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

Letter

Background

Following the terrorist bombings of U.S. embassies in Kenya and Tanzania in 1998, the Secretary of State, with the support of the President and Congress, created an Overseas Presence Advisory Panel (OPAP) to examine the condition, organization, management, and other aspects of U.S. diplomatic representation overseas. In 1999, the panel declared that the U.S. overseas presence was near a state of crisis and that the condition of U.S. posts and missions abroad was unacceptable. Specifically, the Panel recommended that major capital improvements be undertaken at U.S. facilities to strengthen security. The Panel reported that funds for new overseas facilities should be provided from a variety of sources, including payments by all the agencies that share space in the facilities. In addition, the Panel concluded that, at U.S. facilities, linking the number of staff with mission priorities could achieve significant budget savings by reducing the size of overstaffed locations. Further, Congress passed legislation in 1999 requiring all U.S. government staff working at posts slated for new construction to be located on the new embassy compounds unless they are granted a special colocation waiver.

In 2002, the President’s Management Agenda emphasized the importance of configuring U.S. overseas staff to the minimum necessary to meet foreign policy goals. As part of the Agenda, OMB led an effort to develop a cost-sharing mechanism. OMB also emphasized the need to build embassies more quickly and recognized that, to do so, all agencies with overseas staff should be required to contribute their share to the costs. The administration also emphasized that, by requiring agencies to pay for overseas staff, agencies would be more likely to closely assess the need for each position before deciding to place a person overseas, thereby rightsizing overseas staffing levels at U.S. facilities.

In 2003, we reported on the poor conditions of facilities at embassies and consulates. For example, we found that the primary office building at 232 posts lacked sufficient security, potentially putting thousands of U.S. government employees at risk. We also reported, however, that OBO had begun to institute a number of organizational and management reforms, beginning in 2001, designed to cut costs, standardize designs and review processes, and reduce the construction period for new embassies and consulates. These reforms, along with other actions such as increasing staff training and expanding outreach to contractors, provided OBO with the capability to manage its overseas building program more effectively.

The United States currently has a network of embassies and consulates at 251 locations around the world. Nearly 30 agencies have more than 61,000 staff at these locations. Under the proposed program, cost-sharing fees would be charged for every overseas position. Annual charges for approximately 25,000 State support staff that provide security, transportation, and other services to all overseas agencies would be shared proportionately among over 36,000 program staff from all agencies, including State. Figure 1 shows the numbers of U.S. agencies’ overseas staff positions that would pay annual cost-sharing fees under the proposed program.

Historically, State has borne the costs for constructing nearly all diplomatic facilities abroad. During the 6-year period from fiscal year 1999 through 2004, OBO received appropriations totaling $3.1 billion for constructing these facilities. Annual funding amounts generally increased during the period from about $300 million in fiscal year 1999 to about $750 million in fiscal year 2004, an amount that is about half of the annual $1.4 billion that the proposed $17.5 billion program would provide for new embassy construction when fully implemented.

Rationale for and Development of the Capital Security Cost-Sharing Program

The Capital Security Cost-Sharing Program was developed so that State could obtain funds to accelerate the construction of new embassies and consulates around the world and so that agencies would pay the full costs associated with their overseas presence. The agencies’ share of embassy construction costs would be phased in over 5 years. When the proposed program is fully implemented, from fiscal years 2009 through 2018, it could result in funding of $1.4 billion annually from nearly 30 agencies, including State. OBO worked with OMB to develop the program based on a per-capita allocation of worldwide embassy construction costs for 150 facilities. OBO devised a fee-assessment plan that would spread the total embassy construction costs among all agencies with an overseas presence. After considering and rejecting several ways to charge agencies, OBO approved a cost-sharing formula based on a per-capita or “head-count” fee because, according to OBO, it was simple to implement, promoted agency rightsizing, and minimized agencies’ incentives to move staff to different locations to avoid cost-sharing charges.

Proposed Cost-Sharing Program Could Accelerate Embassy Construction

Funding through the proposed Capital Security Cost-Sharing Program could allow significant acceleration of the construction of U.S. diplomatic missions. Under the proposed program, the total funding amount would be $1.4 billion annually, a substantial increase over OBO’s historical funding levels. For example, during the 6-year period from fiscal years 1999 through 2004, OBO’s actual appropriations for embassy construction totaled $3.1 billion, an average of roughly $522 million annually. Annual funding amounts generally increased from about $300 million in fiscal year 1999 to about $750 million in fiscal year 2004.

According to OBO, funds from cost sharing would enable the construction of 150 new embassy and consulate compounds to be completed by 2018, 12 years sooner than OBO’s initial plan, which included a planned completion date of 2030. After fees are phased in during fiscal years 2005 through 2008, non-State agencies would pay $480 million annually for a 10-year period through fiscal year 2018, while State’s annual payment would be $920 million. Figure 2 shows OBO’s existing embassy construction projections through fiscal year 2030 and how funding generated by the proposed cost-sharing program could accelerate embassy construction through fiscal year 2018.

