Each year thousands of empty federal buildings stand empty, draining millions from federal coffers in upkeep and maintenance costs.
But numerous attempts over the past 2 1/2 years to streamline the way agencies offload properties, including a “civilian BRAC” effort proposed by the Obama administration, have all fallen short.
Enter Capitol Hill’s version of HGTV’s “Property Brothers.”
Sen. Tom Carper (D-Del.) and Rep. Jason Chaffetz (R-Utah), aren’t renovating an old fixer-upper, though. Instead, they’re breaking ground on a new effort to get both sides of the Capitol dome on board with a bill to make it easier for agencies to hang the “For Sale” sign on unnecessary properties.
Carper, the chairman of the Senate Homeland Security and Governmental Affairs Committee, and Chaffetz, a member of the House Oversight and Government Reform Committee, hosted a Capitol Hill roundtable with private-sector real-estate experts and former government officials Wednesday to discuss a new legislative path forward.
“I think we heard some very constructive ideas from the private sector and that enable us, hopefully, in the second half of this Congress to move the ball into the other team’s territory and drive toward the end zone,” Carper said in a brief interview with Federal News Radio after the roundtable. “A conversation like today gives us some renewed momentum, which we need.”
CBO scoring has stymied efforts
Nearly everyone — leaders in both the House, Senate and the White House — agrees that disposing of unnecessary real property will net significant savings for the federal government over the long haul.
Agencies own some 14,000 excess properties by one count, costing the government $190 million each year to operate and maintain, according to administration estimates. Another 71,000 properties are underused.
The problem is crunching the numbers: Analyses of recent real-property legislation authored by both Carper and Chaffetz indicate the bills would actually increase agency spending at least in the short- term.
Both pieces of legislation would require GSA to launch a pilot program to expedite the disposal of excess properties by cutting red tape. Under Carper’s bill, which envisions as many 200 properties annually undergoing an expedited sell-off, up to 20 percent of sale proceeds would be returned to the agency that owned the property. The Chaffetz bill calls on agencies to target the 15 highest-value properties for sales and would allow agencies to claim the full net proceeds.
Under current law, GSA can spend up to 12 percent of sale proceeds to offset the direct costs associated with preparing the property for sale, while the remainder must be deposited back to the Treasury.
However, both bills have run into trouble with the Congressional Budget Office, which provides cost estimates for proposed legislation. CBO has consistently reported that the bills’ provision to allow agencies to keep the proceeds from sales would increase agencies’ direct spending by millions of dollars. Meanwhile, requiring agencies to keep better track of their properties and compile the data in a comprehensive repository would actually mean about $2 million to $3 million in increased administrative and reporting costs, according to CBO’s analysis.
Doing something smart
Kim Burke, a managing director at Jones Lang LaSalle’s Public Institutions Group, said CBO’s analysis only takes into account the revenue potential of expedited sales of excess federal property — and that’s only part of the story.
“I think we have to take a look at how we’re looking at this,” she said during the roundtable. “If we’re saying that one of the goals is to reduce the deficit, a big bang from a proceed from a large sale is one way to reduce the deficit. But you’re also looking at avoiding costs.”
By ridding themselves of properties, even if it’s not through a particularly lucrative sale, agencies are avoiding future costs, such as upkeep and maintenance of empty or unnecessary buildings, she added.
“We often lose track of that concept when you’re looking at these bills, in part because you don’t get the scored savings for them,” Burke said. “It doesn’t help you in any way from a scoring perspective. But it shouldn’t keep you from doing something that’s smart.”
And the idea of allowing agencies to keep the proceeds from selling off their unused assets has worked in the past.
In 2005, Congress temporarily granted GSA the authority to retain proceeds from the sale of surplus property, said Dave Winstead, former commissioner of GSA’s Public Buildings Service during the George W. Bush administration.
“That strategy of retaining proceeds really paid off,” he said. “What ended up happening was more agencies came forward with properties … it also paid off in expediting the process, which is an objective of both these pieces of legislation, which is to speed things up, because the market could change.”
GAO: Long history of real-property challenges
Under an ambitious agenda set by President Barack Obama in 2010, agencies have reported saving $3.8 billion in in real-property costs. However, the vast majority of those savings stem from agencies better managing space, not necessarily by shedding unnecessary properties. And in a new report issued just this week, the Government Accountability Office cast doubt on the results, finding no clear standards for how agencies should tally or identify such savings.
It’s far from the first time GAO has documented challenges in managing.
When GAO first put real property on its High Risk List — federal programs and practices prone to waste and duplication — GAO cited the government’s overreliance on leasing, the substantial amount of excess and underused properties, and a lack of high-quality data on the properties and buildings held by agencies
That was in 2003, and GAO has never seriously considered removing the area from the list, said Mark Goldstein, director of physical infrastructure issues at GAO.
In the absence of a legislative solution, many of those issues, including the lack of a comprehensive, real-time digital inventory of properties, continue to plague federal real-property efforts.
“One thing that continues to mystify me is why we can’t just generate a nice spreadsheet with all the assets,” Chaffetz said. “I don’t know why this is so hard and difficult. But if we can’t even come up with a list, how can we, ultimately, manage it properly?”
Leasing vs. owning
While there was widespread agreement on current shortfalls in the area of federal real property, disagreements remained over the issue of whether it’s more cost- effective for the government to own or build its own facilities or to lease them.
With the current squeezed budget climate, agencies aren’t even conducting complete cost comparisons, Goldstein said.
Previously, whenever GSA sought to lease a space that would exceed a certain threshold in annual rent payments — currently about $2.8 million — it was required by the Office of Management to conduct an alternative analysis showing the costs of owning the property.
“But since there is so little capital to actually purchase properties, OMB told GSA they don’t have to do it anymore,” Goldstein said. “So, we don’t even prepare information to provide an alternative analysis anymore on whether it is easier and cheaper to own or to lease in terms of the government’s interests — a sign of the times.”
‘If it’s a dollar today, it will be more tomorrow’
Still, private-sector experts say there are often hidden costs to federally owned buildings.
“I would venture to say that the conventional wisdom, that it’s cheaper for the government to own than lease, is absolutely correct — but only in the textbook,” said John Simeon, vice president for development at JBG Companies.
For example, there is currently a substantial backlog of deferred maintenance on many federal buildings a ticking timebomb when it comes to costs.
“The problem with deferring any kind of necessary maintenance is, if it’s a dollar today, it will be more tomorrow,” Simeon said.
In fact, the National Research Council has estimated that every dollar of deferred maintenance ends up costing the government between $4 to $5.
And considering the uncertain funding stream — the politically fraught appropriations process — agencies don’t even have that initial dollar to spend on basic upkeep.
“You’re almost in a better position to be in a leased asset, which is constantly maintained,” Simeon said.
“If you can develop a consistent cash flow to maintain government assets, clearly that is the better approach,” Simeon said. “But because our appropriations system hasn’t been able to deliver that … I would actually defy conventional wisdom.”
Goldstein said GAO has limited data when it comes to tracking all the operation and maintenance costs for buildings over the years, making accurate long-term comparisons between leasing and owning difficult.
“We do know, that just based on what we can find when we looked at some leases in recent years, in most cases, it seems to us that it is cheaper for the government to own rather than lease,” he said. “But that’s not in every case, and in some cases it is cheaper for the government to lease. So it is a mixed bag in that regard.”