Federal Buildings Fund: Improved Transparency and Long-term Plan Needed to Clarify Capital Funding Priorities
Published: 2012-07-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GSA serves as the primary steward of the federal governments civilian real property portfolio of nearly 10,000 assets. Since 1972, GSA has funded its real property acquisition, operation, maintenance, and disposal through the rent it collects from tenant agencies that is deposited into the FBF. GAO has previously reported, however, that the FBF has faced difficulty providing sufficient resources to support GSAs mission.
GAO was asked to examine (1) the factors affecting the resources in the FBF, (2) GSAs potential repair liability and the implications for the FBF, and (3) the information GSA considers when evaluating capital investments and how these practices compare to leading practices for prioritizing capital investments. GAO reviewed legislation and GSA documents and compared leading practices on making capital investment decisions from OMB and GAO capital planning guidance to GSA practices. GAO also analyzed budget and financial data from fiscal years 2006 through 2012, facility condition data from fiscal year 2011, and interviewed GSA officials and OMB staff.
section_title: What GAO Found
paragraphs: The Federal Buildings Funds (FBF) balance has increased from $56 million in fiscal year 2007 to $2.2 billion in fiscal year 2012 primarily due to the growing difference between the resources provided to the FBF and the General Services Administrations (GSA) use of these funds as determined through the budgeting and appropriations process. In the last 2 years, Congress has provided fewer resources than requested by the executive branch and generated by the FBF. Office of Management and Budget (OMB) staff and GSA officials stated that if GSA were able to spend all of the funds collected by the FBF each year, these funds would generally be sufficient to fund GSAs needs. However, GSA, through the annual Presidents Budget Request, has sought less obligational authority than the balance available in the fund. While the FBFs balance has increased, various factors have limited the funds income. Funds from operationsrevenue less costs excluding depreciationthat contribute to FBF income have declined from 2006 to 2011 when adjusted for inflation. Revenues have declined while costs have outstripped inflation over this time period. In addition, portions of GSAs inventory operate at a loss. For example, about 30 percent of GSAs owned assets lost money in 2011, while GSAs total leased portfolio lost about $75 million. Despite the losses in its leased portfolio, GSA continues to rely extensively on leasing. GSA is taking steps to reduce the size of its overall real estate portfolio.
GSA has identified $4.6 billion in maintenance and repairs expected from 2012 to 2021 and anticipates that nearly a quarter of this amount is needed immediately. However, funding for maintenance and repairs has declined since 2006. GSA officials noted that reduced funding for capital reinvestments could result in deferred maintenance and repairs, and increase the cost and extent of such work in the future. These concerns are consistent with the National Research Councils findings that each $1 in deferred maintenance and repair work results in a long-term capital liability of $4 to $5.
GSAs use of information to make capital investment decisions conforms to some leading practices from GAO and OMB guidance, but GSA lacks a transparent process for prioritizing projects and a comprehensive long-term capital plan that fully aligns with leading practices. GSA keeps a baseline of information on its assets and needsas leading practices suggestthrough various tools and databases. GSAs process and guidance for evaluating capital investment alternatives substantially meet leading practices as its project planning process explores alternatives to meeting investment needs. GSAs process for prioritizing capital investments partially meets leading practices, but its project prioritization transparency could be improved by laying out in its annual budget submission how it uses its criteria to determine which projects get selected for funding over others. In addition, an improved comprehensive long-term capital plan could further GSAs ability to make informed choices about long-term investment decisions. Both OMB and GAO guidance emphasize the importance of developing a long-term capital plan to guide the implementation of organizational goals. Having such a plan would enable GSA and Congress to better evaluate a range of priorities over the next 5 years. In short, more transparency through a comprehensive long-term capital plan would allow for more informed decision making by GSA and Congress among competing priorities.
section_title: What GAO Recommends
paragraphs: GAO recommends that GSA (1) document in its budget submission how it prioritizes capital investments and (2) develop and annually submit a 5-year long-term capital plan to OMB and Congress. GSA agreed with our recommendations. Technical comments from GSA and OMB were incorporated as appropriate.

section_title: Letter
paragraphs: Capital assets, such as real estate, can require significant resources to  construct, operate, and maintain over the course of their life cycle. To  provide a predictable source of revenue for the General Services  Administration (GSA) to manage its real estate portfolio, the Public  Buildings Act Amendments of 1972 established the Federal Buildings  Fund (FBF). Since that time, GSA has collected rent from tenant  agencies, deposited it into the FBF, and used that money to fund its real  property acquisition, operation, maintenance, and disposal. Currently,  funds from the FBF support nearly 10,000 assets—including about 1,500  GSA-owned buildings and 8,100 GSA-leased buildings—which provide  an inventory of more than 370 million square feet of workspace for 1.1  million federal employees.
Historically, however, the fund has not generated sufficient revenues to  meet all needs. We reported in 1981 that the then 9-year-old fund faced  difficulty funding GSA’s real property expenses because it did not  generate sufficient revenue from the rental of its assets. We reported in 2000 that GSA had struggled to fund the capital repairs identified at its  buildings and that GSA faced a potential repair liability of billions of  dollars. These conditions contributed to our initial characterization of  federal real property management as a high-risk area in 2003.  Furthermore, the high cost of capital assets creates challenges for  budgeting in an era of resource constraints. In this context, you asked us  to review the viability of the fund.