Proposed Cost Sharing Is Based on a Worldwide Head-Count Formula

In developing the proposed cost-sharing program, OBO, with OMB’s approval, selected a per-capita or head-count formula based on the number of agency staff at all overseas locations and the type of office space. To determine each agency’s cost share, agency officials were encouraged to scrutinize their overseas staff numbers and determine whether each position required office space with controlled access, space with noncontrolled access, or nonoffice space for staff such as custodians, gardeners, drivers, and others who do not require a specific desk or workstation. According to OBO officials, it can easily calculate and periodically revise agencies’ fees by performing a few simple calculations, without the need for a large number of staff to administer the program.

Amounts for Cost-Sharing Positions Would Be Adjusted Every 3 Years

OBO adopted a methodology in which agencies’ cost-sharing fees for the first 3 years of the program, fiscal years 2005 to 2007, would be based on the total number of overseas positions that OBO identified in a 2002 worldwide survey. The positions were categorized by the four types of space. To determine agencies’ fees for the four types of positions, OBO estimated the construction costs for building each type of space at a typical new embassy. For example, the annual charge for a position located in a controlled access area would be $59,318. According to OBO, it plans to adjust these amounts every 3 years, beginning in fiscal year 2008, based on changes in the total number of overseas positions. In addition to the basic head-count fees, agencies’ annual charges would include amounts for their proportionate share of construction costs for support services’ personnel under the International Cooperative Administrative Support Services (ICASS) program. However, agencies’ fees would be reduced, or “offset,” by the amounts they are currently paying for office space outside embassy compounds.

Based on input from all participating agencies, OBO plans to update the head-count numbers for staff annually and adjust cost-sharing fees to reflect updated headcounts. If the proposed program begins in fiscal year 2005, agencies would be charged for 61,413 positions, including 251 positions in the chief-of-mission areas; 8,432 in controlled access areas; 30,850 in noncontrolled access areas; and 21,880 in nonoffice space. These positions include direct-hire Americans, locally employed staff, contractors, continuing part-time staff, and temporary duty positions. Non-State agency participants and phased-in annual fees are shown in table 1.

OBO considered two other formulas before deciding on the head-count method of determining agencies’ shares of embassy construction costs. One formula considered by OBO and an interagency working group would have assessed agencies’ charges based on the amount of space (square feet or meters) occupied in overseas facilities. There was agreement that the “space occupied” formula would more directly link costs paid to benefits received. However, OBO rejected the proposed formula because, according to OBO officials, administering and managing the fee assessments would require frequent collection and updates of data, which could be burdensome and labor intensive.

OBO proposed a second formula based on comparable rental costs apportioned on a per-capita basis. The formula included factors such as commercial cost of rent by location, the net amount of space occupied, and other variables. According to OBO officials, this option was eventually rejected because it would not result in sufficient up-front funding needed for the construction and would also be labor intensive to compile and manage the data. The space occupied and rent formulas also lacked the support of OBO’s Industry Advisory Panel (IAP), whose members stated that agency officials could dispute the amount of office space for which they were charged, complain about the quality of their space, assert that other agencies’ staff were using a disproportionate share of space, and raise other issues that could be difficult to manage.

OBO and OMB worked to develop fee assessments based on a per-capita or head-count fee for the full costs of construction in early 2002. OBO officials stated that the formula would be the simplest to manage because fees are based on a flat rate for four different types of office space, regardless of where the position is located worldwide. Charges assessed to each agency would be generated on the basis of a consistent, standardized formula. Each agency can easily compute the cost of adding or removing an employee from overseas duty. In addition, OBO officials stated that a per-capita or head-count formula would not require intensive labor to administer and could readily provide a steady flow of up-front funding to expedite embassy construction. OBO also claimed that, because all agencies’ staff positions are included in the worldwide cost-sharing methodology, each agency would pay its share for occupied workspace. OBO’s initial proposal included charging for office space in controlled and noncontrolled access areas only. In response to other agencies’ requests, OBO established per-capita fee assessments for all four types of positions in its current proposed program.

Several Agencies Have Concerns about the Program

Officials from several agencies have concerns about the development and implementation of the proposed program. Some non-State agencies would prefer a formula other than the head-count formula to more closely link the fees paid to the services received. Non-State officials are also concerned about potential implementation issues, including concerns about the resolution of interagency differences and uncertainty about consistent congressional support for increasing budget requests that include cost shares, which could impact their international missions. State officials are concerned that, if the program is not funded, OBO will be unable to accelerate construction and that if some agencies are exempted, overall support for the program would be seriously eroded.

Some Non-State Agencies Prefer Formulas Other Than the Head-Count Formula

Officials from some non-State agencies are concerned that the program’s head-count formula may result in disproportionate costs to some agencies. They indicated that they would prefer a formula based on one of three options: (1) the amount of office space occupied worldwide, (2) the amount of office space occupied at a specific location, (3) a head count of staff at locations where new embassies would be built. They added that these formulas would more closely link the fees paid to the benefits received. We examined these alternative formulas and describe them, along with OBO’s current proposed head-count formula, in table 2.

