Capital Financing: Alternative Approaches to Budgeting for Federal Real Property
Released: 2014-03-12T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: Federal real property projects are fully funded when Congress provides budget authority and appropriations for the estimated full cost of the projects up front—at the time they are undertaken. However, as agencies work to balance limited resources with mission demands, many have turned to approaches other than full upfront funding to acquire, renovate, or dispose of federal real property, such as buildings, structures, and land. GAO was asked to review alternative models for managing federal real property. This report examines (1) agency experiences funding federal real property projects, (2) some of the alternative funding mechanisms selected agencies use, as well as agency experiences using selected mechanisms, and (3) alternative budgetary structures within the current unified budget that may potentially help Congress and agencies better recognize the cost of real property projects and associated returns, promoting both transparency and fiscal control. GAO reviewed case study projects from 4 agencies among the top 10 in federal real property holdings and chosen based on their use of alternative funding mechanisms, as identified in our past and ongoing work. Finally, GAO identified alternative budgetary structures that may support real property projects and principles for considering them by reviewing published reports and interviewing federal budget staff and experts.

GAO is not making any recommendations in this report. GSA, USDA, VA, and Interior generally agreed with our findings. USDA, Interior and VA provided technical comments that were incorporated as appropriate.

section_title: What GAO Found
paragraphs: Officials at four selected agencies—the General Services Administration (GSA), U.S. Department of Agriculture (USDA), the Department of Veterans Affairs (VA), and the Department of the Interior (Interior)—experienced challenges receiving full upfront funding for federal real property projects through the annual appropriations process. For example, due to budget constraints, GSA acquired one property between 2008 and 2012. In addition, GSA has been unable to access funding to complete renovations in Interior's headquarters building due to obligation limitations in the GSA-administered Federal Buildings Fund (FBF). The FBF, which is the primary funding source for operating and capital costs associated with federal space, held an unobligated carryover balance of $4.7 billion at the end of fiscal year 2013 as a result of congressional limits on obligations. Officials noted that authority to retain proceeds provides a key incentive to initiate disposals, as agencies without this authority must request upfront funding for disposal costs while resulting proceeds are paid to the Department of the Treasury. Nonetheless, officials at selected agencies with the authority to retain disposal proceeds cited barriers to disposals, such as poor market demand, historical status or necessary remediation.

Instead of full upfront funding, selected agencies sometimes used a variety of alternative funding mechanisms to meet their real property needs by leveraging authorized monetary resources, such as retained fees, and non-monetary resources, such as property exchanged in a swap or space offered in an enhanced use lease. Alternative funding mechanisms are not universally available to all agencies; even within an agency, legal authorities may differ across agency components. For alternative funding mechanisms that involve working with a partner, such as in a land swap, the agency's ability to find an appropriate partner, manage that partnering relationship, and share risk—both explicit and implicit—with the partner affected project outcomes. For example, because of legal, cost, and other challenges, officials from USDA's Agricultural Research Service (ARS) said that ARS held onto land for about 10 years while seeking an appropriate partner to successfully complete the land swap.

Changes to the budgetary structure itself—within the bounds of the unified budget—might provide a more consistent way to meet real property needs while helping Congress and agencies make more prudent long-term fiscal decisions. Alternative budgetary structures should balance tradeoffs across two key GAO-identified budgeting and capital planning principles: (1) promoting transparency and fiscal control with regard to the funding of federal real property; and (2) providing agencies the flexibility to facilitate the acquisition, repair and alteration, and disposal of federal real property in support of federal missions. GAO provides alternative budgetary structure options for Congress to consider. For example, in one option Congress would make the full balance of the FBF available for funding real property projects, which could create room for additional agency flexibility but may reduce fiscal control. Another option would establish a government-wide capital acquisition fund with authority to borrow from the Federal Financing Bank for approved projects, which could improve transparency of both costs and benefits upfront and over time while business case analyses could provide a means of assuring fiscal control.

section_title: Letter
paragraphs: The budget process is the federal government’s primary resource  allocation, financial planning, and control tool. Accordingly, it helps  establish national spending priorities and the allocation of resources; it  also helps ensure that the government spends taxpayers’ money in  accordance with applicable laws. Given the budget’s dual functions,  federal real property projects such as structures, buildings, and land are  fully funded when Congress provides budget authority for the estimated  full cost of projects up front (at the time they are undertaken). Such  upfront funding recognizes the commitments embodied in budgetary  decisions and maintains government-wide fiscal control. However, it can  be challenging for agencies to make the case for such large commitments  of funding as other critical needs compete for scarce federal dollars.

Congress has provided some agencies with specific authorities to use  alternative funding mechanisms for the acquisition, renovation, or  disposal of federal real property without full, upfront funding. Some of  these alternative mechanisms allow selected agencies to meet their real  property needs by leveraging other authorized resources, such as  retained fees or land swaps with a private sector partner. Depending on  the funding approach, the budgetary treatment of project costs may allow  an agency to spread the asset cost over a number of years or monetary  costs incurred may not be recognized in the budget. Because various  funding approaches are reflected differently in the budget, resource  allocation decisions for real property projects may not consider the full  financial commitment the U.S. government is making. Further, costs for  projects financed through alternative mechanisms may not be fully  reflected in the budget request, whereas the costs for projects that require  full upfront funding are fully reflected in the budget request. From an  agency's perspective, meeting real property needs through alternative  funding mechanisms can be attractive because the agency can undertake  the project without first having to secure full upfront funding to cover the  cost of the project. As a result, projects financed through alternative  mechanisms may be selected over other equally worthy projects for which  full upfront funding would be requested. From a government-wide  perspective, however, the costs associated with some alternative funding  mechanisms may be greater than full, upfront funding.

In contrast to alternative funding mechanisms that agencies use to meet  their real property needs, alternative structures within the budget, such as  capital acquisition funds, have also been proposed. These proposed  alternative budgetary structures serve as potential options to help  agencies address their real property needs while minimizing costs to  taxpayers. Ideally, any established alternative budgetary structure would  reward prudent investment decisions from both an agency perspective  and a long-term governmentwide perspective to maintain appropriate  stewardship over federal resources.

You asked us to review alternative models for managing federal real  property. This report examines (1) agency experiences funding federal  real property projects; (2) some of the alternative funding mechanisms  selected agencies use to help them in the acquisition, repair and  alteration, and disposal of federal property, as well as agency  experiences using selected alternative mechanisms; and (3) alternative  budgetary structures within the current unified budget that may help  Congress and agencies better recognize the cost of real property projects  and associated returns, and promote transparency and fiscal control in  funding real property projects.

To illustrate agency experiences funding federal real property projects  and the alternative financing mechanisms they used to meet their real  federal property needs, we selected nongeneralizable case study projects  from the following four agencies:

General Services Administration (GSA),

United States Department of Agriculture (USDA),

Department of Veterans Affairs (VA), and

Department of the Interior (Interior).

These 4 agencies are among the top 10 agencies in federal real property  holdings according to the fiscal year 2012 Federal Real Property Profile  and U.S. Postal Service property data. We also chose to select these  four agencies based on their use of alternative funding mechanisms, as  identified in our past and ongoing work.

