Federal Real Property: Government's Fiscal Exposure from Repair and Maintenance Backlogs Is Unclear
Published: 2008-10-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In 2003, GAO designated federal real property as a high-risk area. In 2007, GAO reported that real-property-holding agencies and the administration had made progress toward managing their real property, but underlying problems, such as backlogs in repair and maintenance, still existed and six agencies reported having over $1 billion in repair and maintenance backlogs. Owning real property creates a fiscal exposure for the government from the expectation that agencies will incur future maintenance and operations costs. GAO was asked to (1) describe how six agencies estimate their repair and maintenance backlogs, (2) determine how these agencies manage their backlogs and the expected future changes in these backlogs, and (3) identify how backlogs have affected operations at some sites. GAO reviewed agency documents, interviewed officials, and visited two sites at each of the six agencies.
section_title: What GAO Found
paragraphs: The six agencies that GAO reviewed all periodically assess the condition of their assets to identify needed repairs and maintenance but then use different methods to define and estimate their repair and maintenance backlogs. As a result, the agencies' estimates are not comparable. Three of the six agencies--the Departments of Energy (DOE), the Interior (DOI), and the National Aeronautics and Space Administration (NASA)--defined their backlogs as work that was identified to correct deficiencies. A fourth agency, the Department of Veterans Affairs (VA), also defined its backlog as work identified to correct deficiencies, but VA's backlog included only work on systems, such as mechanical and plumbing systems, found to be in poor or critical condition. The General Services Administration (GSA) and the Department of Defense (DOD) both did not track a backlog. Instead, GSA calculated its reinvestment liability--the cost of repairs and maintenance needed now and in the next 10 years. DOD assigned a quality rating to each facility which was based on the ratio of repair costs to the asset's value. The backlog estimates do not necessarily reflect the costs the agencies expect to incur to repair and maintain assets essential to their missions or to avert risks to their missions. For example, these estimates could understate an agency's backlog because they are based on industry-standard costs, or could overstate an agency's backlog because they include inactive assets that are not essential to the agency's mission or may be demolished. The six agencies GAO reviewed generally manage their backlogs as part of their overall real property management and expect the size of their future backlogs to increase. Agencies focus on maintaining and repairing real property assets that are critical to their missions and have processes to prioritize maintenance and repair items based on the effects those items may have on their missions, regardless of whether the items are considered part of the backlogs. For example, VA officials told us that their first priority is to perform maintenance and repairs at places that directly affect patient care, such as operating rooms. Agencies are using strategies such as demolishing assets that are no longer needed to reduce their overall backlogs. However, agency officials generally expect their backlogs to increase as the federal portfolio of real property continues to age and construction costs increase. At the six agencies GAO reviewed, officials have managed their facility repairs and maintenance to minimize the impact of their backlogs on their operations. Officials said that postponing repairs and maintenance generally leads to higher operating and maintenance costs and short-term inconveniences, but they have managed the risks so that the agencies can continue to accomplish their missions. For example, maintenance costs increase when a roof that is due for replacement is repeatedly patched rather than replaced. While several officials said their maintenance staffs have been able to limit the impact of backlogs on operations, they cautioned that there is a real potential for an incident to adversely affect an agency's mission. At one site GAO visited, a multimillion-dollar piece of equipment could have been damaged by a leak from an air conditioning system if it had not been covered with a tarp.

section_title: Letter
paragraphs: In January 2003, we designated federal real property as a high-risk area, in  part due to deteriorating facilities and unreliable real property data. In  2007, we reported that the administration and real-property-holding  agencies had made progress toward strategically managing federal real  property but that underlying problems, such as backlogs in repair and  maintenance, still existed. Federal agencies reported holding real property  assets valued at about $1.5 trillion and spending over $47 billion in fiscal  year 2007 to maintain and operate these assets. Yet, these agencies  estimated they would need additional tens of billions of dollars to repair or  restore their assets—which include office buildings, military bases,  hospitals, national parks, and laboratories—to a fully functional condition.
We have reported that our nation’s fiscal policy is on an unsustainable  course and that Congress, the President, and the public should have  information about any long-term commitments embodied in a current  policy decision. While we have also reported that it can be more cost- effective to own real property assets than to lease them, such ownership  represents a long-term commitment for the government in that agencies  incur maintenance and operating costs associated with their assets. We  use the term “fiscal exposures” to provide a framework for considering the  range of responsibilities that may expose the government to future  spending. We identified real property as an implied fiscal exposure  because it creates an implied commitment for the government.  The  decision to own a building or other real property asset implicitly commits  the government to the life-cycle costs associated with its future operation  and maintenance.
Concerned about the high cost estimates for repair and maintenance  backlogs associated with real property, you asked us to review how  agencies develop these estimates and manage their backlogs. Accordingly,  this report (1) describes how selected agencies estimate their repair and  maintenance backlogs, (2) determines how agencies manage their  backlogs and the expected future changes in repair and maintenance  backlogs, and (3) identifies how backlogs have affected operations at  some sites.
