oversight

Federal Buildings Fund: Improved Transparency and Long-term Plan Needed to Clarify Capital Funding Priorities

Published by the Government Accountability Office on 2012-07-12.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States Government Accountability Office

GAO          Report to the Chairman, Subcommittee on
             Federal Financial Management, Government
             Information, Federal Service, and International
             Security, Committee on Homeland Security and
             Governmental Affairs, U.S. Senate

July 2012
             FEDERAL
             BUILDINGS FUND
             Improved
             Transparency and
             Long-term Plan
             Needed to Clarify
             Capital Funding
             Priorities




GAO-12-646
                                               July 2012

                                               FEDERAL BUILDINGS FUND
                                               Improved Transparency and Long-term Plan Needed
                                               to Clarify Capital Funding Priorities
Highlights of GAO-12-646, a report to the
Chairman, Subcommittee on Federal Financial
Management, Government Information,
Federal Service, and International Security,
Committee on Homeland Security and
Governmental Affairs, U.S. Senate

Why GAO Did This Study                         What GAO Found
GSA serves as the primary steward of           The Federal Buildings Fund’s (FBF) balance has increased from $56 million in
the federal government’s civilian real         fiscal year 2007 to $2.2 billion in fiscal year 2012 primarily due to the growing
property portfolio of nearly 10,000            difference between the resources provided to the FBF and the General Services
assets. Since 1972, GSA has funded             Administration’s (GSA) use of these funds as determined through the budgeting
its real property acquisition, operation,      and appropriations process. In the last 2 years, Congress has provided fewer
maintenance, and disposal through the          resources than requested by the executive branch and generated by the FBF.
rent it collects from tenant agencies          Office of Management and Budget (OMB) staff and GSA officials stated that if
that is deposited into the FBF. GAO            GSA were able to spend all of the funds collected by the FBF each year, these
has previously reported, however, that
                                               funds would generally be sufficient to fund GSA’s needs. However, GSA, through
the FBF has faced difficulty providing
                                               the annual President’s Budget Request, has sought less obligational authority
sufficient resources to support GSA’s
mission.
                                               than the balance available in the fund. While the FBF’s balance has increased,
                                               various factors have limited the fund’s income. Funds from operations—revenue
GAO was asked to examine (1) the               less costs excluding depreciation—that contribute to FBF income have declined
factors affecting the resources in the         from 2006 to 2011 when adjusted for inflation. Revenues have declined while
FBF, (2) GSA’s potential repair liability      costs have outstripped inflation over this time period. In addition, portions of
and the implications for the FBF, and          GSA’s inventory operate at a loss. For example, about 30 percent of GSA’s
(3) the information GSA considers              owned assets lost money in 2011, while GSA’s total leased portfolio lost about
when evaluating capital investments            $75 million. Despite the losses in its leased portfolio, GSA continues to rely
and how these practices compare to             extensively on leasing. GSA is taking steps to reduce the size of its overall real
leading practices for prioritizing capital
                                               estate portfolio.
investments. GAO reviewed legislation
and GSA documents and compared                 GSA has identified $4.6 billion in maintenance and repairs expected from 2012 to
leading practices on making capital            2021 and anticipates that nearly a quarter of this amount is needed immediately.
investment decisions from OMB and              However, funding for maintenance and repairs has declined since 2006. GSA
GAO capital planning guidance to GSA           officials noted that reduced funding for capital reinvestments could result in
practices. GAO also analyzed budget            deferred maintenance and repairs, and increase the cost and extent of such work
and financial data from fiscal years           in the future. These concerns are consistent with the National Research
2006 through 2012, facility condition          Council’s findings that each $1 in deferred maintenance and repair work results
data from fiscal year 2011, and
                                               in a long-term capital liability of $4 to $5.
interviewed GSA officials and OMB
staff.                                         GSA’s use of information to make capital investment decisions conforms to some
                                               leading practices from GAO and OMB guidance, but GSA lacks a transparent
What GAO Recommends                            process for prioritizing projects and a comprehensive long-term capital plan that
GAO recommends that GSA (1)                    fully aligns with leading practices. GSA keeps a baseline of information on its
document in its budget submission              assets and needs—as leading practices suggest—through various tools and
how it prioritizes capital investments         databases. GSA’s process and guidance for evaluating capital investment
and (2) develop and annually submit a          alternatives substantially meet leading practices as its project planning process
5-year long-term capital plan to OMB           explores alternatives to meeting investment needs. GSA’s process for prioritizing
and Congress. GSA agreed with our              capital investments partially meets leading practices, but its project prioritization
recommendations. Technical                     transparency could be improved by laying out in its annual budget submission
comments from GSA and OMB were                 how it uses its criteria to determine which projects get selected for funding over
incorporated as appropriate.                   others. In addition, an improved comprehensive long-term capital plan could
                                               further GSA’s ability to make informed choices about long-term investment
                                               decisions. Both OMB and GAO guidance emphasize the importance of
                                               developing a long-term capital plan to guide the implementation of organizational
                                               goals. Having such a plan would enable GSA and Congress to better evaluate a
View GAO-12-646. For more information,
contact Dave Wise at (202) 512-2834 or         range of priorities over the next 5 years. In short, more transparency through a
wised@gao.gov.                                 comprehensive long-term capital plan would allow for more informed decision
                                               making by GSA and Congress among competing priorities.
                                                                                        United States Government Accountability Office
Contents


Letter                                                                                     1
               Background                                                                  3
               Growing FBF Balance Belies Revenue and Cost Challenges                      5
               GSA Has Identified Billions in Repair Liability, but Decreased
                 Funding May Increase Future Resource Demand from the FBF                16
               GSA Could Better Conform Some of Its Capital Planning to Leading
                 Practices                                                               20
               Conclusions                                                               32
               Recommendations for Executive Action                                      33
               Agency Comments                                                           33

Appendix I     Objectives, Scope, and Methodology                                        35



Appendix II    Comments from the U.S. General Services Administration                    40



Appendix III   GAO Contact and Staff Acknowledgments                                     43



