture, Commerce, Defense, Health and  Human Services, Homeland Security, Justice, and the Treasury, and the U.S.  Agency for International Development (USAID). We also reviewed  documents and held discussions in Washington, D.C., with officials of the  Library of Congress, a legislative branch agency. We selected the executive  branch departments and agencies because they have staff overseas and,  under the current proposal, would have the largest annual cost-sharing  charges. We selected the Library of Congress because it is the only  nonexecutive branch agency that would pay cost-sharing fees.
To describe the overall rationale for and development of the proposed  program, we examined numerous reports and other documents, including  those issued by OBO, the Overseas Presence Advisory Panel, and other  working groups and committees. We reviewed historical information dating  back to 1999, including the alternative formulas OBO considered before  selecting the head-count formula to assess agencies’ fees for embassy  construction. We reviewed documents and held discussions in Washington,  D.C., with officials of nine executive branch agencies or departments with  the largest cost-sharing fee assessments and with the Library of Congress.  In addition, we met with OMB officials to discuss agencies’ concerns about  some aspects of the proposed program and General Services  Administration to discuss its management of U.S. government facilities  domestically.
We conducted data analyses using data from the International Cooperative  Administrative Support Services (ICASS) system Global Database, which  was developed and maintained by the ICASS Service Center and contains  information for each overseas post. We assessed the reliability of the ICASS  data during a recent review of State’s Embassy Administrative Support System. The assessment included (1) performing electronic testing for  errors in accuracy and completeness, (2) discussing data reliability issues  with agency officials knowledgeable about the data, and (3) reviewing  relevant reports from State’s Office of the Inspector General and GAO and  financial audits of the ICASS system. We found that the data were also  sufficiently reliable for the purpose of determining agencies’ space  occupied worldwide that was compared with alternative formulas. Data  showing estimates for future costs under the Capital Security Cost-Sharing  Program were provided in a briefing by staff from OBO. We interviewed  knowledgeable officials about the estimating methodology and reviewed  some supporting documents, but we did not conduct a full review of the  procedures OBO used for these estimations.
To examine and compare alternative cost-sharing formulas, we selected  seven agencies, four that have a larger number of staff worldwide (State,  Defense, Commerce, and USAID) and three agencies with a smaller  number of staff working overseas (Agriculture, Health and Human  Services, and the Library of Congress). To determine alternative cost- sharing percentages for agencies with overseas staff, we allocated costs for  ICASS personnel proportionately. We used OBO staffing data that excluded  Peace Corps staff, Marine Security Guards, and various other positions  permanently stationed in host government facilities or specialized research  or technical facilities. We determined that the data were sufficiently  reliable for determining cost-sharing percentages.
To determine the amount each agency would have to pay under two rent  formulas, we used OBO data that we had determined to be sufficiently  reliable for the purpose of this report and computed the percentage of  space each agency occupies. OBO’s data were included in a database that  listed the total worldwide space at each post and the total space occupied  per agency at each post. To find out how much each agency would pay  annually to raise $1.4 billion under this formula, we multiplied each  agency’s percentage of space occupied worldwide by $1.4 billion. To  determine how OBO would generate $1.4 billion annually using a rental  formula, we used OBO’s 2002 data for fees that would have generated   $575 million annually, which took into consideration the cost of  commercial space per location, security and classified space for each post,  and multiplied the fees by 2.4 to compare them with formulas that raise  $1.4 billion annually. To determine the proportionate percentages and cost- sharing fees for each type of office space at one embassy, we selected a  post scheduled for construction in 2006 and used the data that OBO  provided, listing the number of agencies, staff and types of space occupied  for each staff member. OBO’s estimated cost to build the facility would be  $92.2 million as listed in OBO’s long-range overseas building plan. We used  OBO’s estimate of the total square footage for the post and determined the  amount and percentage of space needed for the chief of mission, controlled  access, noncontrolled access, and nonoffice areas. We then divided the  amounts for each area by the total area to determine the total costs to build  the embassy for each type of space. We determined the data were  sufficiently reliable to illustrate the effects of the number of staff on  agencies’ costs.