To accomplish our objectives, we reviewed the six agencies that had each  told us in 2007 that they had over $1 billion in repair and maintenance  backlogs associated with their held assets: the Departments of Defense  (DOD), Energy (DOE), the Interior (DOI), and Veterans Affairs (VA); the  General Services Administration (GSA); and the National Aeronautics and  Space Administration (NASA). For each agency, we interviewed officials,  reviewed agency documents, and visited two sites at each of these six  agencies to determine how the sites estimate and manage their repair and  maintenance backlogs as well as the extent to which the sites’ operations  have been affected by the backlogs. To select each site, we used agency  data reported in the governmentwide federal real property profile (FRPP)  on the condition of each real property asset identified as a building or  structure and agency-provided data on the repair and maintenance  backlog for each asset. While the definition of real property includes land,  our review focused on buildings and structures and excluded land because  backlogs are generally associated with buildings (such as offices and  hospitals) or structures (such as airfields or ports). We performed our site  visits in two geographic areas of the country—Washington, D.C., and San  Francisco, California—because each agency had significant sites in these  areas. Within the geographic locations, using FRPP data, we determined  the average condition for each agency’s assets and then selected sites that  (1) were at or near the average condition of the agency’s assets, and (2)  reported a relatively high repair and maintenance backlog compared to  other sites in average or near-average condition. Although our site  selection was systematic, the information from our 12 site visits is  illustrative and cannot be generalized to sites agencywide.
We conducted this performance audit from September 2007 through  October 2008 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. We determined the data  were sufficiently reliable for the purposes of this report. Appendix I  contains a detailed description of our scope and methodology.
subsections: section_title: Background
paragraphs: In January 2003, we designated federal real property as a high-risk area  because of long-standing problems with excess and underutilized  property, deteriorating facilities, unreliable real property data, and  overreliance on costly leasing. Real property is generally defined as land  and anything constructed on, growing on, or attached to land. In updates  to our high-risk report, we acknowledged that the administration and real- property-holding agencies had made progress toward strategically  managing federal real property and addressing some long-standing  problems. Real-property-holding agencies had, among other things,  designated senior real property officers, established asset management  plans, standardized real property data reporting, and adopted various  performance measures to track progress. The administration also  established a Federal Real Property Council (FRPC) that supports reform  efforts. FRPC has created the FRPP to be the inventory system for the  federal real property portfolio. FRPP, which is overseen by OMB, includes  25 data elements that agencies are mandated to report annually, including  performance measures on asset utilization, condition, mission  dependency, and operating cost. Although progress has been made, in  2007, we also reported that the problems that led us to designate real  property as a high-risk area still largely persisted, such as repair and  maintenance backlogs, and the underlying obstacles remained. We also  reported on the condition of facilities at the Smithsonian Institution,  where we found that the deterioration of facilities had threatened  collections and increased the cost of restoring historic items. We  recommended that the Smithsonian make improvements to its cost  estimates for facilities projects.
According to data reported in the 2007 FRPP, the federal government  owns about 1,115,000 real property assets worldwide with a replacement  cost of over $1.5 trillion. The six agencies we reviewed reported that they  had 568,618 real property assets in the U.S. with a replacement cost of  approximately $1.2 trillion. Five of the six agencies estimated that their  assets had approximately $30.5 billion in repair needs. DOD did not  estimate repair needs for its FRPP reporting. FRPP does not require  agencies to report their repair and maintenance backlogs, but requires  agencies to determine a condition index for each asset by computing a  formula that compares the asset’s repair needs with its plant replacement  value (PRV). Specifically a condition index equals (1-repair needs/PRV) *  100. Based on this formula, a condition index is reported as a whole  number from 1 to 100, with 100 representing the best possible condition  for an asset. FRPP guidance defines repair needs as “the amount necessary  to ensure that a constructed asset is restored to a condition substantially  equivalent to the originally intended and designed capacity, efficiency, or  capability.”
Real-property-holding agencies are generally responsible for the cost of  maintaining and repairing their assets. We have reported that owning an  asset creates an implicit fiscal exposure for the government. This fiscal  exposure is created because there is an expectation that the government  will incur costs associated with maintaining and operating the assets it  owns. As the National Research Council has observed, federal assets must  be well maintained to operate adequately and cost effectively; protect their  functionality and quality; and provide a safe, healthy, productive  environment for the American public, elected officials, federal employees,  and foreign visitors who use them every day. Facilities and the systems  within the facilities such as electrical, heating, and air conditioning  systems and roofs generally have a finite, expected useful life, over which  time they should be maintained and after which time they can be  reasonably expected to need replacement. The useful lives of facilities can  be extended through adequate and timely repairs and maintenance.  Conversely, delaying or deferring repairs and maintenance can, in the  short term, diminish the quality of building services, and in the long term,  shorten building lives and reduce asset values. Deferring needed  maintenance indefinitely may ultimately result in significantly higher  costs.
section_title: Agencies Estimate Their Backlogs through Condition Assessments, Though Estimates Are Not Comparable
paragraphs: At the six agencies we reviewed, we found processes in place for the  agencies to periodically assess the condition of their assets—processes  that the agencies also generally used to identify repair and maintenance  backlogs for their assets. However, the agencies differed in how they  conducted these condition assessments and how they define and estimate  their repair and maintenance backlogs. Thus, the information is not  comparable across agencies and cannot be used to understand the  government’s potential fiscal exposure associated with its real property  repair and maintenance needs.
subsections: section_title: Agencies Have Processes to Determine the Condition of Their Assets and Estimate Their Backlogs
paragraphs: Each agency we reviewed conducted facility condition assessments either  itself or through a contractor to identify repair and maintenance  deficiencies associated with their assets. The intent of conducting a  facility condition assessment is to obtain an overall understanding of the  condition and repair and maintenance needs of an asset. Condition  assessments can range from staff walking through a facility and visually  inspecting its condition and identifying repair and maintenance issues to a  more comprehensive assessment in which the individual building systems,  such as the plumbing, heating, and electrical systems, are assessed by a  professional and deficiencies are identified. Condition assessments may  also identify projects for future years, such as a roof replacement expected  within the next couple of years. As shown in table 1, each of the six  agencies we reviewed periodically conducted condition assessments. How  agencies define and estimate their repair needs or backlogs varies. This  variation is not unexpected because, according to OMB officials, FRPP  was purposefully vague in defining repair needs so agencies could use  their existing data collection and reporting processes. In addition, there is  no governmentwide definition or reporting requirement for repair and  maintenance backlogs.