This report focuses on (1) the factors that have affected the resources  available in the FBF, (2) GSA’s potential maintenance and repair liability  for its owned assets and the implications for the fund, and (3) the  information GSA considers when evaluating capital investment proposals  and how its practices compare to leading practices for prioritizing capital  investments. Our overall approach to addressing these topics was to (1)  review laws, studies, and GAO, GSA Inspector General, and  Congressional Research Service reports on federal real property and the  FBF; (2) analyze data and documents pertaining to the fund’s balance,  including budget requests and appropriations acts from fiscal years 2006  to 2012; (3) evaluate the financial performance of GSA’s real property  portfolio of approximately 10,000 assets based on data from fiscal years  2006 through 2011; (4) analyze data maintained by GSA on the identified  repairs needed in its owned assets; (5) compare GSA capital investment  practices to leading practices for making capital investment decisions  identified in the Office of Management and Budget’s (OMB) Capital  Programming Guide and GAO’s Executive Guide; (6) interview GSA  officials and OMB staff on the state of GSA’s real property portfolio; and  (7) review the four highest cost repairs and alterations projects of GSA’s  fiscal year 2012 budget submission to assess data used to determine  project requirements and how GSA evaluated project alternatives. We  also interviewed GSA system administrators, analysts, and managers  about the quality of data obtained from GSA’s real property and financial  databases and tested the data for missing variables and abnormal trends.
We found that they were generally reliable for our purposes, which was to  provide a summary level description of the physical and financial  condition of GSA’s portfolio.
We conducted this performance audit from August 2011 to July 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives. Further details on our scope  and methodology can be found in appendix I.
subsections: section_title: Background
paragraphs: The FBF, administered by GSA, is a quasi-revolving fund financed by  rents received from other agencies and authorized and established by the  Public Buildings Act Amendments of 1972. Instead of GSA receiving  direct appropriations, the FBF operates as the primary means of financing  the operating and capital costs associated with federal space, but GSA  sometimes receives supplemental appropriations to meet repair or new  construction needs. The FBF is financed by income from rental charges  assessed to tenant agencies occupying GSA-owned and -leased space  that approximate commercial rates for comparable space and services.  GSA appraises its inventory on a 5-year cycle—approximately 20 percent  of its owned inventory annually— and charges rent based on rates for  comparable assets in the private sector. GSA charges its tenants in  space leased from the private sector rates equal to the cost of the lease  plus either a 7 percent (for cancelable assignments) or 5 percent (for  noncancelable assignments) administrative fee to cover its management  costs. During fiscal year 2011, GSA deposited about $9 billion into the  fund. GSA’s lease payments have increased over the last decade as  leased space has grown to comprise more than half of GSA’s current total  portfolio. Starting in 2008, GSA has leased more space than it owns; at  the end of fiscal year 2011, leased square footage exceeded owned, 193  million to 182 million (51 percent).
Congress exercises control over the FBF through the appropriations  process that sets annual limits—called obligational authority—on how  much of the fund can be obligated for various activities. GSA, as an  executive branch agency, requests obligational authority from Congress  as part of the annual President’s Budget Request. In annual  appropriations legislation, Congress provides obligational authority to  GSA to incur obligations and make expenditures from the FBF in five  categories of activities:  1.  Rental of Space – funds leases of privately owned space or buildings  for federal agencies.  2.  Repairs and Alterations – funds repairs and alterations of existing  buildings as well as associated design and construction services.  3.  Construction and Acquisition of Facilities – funds the construction or  purchase of facilities and major extensions to existing buildings.  4.  Building Operations and Maintenance – funds services for  government-owned and -leased facilities, including cleaning, utilities  and fuel, maintenance, miscellaneous services (such as moving),  evaluation of new materials and equipment, and field and general  management and administration.  5.  Installment Acquisition Payments – funds debt incurred as the result  of building acquisition and lease purchase arrangements.
Revenue from GSA’s owned facility inventory is the main source of the  FBF’s operating income used to fund repair and alteration, new  construction activities, and operations and maintenance. GSA’s portfolio  of properties leased from the private sector is designed to be revenue  neutral in disbursing all the funds it collects from federal agencies  occupying the space to pay the cost of the underlying leases.
Building repairs and alterations as well as construction and acquisition  projects that are expected to cost more than the prospectus-level  threshold must be submitted to certain congressional committees for  authorization and funding.OMB approval, provides Congress with a prospectus for each repair and  alteration project estimated to exceed the prospectus-level threshold. The  prospectus includes information on the size, cost, location, and other  features of the proposed work; a justification for proceeding with the work;  and an economic analysis of the alternatives to the requested repairs and  alterations.
section_title: Growing FBF Balance Belies Revenue and Cost Challenges
subsections: section_title: FBF Balance
paragraphs: The FBF’s balance has increased significantly in recent years, growing  from $56 million at the beginning of fiscal year 2007 to $2.2 billion by the  beginning of fiscal year 2012. The increased balance has primarily  resulted from the growing difference between the resources deposited  into the FBF and use of these funds as determined through the budgeting  and appropriations process. Specifically, the total available balance is a  function of the resources deposited into the fund, the amount of  obligational authority requested by GSA as part of the President’s Budget  Request, and the actual obligational authority provided by Congress.Beginning in fiscal year 2007, the total resources deposited into the FBF  have exceeded the obligational authority provided by Congress. (See  table 1.) According to OMB staff, a portion of the growth in the FBF’s  balance is attributable to inaccuracy in GSA’s estimation of its rental  revenues. The result of these budgetary and appropriations actions has  been the near quadrupling of the fund balance in the last 2 years.