Tables
               Table 1: Changes to the Federal Buildings Fund, Fiscal Years 2006–
                        2012 (Dollars in millions)                                         6
               Table 2: Maintenance and Repair Liability of GSA’s Owned Assets,
                        Fiscal Year 2011                                                 17
               Table 3: Leading Capital Planning Practices for Using Information
                        to Make Capital Investment Decisions                             21
               Table 4: GAO’s Assessment of GSA’s Conformance to Leading
                        Practices for Using Information to Make Capital
                        Investment Decisions                                             22


Figures
               Figure 1: Funds from Operations Generated by GSA-Owned Assets,
                        Fiscal Years 2006 – 2011                                          9
               Figure 2: GSA-leased Asset Income, Fiscal Years 2006-2011                 13
               Figure 3: Change in Owned and Leased Rentable Square Feet, 2006-
                        2011                                                             15



               Page i                                       GAO-12-646 Federal Buildings Fund
Figure 4: Repairs and Alterations and New Construction
         Obligational Authority, Fiscal Years 2005-2012                                   19




Abbreviations

ABP               Asset Business Plan
BER               Building Evaluation Report
CRS               Congressional Research Service
DHS               Department of Homeland Security
ePCS              Enhanced Physical Condition Survey
FBF               Federal Buildings Fund
GSA               General Services Administration
IRIS              Inventory Reporting Information System
OMB               Office of Management and Budget
PCS               Physical Condition Survey
REXUS             Real Estate across the United States
SSA               Social Security Administration
TAPS              The Automated Prospectus System




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Page ii                                                 GAO-12-646 Federal Buildings Fund
United States Government Accountability Office
Washington, DC 20548




                                   July 12, 2012

                                   The Honorable Thomas R. Carper
                                   Chairman,
                                   Subcommittee on Federal Financial Management,
                                     Government Information, Federal Service, and International Security
                                   Committee on Homeland Security and Governmental Affairs
                                   United States Senate

                                   Dear Mr. Chairman:

                                   Capital assets, such as real estate, can require significant resources to
                                   construct, operate, and maintain over the course of their life cycle. To
                                   provide a predictable source of revenue for the General Services
                                   Administration (GSA) to manage its real estate portfolio, the Public
                                   Buildings Act Amendments of 1972 established the Federal Buildings
                                   Fund (FBF). 1 Since that time, GSA has collected rent from tenant
                                   agencies, deposited it into the FBF, and used that money to fund its real
                                   property acquisition, operation, maintenance, and disposal. Currently,
                                   funds from the FBF support nearly 10,000 assets—including about 1,500
                                   GSA-owned buildings and 8,100 GSA-leased buildings—which provide
                                   an inventory of more than 370 million square feet of workspace for 1.1
                                   million federal employees. 2

                                   Historically, however, the fund has not generated sufficient revenues to
                                   meet all needs. We reported in 1981 that the then 9-year-old fund faced
                                   difficulty funding GSA’s real property expenses because it did not
                                   generate sufficient revenue from the rental of its assets. 3 We reported in
                                   2000 that GSA had struggled to fund the capital repairs identified at its


                                   1
                                    Pub. L. No. 92-312, § 3, 86 Stat. 216, 218 (June 14, 1972), codified as amended at 40
                                   U.S.C. § 592.
                                   2
                                    In this report, we refer to buildings and structures that are owned by the federal
                                   government and under the custody and control of GSA as GSA-owned assets or
                                   buildings. While the definition of real property includes land, our review focused on
                                   buildings and structures and excluded land because future maintenance costs are
                                   generally associated with buildings (such as offices and courthouses) or structures (such
                                   as airfields or ports).
                                   3
                                    GAO, GSA’s Federal Building Fund Fails to Meet Primary Objectives, PLRD-82-18
                                   (Washington, D.C.: Dec. 11, 1981).




                                   Page 1                                                 GAO-12-646 Federal Buildings Fund
buildings and that GSA faced a potential repair liability of billions of
dollars. 4 These conditions contributed to our initial characterization of
federal real property management as a high-risk area in 2003. 5
Furthermore, the high cost of capital assets creates challenges for
budgeting in an era of resource constraints. In this context, you asked us
to review the viability of the fund.

This report focuses on (1) the factors that have affected the resources
available in the FBF, (2) GSA’s potential maintenance and repair liability
for its owned assets and the implications for the fund, and (3) the
information GSA considers when evaluating capital investment proposals
and how its practices compare to leading practices for prioritizing capital
investments. Our overall approach to addressing these topics was to (1)
review laws, studies, and GAO, GSA Inspector General, and
Congressional Research Service reports on federal real property and the
FBF; (2) analyze data and documents pertaining to the fund’s balance,
including budget requests and appropriations acts from fiscal years 2006
to 2012; (3) evaluate the financial performance of GSA’s real property
portfolio of approximately 10,000 assets based on data from fiscal years
2006 through 2011; (4) analyze data maintained by GSA on the identified
repairs needed in its owned assets; (5) compare GSA capital investment
practices to leading practices for making capital investment decisions
identified in the Office of Management and Budget’s (OMB) Capital
Programming Guide 6 and GAO’s Executive Guide; 7 (6) interview GSA
officials and OMB staff on the state of GSA’s real property portfolio; and
(7) review the four highest cost repairs and alterations projects of GSA’s
fiscal year 2012 budget submission to assess data used to determine
project requirements and how GSA evaluated project alternatives. We
also interviewed GSA system administrators, analysts, and managers
about the quality of data obtained from GSA’s real property and financial
databases and tested the data for missing variables and abnormal trends.


4
 GAO, Federal Buildings: Billions are Needed for Repairs and Alterations,
GAO/GGD-00-98 (Washington, D.C.: Mar. 30, 2000).
5
 GAO, High Risk Series: Federal Real Property, GAO-03-122 (Washington, D.C.:
January 2003).
6
 OMB, Capital Programming Guide, Supplement to Office of Management and Budget
Circular A-11, Part 7: Planning, Budgeting, and Acquisition of Capital Assets, June 2006.
7
 GAO, Executive Guide: Leading Practices in Capital Decision-Making, GAO/AIMD-99-32
(Washington, D.C.: December 1998).




Page 2                                                 GAO-12-646 Federal Buildings Fund
             We found that they were generally reliable for our purposes, which was to
             provide a summary level description of the physical and financial
             condition of GSA’s portfolio.