DOE requires its sites to perform condition assessments on all real  property assets at least once during any 5-year period (some assets, such  as nuclear facilities, are assessed more frequently). The results of the  assessments are reported to a DOE-wide database. While individual DOE  sites have some flexibility in which assessment surveys they use,  inspection methods must be in accordance within general DOE guidelines.  For example, one DOE laboratory developed its own assessment tool in  the early 1990s and uses in-house inspectors to perform the assessments,  while other sites use contractors to conduct their assessments. For all the  assessments, each identified deficiency is assigned an optimum year for  correction through maintenance. If a maintenance activity is not  performed within the optimum period, it is considered deferred  maintenance and part of DOE’s backlog. The condition assessments also  include cost estimates, developed using nationally-recognized databases of  repair costs, for correcting the deficiencies.
NASA has used a contractor since 2002 to conduct annual deferred  maintenance assessments of all its facilities and their component systems.  NASA contractors visually assess nine different systems within each  facility (such as the roof and the electrical system), and rate each facility  using an overall condition index with a scale from 0 to 5. Based on that  rating, the contractor uses an industry cost database and other  information to estimate the costs of correcting the identified deficiencies.  According to NASA officials, using a contractor and a standard estimating  methodology to assess all its facilities provides consistent information  across sites.
DOI has comprehensively assessed the condition of what it calls its  standard assets such as roads, bridges, trails, water structures, and  buildings but has not yet conducted contractor-performed comprehensive  assessments of the condition of heritage assets such as monuments,  fortifications, and archeological sites. In May 2008, DOI issued guidance  on how to estimate the condition of and maintenance costs associated  with its heritage assets. For assessed assets with a value over $5,000, DOI  conducts annual inspections to determine the condition of an asset and to  determine the nature of needed repairs. DOI conducts condition  assessments of assets with a value over $50,000 at least every 5 years to  identify and estimate the cost of correcting repair and maintenance  deficiencies. Either contractors or internal bureau staff perform the  assessments and industry-standard cost-estimating databases are used, if  available, to estimate the costs to correct identified deficiencies. If  maintenance is needed, work is scheduled; if the work is not completed on  time, it becomes part of DOI’s backlog.
VA uses contractors to conduct facility condition assessments to evaluate  the condition of its assets at least once every 3 years. The contractor  inspects all major systems in each building (e.g., structural, mechanical,  plumbing, and others) and gives each a grade of A (for a system in like- new condition) through F (for a system in critical condition that requires  immediate attention). As part of this assessment, the contractor uses an  industry cost database to estimate the correction costs for each system  graded D or F—in poor or critical condition. VA’s reported backlog is the  sum of all identified correction costs. In addition, if repair and  maintenance is not completed, VA escalates the correction cost each year  for inflation.
GSA assesses all of its assets and estimates all repair and maintenance  needs that may need to be done in the next 10 years. GSA conducts  inspections known as physical condition surveys every 2 years on each  asset. From these, GSA develops what it refers to as its reinvestment  liability, which includes cost estimates for repair and maintenance items  that GSA has determined need to be done now and expects will need to be  done within the next 10 years. To conduct physical condition surveys, GSA  staff walk throughout each facility answering a list of 37 standard  questions about the asset and identifying the time frame within which the  identified needs should be corrected, ranging from immediately to 6 to 10  years from now. GSA staff also develop cost estimates to repair each  identified need. According to agency officials, the use of a standard survey  allows some comparison between assets.
DOD reported a condition index to FRPP based on what it calls a quality  rating (Q-rating), ranging from Q1 (best condition) to Q4 (poorest  condition).  As shown in table 2, three of the four services determined the  Q-rating by comparing an asset’s estimated repair and maintenance costs  to the asset’s value. The fourth service assigned Q-ratings by considering  the adequacy and age of the asset.  DOD reported one of four condition  indexes for its assets to FRPP based on the Q-rating of the asset. Thus,  DOD did not provide an estimate of its repair and maintenance backlog.   In determining Q-ratings for their assets, officials from the Army, Navy,  and Marines told us that they used the results of facility assessments.  According to these officials, these assessments were conducted either  annually (by the Army), in 2005 (by the Navy) or at various times (by the  Marines). According to Air Force officials, the Air Force totaled the cost of  all maintenance projects for each asset but did not inspect the assets to  determine if the assets had other repair and maintenance needs. For its  fiscal year 2008 reporting, DOD plans to report the condition index for its  assets as a percentage value consistent with FRPP rather than using the  Q1-Q4 rating scheme.