We found that the cost-sharing fees of seven selected agencies would vary under different scenarios. Specifically, we examined two formulas that OBO had developed during its initial planning phase of the program: one based on the amount of office space occupied worldwide and the other based on comparable cost for renting office space locally. We compared these two formulas with OBO’s current head-count formula. Using OBO data that we determined to be reliable, we computed the amount of space occupied by agencies worldwide and at each overseas location. We found that, because agencies use different amounts of office space, the Departments of Agriculture, Defense, Health and Human Services, and State would pay higher cost-sharing fees under the space-occupied formula; the Department of Commerce and USAID would pay less; and the Library of Congress’ fee would be similar to its fee under the head-count formula.

Several agency officials stated that they would be in favor of a formula similar to the standard U.S. government approach for rent as used domestically by the General Services Administration (GSA), which manages many government buildings by renting space to other U.S. government agencies. GSA’s fees are based on numerous factors, including comparable costs for commercial space, number of square feet, and the location and condition of the building. We found that, under the formula based on comparable local rental costs, State, USAID, and Health and Human Services would pay less than under OBO’s current head-count charge because they have staff based in numerous locations where rental costs are inexpensive. In contrast, many Defense, Commerce, and Department of Agriculture staffs are based in cities with higher rents for commercial space. Thus, their rental fee would be higher than a fee based on head counts. Finally, fees for the Library of Congress using both the amount of office space occupied and comparable rental costs would be relatively similar to fees under the head-count formula, as shown in table 3.

Several agency officials noted that the proposed head-count formula assesses blanket fees worldwide, not specifically where agencies’ staff are located or where new embassies would be built. As a result, some agencies would be assessed fees, although some of their staff may not benefit directly from new construction. For example, the Library of Congress (the Library) is one of several agencies opposed to the head-count formula. According to Library and OBO data, only 45 (22 percent) Library staff—located in three cities—are likely to benefit from new embassy construction scheduled from fiscal years 2004 through 2009. In addition, many of the Library’s positions are currently located in rented space outside embassy compounds, where the Library’s annual office-space costs are substantially less than it would pay under the cost-sharing program. For example, Library officials stated that they currently pay roughly $1,200 each for several positions in Islamabad, an amount that is considerably less than the $28,144 per position that would be assessed under the cost-sharing program. According to OBO officials, the Library has numerous staff in several cities, including Islamabad and five other locations, where construction is planned during fiscal years 2010 through 2018. The officials added that the Library would receive rent credit offsets for the costs of renting office space outside embassy compounds and noted that current law requires the Secretary of State, in selecting sites for new U.S. diplomatic facilities abroad, to ensure that all U.S. personnel under chief of mission authority be located on-site.

We examined what agencies’ head-count fees could be under the formula requiring only agencies with a presence at the new location to pay. We selected a typical location where a new embassy, with 247 staff representing four agencies, is projected to be built in fiscal year 2006 at a cost of $92.2 million. Agencies with no positions at this location would not be required to pay any cost-sharing fees. Our analysis, based on comparing the costs for types of space occupied at this typical embassy, shows that one-time fees for all four agencies would be higher at this one location than the current proposed head-count fees for all positions under this formula. For example, the one-time fee for a position in the noncontrolled access area would be about $357,000 for each person, substantially higher than the $28,144 annual fee used to calculate the current head-count formula. However, the same agency’s overall fees would be higher due to its paying $28,144 annually, over a 14-year period. According to OBO officials, allowing agencies to pay cost-sharing fees only where their staffs are based would not support the goal of rightsizing because it would encourage agencies to avoid cost-sharing fees. Specifically, agencies could “game the system” by moving staff, even to potentially less secure locations, where no construction was planned. OBO acknowledged, however, that some non-State agencies’ would be unlikely to move staff due to country-specific missions and the costs involved with moving.

Agencies Have Other Concerns about the Program

Some non-State agencies have other concerns about the proposed program, including how potential disputes would be resolved and how cost-sharing fees would affect their ability to accomplish their overseas missions. In addition, State is concerned that, if the program were not implemented, OBO would be unable to accelerate construction; and, if some agencies are exempted, overall support for the program could be seriously eroded.

Non-State agency officials indicated that the existing interagency working group may not be an effective mechanism for resolving disputes. Some non-State agencies are concerned that, when the program is implemented, the Interagency Facilities Committee, an interagency advisory group established by OBO to facilitate communication among agency officials, would not provide a credible forum for discussing program issues and resolving disputes. For example, some non-State agency officials said that they have no assurance that OBO would provide them with space in the embassy compound if conditions become crowded. According to one agency, all agencies should have participated in the formative stage discussions of the proposed program, such as the participatory and transparent discussions that were held during the development of the ICASS Program. In contrast, according to OBO officials, the Interagency Facilities Committee is a credible forum for discussing office space issues. OBO officials added that, in planning embassy size, a certain amount of contingency, or “spill-over” space, in anticipation of staff increases is incorporated into the plan.

Some non-State officials said that OBO has shown little flexibility in adopting agencies’ suggestions in Interagency Facilities Committee meetings. For example, OBO currently requires that the employing agency pay cost-sharing fees for staff temporarily assigned to another agency. In contrast, some agency officials would prefer that cost-sharing fees be paid by the agency to which the staff member is detailed, not by the permanent employer. According to one non-State official, OBO should not be concerned about which agency pays the fees and should allow the agencies to resolve this issue. OBO officials stated, however, that it would be complicated and burdensome to keep track of detailees to maintain an accurate account of overseas staff positions. OBO officials added that agencies could coordinate with other agencies to reimburse funding for detailees.