             We conducted this performance audit from August 2011 to July 2012 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. Further details on our scope
             and methodology can be found in appendix I.


             The FBF, administered by GSA, is a quasi-revolving fund financed by
Background   rents received from other agencies and authorized and established by the
             Public Buildings Act Amendments of 1972. 8 Instead of GSA receiving
             direct appropriations, the FBF operates as the primary means of financing
             the operating and capital costs associated with federal space, but GSA
             sometimes receives supplemental appropriations to meet repair or new
             construction needs. The FBF is financed by income from rental charges
             assessed to tenant agencies occupying GSA-owned and -leased space
             that approximate commercial rates for comparable space and services.
             GSA appraises its inventory on a 5-year cycle—approximately 20 percent
             of its owned inventory annually— and charges rent based on rates for
             comparable assets in the private sector. 9 GSA charges its tenants in
             space leased from the private sector rates equal to the cost of the lease
             plus either a 7 percent (for cancelable assignments) or 5 percent (for
             noncancelable assignments) administrative fee to cover its management
             costs. 10 During fiscal year 2011, GSA deposited about $9 billion into the



             8
               Pub. L. No. 92-312. A revolving fund is a fund established by Congress to finance a
             cycle of business like operations through amounts received by the fund. GAO, A Glossary
             of Terms Used in the Federal Budget Process, GAO-05-734SP (Washington, D.C.: Sept.
             2005) at 88. Because congressional action is needed for the funds to be available for
             obligation, it is not a true revolving fund.
             9
               GSA performs fair annual rent appraisals to determine commercially equivalent rental
             rates in a given location and bases rental rates charged to its tenants on these appraisals.
             10
                The actual administrative fee percentage is dependent upon whether the Occupancy
             Agreement allows the tenant agency the right to release space during the lease term. This
             is termed a cancelable lease.




             Page 3                                                  GAO-12-646 Federal Buildings Fund
fund. GSA’s lease payments have increased over the last decade as
leased space has grown to comprise more than half of GSA’s current total
portfolio. Starting in 2008, GSA has leased more space than it owns; at
the end of fiscal year 2011, leased square footage exceeded owned, 193
million to 182 million (51 percent).

Congress exercises control over the FBF through the appropriations
process that sets annual limits—called obligational authority—on how
much of the fund can be obligated for various activities. GSA, as an
executive branch agency, requests obligational authority from Congress
as part of the annual President’s Budget Request. In annual
appropriations legislation, Congress provides obligational authority to
GSA to incur obligations and make expenditures from the FBF in five
categories of activities:

1. Rental of Space – funds leases of privately owned space or buildings
   for federal agencies.
2. Repairs and Alterations – funds repairs and alterations of existing
   buildings as well as associated design and construction services.
3. Construction and Acquisition of Facilities – funds the construction or
   purchase of facilities and major extensions to existing buildings.
4. Building Operations and Maintenance – funds services for
   government-owned and -leased facilities, including cleaning, utilities
   and fuel, maintenance, miscellaneous services (such as moving),
   evaluation of new materials and equipment, and field and general
   management and administration.
5. Installment Acquisition Payments – funds debt incurred as the result
   of building acquisition and lease purchase arrangements.

Revenue from GSA’s owned facility inventory is the main source of the
FBF’s operating income used to fund repair and alteration, new
construction activities, and operations and maintenance. GSA’s portfolio
of properties leased from the private sector is designed to be revenue
neutral in disbursing all the funds it collects from federal agencies
occupying the space to pay the cost of the underlying leases.

Building repairs and alterations as well as construction and acquisition
projects that are expected to cost more than the prospectus-level
threshold must be submitted to certain congressional committees for




Page 4                                        GAO-12-646 Federal Buildings Fund
                      authorization and funding. 11 GSA in its annual budget submission, with
                      OMB approval, provides Congress with a prospectus for each repair and
                      alteration project estimated to exceed the prospectus-level threshold. The
                      prospectus includes information on the size, cost, location, and other
                      features of the proposed work; a justification for proceeding with the work;
                      and an economic analysis of the alternatives to the requested repairs and
                      alterations.



Growing FBF Balance
Belies Revenue and
Cost Challenges
FBF Balance           The FBF’s balance has increased significantly in recent years, growing
                      from $56 million at the beginning of fiscal year 2007 to $2.2 billion by the
                      beginning of fiscal year 2012. The increased balance has primarily
                      resulted from the growing difference between the resources deposited
                      into the FBF and use of these funds as determined through the budgeting
                      and appropriations process. Specifically, the total available balance is a
                      function of the resources deposited into the fund, the amount of
                      obligational authority requested by GSA as part of the President’s Budget
                      Request, and the actual obligational authority provided by Congress. 12
                      Beginning in fiscal year 2007, the total resources deposited into the FBF
                      have exceeded the obligational authority provided by Congress. (See
                      table 1.) According to OMB staff, a portion of the growth in the FBF’s
                      balance is attributable to inaccuracy in GSA’s estimation of its rental
                      revenues. The result of these budgetary and appropriations actions has
                      been the near quadrupling of the fund balance in the last 2 years.




                      1140 U.S.C. § 3307. Prospectus-level projects involve major work or acquisitions that are
                      estimated to cost more than a statutorily prescribed amount ($2.79 million for fiscal year
                      2013 projects), which GSA’s Administrator is authorized to adjust annually.
                      12
                         In this report, we refer to requests made through the President’s Budget Request for
                      obligational authority as requests for obligational authority from GSA, though the request
                      is made as part of request for budget authority for executive branch programs.




                      Page 5                                                  GAO-12-646 Federal Buildings Fund
Table 1: Changes to the Federal Buildings Fund, Fiscal Years 2006–2012 (Dollars in millions)

                Beginning                                     Total                 President’s         Appropriated            Change from
Fiscal               fund            Fund                 available                     Budget           obligational          the beginning
                        a                 b                                                                         c
year             balance          deposits               resources                     Request             authority            fund balance
2006                   521            7,495                    8,016                     7,769                      7,961                    (465)
2007                    56            7,583                    7,639                     8,047                      7,498                      85
2008                   141            8,280                    8,420                     8,091                      8,133                     147
2009                   288            8,765                    9,053                     8,378                      8,450                     316
2010                   604            8,956                    9,560                     8,531                      8,527                     428
2011                 1,032            8,841                    9,873                     9,154                      7,659                    1,156
                                              d
2012                 2,239            9,223                   11,462                     9,509                      8,018                    1,205
                                         Source: GAO analysis of GSA information.