To describe the actions agencies have taken to reassess their overseas  staffing levels, we collected documentation on each agency’s staffing  numbers and types of space for chief of mission, controlled access area,  noncontrolled access area, and nonoffice space that were used to calculate  cost-sharing fees for fiscal year 2005 budget requests. To assess the  reliability of these data, we verified the amount each agency requested by  reviewing budget submission documents provided by several agencies and  through discussions with knowledgeable agency officials. We determined  that the data were sufficiently reliable for the purpose of this report. We  then compared the fees to each agency’s revised staffing numbers and the  space requirements used to calculate cost-sharing fees for fiscal year 2006  budget requests. Revisions to the numbers of staff or the types of space  resulted in savings for five agencies. We also discussed with OBO officials  how agencies’ revised staff numbers and space requirements would affect  future embassy construction plans. To determine the amount in  international program budgets that selected agencies would need to cover  cost-sharing fees in fiscal years 2005, 2007, and 2009, we obtained the  figures on budget requests for fiscal year 2005. We then used OBO data  showing projected cost-sharing fees for each agency in fiscal years 2007  and 2009. To determine the amount and percentage that the international  budget for each agency would have to grow to cover their cost-sharing fees,  we added the amount they would need in fiscal years 2007 and 2009 to their  international budget request for fiscal year 2005 and determined the  difference. We determined that these data were sufficiently reliable for the  purpose of providing a broad indication of the amounts the agencies would need to increase their budgets for the chosen years. We assumed that each  agency’s program budget would not increase for any other reason than  Capital Security Cost-Sharing Program fees.
section_title: Comments from the Department of Agriculture
paragraphs: The following are GAO’s comments on the Department of Agriculture’s  letter dated October 12, 2004.
subsections: section_title: GAO Comments
paragraphs: 1. We agree that mission goals are a critical factor in determining resource  levels. However, we believe that security and cost factors also need to  be fully considered along with mission goals in determining overseas  staffing levels. In our prior reports, we presented a rightsizing  framework to help decision-makers focus on security, mission, and cost  trade-offs associated with staffing levels and rightsizing options. We  believe that the proposed Capital Security Cost-Sharing Program will  encourage agencies to more closely scrutinize overseas staffing levels  by requiring agencies to pay a share of the embassy construction costs  associated with their overseas presence. 2. OBO officials stated that it solicited and received substantive input  from other agencies during the design of the proposed program. We  acknowledge that Agriculture and some other agencies have concerns  about issues concerning accountability, transparency, and other  implementation mechanisms. 3. We agree that the proposed program would be large and could have a  major impact on agencies, but we believe the program is consistent  with the criteria for rightsizing we previously reported. These criteria  include (1) security of facilities and employees, (2) mission priorities  and requirements, and (3) cost of operations, all of which should be  systematically evaluated. Agencies must provide a strong rationale to  Congress for overseas programs, including all associated costs.  4. We acknowledge that agencies have concerns about potential risks they  may encounter if the program is enacted. However, we concluded that  some type of cost-sharing program would achieve important goals,  such as accelerating the construction of new secure facilities. In  addition, requiring agencies to pay a share of embassy construction  costs would also encourage them to consider the full cost of their  overseas presence and to determine the number of people they need to  meet critical overseas missions.
section_title: Comments from the Department of Commerce
paragraphs: The following are GAO’s comments on the Department of Commerce’s  letter dated October 14, 2004.