section_title: Backlog and Deferred Maintenance Estimates Are Not Comparable Across Agencies and Do Not Capture the Government’s Fiscal Exposure
paragraphs: Because agencies define their backlogs differently, estimates cannot be  compared across agencies or totaled to obtain a governmentwide estimate.  For example, as discussed above, DOE, NASA, and DOI include the costs  of all backlog work identified on their assessed assets while VA includes  the cost of work on asset systems in the poorest condition and GSA  includes costs for work it has identified to be done up to 10 years in the  future. Additionally, because these estimates are not comparable, the  condition indexes reported in FRPP cannot be compared across agencies  to understand the relative condition or management of agencies’ assets.  Thus, condition indexes should not be used to inform or prioritize funding  decisions between agencies. While not comparable between agencies,  backlog information collected in a consistent manner over several years  can be useful within individual agencies for tracking trends. NASA officials  noted, as of October 2008, they have 5 years of data from their annual  assessment reports, which they are using to examine trends. The data  show that NASA’s backlogs have been increasing recently, but the rate at  which it has increased dropped between fiscal years 2007 and 2008. The  consistency of reporting established by FRPC should allow for trend  analysis for individual agencies starting with the 2008 data. While intra- agency trends could provide useful information for policymakers, it is not  possible to compare backlog data between agencies since agencies  develop their estimates differently.
While there is no governmentwide reporting of repair and maintenance  backlogs, agencies have been required to report deferred maintenance as  part of their annual financial statements since 1996, and governmentwide  totals for deferred maintenance have then appeared annually in the  Financial Report of the U.S. Government. Since 1999, agencies have  reported deferred maintenance as required supplemental information,  which is not audited. For the six agencies we reviewed, we found  differences in the basis of their deferred maintenance reported in their  financial statements similar to the differences we found in their reporting  of repair and maintenance backlogs. Statement of Federal Financial  Accounting Standards No. 6, as amended, defines deferred maintenance as  “maintenance that was not performed when it should have been or was  scheduled to be and which, therefore, is put off or delayed for a future  period.” The definition excludes any activities that would expand or  upgrade an asset from its originally intended use (such as capital  improvements) and any maintenance on an asset that is in acceptable  condition. Federal Accounting Standards Advisory Board (FASAB)  standards allow each agency’s management to both define “acceptable  condition” and determine if its assets are in acceptable condition. FASAB  staff told us that agencies use different methods to estimate their deferred  maintenance and the standards for reporting are designed to  accommodate these different methods. FASAB is currently considering a  project to review requirements for reporting deferred maintenance as well  as asset impairment.
We found that the six agencies’ deferred maintenance estimates reported  in their financial statements, like their backlog estimates, were not  comparable. Specifically, DOE, NASA, and DOI equate deferred  maintenance with their backlogs. For these agencies, the estimated repair  and maintenance costs identified through their condition assessments for  all assets are reported in the agencies’ deferred maintenance estimate.  However, officials from all three agencies said that they do not consider  their assets be in unacceptable condition just because they have some  identified deferred maintenance associated with them. DOD reported  about $72 billion in deferred maintenance for 2007. This figure represents  the cost to repair and modernize each facility so that it is in acceptable  operating condition, which is defined differently within each of DOD’s  services. According to DOD’s 2007 Financial Report, this estimate includes  costs that are not precisely equivalent to deferred maintenance, but the  costs were reported because they are considered “generally  representative” of the magnitude of the agency’s deferred maintenance  requirements. GSA officials said that GSA has no reportable deferred  maintenance because it has determined that, at the overall portfolio level,  their building inventory is in acceptable condition. However, GSA noted in  its 2007 financial statements that it has approximately $6.3 billion in  capital improvements that are not normal repair and maintenance costs.  Since capital improvements are not classified as deferred maintenance  under the accounting standard, these costs are not considered deferred  maintenance. Similarly, VA’s reported deferred maintenance does not  include capital projects or assets with less than $100,000 in estimated  repairs. VA officials told us that VA’s deferred maintenance estimate is  used only to comply with FASAB’s requirement and does not represent the  cost to repair and maintain VA’s facilities.
The estimates for both backlogs and deferred maintenance cannot be used  to provide a governmentwide perspective on the cost of repair and  maintenance needs. While officials at the six agencies we reviewed use  these estimates internally to help inform their real property  decisionmaking, the estimates are based on industry-standard cost factors  and are not detailed estimates of project costs. According to officials at  each agency, these estimates should not be viewed as accurate cost  estimates for repair and maintenance, but are valid as an indicator of the  magnitude of work that an asset needs. In addition, these estimates occur  at a single point in time. The actual repair and maintenance project for an  asset may occur well after the deferred maintenance or repair needs are  estimated, and construction costs can rise significantly after the estimates  are made but before the project is undertaken. Also, some officials told us  that while these estimates address the cost to correct identified  deficiencies, as projects are bundled together and a work plan is  determined, additional work may need to be done to complete the project.  For example, additional work such as removing and replacing ceilings to  access pipes or reconfiguring a space to accommodate new systems  equipment may need to be done although it was not in the estimate to  correct the identified deficiency.