                                         Note: Analysis excludes revenue and obligational authority resulting from GSA’s use of its various
                                         indefinite authorities (e.g., Historical Properties, 16 U.S.C. § 470h-3(b); Energy and Recycling
                                         Rebates, 40 U.S.C. § 592; and Rental of Space, 40 U.S.C. § 586(d)).
                                         a
                                             The total balance of the FBF as of the beginning of the fiscal year.
                                         b
                                          Fund deposits include revenue and rent from operations, appropriations, reprogrammings,
                                         redemption of debt, transfers, prior year recoveries, transfers, and rescissions.
                                         c
                                          Appropriated obligational authority includes approved reprogrammings.
                                         d
                                             GSA estimates the FBF will receive $9.2 billion from revenue and other fund deposits in 2012.


                                         In using authority to direct the expenditure of public funds and establish
                                         priorities among federal programs, Congress decides whether to fund a
                                         particular program or activity, and if so, sets the level of that funding. In
                                         the case of the FBF, Congress has provided in the last 2 fiscal years less
                                         obligational authority to GSA than was requested in the President’s
                                         Budget Request. For example, in fiscal year 2012 Congress provided
                                         about 16 percent less than the President’s Budget Request. In addition, in
                                         both 2011 and 2012 Congress provided less obligational authority than
                                         funds deposited into the FBF. According to OMB staff and GSA officials,
                                         Congress provided less obligational authority than requested to balance
                                         competing priorities among government programs and meet spending
                                         caps.

                                         OMB staff and GSA officials stated that the funds collected by the FBF
                                         might sufficiently support GSA’s projects for its assets. For example,
                                         OMB staff stated that if GSA were able to spend all of the funds collected
                                         by the FBF each year, these funds would generally be sufficient to fund
                                         GSA’s identified repairs and alterations projects and a modest new
                                         construction program. GSA officials noted that when Congress provides
                                         less obligational authority than requested, repairs and alterations and new
                                         construction projects are the most affected because available funds must



                                         Page 6                                                             GAO-12-646 Federal Buildings Fund
                            first be used to pay leasing, operations and maintenance, and debt costs.
                            GSA officials also stated that the authorization to obligate and spend the
                            balance of funds in the FBF, which it anticipates will double to $4.5 billion
                            by the end of fiscal year 2013, would enhance the agency’s ability to
                            manage its real property portfolio by ensuring that operations and
                            maintenance are sufficiently funded and that capital investments, such as
                            repairs and alterations and new construction projects, can continue to be
                            made. However, OMB staff stressed that the current FBF balance is not
                            available for obligation and that in order to make additional obligations
                            from the fund, congressional action would be needed.

                            While the appropriations process has resulted in less obligational
                            authority for GSA than was sought in the President’s Budget Request, the
                            agency has not always communicated through its annual budget request
                            to Congress its interest in reducing the fund’s balance by increasing
                            spending. Rather, since 2008, GSA has consistently requested
                            obligational authority less than the total resources available in the fund.
                            Also since 2008, GSA has only twice requested an amount of obligational
                            authority that would reduce the existing fund balance, meaning that it
                            requested more obligational authority than funds deposited for that year.
                            Specifically, GSA requested to reduce the existing FBF balance by about
                            30 percent in 2011 and 13 percent in 2012. GSA officials stated that in
                            preparing their budget requests they work with OMB to discuss their
                            needs in relation to competing priorities from other executive branch
                            agencies. According to GSA officials, budget requests for FBF
                            obligational authority reflect efforts to balance GSA’s needs with those of
                            other federal agencies within the overall budget framework.


Factors Affecting FBF       While budgeting and appropriations decisions have contributed to a
                            significant increase in the FBF balance the last 2 years, various factors
                            have limited the fund’s income from GSA’s real property operations.
                            These factors include an imbalance between revenue and costs,
                            decreased revenue from underperforming assets, and a reliance on
                            leasing.

Imbalance between Revenue   GSA’s owned assets generate most of the resources used for capital
and Costs                   improvements. From 2006 through 2011, the financial performance of
                            these assets has stagnated despite GSA’s increasing the amount of
                            rentable square feet in its owned portfolio from 174 million to 182 million




                            Page 7                                         GAO-12-646 Federal Buildings Fund
square feet. 13 As measured by funds from operations—meaning revenue
less costs excluding depreciation—GSA generated approximately $1.6
billion from its owned assets in 2006 and a nearly identical amount in
2011, though the annual amount varied during this time period. 14 When
taking the effects of inflation into account, we found that the real value of
the funds from operations generated by GSA’s owned assets and
measured in 2006 dollars has decreased by 9 percent over this time. 15
(See fig. 1.)




13
  Over the same time, the amount of leased space has grown from 172 million to 193
million square feet.
14
  Funds from operations (FFO) is a metric used by GSA to measure the financial
performance of its assets.
15
  In this report, where indicated, we adjusted values for inflation using a chain-weighted
gross domestic product (GDP) index based on the averages of quarterly indexes from
U.S. Department of Commerce, Bureau of Economic Analysis, National Income and
Product Accounts, table 1.1.4 last revised Jan. 21, 2012.




Page 8                                                  GAO-12-646 Federal Buildings Fund
Figure 1: Funds from Operations Generated by GSA-Owned Assets, Fiscal Years
2006 – 2011




Funds from operations generated by GSA’s owned assets have been
affected by declining revenue and rising costs.

•   Revenue. Since 2006, revenue growth has not kept pace with
    inflation. Specifically, the revenue from GSA’s owned portfolio
    adjusted for inflation has decreased by 2 percent. GSA officials said
    that revenue generated by its owned assets is highly dependent upon
    the fair annual rent appraisal of the asset which, in turn, is based on
    the value of rental charges at comparable private sector properties.
    GSA officials noted that from 2006 to 2011, increased commercial
    office vacancies contributed to soft rental markets and minimal growth
    in rental rates. According to these officials, changes in revenue
    primarily reflect the downward pressure on GSA’s rental rates caused
    by market conditions.