From these agencies, we selected nongeneralizable case study projects  that used an alternative funding mechanism from fiscal years 2008  through 2012. Projects were selected based on agency data on real  property projects, the dollar value of transactions, and analysis of  interviews with agency officials. In some cases, projects were selected  from subcomponents to illustrate use of available legal authorities. These  projects are for illustrative purposes only and reflect variation in  alternative funding mechanisms, but the results from these projects  cannot be generalized more broadly. Selected case study projects are  drawn from leases and acquisitions held and managed by GSA and the  following agency subcomponents:

USDA, Agricultural Research Service (ARS),

USDA, Forest Service, and

VA, Veterans Health Administration (VHA).

Interior, National Park Service (NPS),  To understand selected agencies’ experiences obtaining funding for real  property projects and using alternative funding mechanisms, we analyzed  relevant documentation related to agencies’ real property projects. This  included agency policies, budget documents, and reports to Congress.  We reviewed relevant federal laws, regulations, and policies and  analyzed relevant legal authorities. We interviewed cognizant officials at  each of the selected agencies about their experiences obtaining funding  for real property projects and using alternative funding mechanisms. We  also interviewed officials involved in the selected real property projects.  These nongeneralizable case studies were chosen to illustrate a range of  alternative funding mechanisms. To develop themes and examples from  our documentary and testimonial evidence, we analyzed information from  relevant documents and interviews to identify and confirm common  patterns across our selected agencies. We did not independently verify  the descriptions or outcomes of the real property projects nor did we  interview organizations that partnered with agencies.

Finally, to guide our consideration of alternative budgetary structures, we  reviewed published reports and interviewed federal budget staff and  experts. To identify principles that could help Congress and agencies  recognize the cost of real property projects and associated returns, and  promote transparency and fiscal control in funding real property projects,  we reviewed our prior reports and external sources, such as Office of  Management and Budget (OMB) guidance and the report of the  President’s Commission on Budget Concepts. We then reviewed our  reports and external literature to identify funding structures that could help  support real property projects. From this review, we identified and  explored various options which we compared to proposed changes within  the current unified budget. We also used this literature to identify possible  implications—a list which is not exhaustive—if identified options were to  be adopted. We then interviewed federal budget staff from the  Congressional Budget Office (CBO) and OMB as well as industry experts  to obtain their views on the benefits and challenges of the alternative  budgetary structures that we identified. We contacted the National  Federal Development Association, a trade association representing  organizations and individuals that provide real estate services to the  federal government. This association referred us to an industry expert  with more than 25 years of experience in federal government real estate.

In addition, we spoke with a past congressional witness with extensive  experience on federal real estate and budgeting experience at both OMB  and CBO. Finally, we shared these alternative budgetary structures with  our selected agencies to obtain their views.

We conducted this performance audit from May 2013 to March 2014 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.
subsections: section_title: Background
paragraphs: Since 2003, we have identified managing federal real property, including  effectively managing excess and underused property and an overreliance  on leasing, as a high risk issue facing the federal government. In June  2010, the President directed agencies to achieve real property cost  savings through a number of measures, including disposal of excess real  property and reducing leasing through consolidations and increased  space utilization. In 2011, the administration proposed legislation, known  as the Civilian Property Realignment Act (commonly referred to as  CPRA), and accompanying bills were introduced in both legislative  chambers, which would identify opportunities to consolidate, reduce, and  realign the federal footprint as well as expedite the disposal of properties  by building off the military base realignment and closure (commonly  referred to as BRAC) processes. In May 2012, OMB issued a  memorandum directing agencies to not increase the size of their civilian  real estate inventory, stating that increases in an agency’s total square  footage of civilization property must be offset through consolidation, co- location, or disposal of space from the inventory of that agency, a policy  that became known as “freeze the footprint.” As a result, acquisition has  become more about consolidation and identifying opportunities to share  space rather than acquiring new space.

Pursuant to the Government Performance and Results Modernization Act,  OMB identified real property as a Federal Government priority goal.  Agencies are currently working on 3-year Revised Real Property Cost  Savings and Innovation Plans to maintain the fiscal year 2012 square  footage baseline for federal office and warehouse inventory. Agencies  have been encouraged to work collaboratively with other agencies and  GSA to find opportunities for smarter space usage through co-locations  and consolidations. We have previously reported that real property  decisions draw considerable attention during congressional deliberations  over federal appropriations. Stakeholders such as Congress, OMB, and  the real property-holding agencies have an interest in how the federal  government carries out its real property acquisition, management, and  disposal practices.

Ideally, when an agency has a real property need, such as repairing or  altering its headquarters building, it determines how to meet that need  through internal prioritization and the capital planning process. As part of  the capital funding process, shown in Figure 1, an agency prepares a  business case analysis and considers how to fund the project, including  whether to request upfront funding. If an agency chooses to request  upfront funding from Congress, it submits a business case to Congress  through the annual appropriations process. If Congress approves the  project, it may authorize spending for the project by appropriating full  upfront funding to the agency. Once an agency has obtained upfront  funding, it can obligate funds to complete “useful assets” of the project.  During implementation as well as at completion of the project, an agency  may realize returns, such as proceeds from disposal. The completion of  the project informs agency prioritization and ongoing planning for future  real property projects.
subsections: section_title: Budget Scorekeeping
paragraphs: Budget scorekeeping rules are meant to recognize costs as funding  decisions are being made. These rules were established to ensure that  the scorekeepers—that is, the House and Senate Budget Committees,  the CBO, and OMB—can measure the effects of legislation consistently  and conclude that they meet specific legal requirements. These rules are  also used by OMB for determining amounts to be recognized in the  budget when an agency signs a contract or enters into a lease.

Scorekeeping in the Federal Budget  What is scorekeeping?

Scorekeeping is the process of estimating the budgetary effects of pending legislation and  comparing them to a baseline. The process allows Congress to compare the cost of  proposed budgetary policy changes to existing law and to enforce spending and revenue  levels agreed upon in the budget resolution.

Who are the scorekeepers?

Guidelines are established by the OMB, the CBO, and the Senate and House Budget  Committees. Scorekeepers have an ongoing dialogue and may revise rules as required.  Budget Committees and CBO apply the rules to estimate the costs associated with  proposed legislation. OMB uses the rules to determine amounts to be recognized in the  budget when an agency signs a contract or enters into a lease. The House and Senate  Budget Committees make available monthly summary scorekeeping reports.

We have previously found that upfront funding is the best way to ensure  recognition of commitments embodied in budgeting decisions and  maintain government-wide fiscal control. As shown below, under  scorekeeping rules, for a purchase or a capital lease the full cost of the  project must be recorded in the budget in the year in which the budget  authority is to be made available. In contrast, operating leases are  intended for short-term needs, and under the scorekeeping rules, only the  amount needed to cover the first year’s lease payments plus cancellation  costs need to be recorded in the budget in that year.

Summary of Scorekeeping Guidelines for Purchases and Leases  When an agency is granted the authority to enter into a contract for the purchase, lease- purchase, capital lease, or operating lease of an asset, budget authority and outlays may  be scored as follows:   Lease-purchases and Capital Leases: budget authority will be scored against the  legislation in the year in which the budget authority is first made available in the  amount of the estimated net present value of the government’s total estimated legal  obligations over the life of the contract, except for imputed interest and identifiable  operating expenses.

Operating leases: budget authority will be scored against the legislation in the year  in which the budget authority is first made available in the amount necessary to cover  the government’s legal obligation. The amount scored will include the estimated total  payments expected to arise under the full term of the lease contract, or, if a  cancellation clause is included in the lease, for the first fiscal year and the amount of  cancellation costs.

