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. 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. 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.