•   Costs. Since 2006, costs associated with operating, maintaining, and
    repairing GSA’s owned facilities have risen faster than inflation. GSA’s
    annual operating costs, representing the direct costs of operating its
    facilities (including utilities, janitorial services, and routine



Page 9                                          GAO-12-646 Federal Buildings Fund
                              maintenance) have risen by about 6 percent total in constant dollars
                              from 2006 to 2011, though year to year these costs are volatile and
                              can vary significantly. 16 GSA officials stated that reasons for the
                              increase in operating costs include general inflation in utilities,
                              maintenance, and administrative costs. Furthermore, GSA estimates
                              that construction costs have increased since 2005. We found that
                              from October 2005 to September 2011, for example, construction
                              costs rose by nearly 20 percent, or by nearly twice the general rate of
                              inflation, eroding the value of FBF resources generated to fund capital
                              repairs and construction. 17

                         GSA officials also noted that, with decreased obligational authority, the
                         growing amount and cost of leased space in its portfolio have reduced the
                         proportion of obligational authority available to fund repairs and
                         alterations that could potentially reduce operating costs in its owned
                         portfolio. From 2006 through 2011, obligational authority for the
                         acquisition of leased space increased from $3.9 billion (49 percent of
                         obligational authority) to $4.8 billion (62 percent) as the amount of leased
                         space increased from 172 million to 193 million square feet. At the same
                         time, obligational authority for repairs and alterations has decreased from
                         $1.1 billion (14 percent of obligational authority) in 2006 to $341 million (4
                         percent) in 2011.

Underperforming Assets   While the FBF as a whole has generated positive funds from operations,
                         portions of GSA’s inventory operate at a loss. For example, within its
                         owned portfolio, about 30 percent of GSA’s assets lose money in a given
                         year. In fiscal year 2011, the loss from these assets was $170 million, and
                         GSA has incurred a similar loss on that portion of its portfolio each year
                         from 2006 to 2010. These assets tended to be older and smaller than




                         16
                            For example, from 2006 to 2010, GSA’s operating costs from its owned assets rose
                         from $847 million to $1,124 million, an increase of 33 percent or 23 percent when adjusted
                         for inflation. However, in 2011, these operating costs fell to $990 million. GSA officials
                         attribute this decrease to lower costs in its janitorial and maintenance contracts, including
                         a 34 percent reduction in its elevator maintenance contract.
                         17
                            We used the Engineering News Record’s Construction Cost Index to calculate the
                         increase in construction costs from October 2005 to September 2011. The index
                         measures how much it costs to purchase a mix of construction, labor, and materials
                         compared to what it cost in the base year.




                         Page 10                                                  GAO-12-646 Federal Buildings Fund
other assets in the owned portfolio. 18 We determined that most of these
losses are attributable to about 200 assets, each of which lost more than
$100,000 in 2011. GSA officials noted that in some cases, operating an
asset at a loss can be more cost effective in the short term than the cost
of acquiring new space, moving an agency, and disposing of the asset.
GSA officials further explained that there are various reasons they retain
facilities that generate losses, for example because an asset is mission
critical, has symbolic importance, or establishes a necessary federal
presence in a sparsely populated area. For example, the Prince H.
Preston Building and Courthouse, located in Statesboro, Georgia,
provides space for the U.S. District and Bankruptcy Courts and other
agencies’ facilities on an as-needed basis. However, the building has
consistently generated negative funds from operations because the
amount of space required for the federal presence in Statesboro has
decreased since the building was constructed in 1963. Specifically, while
the building was originally constructed to provide space to the Social
Security Administration and the Department of Agriculture in addition to
the Courts, both executive branch agencies have since vacated the
space. Despite the vacant space and financial losses resulting from
departure of two of its original tenants, GSA intends to retain this facility
until the Judiciary determines its long-term plan for maintaining a
presence in Southeast Georgia. GSA officials also noted that when their
managed facilities undergo major renovations, the space in those facilities
is often temporarily vacated and does not generate revenue during that
time. For example, space in the Eisenhower Executive Office Building in
Washington D.C., which is currently undergoing a multiphase renovation,
was unavailable for tenant occupancy in 2011, contributing to a $15
million operating loss for the building.

In addition to these types of losses, GSA has formally agreed with its
tenants to provide below-market rent on about 240 assets, which has
modestly reduced revenue deposited in the FBF. In fiscal year 2011, GSA
estimated that rent restrictions reduced the revenue generated for the
FBF by about $175 million. These reduced rental rates have resulted from
a combination of GSA and congressional exemptions that have been in




18
   Specifically, the median asset in GSA’s owned portfolio is 45 years old and occupies
about 20,000 square feet, while the median asset among those generating negative
income is 55 years old and occupies about 11,000 square feet.




Page 11                                                GAO-12-646 Federal Buildings Fund
                      place for a number of years. 19 These exemptions were provided for a
                      number of reasons, including lack of funds from the tenant agencies,
                      agreements resulting from the sale of property from an agency to GSA,
                      and security concerns. For example, in 1996, GSA granted an exemption
                      to the Woodrow Wilson Center for the organization’s use of approximately
                      100,000 square feet of office space in the Ronald Reagan Building and
                      International Trade Center in Washington, D.C. through 2026. GSA
                      estimates this rent exemption reduced FBF revenue by $5 million in fiscal
                      year 2011.