Purchases: no special rules apply to scoring purchases of assets (whether the asset  is existing or is to be manufactured or constructed). Budget authority is scored in the  year in which the authority to purchase is first made available in the amount of the  government's estimated legal obligations.

To distinguish lease purchases and capital leases from operating leases, the following  criteria will be used for defining an operating lease:

Ownership of the asset remains with the lessor during the term of the lease and is not  transferred to the government at or shortly after the end of the lease period.

The lease does not contain a bargain-price purchase option.

The lease term does not exceed 75 percent of the estimated economic lifetime of the  asset.

The present value of the minimum lease payments over the life of the lease does not  exceed 90 percent of the fair market value of the asset at the inception of the lease.

The asset is a general purpose asset rather than being for a special purpose of the  government and is not built to unique specification for the government as lessee.

There is a private-sector market for the asset.

Using an operating lease—or successive operating leases—for a long- term space need may result in resource allocation decisions for which the  budgeting process may not have considered the full financial commitment  over the full length of time the space need exists. Consequently, costly  operating leases may appear on paper to be preferable to less-costly  alternatives such as major construction or renovation projects that must  compete for full funding.

section_title: GSA’s Role
paragraphs: Within the vast portfolio of government owned and leased assets, GSA  plays the role of broker and property manager to many federal civilian  agencies, although some agencies—including USDA, VA, and Interior— have independent authority related to real property. GSA has a large  portfolio of federally-owned and leased properties that it rents to its  federal agency customers. As of fiscal year 2011, GSA had a total of  374.6 million rentable square feet in its inventory, of which 192.7 million— slightly more than half—were leased.

The Federal Buildings Fund (FBF), administered by GSA, is a fund  established by the Public Buildings Act Amendments of 1972. The FBF is  the primary source of funds for operating and capital costs associated  with federal space. The FBF is funded primarily by income from rental  charges assessed to tenant agencies occupying federally owned and  GSA-managed and -leased space that approximate commercial rates for  comparable space and services. Congress exercises control over the  FBF through the appropriations process that sets annual limits on how  much of the fund can be obligated for various activities. In addition, it  periodically provides supplemental appropriations for the Fund. For  example, the Fund received $5.6 billion as part of the American Recovery  and Reinvestment Act of 2009. GSA may incur obligations and make  expenditures from the FBF in five categories of activities: (1) rental of  space, (2) repairs and alterations, (3) construction and acquisition of  facilities, (4) building operations and maintenance, and (5) installment  acquisition payments (funds debt incurred as the result of building  acquisition and lease purchase arrangements). Revenue from the  federally-owned facility inventory managed by GSA is the main source of  the FBF’s operating income used to fund repair and alteration, new  construction activities, and operations and maintenance. By statute, GSA  is required to provide a prospectus for each proposed lease with a net  annual rent above the prospectus threshold—$2.79 million in fiscal year  2013, which GSA’s Administrator is authorized to adjust annually—or  capital project over that threshold, including acquisition, new construction,  and repair and alteration projects. As shown in Figure 2, each prospectus  is reviewed and approved by both OMB and Congressional authorizing  committees.

GSA has not conducted 30-year present value analyses as part of its  prospectus process since the mid-1990s, as advised by OMB. Such  analyses help weigh the cost over time of leasing versus owning an asset  to promote efficient resource allocation for the civilian agencies within  GSA’s real property portfolio. In September 2013 we reported that the  decision to halt this type of formal analysis for high-value leases has  limited the transparency of the prospectus process. We recommended  that lease prospectuses include a description of the length of time an  agency estimates a need for a space, how long the agency has leased  that particular space, and major investments necessary. For spaces for  which an agency has a long-term projected need, we recommended that  GSA include an appropriate form of cost-to-lease versus cost-to-own  analysis. GSA concurred with this recommendation. Although at times  leasing versus owning analyses found leasing to be a more cost effective  option, it often concluded that ownership would be cheaper than leasing;  however, in many cases where ownership was found to be the better  option, GSA ultimately recommended leasing due to funding constraints.

section_title: Case Study Agency Officials Experienced Challenges Receiving Full Upfront Funding for Federal Real Property Projects
paragraphs: Officials at four selected agencies—GSA, USDA, VA, and Interior— experienced challenges receiving full upfront funding for federal real  property projects through the annual appropriations process. For  example, GSA officials told us that obtaining upfront funding through  appropriations is difficult and thus presents a barrier to ownership,  resulting in a reliance on leased space. USDA officials said that, given  current fiscal pressures, they do not routinely request acquisition funds.  Interior officials told us that the Department has had a moratorium on new  construction since 2010 and that any upfront funding received through the  annual appropriations process goes towards necessary renovations to  existing property. Although VA requests and receives appropriations for  some real property construction projects, it has a significant backlog of  incomplete major construction projects that have not received funding.  The Veteran’s Health Administration (VHA) requested $215 million for  major construction funding in fiscal year 2014 and estimates that it would  require $5.8 billion to address its current backlog.

Budget constraints have resulted in limited acquisitions at GSA, Interior,  and USDA. For example, GSA’s sole acquisition between 2008 and 2012  resulted from exercising a purchase option on a preexisting lease. GSA  renewed its lease at Columbia Plaza in Washington, D.C. for the  Department of State (State) in 1992. As part of an agreement to invest  $30.6 million in renovations to the building at that time, GSA was directed  by congressional resolution to “attempt to include a purchase option in the  lease contract.” GSA did not have the option to purchase the building in  1992 but it negotiated a purchase option as part of the terms of the 20- year lease. As the expiration of the lease neared, GSA concluded that a  mission need for the building remained and that acquiring the building  would be financially advantageous. Under the original contract, GSA  could purchase the building for $100 million though the 2009 appraised  value was $150 million. A 30-year present value analysis concluded that  acquiring the building would result in an annual cost advantage of $12  million over continuing to lease and, in 2012, GSA exercised its purchase  option. Because State was already occupying Columbia Plaza, GSA  officials said that they mitigated a portion of the acquisition cost by  avoiding certain costs typical to the construction process including  acquiring land, phased funding for construction, paying for interim office  space, and final relocation to the new space. However, purchase options  may cost more over the life of a lease than buying a building upfront.   Figure 3 shows that although the contract purchase price was $100  million, adding in the initial renovation costs and lease payments made  over the 20-year term, in total the acquisition cost to the government was  $258 million.

Limitations on obligations constrain funding for real property, especially  for repairs, alterations, and new construction. The difference between  receipts collected in the FBF and the amount authorized for annual  obligations affected one of our case study agencies that rents property  through GSA. Interior officials said that GSA has been unable to obtain  FBF funding through the annual appropriations process to complete  renovations in Interior’s federally-owned and GSA-managed headquarters  building. As a result, Interior officials said that they have not been able to  realize the savings they anticipated for a full renovation, such as energy  savings. The FBF’s balance has increased significantly in recent years,  growing from $56 million at the beginning of fiscal year 2007 to $4.7  billion at the end of fiscal year 2013. As we previously reported, the  increased balance has primarily resulted from the growing difference  between the resources deposited into the FBF and the level of funds GSA  is authorized to spend. GSA officials noted that when Congress provides  less obligational authority than requested, repairs, alterations, and new  construction projects for GSA-managed buildings are most affected  because available funds are first used to pay leasing, operations and  maintenance, and debt costs. As a result, GSA’s obligations authority for  repairs and alterations projects decreased from $855 million in 2005 to  $280 million in 2012. GSA officials noted that when prioritizing requests  for repair and alteration projects, they consider asset condition and  performance; life safety and compliance with laws and regulations;  customer considerations, including consolidation and reduction in space;  financial viability, including lease cost avoidance; and improvements to  utilization rates and recapturing vacant space.