In using authority to direct the expenditure of public funds and establish  priorities among federal programs, Congress decides whether to fund a  particular program or activity, and if so, sets the level of that funding. In  the case of the FBF, Congress has provided in the last 2 fiscal years less  obligational authority to GSA than was requested in the President’s  Budget Request. For example, in fiscal year 2012 Congress provided  about 16 percent less than the President’s Budget Request. In addition, in  both 2011 and 2012 Congress provided less obligational authority than  funds deposited into the FBF. According to OMB staff and GSA officials,  Congress provided less obligational authority than requested to balance  competing priorities among government programs and meet spending  caps.
OMB staff and GSA officials stated that the funds collected by the FBF  might sufficiently support GSA’s projects for its assets. For example,  OMB staff stated that if GSA were able to spend all of the funds collected  by the FBF each year, these funds would generally be sufficient to fund  GSA’s identified repairs and alterations projects and a modest new  construction program. GSA officials noted that when Congress provides  less obligational authority than requested, repairs and alterations and new  construction projects are the most affected because available funds must  first be used to pay leasing, operations and maintenance, and debt costs.  GSA officials also stated that the authorization to obligate and spend the  balance of funds in the FBF, which it anticipates will double to $4.5 billion  by the end of fiscal year 2013, would enhance the agency’s ability to  manage its real property portfolio by ensuring that operations and  maintenance are sufficiently funded and that capital investments, such as  repairs and alterations and new construction projects, can continue to be  made. However, OMB staff stressed that the current FBF balance is not  available for obligation and that in order to make additional obligations  from the fund, congressional action would be needed.
While the appropriations process has resulted in less obligational  authority for GSA than was sought in the President’s Budget Request, the  agency has not always communicated through its annual budget request  to Congress its interest in reducing the fund’s balance by increasing  spending. Rather, since 2008, GSA has consistently requested  obligational authority less than the total resources available in the fund.  Also since 2008, GSA has only twice requested an amount of obligational  authority that would reduce the existing fund balance, meaning that it  requested more obligational authority than funds deposited for that year.  Specifically, GSA requested to reduce the existing FBF balance by about  30 percent in 2011 and 13 percent in 2012. GSA officials stated that in  preparing their budget requests they work with OMB to discuss their  needs in relation to competing priorities from other executive branch  agencies. According to GSA officials, budget requests for FBF  obligational authority reflect efforts to balance GSA’s needs with those of  other federal agencies within the overall budget framework.
section_title: Factors Affecting FBF
paragraphs: While budgeting and appropriations decisions have contributed to a  significant increase in the FBF balance the last 2 years, various factors  have limited the fund’s income from GSA’s real property operations.  These factors include an imbalance between revenue and costs,  decreased revenue from underperforming assets, and a reliance on  leasing.
GSA’s owned assets generate most of the resources used for capital  improvements. From 2006 through 2011, the financial performance of  these assets has stagnated despite GSA’s increasing the amount of  rentable square feet in its owned portfolio from 174 million to 182 million  square feet. As measured by funds from operations—meaning revenue  less costs excluding depreciation—GSA generated approximately $1.6  billion from its owned assets in 2006 and a nearly identical amount in  2011, though the annual amount varied during this time period. When  taking the effects of inflation into account, we found that the real value of  the funds from operations generated by GSA’s owned assets and  measured in 2006 dollars has decreased by 9 percent over this time.(See fig. 1.)
Funds from operations generated by GSA’s owned assets have been  affected by declining revenue and rising costs.
Revenue. Since 2006, revenue growth has not kept pace with  inflation. Specifically, the revenue from GSA’s owned portfolio  adjusted for inflation has decreased by 2 percent. GSA officials said  that revenue generated by its owned assets is highly dependent upon  the fair annual rent appraisal of the asset which, in turn, is based on  the value of rental charges at comparable private sector properties.  GSA officials noted that from 2006 to 2011, increased commercial  office vacancies contributed to soft rental markets and minimal growth  in rental rates. According to these officials, changes in revenue  primarily reflect the downward pressure on GSA’s rental rates caused  by market conditions.