Reliance on Leasing   From 2006 through 2011, as the amount of space that GSA leased from
                      the private sector grew from 172 million to 193 million square feet, GSA’s
                      losses (as measured by funds from operations) on its leased assets have
                      increased. (See fig. 2.) Over the past 4 years, cumulative losses on its
                      leases have exceeded $200 million; approximately $75 million in losses
                      occurred in fiscal year 2011. Most of the losses in 2011 were
                      concentrated in about 300 leases, each of which lost more than
                      $100,000. Relative to the total revenue generated by its leased portfolio in
                      2011 ($5.6 billion), the net losses from its leased assets (about $75
                      million) in 2011 are comparatively small. Nevertheless, such losses
                      require GSA to use funds generated from other revenue sources to offset
                      them, which in turn decreases the funds available for investing in GSA’s
                      owned assets. 20




                      19
                        Of the 13 exemptions currently in place, 11 were authorized by the GSA Administrator
                      and the Office of Management and Budget, and the remaining 2 were authorized by
                      Congress.
                      20
                         According to GSA officials, the $75 million loss from GSA’s leased assets in fiscal year
                      2011 was absorbed by both the FBF and funds from the American Reinvestment and
                      Recovery Act of 2009 (Recovery Act). Specifically, the FBF absorbed $35 million in losses
                      from GSA’s leased assets. The remaining loss of $40 million, resulting from the need to
                      acquire temporary leased space during Recovery Act improvements, was absorbed by
                      Recovery Act funds in accordance with GSA pricing policy.




                      Page 12                                                 GAO-12-646 Federal Buildings Fund
Figure 2: GSA-leased Asset Income, Fiscal Years 2006-2011




GSA officials noted that leasing losses have primarily resulted from
several factors, including reductions in its administrative fee, accounting
adjustments, billing and payment errors, lease buyouts and formulation
costs, and vacant space. 21 Specifically:

•    According to GSA officials, the agency reduced the administrative fee
     that it charges to agencies for managing leases from the private
     sector from 8 percent to 7 percent for many leases in 2008, resulting
     in an estimated annual $50 million (1 percent) reduction in revenue.
     According to GSA officials, because the leasing portfolio was
     producing a modest surplus in 2007, GSA lowered its administrative
     fee to reduce the cost of leasing for its tenant agencies. These
     officials noted that, in 2011, for instances where a lease lost less than
     $100,000, many of these losses are attributable to overhead
     expenses that exceed revenue from administrative fees. GSA officials



21
   We did not evaluate the extent to which these or other factors have contributed to
losses in GSA’s leased portfolio, and have planned future work to explore these topics.




Page 13                                                GAO-12-646 Federal Buildings Fund
    explained they are currently reevaluating whether its administrative
    fee is sufficient to cover the cost of the leasing program.

•   According to GSA officials, their use of accrual-based accounting—
    where revenues are recorded when earned and expenses are
    recorded when incurred, irrespective of whether any cash has flowed
    in or out during the accounting period—results in adjustments that
    essentially level the lease payment stream throughout the life of a
    lease. This adjustment can result in expenses being recorded in a
    single accounting period that are greater or less than the actual lease
    payment during that period. GSA estimates that, after eliminating the
    impact of accounting adjustments and transactions related to the
    Recovery Act, the agency lost approximately $18.5 million in the
    leased portfolio during fiscal year 2011.

•   Billing and other administrative errors have also contributed to losses
    in its leased portfolio, according to GSA officials. For example, GSA
    officials noted that the agency may begin to pay a lessor for space
    before GSA has finalized the occupancy agreement with the tenant
    agency and entered it into GSA’s financial management system.
    While GSA officials acknowledged that these funds can be recouped
    from the tenant agencies after the occupancy agreement is finalized,
    they estimated that these actions reduced funds from operations from
    the leased portfolio by nearly $17 million in 2011.

•   GSA officials also noted that lease formulation costs, lease buyouts,
    and vacant space within its leased portfolio result in costs and lost
    income that have contributed to losses. GSA officials explained that
    when tenant agencies move out of leased space, GSA attempts to
    place another tenant agency in that same space. However, between
    the occupancy periods of the two tenants, GSA is responsible for
    paying the cost of the space, unless GSA terminates the lease and
    pays a buyout to the private sector lessor. GSA officials noted that
    while the cost of a lease buyout may contribute to losses in the year of
    the buyout, over the long-term, pursuing a lease buyout may reduce
    the amount of vacant space in its portfolio. GSA officials noted that, as
    of the end of fiscal year 2011, 2.3 percent of the space in the leased
    portfolio was vacant.

Even with these losses in its leased portfolio, GSA continues to rely
extensively on leasing to meet its tenants’ increasing demand for office
space. In 2008, the amount of rentable space leased by GSA exceeded
the amount of its owned space for the first time. (See fig. 3.) GSA officials



Page 14                                        GAO-12-646 Federal Buildings Fund
noted that, as a result of the funding constraints in recent years discussed
earlier in this report, the agency has primarily used leasing to meet new
office space requirements of its tenant agencies. Nevertheless, our
previous work has shown that leasing often costs more than federal
building ownership, particularly if operating leases are used to meet long-
term space needs. 22

Figure 3: Change in Owned and Leased Rentable Square Feet, 2006-2011




GSA is taking steps to manage its financial resources more effectively by
reducing the size of its overall real estate portfolio, both in terms of the
number of assets and the amount of square feet it manages. In a June
2010 memorandum, the administration directed GSA, along with other
agencies, to accelerate efforts to identify and eliminate excess properties
and to make better use of remaining real property assets. As part of these
efforts, GSA is reducing its owned assets through the sale of excess and


22
  GAO, Federal Real Property: Overreliance on Leasing Contributed to High-Risk
Designation, GAO-11-879T (Washington D.C.: Aug. 4, 2011.)




Page 15                                             GAO-12-646 Federal Buildings Fund
                            underutilized property and consolidation actions. For example, according
                            to GSA, in 2011, it disposed of 52 assets, resulting in a reduction of 3.3
                            million rentable square feet of space. In addition, GSA is encouraging its
                            tenant agencies to use alternative working arrangements, such as
                            teleworking and hoteling (where personnel use unassigned seating when
                            they are in the office) to reduce space needs. Further, GSA officials noted
                            that budget constraints across the executive branch have forced its tenant
                            agencies to reexamine their space needs and that GSA expects demand
                            will continue to shrink.