OBO officials stated that they have made adjustments to the program based on agency suggestions, including charging more for the chief-of-mission position based on larger office space, and providing rent offsets to agencies for staff working outside embassy compounds. OBO also created certain procedures that agencies can use to challenge decisions. According to OBO officials, these procedures establish OMB as the final arbiter for resolving interagency disputes. OBO officials stated that these procedures and standard OMB processes had already been used to resolve some disputes. One non-State agency stated, however, that when disputes arise, OMB is likely to favor OBO’s position because OBO has overall responsibility for implementing the proposed program.

If the proposed program is implemented, some agencies are also concerned that annual cost-sharing fees could affect their ability to accomplish their international missions. USAID officials expressed concern that, without adequate funding, they may have to downsize and with fewer staff would not be able to accomplish some of their overseas missions. Commerce and Agriculture had similar concerns. Officials from both agencies stated that, without additional funding, their agencies would have to cut their overseas staff and some ongoing activities at numerous locations. For example, Commerce has projected that it may have to close offices at as many as 51 posts by fiscal year 2009, reducing staff levels by 498 persons, to reduce annual costs by roughly $27.4 million. A Commerce official stated that post closings and reductions in staff could affect overseas sales for some U.S. firms because Commerce would have fewer staff to represent U.S. businesses in foreign markets. Finally, the Library of Congress’ $6.4 million annual cost-sharing fee, set to take effect in fiscal year 2009, would represent over 70 percent of its total fiscal year 2004 international budget. Library officials indicated that, if the Library were required to pay such a large amount without receiving additional funding, the mission of their international program would be seriously affected.

State is concerned that, if the program is not fully funded, OBO would be unable to accelerate construction and, if some agencies are exempted, overall support for the program could be seriously eroded. Congress is currently considering the proposed program but, until it is enacted, State will not be able to implement the accelerated building schedule. In addition, State is concerned about the potential impact of granting agencies exemptions from the program. Specifically, State noted that if one or more agencies were exempted, other agencies’ funding levels would have to be increased to generate the $1.4 billion needed annually for the construction program.

Program Has Influenced Some Agencies’ Decisions to Reduce the Number of Overseas Staff

Although it is too early to tell how the cost-sharing program, if implemented, could influence all agencies’ overseas staff levels, some agencies have already begun to rightsize staff in an effort to reduce their potential cost-share bill. Faced with expenditures they have not paid in the past, agencies have had additional incentives to closely review staffing levels and, in consultation with OMB and their appropriations committees, consider new ways of meeting their missions with fewer overseas staff. We found that, as of July 2004, at least five agencies had reduced their employee rosters by as many as 473 overseas positions. Two of these five agencies stated that the staff reductions were made specifically to reduce cost-sharing fees. OBO plans to use agencies’ adjusted staffing numbers to revise its embassy construction plans. However, the full effect of the cost-sharing program would not be felt until 2009, after the 5-year phase-in period ends, which would likely bring increased pressure for agencies to further reduce their overseas staff.

Cost Sharing Has Promoted Greater Consideration of Costs in Staffing Decisions

In the 2001 President’s Management Agenda, the administration took the position that, if agencies are required to pay a greater share of the costs associated with their overseas presence, they would weigh cost considerations more carefully before posting personnel overseas. The administration’s position is that by minimizing the growth of overseas staff, the U.S. government will benefit by reducing the numbers of people exposed to security risks, terrorist attacks, kidnapping, and other risks that are inherent in the overseas presence, and by reducing the costs of constructing embassy compounds. With the added incentive to scrutinize staff numbers, agencies would be required to consider whether they could afford each staff member. This rightsizing effort is important to ensure that, governmentwide, the correct numbers of people are working at each embassy. OBO officials stated that growth in overseas positions has been generated by both State and non-State agencies and that, for the first time, the Capital Security Cost-Sharing Program would provide a mechanism for controlling growth. By reexamining staffing numbers and types of office space, some agencies have already reduced their future cost-sharing fees.

In preparing for the program, many agencies have already scrutinized the numbers of staff positions overseas and the types of office space they require. As a result, one agency eliminated numerous unfilled overseas positions, some of which had been unfilled for several years. One agency official stated that, prior to the cost-sharing program, many overseas positions had not been formally removed because retaining the positions allowed the agency the ability to quickly reassign staff as their missions and priorities changed. For example, beginning in fiscal year 2005, State, Commerce, the Treasury, and Homeland Security had already reduced overseas positions. State cut 263 positions and Commerce reduced its overseas staff by 191 positions, eliminating 168 unfilled positions and cutting 23 other positions. Finally, Treasury removed 17 positions, and Homeland Security removed 2 positions.

Some agencies have reassessed the types of office space required for their employees stationed overseas. These agencies decided that some positions located in controlled access areas could be relocated to noncontrolled access areas, thereby reducing their cost-sharing fees. For example, the Foreign Broadcast Information Service reclassified six positions previously located in noncontrolled access areas to less costly nonoffice areas.