Costs. Since 2006, costs associated with operating, maintaining, and  repairing GSA’s owned facilities have risen faster than inflation. GSA’s  annual operating costs, representing the direct costs of operating its  facilities (including utilities, janitorial services, and routine  maintenance) have risen by about 6 percent total in constant dollars  from 2006 to 2011, though year to year these costs are volatile and  can vary significantly. GSA officials stated that reasons for the  increase in operating costs include general inflation in utilities,  maintenance, and administrative costs. Furthermore, GSA estimates  that construction costs have increased since 2005. We found that  from October 2005 to September 2011, for example, construction  costs rose by nearly 20 percent, or by nearly twice the general rate of  inflation, eroding the value of FBF resources generated to fund capital  repairs and construction.
GSA officials also noted that, with decreased obligational authority, the  growing amount and cost of leased space in its portfolio have reduced the  proportion of obligational authority available to fund repairs and  alterations that could potentially reduce operating costs in its owned  portfolio. From 2006 through 2011, obligational authority for the  acquisition of leased space increased from $3.9 billion (49 percent of  obligational authority) to $4.8 billion (62 percent) as the amount of leased  space increased from 172 million to 193 million square feet. At the same  time, obligational authority for repairs and alterations has decreased from  $1.1 billion (14 percent of obligational authority) in 2006 to $341 million (4  percent) in 2011.
While the FBF as a whole has generated positive funds from operations,  portions of GSA’s inventory operate at a loss. For example, within its  owned portfolio, about 30 percent of GSA’s assets lose money in a given  year. In fiscal year 2011, the loss from these assets was $170 million, and  GSA has incurred a similar loss on that portion of its portfolio each year  from 2006 to 2010. These assets tended to be older and smaller than  other assets in the owned portfolio.losses are attributable to about 200 assets, each of which lost more than  $100,000 in 2011. GSA officials noted that in some cases, operating an  asset at a loss can be more cost effective in the short term than the cost  of acquiring new space, moving an agency, and disposing of the asset.  GSA officials further explained that there are various reasons they retain  facilities that generate losses, for example because an asset is mission  critical, has symbolic importance, or establishes a necessary federal  presence in a sparsely populated area. For example, the Prince H.  Preston Building and Courthouse, located in Statesboro, Georgia,  provides space for the U.S. District and Bankruptcy Courts and other  agencies’ facilities on an as-needed basis. However, the building has  consistently generated negative funds from operations because the  amount of space required for the federal presence in Statesboro has  decreased since the building was constructed in 1963. Specifically, while  the building was originally constructed to provide space to the Social  Security Administration and the Department of Agriculture in addition to  the Courts, both executive branch agencies have since vacated the  space. Despite the vacant space and financial losses resulting from  departure of two of its original tenants, GSA intends to retain this facility  until the Judiciary determines its long-term plan for maintaining a  presence in Southeast Georgia. GSA officials also noted that when their  managed facilities undergo major renovations, the space in those facilities  is often temporarily vacated and does not generate revenue during that  time. For example, space in the Eisenhower Executive Office Building in  Washington D.C., which is currently undergoing a multiphase renovation,  was unavailable for tenant occupancy in 2011, contributing to a $15  million operating loss for the building.
We determined that most of these  In addition to these types of losses, GSA has formally agreed with its  tenants to provide below-market rent on about 240 assets, which has  modestly reduced revenue deposited in the FBF. In fiscal year 2011, GSA  estimated that rent restrictions reduced the revenue generated for the  FBF by about $175 million. These reduced rental rates have resulted from  a combination of GSA and congressional exemptions that have been in  place for a number of years. These exemptions were provided for a  number of reasons, including lack of funds from the tenant agencies,  agreements resulting from the sale of property from an agency to GSA,  and security concerns. For example, in 1996, GSA granted an exemption  to the Woodrow Wilson Center for the organization’s use of approximately  100,000 square feet of office space in the Ronald Reagan Building and  International Trade Center in Washington, D.C. through 2026. GSA  estimates this rent exemption reduced FBF revenue by $5 million in fiscal  year 2011.
From 2006 through 2011, as the amount of space that GSA leased from  the private sector grew from 172 million to 193 million square feet, GSA’s  losses (as measured by funds from operations) on its leased assets have  increased. (See fig. 2.) Over the past 4 years, cumulative losses on its  leases have exceeded $200 million; approximately $75 million in losses  occurred in fiscal year 2011. Most of the losses in 2011 were  concentrated in about 300 leases, each of which lost more than  $100,000. Relative to the total revenue generated by its leased portfolio in  2011 ($5.6 billion), the net losses from its leased assets (about $75  million) in 2011 are comparatively small. Nevertheless, such losses  require GSA to use funds generated from other revenue sources to offset  them, which in turn decreases the funds available for investing in GSA’s  owned assets.
GSA officials noted that leasing losses have primarily resulted from  several factors, including reductions in its administrative fee, accounting  adjustments, billing and payment errors, lease buyouts and formulation  costs, and vacant space. Specifically:
According to GSA officials, the agency reduced the administrative fee  that it charges to agencies for managing leases from the private  sector from 8 percent to 7 percent for many leases in 2008, resulting  in an estimated annual $50 million (1 percent) reduction in revenue.  According to GSA officials, because the leasing portfolio was  producing a modest surplus in 2007, GSA lowered its administrative  fee to reduce the cost of leasing for its tenant agencies. These  officials noted that, in 2011, for instances where a lease lost less than  $100,000, many of these losses are attributable to overhead  expenses that exceed revenue from administrative fees. GSA officials  explained they are currently reevaluating whether its administrative  fee is sufficient to cover the cost of the leasing program.