GSA Has Identified
Billions in Repair
Liability, but
Decreased Funding
May Increase Future
Resource Demand
from the FBF

Condition of GSA’s Assets   GSA measures its investment needs for maintaining and improving the
                            condition of its owned facilities through its maintenance and repair
                            liability, which identifies the estimated aggregated cost of future
                            maintenance and repairs across its portfolio. 23 At the end of fiscal year
                            2011, GSA identified a $4.6 billion liability for the next 10 years. 24 Of this
                            total, $1.3 billion is for immediate maintenance and repair needs, and




                            23
                              GSA assesses the basic structure and systems of each asset on a biannual basis to
                            estimate the cost of needed maintenance and repairs which contribute to the overall
                            maintenance liability.
                            24
                               Within its 10-year maintenance and repair estimate GSA categorizes maintenance and
                            repair cost into subcategories that reflect repairs needed immediately (1 year), within 1-2
                            years, within 3-5 years, and more than 5 years from now.




                            Page 16                                                 GAO-12-646 Federal Buildings Fund
$3.3 billion is for maintenance and repairs that will be needed in future
years. 25

The estimated cost of maintenance and repairs to GSA’s owned assets
varies across the portfolio. GSA’s data show that 40 percent of its assets
have maintenance and repair liabilities of $500,000 or less and about 22
percent have a liability exceeding $2 million. (See table 2.) GSA’s data
also indicate that approximately 23 percent of the assets in the portfolio
have no recorded maintenance and repair liability. GSA officials explained
that a facility having no maintenance and repair liability may mean that (1)
there is no maintenance liability for that asset, (2) a condition assessment
has not been conducted, or (3) its maintenance liability was recorded as
part of the maintenance liability for a larger facility.

Table 2: Maintenance and Repair Liability of GSA’s Owned Assets, Fiscal Year 2011

    Liability of maintenance and repair     Number of Percent of owned           Median gross
                                                                       a
    (over the next 10 years)                   assets         portfolio            square feet
    $1 to $500,000                                  681                39.5%               7,169
    $500,001 to $1,000,000                          133                  7.7%             52,254
    $1,000,001 to $2,000,000                        147                  8.5%             64,421
    $2,000,001 to $5,000,000                        184                10.7%            134,846
    $5,000,001 to $10,000,000                        85                  4.9%           233,987
    $10,000,001 to $20,000,000                       45                  2.6%           414,691
    $20,000,001 or more                              58                  3.4%           781,429
Source: GAO analysis of GSA information.
a
This analysis does not include the 392 assets (or approximately 23 percent of GSA’s owned assets)
with a repair and maintenance liability of zero.


GSA’s data also suggest that a facility’s age is related to its maintenance
and repair liability. According to the fiscal year 2011 data GSA provided,
its owned assets average 48 years in age, and those over 61 years old
are responsible for about 40 percent of its total maintenance liability. In
addition, according to GSA, more than one-fourth of its owned buildings



25
   According to GSA officials, the maintenance liability has decreased from fiscal year
2009 by approximately $1 billion due in large part to use of Recovery Act funds. As part of
the Recovery Act GSA received approximately $5.5 billion dollars to convert federal
facilities to high-performance green buildings, as well as renovate and construct federal
buildings, courthouses, and land ports of entry.




Page 17                                                     GAO-12-646 Federal Buildings Fund
                         are listed in or eligible for the National Register of Historic Places, the
                         nation’s listing of historic properties. According to GSA officials, these
                         historic buildings require comparatively more maintenance and repair
                         work. GSA officials also noted that they hold assets longer than assets
                         maintained in the private sector in part because of GSA’s stewardship
                         responsibility to preserve historic buildings.


Funding for Repair and   As previously discussed, GSA’s overall obligational authority has trended
Alteration Projects      downward in recent years, and much of this reduction has been absorbed
                         by the repairs and alterations and new construction accounts within the
                         FBF, meaning that GSA has reduced its spending on repairs and
                         alterations and construction work. Specifically, GSA’s obligational
                         authority for repairs and alteration projects, decreased from $855 million
                         in 2005 to $280 million in 2012. 26 Obligational authority for construction,
                         decreased from $760 million in 2005 to $50 million in 2012. (See fig. 4.)




                         26
                              Obligational authority includes adjustments due to reprogrammings and rescissions.




                         Page 18                                                 GAO-12-646 Federal Buildings Fund
Figure 4: Repairs and Alterations and New Construction Obligational Authority,
Fiscal Years 2005-2012




Note: This figure does not include funding provided to the FBF in 2009 as part of the Recovery Act.
GSA received approximately $5.5 billion through the Act for green-building initiatives as well as to
renovate and construct federal buildings, courthouses, and land ports of entry. According to GSA
officials, these funds reduced the agency’s maintenance liability since 2009 by approximately $1
billion.


GSA officials and OMB staff suggested that absent sufficient funding, the
cost of operating GSA facilities could increase and the condition of GSA’s
portfolio could decline. These officials noted that repairs identified now
have the potential to be more expensive if they are delayed, thereby
increasing the amount of funding needed from the FBF, possibly resulting
in an array of undesirable outcomes. For example, delayed repairs can
increase the frequency of unplanned interruptions and downtime of facility
systems and components, and can decrease the useful life of real
property. GSA officials noted some instances in which funding restrictions
delayed repair and maintenance activities, increasing the cost to operate
its existing assets. For example, they explained that GSA’s Heating
Operation and Transmission District system, which provides steam and
chilled water for heating and cooling operations at approximately 80
facilities in Washington, D.C., requires substantial repair work. The delay



Page 19                                                        GAO-12-646 Federal Buildings Fund
                      in modernizing key components of the system has increased the risk of
                      service failure during the winter months. In order to ensure the reliability
                      of the system, GSA has required additional staff hours from its
                      maintenance and engineering personnel to maintain the system,
                      increasing the overall plant operating costs and resulting in higher steam
                      charges to GSA’s customer agencies. Delayed repairs could also affect
                      the funding generated for the FBF. Specifically, if an asset’s appraisal
                      decreases due to its deteriorated condition, the rent charged to the tenant
                      agency could also decrease, resulting in less revenue for the FBF.