With regard to the disposal of federal property, officials at USDA, which  has authority to retain proceeds from sales and disposals, cited financial  obstacles to these initiatives, such as little market demand. For example,  USDA’s Forest Service was given authority in 2005 to retain proceeds  from disposals; it typically uses these funds for critical maintenance  work on its properties or to prepare other buildings for sale. Forest  Service officials said that except for a few administrative buildings in  affluent areas sold for a high return, the return on investment for  disposals, often for structures on land Forest Service would like to retain,  is minimal. In 2011, the Forest Service reported that it would cost $120  million to dispose of property with a salvage value of $5 million.

Non-financial barriers to disposal also exist, resulting in underused  agency property. These obstacles include remote locations, necessary  environmental cleanup, or limitations on the use of property. Historically  significant properties are also challenges. For example, VA officials said  that VA’s historical buildings often require significant cleanup and  preparation prior to disposal, and the agency must often address  significant stakeholder interests. In addition, VHA’s buildings are often on  campuses or are medical facilities, limiting potential buyers or lessees to  those with missions similar to VA. VHA currently has about 250 vacant  buildings with no defined need, totaling more than 4 million square feet.  Interior officials stated that the land Interior owns is primarily stewardship  land for preservation, and thus Interior has few buildings or land to sell.  Instead, excess buildings on stewardship lands are typically demolished.  To facilitate the disposal of excess property, Interior includes funding for  disposals as part of its planning process—it requires each bureau to set  aside 3 percent of its property budget for disposals of excess property.

Officials at GSA and USDA noted that the authority to retain proceeds  provides a key incentive to initiate disposal transactions. For example,  officials at GSA, which provides disposal services across the federal  government, stated that the vast majority of current disposal transactions  are by agencies or components that have the authority to retain the  proceeds from sales or disposals. They also said that agencies without  this authority may have less incentive to dispose of underused property  as they must take money from competing budget priorities to invest in  readying a property for sale. USDA officials said that because resulting  proceeds are remitted to the general fund of the U.S. Treasury as  miscellaneous receipts, components without authority to retain proceeds  have little incentive to request full upfront funding for disposal costs such  as site cleanup, resource surveys, title and legal preparation, and auction  fees.

section_title: Alternative Funding Mechanisms Helped Agencies Meet Their Real Property Needs, but Also Posed Challenges
subsections: section_title: Agencies Use a Variety of Funding Mechanisms to Meet Their Real Property Needs
paragraphs: Selected agencies have been authorized to use a variety of funding  mechanisms as an alternative to full upfront funding to meet their real  property needs. Funding mechanisms leverage both monetary resources,  such as retained fees, and non-monetary resources, such as property  exchanged in a land swap or space offered in an enhanced use lease  (EUL). In some cases, the funding mechanism may function as a public- private partnership intended to further an agency’s mission by working  with a partner to leverage resources. Some of these mechanisms allow  the private sector to provide the project’s capital—at their cost of  borrowing. The U.S. federal government’s cost of borrowing is lower than  in the private sector. When the private sector provides the project capital,  the federal government later repays these higher private sector borrowing  costs (e.g., in the form of lease payments). In some cases, factors such  as lower labor costs or fewer requirements could potentially help balance  the higher cost of borrowing, making partner financing less expensive.  Table 1 outlines selected funding mechanisms, considerations for each  mechanism based on our past work, and examples of mechanisms used  by the selected agencies. Appendix III identifies prior reports where we  provide more information on alternative funding mechanisms.

Alternative funding mechanisms are not universally available to all  agencies. Moreover, even within an agency, legal authorities may differ  across agency components. For example, the Forest Service and ARS— both components of USDA—have different legal authorities to use  alternative funding mechanisms. For example, the Forest Service has the  authority to retain fees and ARS has the authority to enter into land  swaps.

Instead of upfront funding, NPS uses retained recreation fees to fund  high-priority projects linked to visitor need. NPS’s recreation fees, which  are authorized by the Federal Land Recreation Enhancement Act, require  that not less than 80 percent of retained recreation fees be spent at the  site at which fees are collected while the remaining 20 percent is pooled  to fund projects that are national priorities. This 20 percent of the retained  recreation fees provides NPS additional flexibility. In 2011 Interior  determined that it would request line item construction funds in fiscal year  2014, but later identified fiscal year 2012 funds from an alternative  funding mechanism, retained recreation fees, for the Herring Cove and  Nauset Light Beach facilities renovations in Massachusetts, negating the  need to seek additional funding. Interior has internal processes for  prioritizing projects for line item budget requests and for allocating the  retained recreation fees to high-priority projects, which NPS officials  reported allowed Interior to complete the renovations more quickly than  would have otherwise been possible with full upfront funding.

In 1991, Congress authorized VA to enter into EULs. VA’s available legal  authorities also framed its 2008 decision to enter into an EUL with a  nonprofit organization in Dayton, Ohio. VHA’s partner in the EUL  leveraged nonfederal funds to renovate a building and provide housing  and services to homeless veterans. The Dayton, Ohio Veterans Affairs  Medical Center had underused historic buildings. Officials reported that  the buildings’ historic status made it difficult to dispose of or demolish the  buildings. The Volunteers of America of Greater Ohio approached VA  about entering into an EUL; they agreed to provide 50 beds of transitional  housing and related services to homeless veterans in the property that  VA wanted to take off its inventory in exchange for financial and  nonfinancial considerations. VA determined that renovating the building  with appropriated funds would result in the highest upfront costs to VA  and would forgo the benefit of any private-sector funding or participation.  VA accepted the Volunteers of America’s proposal and the Volunteers of  America paid VA rent for the space and were responsible for renovating,  operating, and maintaining the building as well as for providing housing  and services to homeless veterans. By partnering with the Volunteers of  America on this EUL, VA estimated that it has cumulatively achieved  almost $2.8 million in cost avoidance and that the project has provided  services valued at more than $2 million while costing the VA less than  $500,000. Without the authority to enter into EULs or other alternative  funding mechanisms, VA officials said that VA would not have been able  to move forward with this project. VA’s EUL authority was amended in  2012. VA may no longer accept in-kind consideration for EULs and may  only enter into an EUL for the provision of supportive housing.

section_title: Risk Sharing, Managing Stakeholder Relationships, and Other Factors Affect Project Outcomes
paragraphs: Projects with alternative funding mechanisms involve multiple forms of  risk—both implicit and explicit—that must be shared between the agency  and any partner or stakeholder. We have previously reported that project  decisions should reflect both the likely risk and the organization’s  tolerance for risk. Incorporating risk assessment and risk management  practices into decisions can help ensure that the organization recognizes  and is prepared to manage explicit risks (e.g., financial and physical) and  implicit risks (e.g., reputational). For example, clearly defined lease  terms helped VA manage financial risk associated with the Dayton, Ohio  EUL when its partner sought to share costs for unexpected building  repairs for the building leased. During renovation, asbestos was  discovered in the building and VA’s partner sought a financial contribution  from VA to help offset some of the cost of the cleanup. Because the  contract clearly held the partner financially responsible for unexpected  expenses, VA was not liable for the cleanup costs.