According to GSA officials, their use of accrual-based accounting— where revenues are recorded when earned and expenses are  recorded when incurred, irrespective of whether any cash has flowed  in or out during the accounting period—results in adjustments that  essentially level the lease payment stream throughout the life of a  lease. This adjustment can result in expenses being recorded in a  single accounting period that are greater or less than the actual lease  payment during that period. GSA estimates that, after eliminating the  impact of accounting adjustments and transactions related to the  Recovery Act, the agency lost approximately $18.5 million in the  leased portfolio during fiscal year 2011.
Billing and other administrative errors have also contributed to losses  in its leased portfolio, according to GSA officials. For example, GSA  officials noted that the agency may begin to pay a lessor for space  before GSA has finalized the occupancy agreement with the tenant  agency and entered it into GSA’s financial management system.  While GSA officials acknowledged that these funds can be recouped  from the tenant agencies after the occupancy agreement is finalized,  they estimated that these actions reduced funds from operations from  the leased portfolio by nearly $17 million in 2011.
GSA officials also noted that lease formulation costs, lease buyouts,  and vacant space within its leased portfolio result in costs and lost  income that have contributed to losses. GSA officials explained that  when tenant agencies move out of leased space, GSA attempts to  place another tenant agency in that same space. However, between  the occupancy periods of the two tenants, GSA is responsible for  paying the cost of the space, unless GSA terminates the lease and  pays a buyout to the private sector lessor. GSA officials noted that  while the cost of a lease buyout may contribute to losses in the year of  the buyout, over the long-term, pursuing a lease buyout may reduce  the amount of vacant space in its portfolio. GSA officials noted that, as  of the end of fiscal year 2011, 2.3 percent of the space in the leased  portfolio was vacant.
Even with these losses in its leased portfolio, GSA continues to rely  extensively on leasing to meet its tenants’ increasing demand for office  space. In 2008, the amount of rentable space leased by GSA exceeded  the amount of its owned space for the first time. (See fig. 3.) GSA officials  noted that, as a result of the funding constraints in recent years discussed  earlier in this report, the agency has primarily used leasing to meet new  office space requirements of its tenant agencies. Nevertheless, our  previous work has shown that leasing often costs more than federal  building ownership, particularly if operating leases are used to meet long- term space needs.
GSA is taking steps to manage its financial resources more effectively by  reducing the size of its overall real estate portfolio, both in terms of the  number of assets and the amount of square feet it manages. In a June  2010 memorandum, the administration directed GSA, along with other  agencies, to accelerate efforts to identify and eliminate excess properties  and to make better use of remaining real property assets. As part of these  efforts, GSA is reducing its owned assets through the sale of excess and  underutilized property and consolidation actions. For example, according  to GSA, in 2011, it disposed of 52 assets, resulting in a reduction of 3.3  million rentable square feet of space. In addition, GSA is encouraging its  tenant agencies to use alternative working arrangements, such as  teleworking and hoteling (where personnel use unassigned seating when  they are in the office) to reduce space needs. Further, GSA officials noted  that budget constraints across the executive branch have forced its tenant  agencies to reexamine their space needs and that GSA expects demand  will continue to shrink.
section_title: GSA Has Identified Billions in Repair Liability, but Decreased Funding May Increase Future Resource Demand from the FBF
subsections: section_title: Condition of GSA’s Assets
paragraphs: GSA measures its investment needs for maintaining and improving the  condition of its owned facilities through its maintenance and repair  liability, which identifies the estimated aggregated cost of future  maintenance and repairs across its portfolio. At the end of fiscal year  2011, GSA identified a $4.6 billion liability for the next 10 years.total, $1.3 billion is for immediate maintenance and repair needs, and   Of this  $3.3 billion is for maintenance and repairs that will be needed in future  years.
The estimated cost of maintenance and repairs to GSA’s owned assets  varies across the portfolio. GSA’s data show that 40 percent of its assets  have maintenance and repair liabilities of $500,000 or less and about 22  percent have a liability exceeding $2 million. (See table 2.) GSA’s data  also indicate that approximately 23 percent of the assets in the portfolio  have no recorded maintenance and repair liability. GSA officials explained  that a facility having no maintenance and repair liability may mean that (1)  there is no maintenance liability for that asset, (2) a condition assessment  has not been conducted, or (3) its maintenance liability was recorded as  part of the maintenance liability for a larger facility.
GSA’s data also suggest that a facility’s age is related to its maintenance  and repair liability. According to the fiscal year 2011 data GSA provided,  its owned assets average 48 years in age, and those over 61 years old  are responsible for about 40 percent of its total maintenance liability. In  addition, according to GSA, more than one-fourth of its owned buildings  are listed in or eligible for the National Register of Historic Places, the  nation’s listing of historic properties. According to GSA officials, these  historic buildings require comparatively more maintenance and repair  work. GSA officials also noted that they hold assets longer than assets  maintained in the private sector in part because of GSA’s stewardship  responsibility to preserve historic buildings.
section_title: Funding for Repair and Alteration Projects
paragraphs: As previously discussed, GSA’s overall obligational authority has trended  downward in recent years, and much of this reduction has been absorbed  by the repairs and alterations and new construction accounts within the  FBF, meaning that GSA has reduced its spending on repairs and  alterations and construction work. Specifically, GSA’s obligational  authority for repairs and alteration projects, decreased from $855 million   Obligational authority for construction,  in 2005 to $280 million in 2012.decreased from $760 million in 2005 to $50 million in 2012. (See fig. 4.)