In addition, FRPP requires agencies to report data on every asset. As a  result, agencies reported backlog estimates associated with assets that are  inactive, that are not critical to their missions, or that have been identified  for demolition in the next few years. In addition, for those agencies that  equate deferred maintenance with backlogs, their deferred maintenance  estimate also included the costs associated with these assets. Agencies  may not have any intention of repairing some assets and would not seek  funding for the identified repair and maintenance deficiencies. Thus, for  some agencies, simply totaling the estimated repair and maintenance cost  for each asset may overstate the costs.
section_title: Agencies Manage Their Backlogs as Part of Their Overall Mission-Driven Real Property Management Programs
paragraphs: Each agency that we reviewed manages its backlog as part of its overall  real property management. Agencies focus on maintaining and repairing  assets that are critical to safety and accomplishing their missions, and  each agency has processes in place to prioritize repair and maintenance  work based on the potential impact of not doing the work on the agency’s  mission. In addition to performing the identified repair and maintenance  work, agencies use other techniques, such as asset disposal and  replacement, to reduce their overall repair and maintenance backlogs. In  spite of these efforts, agency officials generally expect their backlog  estimates to increase as the federal portfolio of real property continues to  age and the cost of making repairs increases.
subsections: section_title: Agencies Manage Repair and Maintenance Work Based on Safety and Potential Impact on Mission
paragraphs: Real property managers at the six agencies told us that it is more  important to prioritize repair and maintenance work on the basis of safety  and the potential impact of not doing the work on the agencies’ missions  rather than on when the work was identified to be done. DOE is the only  agency we reviewed with a specific program to reduce its repair and  maintenance backlog. DOE’s National Nuclear Security Administration  (NNSA) has the Facilities, Infrastructure and Recapitalization Program  (FIRP), which was established in 2000 to reduce NNSA’s repair and  maintenance backlog from the 1990s. The current goal for the program is  to eliminate $900 million of this 1990s-era backlog by 2013. The program  does not address new growth in the backlog. So far, the program has  eliminated about $500 million of this backlog. For example, one DOE  laboratory recently used FIRP funds to build four new office buildings  because staff were moved into the new buildings from older buildings that  had a backlog from the 1990s.
Agency officials—both at headquarters and at the sites we visited—told us  that they prioritize repair and maintenance for assets that they consider to  be important to their mission when deciding which projects to fund. Many  of the sites we visited used a risk assessment process to prioritize their  projects for funding. This process considers the probability of a failure,  such as an electrical outage or a roof leak, and the probable impact of  such a failure on the agency’s mission. The higher the probability of failure  and the higher the probable impact of such a failure on the agency’s  mission, the higher the priority the project would receive for funding.  Projects related to safety also received high priority for funding.
The following are illustrative of comments we heard from agency officials  on our site visits:    At VA’s Palo Alto Medical Center, mission is the main factor that  determines project priorities, and the focus is on patient care buildings.  Administrative buildings are always a lower priority. If a building does not  house any patients or research, then it may not be as thoroughly studied  for seismic issues and is a lower priority for funding.
At NASA’s Ames Research Center, officials told us that they prioritize  repair and maintenance projects based on how the project will affect the  center’s mission, safety, or compliance with new regulatory requirements.  As a result, employees at Ames are able to accomplish the center’s  mission. According to NASA officials, this prioritization is typical for all  NASA Centers.
At DOD’s Travis Air Force Base, maintenance officials told us that they  focus their repair and maintenance funds on those buildings that directly  affect the mission of the base, such as airplane hangars and runways. As a  result, those facilities are in good condition.
At DOI’s Patuxent Wildlife Refuge, priority is given to health and safety  concerns and those assets that are concerned with wildlife. According to  Patuxent officials, caring for wildlife is the core mission of the refuge and  therefore repair and maintenance items for facilities that affect wildlife  receive higher priority than items that affect other buildings, such as  offices.
At GSA’s federal office building in New Carrollton, Maryland, officials told  us that they prioritize repair and maintenance work based on how the  repair need affects the customer and the extent of any safety concerns.
At DOE’s Lawrence Livermore National Laboratory, a facilities governance  board develops a prioritized list of repair and maintenance projects by  considering the effect on the laboratory’s mission and the probability of  failure. The laboratory’s program staff determine the potential effect on  mission and provide input into the prioritization of projects.
Some agencies have developed other tools, processes, and performance  measures to help manage their real property portfolios and prioritize  repair and maintenance projects. For example, DOI established an  agencywide process for prioritizing assets based on its mission.  Specifically, DOI uses an asset priority index (API) in combination with  information on an asset’s condition to establish a clearer link between  individual assets and mission, and to assist managers in deciding where to  focus their resources. API scores range from 0 to 100 and are based on two  components—mission dependency (80 percent) and asset substitutability  (20 percent). Mission dependency criteria are determined at the bureau  level and reflect each bureau’s unique mission. For example, the National  Park Service ranks its assets as having high, medium, low, or no  importance in three areas: resource protection, visitor services, and park  operations. Assets are scored on substitutability depending on whether  there is a substitute asset that can perform comparable functions and  serve a comparable purpose. The Washington Monument, for example, is  unique and would receive the highest score in this category. On the other  hand, if there are two similar warehouses close to each other, they would  score much lower. After considering health and safety priorities, API  scores are compared with the condition of each asset and those with high  API scores and low condition ratings are generally given priority for repair  and maintenance projects while those with low API scores and low  condition ratings are considered for disposal.
NASA requires their Centers to conduct their own detailed condition  assessments at least every 5 years. These assessments, which are separate  from the annual deferred maintenance assessments, are used by the  Centers to identify and prioritize repair and maintenance projects.  According to officials at the Ames Research Center, their assessment  focuses more on active, mission-critical assets and repairs and  maintenance that they will try to get funded within the next 5 years.  Information provided by NASA’s centers identified a backlog of about $1  billion, far lower than the $2.3 billion in deferred repair and maintenance  needs NASA report for fiscal year 2007. According to NASA officials, the  backlog reported by these individual NASA centers is lower than the  deferred repair and maintenance needs NASA reported because the  centers include only the most important projects that they believe should  receive funding, instead of all projects to address their backlog as  estimated in NASA’s annual deferred maintenance assessment report.