We have also previously reported that when working with a partner, it is  important to actively manage the relationship. Formalizing collaborations  between the partners, including documenting dispute resolution  processes, can enable productive partner interactions. For example, VA  stepped in to more actively engage its partner, the city of New Orleans, in  a land swap to build a hospital after Hurricane Katrina. To monitor project  timelines and goals, officials representing all partners—including VA’s  Chief of Staff, the logistics manager and city counterparts—participated in  a steering group. When it became apparent that the city of New Orleans  was unable to meet its initial goal of having the property in construction- ready condition within 1 year as outlined in a memorandum of  understanding (MOU), the group began to meet weekly. VA and the city  of New Orleans amended the MOU to permit phased delivery of the  construction ready site. Additionally, New Orleans VA Medical Center  continued to have quarterly meetings with the community. Officials  reported that early coordination contributed to increased efficiency and  improved outcomes and helped the project overcome challenges such as  managing to meet different federal and state fiscal years and funding  cycles, as well as different federal, state, and local policies.

In addition to an agency’s ability to share risk and manage stakeholder  relationships, the availability of an appropriate partner and the geographic  location of the property may affect the use and success of an alternative  funding mechanism. We have previously reported that partners should  bring complementary resources, skills, and financial capacities to the  relationship. Agency officials reported that the geographic location and  the condition of a property can make it difficult to locate a willing buyer  and expensive to dispose of the property. For example, according to  Forest Service officials, many of the structures that may be disposed of  are of little value and are on land Forest Service will retain, such as a  cabin in the woods. Additionally, these facilities may be located in remote  areas that are difficult and costly to access with the construction  equipment necessary for demolition. As part of the auction process,  Forest Service typically asks for bids at salvage value and requires that  the structure be removed from the property at the buyer’s expense.  However, because of the expense to the buyer of the building removal  and any necessary environmental remediation, properties are usually sold  for low prices. The Forest Service benefits from selling the property— even for a low value— because it is no longer financially responsible for  costs such as maintenance, demolition, property removal, and  environmental remediation. For example, ARS needed to acquire land or  build an incinerator to dispose of excess manure. ARS does not have the  legal authority to purchase land valued at more than $100 and the  incinerator would have been significantly more expensive than this limit,  prompting ARS to consider a land swap. Because of these legal, cost,  and anticipated stakeholder challenges, ARS officials said that ARS held  onto the land for about 10 years while seeking an appropriate partner with  whom to exchange land. When ARS identified an appropriate partner, it  completed a land swap with the city of Ames, Iowa. ARS officials reported  that this outcome was more efficient and environmentally friendly than the  alternative of building an expensive incinerator.

section_title: Alternative Budgetary Structures Have Potential to Help Congress and Agencies Recognize the Costs and Returns of Real Property Projects Upfront and Over Time
paragraphs: While different funding mechanisms have been used as an alternative to  obtaining upfront funding for federal real property projects, changes to the  budgetary structure itself—within the bounds of the unified budget that  encompasses the full scope of federal programs and transactions—may  also help agencies meet their real property needs. Alternative budgetary  structures may be established to change budgetary incentives for  agencies and therefore help Congress and agencies make more prudent  long-term fiscal decisions. Such alternatives may include changing  existing or introducing new account structures to fund real property  projects. These alternatives could promote more complete consideration  of the full costs of projects and associated returns over time as well as  provide agencies with greater flexibility to manage their real property  needs. This could be aided by agencies completing comprehensive  business case analyses detailing project costs and returns in a process  similar to GSA’s prospectus process. A business case analysis might  include details about how the project aligns with an agency’s strategic  plan, a needs assessment and gap identification, an alternatives  evaluation, a life-cycle cost analysis, a schedule of project milestones and  deliverables, and a cost-benefit analysis.

We explored options for changes within the current discretionary budget  structure and options on the mandatory side of the budget by reviewing  our past reports and discussing possible options with federal budget  specialists and industry experts. We make no recommendations with  respect to adopting these options. However, understanding the tradeoffs  associated with different aspects of alternative budgetary structures can  provide decision makers with more information and support decisions  about funding federal real property projects.
subsections: section_title: Budgeting and Capital Planning Principles Offer a Framework for Considering Alternative Budgetary Structures
paragraphs: To assist congressional and agency-level decision makers in considering  alternative budgetary structures, we identified two key budgeting and  capital planning principles. An alternative budgetary structure should do  two things: promote transparency and fiscal control with regard to the  funding of federal real property projects; and provide agencies the  flexibility to facilitate the acquisition, repair and alteration, and disposal of  federal real property in support of federal missions.

The two principles are each further supported by elements that may help  frame the consideration of alternative budgetary structures. As decision  makers consider these budgetary structures, they must balance tradeoffs  between the two principles to understand whether the options would allow  for full upfront cost recognition, establish accountability mechanisms to  track cost recovery and return on investment, and provide timely funding  to promote an appropriately sized federal real property inventory. The  principles may interact and conflict with each other and each alternative  budgetary structure has benefits and challenges. Moreover, the weight  that different decision makers might place on the principles will vary,  depending on the desired level of involvement. Table 2 provides an  overview of the principles.

section_title: Discretionary Budget Authority Options Could Provide a Straightforward Means of Dedicating Funding to Real Property Projects
paragraphs: Changes to the current discretionary structure for funding federal real  property projects may provide a relatively straightforward means of  dedicating funding to federal real property while creating room for  additional agency flexibility. However, tradeoffs are inherent in budgeting  and these changes may affect spending for other discretionary programs  competing for mission critical resources.

Modify the FBF: The FBF is a discretionary fund that receives revenue  through rental payments from agencies that lease buildings that GSA  manages. GSA’s authority to access these funds is determined through  the annual appropriations process. As previously described, resources  deposited into the FBF have exceeded the amount that Congress has  appropriated to GSA in recent years, resulting in a $4.7 billion difference  between the full balance of the FBF and amounts made available for  spending in fiscal year 2013. Congress provides authority to GSA to incur  obligations and make expenditures from the FBF in five categories of  activities, such as repairing and altering GSA-managed buildings and  constructing new buildings. However, GSA officials said that because  available funds must first be used to pay costs associated with other  authorized activities, such as leasing privately owned space, operations  and maintenance of GSA-managed buildings, and debt incurred from  building acquisitions and lease purchase arrangements, repairs and  alterations and new construction are the most affected. For example,  GSA’s obligational authority for repairs and alterations projects decreased  from $855 million in 2005 to $280 million in 2012. As a result, customer  agencies are being charged for services that the GSA may be limited in  its ability to provide in a timely manner. To meet agencies’ real property  needs, the FBF could be modified in the following ways:

Make the full balance of the FBF available: Congress could make  the full balance of the FBF available to GSA. GSA would then have  resources to provide the full array of services for which it charges  agencies, including repairs and alterations. In 2011, we reported that  GSA’s overall obligational authority has trended downward in recent  years, resulting in GSA reducing spending on repairs and alternations  and new construction. GSA officials and OMB staff noted that such  repairs have the potential to be more expensive if delayed. Making  the full balance of the FBF available to GSA would increase funding  for GSA to complete projects for agencies, but it would mean less  congressional fiscal control and less funding for other mission critical  needs. OMB staff noted that with access to all of its receipts, the FBF  would be able to meet necessary recapitalization needs, such as  major repairs and alterations.