GSA officials and OMB staff suggested that absent sufficient funding, the  cost of operating GSA facilities could increase and the condition of GSA’s  portfolio could decline. These officials noted that repairs identified now  have the potential to be more expensive if they are delayed, thereby  increasing the amount of funding needed from the FBF, possibly resulting  in an array of undesirable outcomes. For example, delayed repairs can  increase the frequency of unplanned interruptions and downtime of facility  systems and components, and can decrease the useful life of real  property. GSA officials noted some instances in which funding restrictions  delayed repair and maintenance activities, increasing the cost to operate  its existing assets. For example, they explained that GSA’s Heating  Operation and Transmission District system, which provides steam and  chilled water for heating and cooling operations at approximately 80  facilities in Washington, D.C., requires substantial repair work. The delay  in modernizing key components of the system has increased the risk of  service failure during the winter months. In order to ensure the reliability  of the system, GSA has required additional staff hours from its  maintenance and engineering personnel to maintain the system,  increasing the overall plant operating costs and resulting in higher steam  charges to GSA’s customer agencies. Delayed repairs could also affect  the funding generated for the FBF. Specifically, if an asset’s appraisal  decreases due to its deteriorated condition, the rent charged to the tenant  agency could also decrease, resulting in less revenue for the FBF.
The concerns of GSA officials and OMB staff are consistent with those of  the National Research Council of the National Academies which has  stated that public sector organizations facing limited resources often first  defer or cut facilities investments, particularly investments in maintenance  and repairs. The National Research Council estimates that each $1 in  deferred maintenance results in a long-term capital liability of $4 to $5,  and that “an accumulation of deferred investments over the long term  may be significantly greater than the short-term savings that public-sector  decision makers were initially seeking.”
section_title: GSA Could Better Conform Some of Its Capital Planning to Leading Practices
paragraphs: Making informed capital investment decisions requires full information  about an agency’s current and long-term needs, alternative courses of  action, and how potential projects compare amongst each other. We  identified leading practices for using information to make capital  investment decisions primarily from GAO’s Executive Guide and OMB’s  Capital Programming Guide. We also drew from leading capital  investment practices identified by the National Research Council.assessed GSA’s performance in using information to make capital  investment decisions against the criteria established in these guides.  (See table 3.)
section_title: Conclusions
paragraphs: Since its inception, the FBF has been challenged to provide sufficient  revenue to support GSA’s real property portfolio. In recent years,  budgeting and appropriations decisions made by the executive branch  and Congress, respectively, have limited the amount of resources made  available to GSA to fund its real property operations. The FBF is further  constrained by other factors including the declining value of revenue,  growing operating costs, and an increased reliance on leasing, among  other things. These conditions make it increasingly difficult for GSA to  maintain its real property portfolio in an acceptable state of repair. As  GSA works to address the maintenance and repair needs of its assets  and improve the overall condition of its portfolio, it is important that the  agency base its actions on a well-conceived investment strategy. GSA  follows many leading practices to gather and evaluate information from its  assets to inform its investment decisions, but it is not clear how it  prioritizes and selects projects for funding consideration. In addition, the  agency’s lack of a comprehensive long-term capital plan could limit its  ability to provide perspective on how funding for requested projects aligns  with its long-term investment strategy. Having such a plan would enable  GSA and Congress to better evaluate the full range of real property  priorities for using funds in the FBF both over the next 5 years and  annually and, should fiscal constraints so dictate, identify which might  take precedence over others. In short, more transparency would allow for  more informed decision making among competing priorities. Without more  insight into how GSA prioritizes repair and replacement of its assets, GSA  cannot ensure that decision makers within the executive branch and  Congress understand why the projects proposed by GSA merit selection  when measured against competing priorities, both within and outside of  GSA’s portfolio.
section_title: Recommendations for Executive Action
paragraphs: To enhance transparency, allow for more informed decision making  related to GSA’s real property priorities, and make a stronger case for  using funds in the FBF to meet capital investment needs, we recommend  that the Administrator of GSA take the following two actions:
Document in its annual budget request to OMB how GSA uses its  prioritization criteria to generate its annual and 5-year lists of  prioritized projects to ensure that Congress understands the rationale  behind prioritized project lists and that GSA is maximizing return on  FBF investments.
Develop and publish a comprehensive 5-year capital plan and include  a summary of it annually in its budget request to OMB and Congress  to help ensure that long-term goals are fully considered when making  decisions and to document how GSA would spend needed FBF funds.
section_title: Agency Comments
paragraphs: We provided a draft of this report to GSA and OMB for review and  comment. GSA’s comments are reproduced in appendix II.