By scrutinizing their numbers of overseas positions and determining the types of space they require, State, Commerce, the Treasury, and Homeland Security, and the Foreign Broadcast Information Service significantly reduced their cost-sharing assessments for fiscal year 2006 and, at the same time, reduced the number of staff that would be exposed to terrorist attacks and other overseas security risks. For example, State reduced its projected fees by more than $15 million, and Commerce reduced its fees by nearly $6 million. Other agencies’ staff numbers have either increased, did not change, or were being finalized as of September 2004. Table 4 shows selected agencies’ estimated savings in annual cost-sharing fees (fiscal year 2005 to 2006) after reducing their overseas positions and/or reassessing the types of space needed.

OBO officials stated that the fundamental building block for planning a new embassy compound is the projected numbers and types of positions that must be accommodated in the new facilities. Without these details, the U.S. government risks building new facilities that are designed for the wrong number of staff. To prepare for the initial implementation of the cost-sharing program, OBO asked agencies to submit updated information on overseas staff numbers. OBO has since revised the agencies’ data so that it can begin the program with the most current staffing levels. Because the size and cost of new embassy facilities are directly related to anticipated staffing requirements, OBO stated that it would continue to obtain periodically revised staff numbers and, when appropriate, change its embassy construction plans or adjust cost-sharing fees that agencies would be required to pay.

Gradual Phase-in of Program Would Likely Bring Increasing Pressure to Reduce Overseas Staff

For selected agencies, international program budgets would have to increase substantially to cover the gradual phase-in of annual cost-sharing fees. Therefore, agencies are likely to face increased pressure to scrutinize their overseas staff levels and ensure that only essential personnel are staffed at overseas posts. As agencies are required to pay more each year until the proposed program is fully implemented in fiscal year 2009, agency officials may decide to further reduce their overseas staff numbers to reduce their fees.

We selected four agencies and estimated how much their international program budgets would need to increase to meet cost-sharing fees. We found, for example, that Commerce’s Foreign and Commercial Service budget would have to increase by 11 percent from fiscal year 2005 to fiscal year 2007 and by as much as 18 percent from fiscal year 2005 to fiscal year 2009 to cover cost-sharing fees. The estimated amount and percentage of budget increases needed to pay cost-sharing fees for fiscal years 2007 and 2009 for sampled agencies—Agriculture, Commerce, USAID, and the Library of Congress—are shown in table 5.

Conclusion

The principle of cost sharing is consistent with the Overseas Presence Advisory Panel’s findings and recommendations that agencies share in the cost of constructing new secure embassies and that agencies’ staffing levels be linked with their overseas missions. If the proposed cost-sharing program is enacted and funded, it could result in expedited construction of new embassies and, at the same time, increased incentives for agencies to ensure that only essential staff are based overseas. Providing secure facilities for U.S. employees overseas is a high priority for the U.S. government, and the proposed Capital Security Cost-Sharing Program is one way to accelerate the construction of these facilities. Requiring agencies to pay a share of embassy construction costs would also encourage them to consider the full cost of their overseas presence and to determine the number of people they need to meet critical overseas missions.

Several non-State agencies have raised concerns about the proposed cost-sharing formula and implementation issues that could adversely affect their overseas missions. According to our analysis, agencies’ cost-sharing fees under other formulas would vary widely, with some agencies benefiting at the expense of others. While we take no position on which formula should be used, some type of cost-sharing mechanism could provide a disciplined approach to the staffing projection and rightsizing processes and accelerate the capital construction program.

Several agencies suggested that it would be useful to establish new interagency mechanisms to discuss and resolve potential disputes. We did not assess the mechanisms to be used to implement the program, if Congress enacts it. Therefore, we have taken no position on whether new interagency mechanisms would be needed. Nevertheless, in our prior work, we have noted the importance of achieving interagency consensus and striving to achieve equity, while minimizing management burden. Decision-makers need to continually focus on these factors in order to give the program every opportunity to succeed. There is time to address these and other potential implementation issues during the 5-year phase-in period of the program. If the proposed program is enacted, it is important that Congress and State monitor the program’s implementation and make changes as needed.

Agency Comments and Our Evaluation

We received written comments on a draft of this report from eight executive departments and agencies (Departments of Agriculture, Commerce, Health and Human Services, Homeland Security, Justice, State, the Treasury, and the U.S. Agency for International Development) and the Library of Congress. The Department of State said that the report is a fair and accurate representation of the issue. The other departments and agencies raised a number of concerns regarding accountability and equity issues if the program is implemented. Their comments, along with our responses to specific points, are reprinted in appendixes II-X. Several agencies also provided technical comments, which we have incorporated into the report where appropriate.

Several agencies stated that using a cost-sharing formula based on the number of personnel overseas was not equitable. We have taken no position on the formula to be used. Our report points out the advantages and disadvantages of potential formulas and that some agencies may benefit at the expense of others, depending on the formula used.

We are sending copies of this report to interested congressional committees. We are also providing copies of this report to the Secretaries of Agriculture, Commerce, Defense, Health and Human Services, Homeland Security, Justice, State, and the Treasury; the Administrator, U.S.