Adjust the FBF pricing structure to exclude certain major  renovations: To ensure that the GSA charges cover all services  provided under agreements with tenant agencies, GSA could choose  to exclude certain major renovations from agreed upon services.  GSA could then reduce rents to cover only operations and ongoing  maintenance costs of federally-owned buildings. Appropriations  decisions to fund capital repairs with rent savings would be made by  the agencies’ appropriations subcommittees. In effect, this would shift  the locus of decision making from GSA’s appropriations subcommittee  to the appropriations subcommittees of affected agencies. With the  change in pricing structure, agencies would have the ability to decide  whether to complete funded repairs and alterations in house or use  contractors or shared service providers. However, because this option  addresses GSA-managed buildings, there may not be an incentive for  agencies to carry out this devolution of responsibility amid other  priorities and it may be difficult for multi-agency tenant buildings to  obtain funding for necessary renovations from their respective  appropriations subcommittees. Nevertheless, an agency that uses a  GSA-managed building as its headquarters, such as Interior, which  has been unable to complete renovations through GSA, would gain  some flexibility in completing repairs and alterations by requesting  funding directly from its subcommittee. GSA officials noted that  separating capital investment funding decisions from operations and  maintenance funding decisions could make it difficult to manage the  portfolio of government-owned and -leased assets in a strategic  manner. They and OMB staff agreed that, without the shared funding  aspect of the FBF, it was unlikely that agencies would have sufficient  funds available to complete repairs and alterations, even if they were  able to maintain the same level of appropriations.

Delay recognition of receipts until projects are ready for funding:  To better match FBF receipts with expenses, the recording of receipts  from agencies could be held in a temporary account until transferred  to the FBF, temporarily recorded as a mandatory receipt until  transferred to the FBF as a discretionary offsetting collection. The  receipts would be recorded in the FBF account when funds are  appropriated for each “useful asset” of a project. Receipts from  agencies to the FBF would then be recorded as discretionary offsets  in the fiscal year in which they are appropriated to GSA.

Carve out spending from the discretionary allocations: One approach  to further invest in federal real property projects and meet  governmentwide priorities could be to allocate resources at the full  appropriations committee level, outside the competing priorities of the  appropriations subcommittees. The appropriations subcommittees have  jurisdiction over different agencies and are responsible for appropriating  resources among their relevant agencies. Congress could agree to carve  out of the full appropriations committee’s 302(a) allocation—the level of  spending that the full appropriations committee is authorized to  distribute—the amount for federal real property, effectively decreasing the  cap for the subcommittees’ 302(b) allocations—the level of spending that  the subcommittees are authorized to distribute to their respective  agencies. This would free up funds for acquiring, disposing of, or  repairing and altering space and provide a guaranteed funding level to  real property; it would also protect it from competition with other programs  that are more focused on spending for consumption activities. In the past,  Congress has similarly chosen to allocate resources at the full committee  level for certain programs. For example, in 1999 there were five  discretionary categories with a separate spending limit “carved out”— violent crime reduction, defense, non-defense, highway, and mass  transit. As a result of these carve outs, total spending determinations  were made at the full committee level rather than at the subcommittee  level.

Carving out of the full committee’s allocation spending for federal real  property would also “crowd out” spending for all other discretionary  programs that might represent a higher priority for the nation. For  example, we have previously reported that if a guaranteed minimum  funding level for a certain program is carved out of the full committee  allocation, and total spending is not increased commensurately, then the  remaining activities must compete for the reduced amount that is left.  Alternatively, the total cap for the subcommittees’ allocation could be  increased to dedicate funding to real property projects. The adjustment of  the cap could be triggered by the approval of project proposals  accompanied by business case analyses.

Related Questions on the Implementation of Discretionary Options:  1.  If individual agencies and their respective appropriators and  authorizers are responsible for making decisions regarding real  property projects, would they have the real property expertise to  initiate, implement, fund, authorize, and oversee real property  acquisition, repairs/alteration and disposal?  2.  If an appropriations carve out for federal real property is made at the  full appropriations committee level:

How narrowly would those funds be defined? (Deferred  maintenance, costs related to preparing properties for disposal)

How would a business case analysis be incorporated into  obtaining access to carved-out funds?

How would the carve out be divided amongst appropriations  subcommittees?

Might the creation of a Reserve Fund achieve the same purpose?

section_title: Mandatory Budget Authority Options Could Increase Agency Flexibility and Improve Cost-Benefit Recognition But Would Require a Different Means of Assuring Fiscal Control
paragraphs: Mandatory budget authority options, such as creating a revolving fund  with borrowing authority (e.g., a capital acquisition fund) or a dedicated  fund with permanent, indefinite budget authority, could enable the  recognition of costs and returns associated with complex real property  projects upfront and over time. However, these options would require  establishing new account structures and may present different challenges  compared to discretionary budget authority options. Existing account  structures, such as the Tennessee Valley Authority fund, may provide  some insight for policymakers in considering the structure of the revolving  fund with borrowing authority or permanent, indefinite budget authority.

Borrowing authority and permanent, indefinite budget authority could be  provided outside of the annual budget and appropriations cycle, allowing  for a greater degree of agency flexibility when planning for and carrying  out real property projects. Controls on access to funds in both scenarios  could be based on comprehensive project proposals with a business case  analysis completed by agencies and submitted to the fund manager,  OMB and the Congress to ensure their agreement that the project  warrants access to this type of funding. This analysis would describe,  among other aspects, the nature of the project and potential savings or  costs avoided. If the proposal was accepted, funding could be provided  for each useful asset.  For each useful asset, agencies might provide  updated business case analyses, which could include reestimates of both  costs and returns.

Mandatory budget authority options may also present opportunities to  promote collaboration among agencies with different appropriators and  authorizers as well as allow for better alignment of upfront costs with  longer-term returns. These options could result in a centralized funding  source available to all agencies, which could facilitate consolidation,  sharing space, and partnering among agencies for other real property  needs. Mandatory options could also be established to receive returns,  such as proceeds from disposals, or enforce the recognition of non- monetary returns, such as cost avoidance or cost savings, through  revised business case analyses provided by agencies as they complete  useful assets of projects. Despite these benefits, mandatory budget  authority options could result in a shift of the locus of decision making  from appropriators to authorizers, and would create new management  and oversight responsibilities for federal entities. In addition, under the  pay-as-you-go (PAYGO) budgetary enforcement mechanism, mandatory  budget authority options would require costs to be offset by an increase in  mandatory receipts or a decrease in mandatory spending for other  programs. Nonetheless, these options could result in cost savings and  cost avoidance over the long term.

Create a capital acquisition fund (CAF): Congress could provide  budget authority in the form of borrowing authority to a governmentwide  capital acquisition fund (CAF) managed by a single agency, such as  GSA.