subsections: section_title: GAO Comments
paragraphs: 1. We did not assess the need for improvements in business processes and  management controls. If the program were to be enacted, there would  be time during the phase-in period to monitor these issues and address  other concerns that may arise. 2. We believe that agencies should request the appropriate funding in their  budget submissions and be prepared to make adjustments if funds are  not forthcoming. If funding is not provided, agencies may have to  reconsider the size of their overseas presence and/or adjust their  missions. 3. Our report discusses several cost-sharing formulas and some of their  advantages and disadvantages. We discuss agency views on the  formulas, and OBO stated that under some formulas agencies could  “game the system” to reduce their cost share. 4. We did not assess the mechanisms, including the interagency advisory  group, that could be used to implement the program, if Congress enacts  it. Therefore, we have taken no position on whether alternative  interagency mechanisms would be needed. 5. We did not include agencies’ annual charges for embassy construction  attributable to ICASS support services in the table. However, under the  program, agencies will be expected to pay a share of the embassy  construction costs attributable to administrative support service  received under ICASS. 6. As noted, fiscal year 2008 data were not available. 7. The OBO data included offsets. 8. We agree that, if some agencies pull out of the proposed program, the  remaining agencies’ cost-sharing charges may increase. However,  depending on the extent to which agencies consider the size of their  overseas presence, OBO’s costs for constructing fewer and/or smaller  facilities may decrease and result in decreased costs to agencies. 9. We modified the text on page 15 and footnoted table 4 to reflect these  comments and attributed the information to the Department of  Commerce.
section_title: Comments from the Department of Health and Human Services
paragraphs: The following is GAO’s comment on the Department of Health and Human  Services’ letter dated October 12, 2004.
subsections: section_title: GAO Comment
paragraphs: 1. We did not assess the mechanisms to be used to implement the  program, if Congress enacts it. Therefore, we have taken no position on  whether alternative interagency mechanisms would be needed.
section_title: Comments from the Department of Homeland Security
paragraphs: The following are GAO’s comments on the Department of Homeland  Security’s letter dated October 13, 2004.
subsections: section_title: GAO Comments
paragraphs: 1. We agree that the proposed program could impact agencies’ missions if  funding decisions result in reductions of overseas staff positions.  However, as we discuss in the report, the concept of cost sharing  encourages all agencies to seriously consider their overall program  mission and the costs of having staff overseas. We believe that agencies  should request the appropriate funding in their budget submissions and  be prepared to make adjustments if funds are not forthcoming. If  funding is not provided, agencies may have to reconsider the size of  their overseas presence and/or adjust their missions. 2. Security issues associated with foreign housing and schools were not in  the scope of our work.
section_title: Comments from the Department of Justice
paragraphs: The following are GAO’s comments on the Department of Justice’s letter  dated October 12, 2004.
subsections: section_title: GAO Comments
paragraphs: 1. We did not assess the need for improvements in business processes and  management controls, such as transparency and accountability of costs  and spending controls. If the program were to be enacted, there would  be time during the phase-in period to monitor these issues and address  other concerns that may arise. 2. We agree that the proposed program could impact agencies’ missions if  funding decisions result in reductions of overseas staff positions.  However, as we discuss in the report, the concept of cost sharing  encourages all agencies to seriously consider their overall program  mission and the costs of having staff overseas. We believe that agencies  should request the appropriate funding in their budget submissions and  be prepared to make adjustments if funds are not forthcoming. If  funding is not provided, agencies may have to reconsider the size of  their overseas presence and/or adjust their missions.
section_title: Comments from the Library of Congress
paragraphs: The following are GAO’s comments on the Library of Congress letter dated  October 12, 2004.