GSA agreed with our findings and recommendations. GSA commented  that it is taking steps to refine weighted prioritization criteria for use in a  decision-making software tool that will help the agency to more  systematically and transparently prioritize projects. GSA expects to use  this software tool in development of its fiscal year 2014 budget request.  With respect to our second recommendation, GSA indicated that it will  work with stakeholders, OMB, and Congress in developing and providing  a 5-year capital plan to include in its budget request. GSA and OMB also  provided technical suggestions and clarifications, which have been  incorporated in the report as appropriate.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 21 days from the  report date. At that time, we will send copies of this report to  congressional committees with responsibilities for federal real property  issues, the Director of OMB, and the Administrator of GSA. In addition,  this report will be available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-2834 or wised@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report focuses on (1) the factors that have affected the resources  available in the Federal Buildings Fund (FBF); (2) the General Services  Administration’s (GSA) potential maintenance and repair liability for its  owned assets and the implications for the fund; and (3) the information  GSA considers when evaluating capital investment proposals and how its  practices compare to leading practices for making capital investment  decisions.
subsections: section_title: Factors Affecting the FBF
paragraphs: To determine what factors have affected the resources available in the  FBF, we analyzed legislation, including the Public Buildings Act  Amendments of 1972 and congressional appropriations acts to  understand congressional direction and priorities for the FBF. We  reviewed GAO, Congressional Research Service (CRS), and GSA Office  of Inspector General reports on historical issues affecting the ability of the  fund to generate revenue. We also analyzed GSA information on rent  restrictions and exemptions granted to its tenant agencies to understand  how these agreements have affected the resources in the FBF. In  addition, we reviewed GSA’s congressional budget requests to obtain  information on the amounts of obligational authority requested by GSA  compared to the amounts provided by Congress and the amount  available in the fund from fiscal year 2006 through fiscal year 2012.
To understand how the financial performance of GSA’s portfolio has  changed over time, we analyzed data on GSA’s approximately 10,000  assets from 2006 through 2011 from the agency’s real property and  financial management database systems. Specifically, we analyzed data  on each of GSA’s assets from GSA’s Real Estate across the United  States (REXUS) system as well as its System for Tracking and  Administering Real Property to describe how the number of assets, the  average age of the assets, and the amount of owned and leased space  managed by GSA has changed. We also analyzed information from  Pegasys, GSA’s financial management system. In particular, we obtained  and analyzed information on the revenues, costs and various metrics,  including funds from operations, used by GSA to describe the financial  condition for each asset to provide a summary description of GSA’s  financial performance.
We also analyzed financial data from the FBF using indices to account for  inflation. To understand how the value of the revenue generated and cost  incurred by the FBF had changed since 2006, we used a chain-weighted  Gross Domestic Product index based on data from the averages of  quarterly indexes from U.S. Department of Commerce Bureau of  Economic Analysis, National Income and Product Accounts, table 1.1.4  (last revised Jan. 21, 2012). To measure how construction costs had  changed since 2006, we used the Engineering News-Record’s  Construction Cost Index to calculate the increase in construction costs  from October 2005 to September 2011. The index measures how much it  costs to purchase a mix of construction labor and materials of goods  compared to what it was in the base year.
As part of our review of GSA’s data, we tested the data for missing  variables and abnormal trends from 2006 through 2011. We found no  abnormal patterns or significant number of missing values for the rentable  square footage, the leased or owned facility, age of building, or real  property type data elements. We also interviewed GSA system  administrators, analysts, and managers about their views of the quality of  the data. We compared the results of our analyses to information  published in other GSA documents, including GSA’s budget submissions,  financial statement audits, and GSA’s State of the Portfolio report. While  we did not independently verify the information for each asset, we believe  these data are generally reliable for our purposes, which was to describe,  at a summary level, the overall financial performance of GSA’s assets  from 2006 through 2011.
section_title: Condition of GSA’s Owned Assets
paragraphs: To assess the condition of GSA’s owned assets and the implications for  the FBF, we reviewed literature from the National Research Council, and  prior CRS and GAO reports to determine the types of obstacles  previously faced by GSA and discuss the known and possible  consequences associated with delaying or not performing needed repairs  and alterations. We reviewed GSA’s State of the Portfolio reports to  understand how GSA manages and categorizes its assets. We also  reviewed GSA’s budget requests to compare funding requested by GSA  for repairs and alterations from fiscal year 2006 to fiscal year 2012 to the  amount of new obligation authority granted by Congress.
We analyzed data from GSA’s real property and maintenance databases  to understand what data GSA maintains about the condition of its owned  assets. Specifically, we analyzed data from REXUS databases to  describe demographic characteristics of the portfolio. We analyzed data  from GSA’s enhanced Physical Condition Survey (ePCS), which GSA  uses to track the results of its biannual condition inspections, to describe  the total identified maintenance and repair liability of its owned assets  over the next 10 years.
We excluded assets where GSA reported zero maintenance liability  because GSA stated that the condition of these assets may have been  incorporated as part of an assessment of a larger asset. In order to verify  this information, we matched the address of assets with zero  maintenance and repair liability with addresses of assets with a reported  value of maintenance and repair liability greater than zero. We found that,  of the 392 assets with zero reported maintenance and repair liability, 151  were located at the same address of an asset with a maintenance and  repair liability greater than zero.