In contrast to a department-level CAF, which we have previously reported  on, a centralized governmentwide CAF could provide funding for real  property projects for all agencies. The fund could complement the FBF by  providing upfront funding for complex, multi-prospectus level projects or  projects estimated to exceed a certain total cost threshold while the FBF  could be used for relatively straightforward rental and maintenance  expenses. The governmentwide CAF could be subject to a borrowing limit  and provide upfront funding for the full cost of projects (or useful assets of  projects). As depicted in Figure 4, a governmentwide CAF could be  established to:   1.  Use its authority to borrow from the Federal Financing Bank (FFB) to  fund real property projects agreed upon by Congress, OMB and the  CAF manager on a project-by-project basis for all agencies.  2.  Use annual payments made by agencies to the CAF to repay the loan  from the FFB. The annual payments—provided by agencies’  subcommittee appropriators—would be principal and interest  amortized over the useful life of the asset, allowing the agency to  spread the project cost over time.  3.  Automatically receive other monetary returns associated with real  property projects to be used for future real property projects or deficit  reduction. During implementation as well as at completion of projects,  agencies would inform the CAF (along with Congress and OMB)  about all returns, including nonmonetary returns, such as cost  avoidance or cost savings, via revised business case analyses.

Establish a dedicated fund with permanent, indefinite budget  authority: Congress could pass legislation to establish a  governmentwide, dedicated fund with permanent, indefinite budget  authority instead of borrowing authority. Similar to the CAF, this fund  could be managed by a single agency, such as GSA. As depicted in  Figure 5, it could automatically receive sums as needed, eliminating the  need for annual appropriation to acquire, dispose of, or repair and alter  federal real property. The dedicated fund could be at least partially  replenished as agencies return net proceeds, such as proceeds from the  sale of a building.  The fund could complement the FBF by providing  upfront funding for complex, multi-prospectus level projects or projects  estimated to exceed a certain total cost threshold while the FBF could be  used for relatively straightforward rental and maintenance expenses. One  concern with providing permanent, indefinite budget authority is that it  could reduce agency incentives to provide credible cost estimates in their  business case analyses; initial estimates might be artificially low if  agencies are held harmless for additional costs that result from price  changes.

Related Questions on the Implementation of Mandatory Options:  1.  What would be the budget enforcement implications for providing  permanent, indefinite budget authority and borrowing authority in the  mandatory options? Given that federal budgeting rules require that  increases in mandatory spending be offset by decreases in other  mandatory spending (or an increase in mandatory receipts), where  would the offset come from to meet this condition?  2.  How narrowly would the use of the mandatory options be defined?

For example, would it be meant only for civilian federal real property  needs?  3.  Would the congressional locus of decision making regarding proposed  projects reside with appropriators or authorizers?  4.  How would the business case analysis process work? What criteria  would be used to consider proposed projects for approval?  5.  How would appropriators be involved in the business case analysis  process?  6.  What mechanisms could be used to ensure that returns are realized in  future years?  7.  What budget process changes would be needed to ensure that  subcommittee appropriators would provide funding to agencies to  make annual payments to the CAF to repay the FFB in future years?

section_title: Concluding Observations
paragraphs: A central goal of the budget process is to assist the Congress in  allocating governmentwide resources efficiently. In the context of federal  real property, recognizing costs up front when resource allocation  decisions are made is one way to achieve this goal. Given that full upfront  funding is an effective way to ensure recognition of commitments  embodied in budgeting decisions, an examination of budgetary changes  that could improve cost-benefit recognition provides an opportunity to  help Congress achieve this goal. Our selected agencies have  experienced challenges receiving full upfront funding for federal real  property projects through the annual appropriations process and instead  have used alternative funding mechanisms, such as public-private  partnerships and operating leases to meet long-term needs.

In times of fiscal pressure, employing alternative funding mechanisms to  carry out real property projects can appear attractive to agencies because  it does not first require obtaining full upfront funding. However, there are  inherent risks in using an alternative funding mechanism and many  factors affect the outcome. For example, employing alternative funding  mechanisms may result in funding federal real property investments  without recognizing their true, full costs. This could mean that assets  financed through alternative mechanisms may be selected over other  equally worthy projects that are competing for full upfront funding.  Moreover, with the administration’s emphasis on “freezing the footprint,”  investment decisions that do not recognize costs upfront and returns over  time may not result in an appropriate assessment of the size and cost of  the federal real property inventory.

We have presented options for alternative budgetary structures that  congressional decision makers may wish to consider. Alternative  budgetary structures, such as modifying the Federal Buildings Fund  (FBF) or establishing a mandatory dedicated fund, could help them  recognize a project’s full upfront costs and returns over time. While these  options could increase flexibility for agencies in addressing their real  property needs, they could also result in less fiscal control for Congress.  However, if accompanied by appropriate congressional oversight and  rigorous financial management, these options may be useful in facilitating  prudent real property investment within the current unified budget  structure.

There is no single best option, and all options we explored would have  considerable challenges that would need to be weighed against potential  benefits. In addition, there are broader considerations associated with  funding real property projects beyond the scope of this report. Both  Congress and agencies have a role in effectively managing real property  projects. The authorization or use of an alternative funding mechanism or  an alternative budgetary structure requires consideration of tradeoffs to  arrive at a deliberate choice that neither creates disincentives for  agencies to seek upfront funding nor minimizes fiscal control required by  Congress.

We provided a draft of this report for review and comment to the  Secretaries of the Departments of Agriculture (USDA), Interior, and  Veterans Affairs (VA), and to the Administrator of the General Services  Administration (GSA). All agencies generally concurred with our findings.  In his written response, the VA Chief of Staff discussed challenges with  several of the potential alternative budgetary structures outlined in the  report. As we say in our report, while we explored alternative budgetary  structure options, each option has both benefits and challenges and we  make no recommendations with respect to adopting any of these options.  Further, our report states that any potential mandatory alternative  budgetary structure to fund large projects would be used by agencies  voluntarily, complementing upfront funding through the appropriations  process and the Federal Buildings Fund. We further clarified this point in  our report. In his written statement, GSA’s Administrator expanded upon  the challenges that we report agencies experience in funding upfront  costs that could lead to long-term savings. He also stated that some of  the described alternative budgetary structures would be more effective  than others. USDA, Interior, and VA provided technical comments, which  we incorporated as appropriate. We also provided a copy of the report to  the Office of Management and Budget, which provided technical  comments that we incorporated as appropriate.

We are sending copies of this report to the Secretaries of Agriculture,  Interior, and Veterans Affairs and to the Administrator of the General  Services Administration. In addition, the report is 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) 512-6806 or irvings@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: Comments from the General Services Administration

section_title: Appendix II: Comments from the Department of Veterans Affairs

section_title: Appendix III: Selected Related GAO Work
subsections: section_title: Alternative Funding Mechanisms
paragraphs: GAO, Capital Financing: Partnerships and Energy Savings  Performance Contracts Raise Budgeting and Monitoring Concerns,  GAO-05-55 (Washington, D.C.: Dec. 16, 2004).

GAO, Budget Issues: Alternative Approaches to Finance Federal  Capital, GAO-03-1011 (Washington, D.C.: Aug. 21, 2003).

GAO, Federal Buildings: Funding Repairs and Alterations Has Been a  Challenge—Expanded Financing Tools Needed, GAO-01-452  (Washington, D.C.: Apr. 12, 2001).

GAO, Federal Real Property: GSA Should Clarify Savings Goals for  the National Broker Program, GAO-14-14 (Washington, D.C.: Oct. 31,  2013).

GAO, Federal Real Property: Greater Transparency and Strategic  Focus Needed for High-Value GSA Leases, GAO-13-744  (Washington, D.C.: Sept. 19, 2013).

GAO, Federal Real Property: Overreliance on Leasing Contributed to  High-Risk Designation, GAO-11-879T (Washington, D.C.: Aug. 4,  2011).