Within each agency that we reviewed, repair and maintenance projects can  be prioritized at different levels. For example, while DOI has an  agencywide policy about how each bureau should prioritize repair and  maintenance projects, DOD generally provides the base commander (or  equivalent official responsible for a military base) with substantial  discretion in deciding how to prioritize repair and maintenance projects.  GSA officials told us that their prioritization process is a collaborative  effort between property managers, asset managers, and other regional  staff, and headquarters staff. At NASA, the centers assign priorities, with  headquarters involved in the funding decisions for more expensive  projects. At VA, projects are prioritized first at the local level, then at the  regional and national levels. While projects are prioritized at different  levels within an agency, each project competes against other potential  projects within that agency but does not compete with projects at other  agencies.
section_title: Agencies Have a Few Strategies to Reduce Maintenance Backlogs but Expect Backlogs to Increase
paragraphs: Agency officials told us that they have a few strategies to address their  repair and maintenance backlogs aside from correcting the identified  deficiencies. Specifically, officials at DOD, DOE, DOI, GSA, and NASA told  us that disposing of buildings and structures that no longer serve their  missions, including through demolition, is an effective way to reduce their  repair and maintenance backlogs. As these buildings are disposed, the  repair and maintenance backlogs at the buildings are eliminated. However,  agency officials told us that it can be expensive to demolish a building and  they cannot always demolish as many as they would like. Officials at DOI’s  Patuxent Wildlife Refuge told us that they would like to demolish 20 to 25  buildings, but they have not received the funds to do so. NASA has a  program to demolish buildings that has been funded at $10 million  annually, but officials said that this is just “a drop in the bucket” when  compared to the buildings it would like to demolish. According to DOE  officials, it has eliminated 15 million square feet of space since fiscal year  2002. Officials at multiple agencies also told us that, when they determine  it is appropriate to dispose of a building, their primary motivation is not  always to reduce their backlog, but this can be an added benefit.
Agencies can also reduce their backlogs through “replacement by  construction.” Using this strategy, an agency can decide that while it still  needs the space it is more cost-effective to dispose of a building and build  a new one than to repair the existing building. For example, NASA plans to  demolish seven older buildings and replace them with a new multi-use  office building at one of its Centers. When this work is done, the repair  and maintenance backlogs at the seven buildings will be eliminated. GSA  officials also said that they are using this tool at ports of entry to replace  border stations. These officials noted that GSA and other agencies are  often limited in their ability to use this tool because of its impact on the  federal budget, since federal budget scorekeeping rules require the full  cost of construction to be recorded up-front in the budget.
Despite these strategies, agency officials told us that they generally expect  their repair and maintenance backlogs to increase. Specifically, officials at  five of the six agencies we reviewed told us that needs increase as  buildings age and a good portion of their current portfolio is more than 30  years old. As a result, these assets will require more money for operations  and maintenance and building systems are reaching the point where they  are expected to be replaced. For example, officials at one site told us that  given current conditions, they estimate that their backlog may grow from  $75 million in fiscal year 2008 to $107 million in fiscal year 2012, mainly  because a large number of assets are nearing the end of their useful lives  and will need replacing over the next 5 years. Agency officials also told us  that, as facility inspections and real property information continue to  improve, agencies could discover greater repair and maintenance needs.  For example, while park staff have conducted annual condition  assessments of the Golden Gate National Park’s fortifications and other  unique assets, they expect the backlog associated with the assets to  increase significantly once a contractor performs a comprehensive  condition assessment. Finally, as construction costs increase, as they have  done over the last several years, the cost of repair and maintenance work  may increase contributing to a rise in agencies’ backlogs.
Officials at the six agencies we reviewed told us that there is a relationship  between the level of repair and maintenance funding and agencies  backlogs. DOD officials told us that they have invested in restoring,  modernizing, and replacing some assets and they expect their backlog  associated with these assets to decrease in the next 4 years. As mentioned  earlier in this report, DOD has developed a model to determine the cost of  sustaining its facilities. In theory, if repair and maintenance work is  funded to sustain facilities, backlogs will not occur. According to a DOE  official, DOE is committed to funding maintenance at industry standard  levels. The Department’s maintenance expenditure grew by about 64  percent from fiscal year 2003 through fiscal year 2007 and reported  backlog decreased by 3 percent. In contrast, the maintenance budget at  one NASA Center went down by about 40 percent from fiscal year 2005  (when the maintenance budget was $14.5 million) to fiscal year 2006  (when the maintenance budget was $10.4 million). The maintenance  budget has since remained fairly constant through fiscal year 2008.  According to officials at this Center, this funding history has directly  contributed to the growth of the center’s repair and maintenance backlog,  and they expect their backlog will continue to increase.
section_title: Impact of Backlogs Has Been Limited at Sites We Visited
paragraphs: At the six agencies we reviewed, officials have managed their facility  repairs and maintenance to minimize the impact of their backlogs on the  agencies. Officials said that their repair and maintenance backlogs have  generally not affected the ability of their agencies to accomplish their  missions, but the backlogs have led to higher operating and maintenance  costs and short-term inconveniences. Also, some officials cautioned that  their backlogs create a real potential for an unanticipated incident to  occur that could adversely affect an agency’s mission.