To assess the overall quality of the data, we interviewed GSA system  administrators, analysts, and managers about the quality of the data and  tested the data for missing variables and abnormal trends. During the  course of our discussions with GSA, we were informed that GSA’s  approach for calculating metrics to measure has recently undergone a  variety of changes. Specifically, GSA officials informed us that the  calculation of functional replacement values had changed in fiscal year  2011 in order to improve the precision of these values. As a result,  because the data were not comparable across years, we limited our  analysis to the maintenance and repair liability of GSA’s assets as of  September 2011. In addition, we conducted a variety of data tests and  found no abnormal patterns or significant numbers of missing values in  the “age of building” or “real property type” data elements for GSA’s  owned portfolio. However, during discussions with GSA officials about the  “gross square footage” category, we observed that a number of assets,  particularly those identified as structures, had values of “1” or similarly  small numbers. GSA officials told us that the gross square feet for  structures are measured in units that vary widely. Thus we did not  aggregate or average the total square footage in a given year. To reduce  the effect of these outliers, we used the median square feet in our report  to describe the size of GSA assets. While we did not independently verify  the information for each asset, we believe these data are generally  reliable for our purposes, which was to describe, at a summary level, the  overall condition of GSA’s assets as of the end of September 2011.
We interviewed GSA program managers to gain an understanding of how  GSA conducts condition assessments and assesses the general  condition of its owned assets. In addition we held discussions with GSA’s  portfolio managers who oversee the buildings in the owned portfolio to  discuss the overall condition of the assets, and understand the  consequences associated with not completing needed repairs and  alterations. We also spoke to senior leadership from Office of  Management and Budget (OMB) to discuss their impressions of the  condition of GSA’s assets and perspectives on the amount of obligational  authority available for repairs and alterations within GSA’s portfolio.
section_title: Comparison to Leading Capital Practices
paragraphs: To assess how GSA’s use of Information to make capital investment  decisions conforms with leading practices, we identified leading practices  for using information to make capital investment decisions from GAO’s   We also drew  Executive Guide and OMB’s Capital Programming Guide.from the National Research Council’s research in this area. We assessed  whether GSA’s guidance and performance conformed to the criteria  established in these guides rating their performance in the areas of needs  assessment, alternatives evaluation, project prioritization, and long-term  capital planning as fully conforming, substantially conforming, partially  conforming, minimally conforming, or not conforming. For each capital  investment planning criterion assessed, a rating of fully conforming met  over 90 percent of criteria, a rating of substantially conforming met about  75 percent of criteria, a rating of partially conforming met about 50  percent of criteria, a rating of minimally conforming met about 25 percent  of criteria, and a rating of does not conform met less than 10 percent of  criteria. To conduct these analyses, one GAO analyst made the initial  assessment which a second analyst reviewed and then provided either  concurrence or suggested changes. We also reviewed past GAO reports  including   and GAO-11-197 to determine how these reports GAO-07-274 used these criteria to evaluate an agency’s capital planning process.
We conducted document analyses and interviews with GSA Public  Buildings Service budget, planning, and program officials to assess how  GSA is doing in each of these capital planning areas. Our document  analysis included an examination of GSA’s Project Planning Guide and  FY2013 Program Call to assess how GSA’s process for using information  to make capital decisions conformed to leading practices. To conduct  these analyses, one GAO analyst made the initial assessment which a  second analyst reviewed and then provided either concurrence or  suggested changes. To assess how GSA identifies its needs, we  examined information in GSA’s ePCS, REXUS, and financial  management information system databases as well as how these data  were used to update GSA’s Asset Business Plans. To evaluate needs  assessment data and how GSA evaluates project alternatives, we  reviewed documentation from the four highest cost repairs and alterations  projects of GSA’s fiscal year 2012 budget submission to assess the  justification and analysis for undertaking these projects. We examined the  physical condition surveys, asset business plans, feasibility studies,  program development studies, prospectuses, and Automated Prospectus  System (TAPS) analyses, among other documentation, associated with  each project to the extent that they were available. The four repairs and  alterations projects that we examined were for the Burton Federal  Building in San Francisco, the Prince Jonah Kuhio Kalanianaole Federal  Building and Courthouse in Honolulu, and the Harry S. Truman and Main  Interior buildings in Washington, D.C. Our findings are not generalizable  across GSA’s real property portfolio. To assess GSA’s project  prioritization and long-term capital planning, we interviewed GSA program  and budget officials and documentation that GSA provided in these areas  such as its 5-year prioritized project list from fiscal year 2011 to fiscal year  2015.
We conducted this performance audit from August 2011 to July 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Comments from the U.S. General Services Administration
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Mike Armes (Assistant Director),  Amy Abramowitz, Colin Fallon, Imoni Hampton, Carol Henn, Paul Kinney,  Kieran McCarthy, Ruben Montes de Oca, Matt Voit, Crystal Wesco, and  Elizabeth Wood made key contributions to this report.