GAO, Department of Energy: Status of Loan Programs,  GAO-13-331R (Washington, D.C.: Mar. 15, 2013).

GAO, Military Bases: Opportunities Exist to Improve Future Base  Realignment and Closure Rounds, GAO-13-149 (Washington, D.C.:  Mar. 7, 2013).

GAO, Federal Real Property: Improved Cost Reporting Would Help  Decision Makers Weigh the Benefits of Enhanced Use Leasing,  GAO-13-14 (Washington, D.C.: Dec. 19, 2012).

GAO, Renewable Energy Project Financing: Improved Guidance and  Information Sharing Needed for DOD Project-Level Officials,  GAO-12-401 (Washington, D.C.: Apr. 4, 2012).

GAO, Excess Facilities: DOD Needs More Complete Information and  a Strategy to Guide Its Future Disposal Efforts, GAO-11-814  (Washington, D.C.: Sept. 19, 2011).

GAO, Defense Infrastructure: The Enhanced Use Lease Program  Requires Management Attention, GAO-11-574 (Washington, D.C.:  June 30, 2011).

GAO, Military Housing: Installations Need to Share Information on  Their Section 801 On-Base Housing Contracts, GAO-11-60  (Washington, D.C.: Oct. 28, 2010).

GAO, Defense Infrastructure: Army's Privatized Lodging Program  Could Benefit from More Effective Planning, GAO-10-771  (Washington, D.C.: July 30, 2010).

GAO, Military Housing Privatization: DOD Faces New Challenges Due  to Significant Growth at Some Installations and Recent Turmoil in the  Financial Markets, GAO-09-352 (Washington, D.C.: May 15, 2009).

GAO, Federal Real Property: Progress Made in Reducing Unneeded  Property, but VA Needs Better Information to Make Further  Reductions, GAO-08-939 (Washington, D.C.: Sep. 10, 2008).

section_title: Partnering
paragraphs: GAO, Congressionally Chartered Organizations: Key Principles for  Leveraging Nonfederal Resources, GAO-13-549 (Washington, D.C.:  June 7, 2013).

GAO, Federal Real Property: Strategic Partnerships and Local  Coordination Could Help Agencies Better Utilize Space, GAO-12-779  (Washington, D.C.: July 25, 2012 ).

section_title: Federal Real Property Reports
paragraphs: GAO, Federal Real Property: Improved Standards Needed to Ensure  That Agencies’ Reported Cost Savings Are Reliable and Transparent,  GAO-14-12 (Washington, D.C.: Oct. 29, 2013).

GAO, Federal Real Property: National Strategy and Better Data  Needed to Improve Management of Excess and Underutilized  Property, GAO-12-645 (Washington, D.C.: June 20, 2012).

GAO, Streamlining Government: Questions to Consider When  Evaluating Proposals to Consolidate Physical Infrastructure and  Management Functions, GAO-12-542 (Washington, D.C.: May 23,  2012).

GAO, Federal Real Property: Progress Made Toward Addressing  Problems, but Underlying Obstacles Continue to Hamper Reform,  GAO-07-349 (Washington, D.C.: Apr. 13, 2007).

GAO, Federal Real Property: Actions Needed to Address Long- standing and Complex Problems, GAO-04-119T (Washington, D.C.:  Oct. 1, 2003).

section_title: Appendix IV: GAO Contacts and Staff Acknowledgements
subsections: section_title: GAO Contact

section_title: Staff Acknowledgements
paragraphs: In addition to the contact name above, Carol M. Henn, Assistant Director,  Alexandra Edwards, Vida Awumey and Melissa King made major  contributions to this report. Also contributing to this report were Virginia  Chanley, Deirdre Duffy, Felicia Lopez, and Donna Miller. In addition, the  following individuals provided programmatic expertise: Michael Armes,  Keith Cunningham, Brian Lepore, David Sausville, and David J. Wise.


Question-summary annotations: questions: question: How have some agencies met their funding needs?
answer: Instead of full upfront funding, selected agencies sometimes used a variety of alternative funding mechanisms to meet their real property needs by leveraging authorized monetary resources, such as retained fees, and non-monetary resources, such as property exchanged in a swap or space offered in an enhanced use lease.
child_questions: question: What are some of the limitations with alternative funding mechanisms?
answer: Alternative funding mechanisms are not universally available to all agencies; even within an agency, legal authorities may differ across agency components.
child_questions: question: What issue did the ARS come across when utilizing an alternative funding mechanism?
answer: For example, because of legal, cost, and other challenges, officials from USDA's Agricultural Research Service (ARS) said that ARS held onto land for about 10 years while seeking an appropriate partner to successfully complete the land swap.

question: What are some of the challenges associated with alternative funding mechanisms that involve a partner?
answer: For alternative funding mechanisms that involve working with a partner, such as in a land swap, the agency's ability to find an appropriate partner, manage that partnering relationship, and share risk—both explicit and implicit—with the partner affected project outcomes.

questions: question: What two things must an alternative budgetary structure balance?
answer: Alternative budgetary structures should balance tradeoffs across two key GAO-identified budgeting and capital planning principles: (1) promoting transparency and fiscal control with regard to the funding of federal real property; and (2) providing agencies the flexibility to facilitate the acquisition, repair and alteration, and disposal of federal real property in support of federal missions.
child_questions: question: What does GAO provide to Congress?
answer: GAO provides alternative budgetary structure options for Congress to consider.

question: How would making the full balance of the FBF available for funding real property projects help agencies with their financial needs?
answer: For example, in one option Congress would make the full balance of the FBF available for funding real property projects, which could create room for additional agency flexibility but may reduce fiscal control.

question: What approach would increase transparency of cost and benefits?
answer: Another option would establish a government-wide capital acquisition fund with authority to borrow from the Federal Financing Bank for approved projects, which could improve transparency of both costs and benefits upfront and over time while business case analyses could provide a means of assuring fiscal control.

question: Why may changes to the budgetary structure be necessary, at times?
answer: Changes to the budgetary structure itself—within the bounds of the unified budget—might provide a more consistent way to meet real property needs while helping Congress and agencies make more prudent long-term fiscal decisions.

questions: question: Under what circumstances are federal real property projects considered fully funded?
answer: Federal real property projects are fully funded when Congress provides budget authority and appropriations for the estimated full cost of the projects up front—at the time they are undertaken.

question: What does the GAO report cover?
answer: This report examines (1) agency experiences funding federal real property projects, (2) some of the alternative funding mechanisms selected agencies use, as well as agency experiences using selected mechanisms, and (3) alternative budgetary structures within the current unified budget that may potentially help Congress and agencies better recognize the cost of real property projects and associated returns, promoting both transparency and fiscal control.
child_questions: question: How did the GAO choose which agency case studies to include in their report?
answer: GAO reviewed case study projects from 4 agencies among the top 10 in federal real property holdings and chosen based on their use of alternative funding mechanisms, as identified in our past and ongoing work.

question: How did GAO identity alternative budgetary structures?
answer: Finally, GAO identified alternative budgetary structures that may support real property projects and principles for considering them by reviewing published reports and interviewing federal budget staff and experts.

question: Why are agencies moving away from full upfront funding?
answer: However, as agencies work to balance limited resources with mission demands, many have turned to approaches other than full upfront funding to acquire, renovate, or dispose of federal real property, such as buildings, structures, and land.