Agency for International Development; the Director, Office of Management and Budget; and the Librarian of Congress. We will also make copies available to others upon request. In addition, this report will be available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact me on (202) 512-4128. John Brummet, Lynn Cothern, Martin De Alteriis, Mary Moutsos, Julia A. Roberts, and George Taylor made key contributions to this report.

Objectives, Scope, and Methodology

Our objectives were to examine (1) the Department of State’s rationale for and development of the proposed Capital Security Cost-Sharing Program, (2) agency concerns about the program, and (3) the influence of the proposed program on agencies’ decisions on overseas staff levels. To complete our work, we analyzed data, reviewed documents, and discussed the program in Washington, D.C., with officials of State’s Bureau of Overseas Buildings Operations (OBO), which is responsible for the embassy construction program; the Office of Management and Budget (OMB); and eight other executive branch departments and agencies, including the Departments of Agriculture, Commerce, Defense, Health and Human Services, Homeland Security, Justice, and the Treasury, and the U.S. Agency for International Development (USAID). We also reviewed documents and held discussions in Washington, D.C., with officials of the Library of Congress, a legislative branch agency. We selected the executive branch departments and agencies because they have staff overseas and, under the current proposal, would have the largest annual cost-sharing charges. We selected the Library of Congress because it is the only nonexecutive branch agency that would pay cost-sharing fees.

To describe the overall rationale for and development of the proposed program, we examined numerous reports and other documents, including those issued by OBO, the Overseas Presence Advisory Panel, and other working groups and committees. We reviewed historical information dating back to 1999, including the alternative formulas OBO considered before selecting the head-count formula to assess agencies’ fees for embassy construction. We reviewed documents and held discussions in Washington, D.C., with officials of nine executive branch agencies or departments with the largest cost-sharing fee assessments and with the Library of Congress. In addition, we met with OMB officials to discuss agencies’ concerns about some aspects of the proposed program and General Services Administration to discuss its management of U.S. government facilities domestically.

We conducted data analyses using data from the International Cooperative Administrative Support Services (ICASS) system Global Database, which was developed and maintained by the ICASS Service Center and contains information for each overseas post. We assessed the reliability of the ICASS data during a recent review of State’s Embassy Administrative Support System. The assessment included (1) performing electronic testing for errors in accuracy and completeness, (2) discussing data reliability issues with agency officials knowledgeable about the data, and (3) reviewing relevant reports from State’s Office of the Inspector General and GAO and financial audits of the ICASS system. We found that the data were also sufficiently reliable for the purpose of determining agencies’ space occupied worldwide that was compared with alternative formulas. Data showing estimates for future costs under the Capital Security Cost-Sharing Program were provided in a briefing by staff from OBO. We interviewed knowledgeable officials about the estimating methodology and reviewed some supporting documents, but we did not conduct a full review of the procedures OBO used for these estimations.

To examine and compare alternative cost-sharing formulas, we selected seven agencies, four that have a larger number of staff worldwide (State, Defense, Commerce, and USAID) and three agencies with a smaller number of staff working overseas (Agriculture, Health and Human Services, and the Library of Congress). To determine alternative cost- sharing percentages for agencies with overseas staff, we allocated costs for ICASS personnel proportionately. We used OBO staffing data that excluded Peace Corps staff, Marine Security Guards, and various other positions permanently stationed in host government facilities or specialized research or technical facilities. We determined that the data were sufficiently reliable for determining cost-sharing percentages.

To determine the amount each agency would have to pay under two rent formulas, we used OBO data that we had determined to be sufficiently reliable for the purpose of this report and computed the percentage of space each agency occupies. OBO’s data were included in a database that listed the total worldwide space at each post and the total space occupied per agency at each post. To find out how much each agency would pay annually to raise $1.4 billion under this formula, we multiplied each agency’s percentage of space occupied worldwide by $1.4 billion. To determine how OBO would generate $1.4 billion annually using a rental formula, we used OBO’s 2002 data for fees that would have generated $575 million annually, which took into consideration the cost of commercial space per location, security and classified space for each post, and multiplied the fees by 2.4 to compare them with formulas that raise $1.4 billion annually. To determine the proportionate percentages and cost- sharing fees for each type of office space at one embassy, we selected a post scheduled for construction in 2006 and used the data that OBO provided, listing the number of agencies, staff and types of space occupied for each staff member. OBO’s estimated cost to build the facility would be $92.2 million as listed in OBO’s long-range overseas building plan. We used OBO’s estimate of the total square footage for the post and determined the amount and percentage of space needed for the chief of mission, controlled access, noncontrolled access, and nonoffice areas. We then divided the amounts for each area by the total area to determine the total costs to build the embassy for each type of space. We determined the data were sufficiently reliable to illustrate the effects of the number of staff on agencies’ costs.

