When considering areas in which to locate, RDA directs the heads of all executive departments and agencies of the government to establish and maintain departmental policies and procedures giving first priority to the location of new offices and other facilities in rural areas. Any move by an agency to new office space in another location would be considered a new office or facility covered by RDA. Two primary executive orders on federal facility location decisions are Executive Order 12072, Federal Space Management, dated August 16, 1978; and Executive Order 13006, Locating Federal Facilities on Historic Properties, dated May 21, 1996. Executive Order 12072 specifies that when the agency mission and program requirements call for federal facilities to be located in urban areas, agencies must give first consideration to locating in a central business area and adjacent areas of similar character. Executive Order 13006 requires the federal government to utilize and maintain, wherever operationally appropriate and economically prudent, historic properties and districts, especially those located in the central business area. In 1990, we reviewed whether federal agencies give rural areas first priority in location decisions as required by RDA and whether any changes in federal location policies were warranted. We reported that RDA had not been an important factor in federal facility location decisions. In fiscal year 1989, about 12 percent of federal civilian workers were located in nonmetropolitan statistical areas. Agency officials attributed mission requirements, the need to be in areas where the populations they serve are located, political considerations, and budget pressures as reasons why urban areas received more facilities than rural areas. Those agencies that did locate in rural areas said it was more because they served rural populations than because they were following the requirements of RDA. We also reported that a growing number of private sector corporations were moving to suburban and rural settings to take advantage of incentives offered by localities to attract jobs and the ability to separate functions resulting from changes in telecommunications technology. We concluded that there were multiple laws and regulations guiding federal agencies in selecting facility locations, but they do not always provide for consideration of the best financial interest of the government as a factor in the decision-making process. We recommended that GSA develop a more consistent and cost-conscious governmentwide location policy that would require agencies, in meeting their needs, to maximize competition and select sites that offer the best overall value considering such factors as real estate and labor costs. In 2001, we performed follow-up work on our 1990 report including identifying what functions lend themselves to being located in rural areas. We reported that since our 1990 study, federal agencies continued to locate for the most part in higher cost, urban areas. The percentage of federal employees located in nonmetropolitan statistical areas in 2000 remained virtually unchanged from 1989, at about 12 percent. Eight of the 13 cabinet agencies we surveyed had no formal RDA policy, and there was little evidence that agencies considered RDA’s requirements when locating new federal facilities. Further, GSA had not developed a cost-conscious, governmentwide location policy as we recommended in 1990 and the definition of rural used in RDA was unclear. We reported in 2001 that agencies chose urban areas for most (72 percent) of the 115 federal sites acquired from fiscal year 1998 through fiscal year 2000. Agencies said they selected urban areas primarily because of the need to be near agency clients and related government and private sector facilities to accomplish their missions. The agencies that selected rural areas said they did so because of lower real estate costs. Agencies that relocated operations tended to relocate within the same areas where they were originally located, which were mainly urban areas; newly established locations were almost equally divided between urban and rural areas. Private sector companies surveyed said they select urban areas over rural areas largely because of the need to be near a skilled labor force. Agencies said the benefits of locating in urban areas were efficiency in agency performance as a result of the ability to share existing facilities, close proximity to other agency facilities and employees, and accessibility to public transportation. Agencies that chose rural sites said that benefits included close proximity to agency support facilities, improved building and data security, and better access to major transportation arteries, such as interstate highways. Barriers reported for urban sites included the lack of building security and expansion space. For rural areas, barriers included the lack of public transportation, location far from other agency facilities, and insufficient infrastructure for high-speed telecommunications. The functions that were located predominantly at urban sites during 1998 through 2000 were loans/grants/benefits administration processing, inspection and auditing, and health and medical services. The functions that were located predominantly in rural areas in that period were research and development, supply and storage, automated data processing, and finance and accounting. Some functions, such as law enforcement, were placed in both urban and rural areas, although this particular function was located more often at urban sites. For our 2001 