At some sites, agency officials told us that a key responsibility of the  maintenance staff is to keep the facilities up and running, and they praised  their staff for creating work-arounds that allow agency staff, despite  problems, to continue to work to accomplish the agency’s mission. At  some of the sites we visited, the costs included in the backlog estimate  were to replace basic systems—such as electrical, heating, and air- conditioning systems and roofs—that have exceeded their expected useful  lives. The staff said that they spend a lot of time, effort, and money to  patch these systems and keep them going, which allows the agency to  continue to operate but it is not efficient. In addition, the failure of one of  these systems at a critical location could adversely affect an agency’s  mission.
At the sites we visited, we did not identify or hear of any instances in  which an agency’s mission had been significantly hampered as a result of a  repair and maintenance backlog. Most of the examples cited affected  operations and maintenance costs and staff’s quality of life or raised  concerns about the potential for a failure that would adversely  affect/hinder an agency’s mission. Agency officials at some of the sites told  us that the effect of their repair and maintenance backlog is difficult to  see, because the maintenance staff have prioritized projects that directly  affect the mission and have done an excellent job of keeping the facility  operating while facing increased repair needs. For example, officials at  one site told us that repair and maintenance are often deferred on facilities  that do not directly affect the site’s mission. As shown in figure 1, a  maintenance shed has been allowed to deteriorate and now has rotting  wood and missing shingles on the roof. According to officials, the shed has  not been repaired because funding has been spent on more mission- critical facilities.
Repair and maintenance backlogs can lead to higher costs because  affected assets are generally not operating as efficiently as possible. At  some sites, officials showed us building systems that are 30 or more years  old that they are trying to keep operational. Newer systems, such as  heating and air-conditioning systems, could operate more efficiently,  provide more reliable service to the tenants, and reduce operating costs. In  addition, overall maintenance costs increase when a roof that is due for  replacement is repeatedly patched rather than replaced. At one site we  visited, leaking steam pipes are creating a hazard as hot steam is released.  The leaks are also increasing operating costs for energy, water, and  maintenance chemicals because additional cold water must be heated to  make new steam and must also be chemically treated. Officials said that  repairing the steam distribution system is not critical to the site’s mission  and the leaking steam pipes mostly just increase operating costs. A project  to repair the steam system has been proposed for about 10 years and  would cost about $7 million.
We found that maintenance staff sometimes devise creative solutions,  such as the system that the maintenance staff at one site we visited set up  to funnel water from a roof leak into a water bottle that then directs the  water to a drain. This solution stopped the water from further damaging  the building and leaking into areas occupied by staff while deferring the  cost of correcting the problem.
We saw one building that had been flooded, from which some offices had  to be evacuated due to the water and subsequent mold growth.  Maintenance staff at one site we visited had to move staff from a building  where the floor was beginning to rot into another building with little  available space, which they described as “squeezing in” the staff.
Repair and maintenance backlogs can interrupt agencies’ work. Officials  at one site told us that the age of the fire alarm systems contributed to an  increase in false fire alarms. The fire alarm systems are old and beyond  their useful life expectancy and part of the agency’s identified backlog. In  addition, some alarms were triggered when air conditioning systems were  restarted causing changes in air pressure and velocity and dust blown into  the air stream. During each alarm, staff had to stop working and leave the  building. As a result, the site lost labor time and concerns arose about staff  becoming complacent and not taking the fire alarms seriously.  Replacement of the fire alarm system in each building on the site is  underway. The fire alarm system replacement is scheduled to be  completed in all buildings in 2011.
We heard from several officials that while they prioritize their work based  on the expected impact an incident might have on the agency’s mission,  they cannot necessarily predict when or where an incident might occur. At  one agency, officials told us that it is standard operating procedure to  cover sensitive equipment during off hours to protect it from dust, debris,  moisture, humidity, and unexpected incidents. Covering equipment is one  way to mitigate the risk of damage to equipment from repair and  maintenance backlogs. At one site we visited, officials said that a cooling  coil from an old heating, ventilation, and air-conditioning system that is  part of their backlog leaked water into a clean room that contained  multimillion dollar equipment. Fortunately, the equipment was covered  with a tarp and the leak was down the perimeter wall, not on the  equipment. However, had the equipment gotten wet, it could have been  severely damaged and directly affected the agency’s ability to carry out its  mission.
section_title: Conclusions
paragraphs: Many believe that the overall condition of the federal government’s real  property assets continues to deteriorate, and it is difficult to predict when  or where an incident might occur that would severely impact an agency’s  mission. However, governmentwide information on the estimated costs to  repair and maintain agencies’ real property assets that are important to  their missions is not currently available. The tens of billions of dollars that  agencies have reported to us in backlogs or in their financial statements as  deferred maintenance associated with their real property does not capture  the federal government’s true fiscal exposure. The flexibility that agencies  were given to facilitate their reporting of repair costs in FRPP and  deferred maintenance in their financial statements has resulted in  estimates that include different items. Trying to use current estimates to  understand the government’s fiscal exposure related to real properties  backlogs in some cases would understate and in other cases overstate the  exposure. For example, agencies may understate the government’s  exposure if they have estimated only the cost of correcting assets in the  poorest condition or if they have incomplete information about the  condition of their assets. Conversely, they may overstate the government’s  exposure if they include costs associated with repair and maintenance  projects they do not plan to do or include the costs of those projects that  would not impact the agency’s mission even if completed.