To describe the actions agencies have taken to reassess their overseas staffing levels, we collected documentation on each agency’s staffing numbers and types of space for chief of mission, controlled access area, noncontrolled access area, and nonoffice space that were used to calculate cost-sharing fees for fiscal year 2005 budget requests. To assess the reliability of these data, we verified the amount each agency requested by reviewing budget submission documents provided by several agencies and through discussions with knowledgeable agency officials. We determined that the data were sufficiently reliable for the purpose of this report. We then compared the fees to each agency’s revised staffing numbers and the space requirements used to calculate cost-sharing fees for fiscal year 2006 budget requests. Revisions to the numbers of staff or the types of space resulted in savings for five agencies. We also discussed with OBO officials how agencies’ revised staff numbers and space requirements would affect future embassy construction plans. To determine the amount in international program budgets that selected agencies would need to cover cost-sharing fees in fiscal years 2005, 2007, and 2009, we obtained the figures on budget requests for fiscal year 2005. We then used OBO data showing projected cost-sharing fees for each agency in fiscal years 2007 and 2009. To determine the amount and percentage that the international budget for each agency would have to grow to cover their cost-sharing fees, we added the amount they would need in fiscal years 2007 and 2009 to their international budget request for fiscal year 2005 and determined the difference. We determined that these data were sufficiently reliable for the purpose of providing a broad indication of the amounts the agencies would need to increase their budgets for the chosen years. We assumed that each agency’s program budget would not increase for any other reason than Capital Security Cost-Sharing Program fees.

Comments from the Department of Agriculture

The following are GAO’s comments on the Department of Agriculture’s letter dated October 12, 2004.

GAO Comments

1. We agree that mission goals are a critical factor in determining resource levels. However, we believe that security and cost factors also need to be fully considered along with mission goals in determining overseas staffing levels. In our prior reports, we presented a rightsizing framework to help decision-makers focus on security, mission, and cost trade-offs associated with staffing levels and rightsizing options. We believe that the proposed Capital Security Cost-Sharing Program will encourage agencies to more closely scrutinize overseas staffing levels by requiring agencies to pay a share of the embassy construction costs associated with their overseas presence. 2. OBO officials stated that it solicited and received substantive input from other agencies during the design of the proposed program. We acknowledge that Agriculture and some other agencies have concerns about issues concerning accountability, transparency, and other implementation mechanisms. 3. We agree that the proposed program would be large and could have a major impact on agencies, but we believe the program is consistent with the criteria for rightsizing we previously reported. These criteria include (1) security of facilities and employees, (2) mission priorities and requirements, and (3) cost of operations, all of which should be systematically evaluated. Agencies must provide a strong rationale to Congress for overseas programs, including all associated costs. 4. We acknowledge that agencies have concerns about potential risks they may encounter if the program is enacted. However, we concluded that some type of cost-sharing program would achieve important goals, such as accelerating the construction of new secure facilities. In addition, requiring agencies to pay a share of embassy construction costs would also encourage them to consider the full cost of their overseas presence and to determine the number of people they need to meet critical overseas missions.

Comments from the Department of Commerce

The following are GAO’s comments on the Department of Commerce’s letter dated October 14, 2004.

GAO Comments

1. We did not assess the need for improvements in business processes and management controls. If the program were to be enacted, there would be time during the phase-in period to monitor these issues and address other concerns that may arise. 2. We believe that agencies should request the appropriate funding in their budget submissions and be prepared to make adjustments if funds are not forthcoming. If funding is not provided, agencies may have to reconsider the size of their overseas presence and/or adjust their missions. 3. Our report discusses several cost-sharing formulas and some of their advantages and disadvantages. We discuss agency views on the formulas, and OBO stated that under some formulas agencies could “game the system” to reduce their cost share. 4. We did not assess the mechanisms, including the interagency advisory group, that could be used to implement the program, if Congress enacts it. Therefore, we have taken no position on whether alternative interagency mechanisms would be needed. 5. We did not include agencies’ annual charges for embassy construction attributable to ICASS support services in the table. However, under the program, agencies will be expected to pay a share of the embassy construction costs attributable to administrative support service received under ICASS. 6. As noted, fiscal year 2008 data were not available. 7. The OBO data included offsets. 8. We agree that, if some agencies pull out of the proposed program, the remaining agencies’ cost-sharing charges may increase. However, depending on the extent to which agencies consider the size of their overseas presence, OBO’s costs for constructing fewer and/or smaller facilities may decrease and result in decreased costs to agencies. 9. We modified the text on page 15 and footnoted table 4 to reflect these comments and attributed the information to the Department of Commerce.

Comments from the Department of Health and Human Services

The following is GAO’s comment on the Department of Health and Human Services’ letter dated October 12, 2004.

GAO Comment

1. We did not assess the mechanisms to be used to implement the program, if Congress enacts it. Therefore, we have taken no position on whether alternative interagency mechanisms would be needed.

Comments from the Department of Homeland Security

The following are GAO’s comments on the Department of Homeland Security’s letter dated October 13, 2004.

GAO Comments

1. We agree that the proposed program could impact agencies’ missions if funding decisions result in reductions of overseas staff positions. However, as we discuss in the report, the concept of cost sharing encourages all agencies to seriously consider their overall program mission and the costs of having staff overseas. We believe that agencies should request the appropriate funding in their budget submissions and be prepared to make adjustments if funds are not forthcoming. If funding is not provided, agencies may have to reconsider the size of their overseas presence and/or adjust their missions. 2. Security issues associated with foreign housing and schools were not in the scope of our work.