subsections: section_title: GAO Comments
paragraphs: 1. We were not asked to express an opinion on whether the cost  accounting standards of the federal government apply to the capital  cost-sharing program. However, we did note that State and non-State  agencies disagree on whether there is a link between the amounts to be  paid and the benefits received. 2. The administration proposed the Capital Security Cost-Sharing  Program to fund the accelerated construction of secure new embassies  and consulates worldwide and to ensure that agencies rightsize the  number of staff needed to accomplish their overseas missions. Our  analysis shows that, depending on the formula used, cost-sharing  amounts would vary considerably, with some agencies benefiting at the  expense of others. While we take no position on which formula should  be used, some type of cost-sharing mechanism could provide a  disciplined approach to the staffing projection and rightsizing  processes and accelerate the capital construction program 3. We have taken no position on which cost-sharing formula, including the  “head-tax” approach (which we refer to as the head-count approach),  should be used. We also did not assess the need for improvements in  business processes and management controls, such as determining the  number of staff required. We acknowledge that some agencies have  concerns about potential risks if the program is enacted. However, we  concluded that some type of cost-sharing program would achieve  important goals, such as accelerating the construction of new secure  facilities. In addition, requiring agencies to pay a share of embassy  construction costs would also encourage them to consider the full cost  of their overseas presence and to determine the number of people they  need to meet critical overseas missions. 4. The administration proposed the Capital Security Cost-Sharing  Program to fund the accelerated construction of secure new embassies  and consulates worldwide and to ensure that agencies rightsize the  number of staff needed to accomplish their overseas missions.  5. We agree that, if some agencies pull out of the proposed program, the  remaining agencies’ cost-sharing charges may increase. However,  depending on the extent to which agencies consider the size of their  overseas presence, OBO’s costs for constructing fewer and/or smaller  facilities may decrease and result in decreased costs to agencies.  Congress will decide whether or not the Department of Defense will  participate in the cost-sharing program. 6. The proposed program is intended to capture the full costs, not only  support costs, to agencies for staff in overseas locations, including  construction of new embassy compounds. While we recognize that the  Library currently has staff located outside embassy compounds, with  the 1999 enactment of the Secure Embassy and Counterterrorism Act,  all staff are required to be colocated onsite at locations where new  embassies are built. 7. We recognize that the Library has only seven Americans in six offices.
Our report does not suggest that the Library is not rightsized. However,  the Library and other agencies should request the appropriate funding  in their budget submissions and be prepared to make adjustments if  funds are not forthcoming.
section_title: Comments from the Department of State
paragraphs: The following are GAO’s comments on the Department of State’s letter  dated October 7, 2004.
subsections: section_title: GAO Comments
paragraphs: 1. We modified the text in the Highlights and cover letter to reflect these  comments. 2. We organized the report as we did because the influence of the  proposed program on agencies’ overseas staffing-level decisions is  uncertain. 3. We modified the text in the Highlights to reflect this comment and  attributed the additional comment to OBO.  4. We modified the text in the Highlights and on pages 5 and 13 to reflect  State’s phase-in period. 5. We modified the text on pages 10 and 11 to reflect these comments. 6. We added a footnote on page 4 to clarify the number of overseas  locations. 7. We added a footnote on page 8 to explain the role of the OPAP.
section_title: Comments from the Department of the Treasury
section_title: Comments from the U.S. Agency for International Development
paragraphs: The following are GAO’s comments on the U.S. Agency for International  Development’s letter dated October 8, 2004.
subsections: section_title: GAO Comments
paragraphs: 1.
Issues involving State’s planning for the size of new embassies were not  in the scope of our review. Our recent reports on this issue include  Embassy Construction: Process for Determining Staffing  Requirements Needs Improvement, GAO-03-411 (Washington, D.C.:  Apr. 7, 2003) and Embassy Construction: State Department Has  Implemented Management Reforms, but Challenges Remain, GAO-04- 100 (Washington, D.C.: Nov. 4, 2003). 2. We did not include agencies’ annual charges for embassy construction  attributable to ICASS support services in the table. However, under the  program, agencies would be expected to pay a share of the embassy  construction costs attributable to administrative support service  received under ICASS. 3. State’s prioritization for building new embassy compounds was not  included in the scope of our review. See Embassy Construction: State  Department Has Implemented Management Reforms, but Challenges  Remain, GAO-04-100 (Washington, D.C.: Nov. 4, 2003), for a discussion  of these issues.