study, we contracted with a private sector consultant, John D. Dorchester, Jr., of The Dorchester Group, L.L.C., to assist us in a number of tasks. One task was to identify functions the private sector might locate in rural areas. The consultant identified the following functions: Accounting Account representative Appraisal/market research Clerical/secretarial Data processing Distribution/warehousing Education/training Enforcement and quality control Field service operations Human resources and social services Information technologies services Legal support Logistical support Manufacturing and assembly offices Operations centers Printing and publishing Records archiving Repairs and servicing Scientific studies and research and development Technical functions and support Telemarketing, order processing, and communications We also asked our consultant to identify the benefits and challenges associated with rural areas for selected functions. (See table 1.) Our July 2001 report suggested that Congress consider enacting legislation to (1) require agencies to consider real estate, labor, and other operational costs and local incentives when making a location decision; and (2) clarify the meaning of “rural area” in RDA. We also recommended that GSA revise its guidance to agencies to require agencies making location decisions to consider real estate, labor, and other costs and local incentives. In addition, we recommended that GSA require agencies subject to its authority to provide a written statement that they had given first priority to locating in a rural area and to justify their decision if they did not select a rural area. We also recommended that GSA define rural area until Congress amended RDA to define the term. Subsequent to our report, GSA took action on our recommendations; actions which are described in greater detail below. The Fiscal Year 2002 Treasury and General Government Appropriations Act, Public Law 107-67, required the inspectors general (IG) of departments and agencies to submit to the appropriations committees a report detailing what policies and procedures are in place requiring them to give first priority to the location of new offices and other facilities in rural areas, as directed by RDA. These reports were due in May 2002. A similar requirement was included in the Consolidated Appropriations Resolution for Fiscal Year 2003, Public Law 108-7. However, because the IGs had until August 20, 2003, to report on this, we did not have the opportunity to review those reports required by Public Law 108-7 for this testimony. GSA’s May 2, 2002, response to the Public Law 107-67 requirement described the policies that GSA had in place to give first priority to the location of new offices and other facilities in rural areas, as well as what actions GSA had taken in response to our July 2001 recommendations. GSA took the following actions: The Federal Management Regulation, section 102-83.30, was revised to require federal agencies to also consider real estate, labor, and other operational costs and applicable incentives in addition to mission and program requirements when locating space, effective December 13, 2002. The Public Buildings Service Customer Guide to Real Property was revised to require agencies to provide GSA with a written statement affirming that they have given first priority to locating in a rural area as required by RDA when requesting space from GSA. The Federal Management Regulation, section 102-83.55, effective December 13, 2002, was revised to define “rural area” as a city, town, or unincorporated area that has a population of 50,000 inhabitants or fewer, other than an urban area immediately adjacent to a city, town, or unincorporated area that has a population in excess of 50,000 inhabitants. GSA published a recommendation in the Federal Register on January 21, 2003, that federal agencies with their own statutory authority to acquire real property use the above definition of rural area and demonstrate compliance with RDA by including a written statement in their files affirming that they have given first priority to the location of new offices and other federal facilities in rural areas. These actions responded to all of our July 2001 recommendations with the exception of one. We had recommended that GSA require agencies, when selecting a new facility location, to provide a written statement that they had given first priority to locating in a rural area. If a rural area was not selected, agencies were to provide a justification for the decision. GSA’s new guidance does not require agencies not selecting a rural area to justify their decision. We also reviewed the IG reports detailing the policies and procedures in place regarding giving first priority to rural areas as required by Public Law 107-67 for the Departments of Energy, the Interior, Justice, Transportation, and Veterans Affairs. According to GSA data, these agencies, along with the Department of Defense and the United States Postal Service, have the largest amount of owned and leased building square footage in the federal government. We excluded sites acquired by the Defense Department because it has so much vacant space available at its bases nationally that it has no choice but to give priority consideration to its existing vacant space when locating new or existing operations. We excluded Postal Service sites because the Postal Service advised us it had little or no discretion in deciding where to locate most of its facilities in that they needed to be in specific locations to serve customers or near airports.