Comments from the Department of Justice

The following are GAO’s comments on the Department of Justice’s letter dated October 12, 2004.

GAO Comments

1. We did not assess the need for improvements in business processes and management controls, such as transparency and accountability of costs and spending controls. If the program were to be enacted, there would be time during the phase-in period to monitor these issues and address other concerns that may arise. 2. We agree that the proposed program could impact agencies’ missions if funding decisions result in reductions of overseas staff positions. However, as we discuss in the report, the concept of cost sharing encourages all agencies to seriously consider their overall program mission and the costs of having staff overseas. We believe that agencies should request the appropriate funding in their budget submissions and be prepared to make adjustments if funds are not forthcoming. If funding is not provided, agencies may have to reconsider the size of their overseas presence and/or adjust their missions.

Comments from the Library of Congress

The following are GAO’s comments on the Library of Congress letter dated October 12, 2004.

GAO Comments

1. We were not asked to express an opinion on whether the cost accounting standards of the federal government apply to the capital cost-sharing program. However, we did note that State and non-State agencies disagree on whether there is a link between the amounts to be paid and the benefits received. 2. The administration proposed the Capital Security Cost-Sharing Program to fund the accelerated construction of secure new embassies and consulates worldwide and to ensure that agencies rightsize the number of staff needed to accomplish their overseas missions. Our analysis shows that, depending on the formula used, cost-sharing amounts would vary considerably, with some agencies benefiting at the expense of others. While we take no position on which formula should be used, some type of cost-sharing mechanism could provide a disciplined approach to the staffing projection and rightsizing processes and accelerate the capital construction program 3. We have taken no position on which cost-sharing formula, including the “head-tax” approach (which we refer to as the head-count approach), should be used. We also did not assess the need for improvements in business processes and management controls, such as determining the number of staff required. We acknowledge that some agencies have concerns about potential risks if the program is enacted. However, we concluded that some type of cost-sharing program would achieve important goals, such as accelerating the construction of new secure facilities. In addition, requiring agencies to pay a share of embassy construction costs would also encourage them to consider the full cost of their overseas presence and to determine the number of people they need to meet critical overseas missions. 4. The administration proposed the Capital Security Cost-Sharing Program to fund the accelerated construction of secure new embassies and consulates worldwide and to ensure that agencies rightsize the number of staff needed to accomplish their overseas missions. 5. We agree that, if some agencies pull out of the proposed program, the remaining agencies’ cost-sharing charges may increase. However, depending on the extent to which agencies consider the size of their overseas presence, OBO’s costs for constructing fewer and/or smaller facilities may decrease and result in decreased costs to agencies. Congress will decide whether or not the Department of Defense will participate in the cost-sharing program. 6. The proposed program is intended to capture the full costs, not only support costs, to agencies for staff in overseas locations, including construction of new embassy compounds. While we recognize that the Library currently has staff located outside embassy compounds, with the 1999 enactment of the Secure Embassy and Counterterrorism Act, all staff are required to be colocated onsite at locations where new embassies are built. 7. We recognize that the Library has only seven Americans in six offices.

Our report does not suggest that the Library is not rightsized. However, the Library and other agencies should request the appropriate funding in their budget submissions and be prepared to make adjustments if funds are not forthcoming.

Comments from the Department of State

The following are GAO’s comments on the Department of State’s letter dated October 7, 2004.

GAO Comments

1. We modified the text in the Highlights and cover letter to reflect these comments. 2. We organized the report as we did because the influence of the proposed program on agencies’ overseas staffing-level decisions is uncertain. 3. We modified the text in the Highlights to reflect this comment and attributed the additional comment to OBO. 4. We modified the text in the Highlights and on pages 5 and 13 to reflect State’s phase-in period. 5. We modified the text on pages 10 and 11 to reflect these comments. 6. We added a footnote on page 4 to clarify the number of overseas locations. 7. We added a footnote on page 8 to explain the role of the OPAP.

Comments from the Department of the Treasury

Comments from the U.S. Agency for International Development

The following are GAO’s comments on the U.S. Agency for International Development’s letter dated October 8, 2004.

GAO Comments

1.

Issues involving State’s planning for the size of new embassies were not in the scope of our review. Our recent reports on this issue include Embassy Construction: Process for Determining Staffing Requirements Needs Improvement, GAO-03-411 (Washington, D.C.: Apr. 7, 2003) and Embassy Construction: State Department Has Implemented Management Reforms, but Challenges Remain, GAO-04- 100 (Washington, D.C.: Nov. 4, 2003). 2. We did not include agencies’ annual charges for embassy construction attributable to ICASS support services in the table. However, under the program, agencies would be expected to pay a share of the embassy construction costs attributable to administrative support service received under ICASS. 3. State’s prioritization for building new embassy compounds was not included in the scope of our review. See Embassy Construction: State Department Has Implemented Management Reforms, but Challenges Remain, GAO-04-100 (Washington, D.C.: Nov. 4, 2003), for a discussion of these issues.