In addition, the requirement to report on all assets has resulted in agencies  reporting estimated repair and maintenance costs associated with projects  they do not plan to undertake because, for example, they intend to  demolish the asset or expect there to always be projects with a higher  priority. With information that reflects the government’s fiscal exposure  from repairing and maintaining its real property that is important to its  mission, decisionmakers are better positioned to address future costs.
section_title: Recommendation for Executive Action
paragraphs: To provide a realistic estimate of the government’s fiscal exposure  resulting from repair and maintenance backlogs and minimize the  potential for duplicative reporting requirements, we recommend that the  Deputy Director for Management, Office of Management and Budget, in  conjunction with FRPC and in consultation with FASAB, explore the  potential for developing a uniform reporting requirement in the FRPP that  would capture the government’s fiscal exposure related to real property  repair and maintenance. Such a reporting requirement should include a  standardized definition of repair and maintenance costs related to all  assets that agencies determine to be important to their mission and  therefore capture the government’s fiscal exposure related to its real  property assets.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to OMB, DOD, DOE, DOI, GSA, NASA,  and VA for review and comment. OMB generally concurred with the report  and agreed with our recommendation. OMB’s letter is contained in  appendix II. DOD, DOE, DOI, GSA, NASA, and VA provided technical  clarifications, which we incorporated where appropriate.
In addition to its technical comments, DOD also raised some concerns  about our recommendation to OMB.  DOD was concerned that we  recommended OMB develop a new uniform federal reporting  requirement, based in part on an inaccurate and misleading  characterization of DOD’s condition rating process.  We recommend that  OMB, in conjunction with FRPC and in consultation with FASAB, explore  the potential for developing a uniform reporting requirement in the FRPP  that would capture the government’s fiscal exposure related to real  property repair and maintenance.  Our recommendation is based on the  lack of governmentwide information specifically related to the costs to  repair and maintain those real property assets that are important to the  agencies missions.  We believe it is important for OMB to explore the  potential of capturing such information to quantify the government’s fiscal  exposure in this area.  Through the incorporation of DOD’s technical  comments, we have clarified our discussion of DOD’s condition rating  process and DOD informed us that we have accurately described its  process.  DOD’s letter is contained in appendix III.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to the Director  and Deputy Director of OMB, the Secretaries of Defense, Energy, the  Interior, and Veterans Affairs, and the Administrators of GSA and NASA.  Additional copies will be sent to interested congressional committees. We  also will make copies available to others upon request, and the report will  be available at no charge on the GAO Web site at http://www.gao.gov.
If you have any questions about this report, please contact me at (202) 512- 2834 or at goldsteinm@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 IV.
section_title: Appendix I: Scope and Methodology
paragraphs: Our objectives were to (1) describe how agencies estimate their repair and  maintenance backlogs, (2) determine how agencies manage their backlogs  and the expected future changes in maintenance and repair backlogs, and  (3) identify how backlogs have affected some facilities. To accomplish our  objectives, we reviewed the six agencies that each told us in 2007 that they  had over $1 billion in repair and maintenance backlogs associated with  their held assets: the Departments of Defense, Energy, the Interior, and  Veterans Affairs, the General Services Administration, and the National  Aeronautics and Space Administration. For each agency, we interviewed  headquarters officials, reviewed agency documents, obtained data on  repair and maintenance backlogs for the agency’s held assets, and visited  two agency sites to determine how the sites estimate and manage their  backlogs as well as the extent to which the sites’ missions have been  affected by their backlog. In selecting sites to visit, working with our  Applied Research and Methods team, we reviewed agency inventory and  performance measurement data from the Federal Real Property Profile  (FRPP), including information on the condition of each real property  asset, issued by the Federal Real Property Council as well as data on  deferred maintenance and repair needs from the agencies. We performed  our site visits in two geographic areas of the country—the Washington,  D.C./Virginia/Maryland area and the San Francisco Bay area in  California—because each agency had significant sites in these areas.  Within the geographic locations, using FRPP data, we determined the  average condition for each agency’s assets and then selected sites that (1)  were at or near the average condition of the agency’s assets, and (2)  reported a high repair and maintenance backlog compared to other sites in  average or near-average condition. Our criteria for selecting each agency  included asset types and uses—focusing on core assets, geographic  location, quantitative indicators (such as asset value, condition index, and  amounts of backlog), and the mission dependency ranking for assets. The  information from our site visits is illustrative and cannot be generalized to  sites agencywide.
We also interviewed officials from the Office of Management and Budget  (OMB) because it oversees the implementation of Executive Order 13327,  which addresses federal real property management. We reviewed guidance  documents related to this order and obtained relevant agency data from  OMB implementing the order. Additionally, we interviewed officials from  the Federal Accounting Standards Advisory Board (FASAB) to obtain  information on FASAB’s accounting standards for required  governmentwide reporting of deferred maintenance by agencies in their  annual financial statements. We reviewed these FASAB standards,  examined agencies’ current reporting of their deferred maintenance to  meet the standards, and consulted with our Financial Management and  Assurance team about the standards. We also reviewed relevant GAO  reports—especially those related to our designation, in 2003, of federal  real property as a high-risk area because of long-standing problems— problems that included alarming backlogs of repair and maintenance in  federal facilities. While the definition of real property includes land, our  review focused on buildings and structures and excluded land because  backlogs are generally associated with buildings (such as offices and  hospitals) or structures (such as airfields or ports).
We conducted this performance audit from September 2007 through  October 2008 in accordance with generally accepted audit 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 the  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives. We determined the data were  sufficiently reliable for the purposes of this report.
section_title: Appendix II: Comments from the Office of Management and Budget
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact person named above, Nancy Boardman, Maria  Edelstein, Elizabeth Eisenstadt, Carol Henn, Yumiko Jolly, and John W.  Shumann also made key contributions to this report.