                      The concerns of GSA officials and OMB staff are consistent with those of
                      the National Research Council of the National Academies which has
                      stated that public sector organizations facing limited resources often first
                      defer or cut facilities investments, particularly investments in maintenance
                      and repairs. The National Research Council estimates that each $1 in
                      deferred maintenance results in a long-term capital liability of $4 to $5,
                      and that “an accumulation of deferred investments over the long term
                      may be significantly greater than the short-term savings that public-sector
                      decision makers were initially seeking.” 27


                      Making informed capital investment decisions requires full information
GSA Could Better      about an agency’s current and long-term needs, alternative courses of
Conform Some of Its   action, and how potential projects compare amongst each other. We
                      identified leading practices for using information to make capital
Capital Planning to   investment decisions primarily from GAO’s Executive Guide and OMB’s
Leading Practices     Capital Programming Guide. We also drew from leading capital
                      investment practices identified by the National Research Council. 28 We
                      assessed GSA’s performance in using information to make capital
                      investment decisions against the criteria established in these guides.
                      (See table 3.)




                      27
                        National Research Council of the National Academies, Investments in Federal
                      Facilities: Asset Management Strategies for the 21st Century (Washington, D.C.: 2004).
                      28
                         National Research Council of the National Academies, Predicting Outcomes from
                      Investments in Maintenance and Repair for Federal Facilities (Washington, D.C.: 2011).




                      Page 20                                               GAO-12-646 Federal Buildings Fund
Table 3: Leading Capital Planning Practices for Using Information to Make Capital Investment Decisions




                                         GSA’s practices for using information to evaluate capital investment
                                         proposals substantially conforms to leading practices in the area of needs
                                         assessment and alternatives evaluation. GSA’s project prioritization
                                         process partially conforms to leading capital planning practices. GSA’s
                                         long-term capital plan minimally conforms to leading capital planning
                                         practices. (See table 4.)




                                         Page 21                                           GAO-12-646 Federal Buildings Fund
                   Table 4: GAO’s Assessment of GSA’s Conformance to Leading Practices for Using
                   Information to Make Capital Investment Decisions




                   Note: For each capital investment planning criterion assessed, a rating of fully conforming met over
                   90 percent of criteria, a rating of substantially conforming met about 75 percent of criteria, a rating of
                   partially conforming met about 50 percent of criteria, a rating of minimally conforming met about 25
                   percent of criteria, and a rating of does not conform met less than 10 percent of criteria.




Needs Assessment   GSA’s process for assessing its assets’ condition and needs substantially
                   meets leading practices. Leading practices suggest that to establish a
                   baseline of condition and needs, organizations should maintain systems
                   that track the use and performance of existing assets. GSA uses many
                   documents, tools, and databases to track a baseline of information on its
                   assets’ condition and needs. For its part, GSA primarily conducts two
                   types of assessments to gather information on the condition of its
                   buildings: physical condition surveys (PCSs) and web-based building
                   evaluation reports (BERs).

                   •    Physical Condition Surveys. The PCS is a walk-through assessment
                        that determines the relative condition of building and infrastructure
                        systems. GSA gathers information on its individual assets through
                        PCSs to obtain a general assessment of the condition of all active or
                        excess buildings in its portfolio. 29 PCSs, typically conducted by GSA’s
                        building management personnel and asset business teams, 30



                   29
                      GSA conducts PCSs for property that meets the following criteria: (1) GSA has repairs
                   and alterations responsibility, (2) the asset maintains a status of “active” or “excess”, and
                   (3) the asset has a real property type of “building” or “structure”.
                   30
                      Asset business teams, which include representatives from the major GSA disciplines,
                   play a key role in an asset’s capital development process by assisting with the scope of
                   work and execution of the project.




                   Page 22                                                           GAO-12-646 Federal Buildings Fund
    document the long-term needs of a building’s basic structure and
    systems and represent the inventory of items in need of repair or
    replacement. The results from the PCS survey are entered into GSA’s
    PCS database to provide a total dollar value of needs that can be
    used to forecast the building’s reinvestment requirements and
    determine asset strategy.
•   Building Evaluation Reports. The BER functions as a source
    document for the development of a comprehensive reinvestment
    strategy to meet a building’s short-term (up to 5 years) and long-term
    (up to 20 years) needs. GSA uses web-based BERs to provide a
    more detailed assessment of those buildings targeted for major
    repairs. BERs are typically performed by contracted architectural and
    engineering firms. A BER is not required for each asset but is required
    for all prospectus-level projects.

GSA has other key documents that help track a range of individual asset
information including not only the condition and needs of a building, but
also the financial performance of and specific work items planned for
individual buildings within its owned portfolio or information on its entire
real property portfolio.

•   Asset Business Plans. Asset Business Plans (ABPs) help GSA make
    asset-specific project decisions with respect to each asset’s overall
    needs and GSA’s long-term plans for the asset. ABPs house key
    information such as an asset’s revenues, vacancy rates, cost of
    needed repairs, and planned work items. For example, the ABP for
    the State Department’s headquarters at the Truman Building in
    Washington, D.C. estimates revenues for fiscal year 2011 of $45
    million, a vacancy rate of 5.8 percent, and that planned repairs and
    alterations in 2013 will cost about $61.3 million.
•   State of the Portfolio report. At a macro level, GSA’s annual State of
    the Portfolio report tracks trends affecting the portfolio including
    revenue generation, vacancy rates, inventory changes such as new
    construction and disposals, and the cost of major repairs and
    alterations.

GSA uses multiple databases to track key asset information including a
building’s condition, revenue generation, and repair needs to inform
capital investment decisions. These databases are the enhanced
Physical Condition Survey (ePCS) system, the Real Estate across the
United States (REXUS), the Inventory Reporting Information System
(IRIS), and Pegasys—GSA’s financial management information system.



Page 23                                        GAO-12-646 Federal Buildings Fund
•      Enhanced Physical Condition Survey. GSA’s ePCS database
       maintains data on building needs and deficiencies collected by the
       walk-through assessment. A key metric from the ePCS database is
       the maintenance and repair liability that tracks estimates of GSA’s
       needs in four categories, those that are needed immediately, in 1-2
       years, 3-5 years, and more than 5 years.
•      Real Estate across the United States. GSA tracks general inventory
       information such as building type, square footage, and location
       through its REXUS database. GSA transitioned from its old inventory
       system to REXUS in July 2011 to incorporate more tools to check the
       data and provide more accurate information.
•      Inventory Reporting Information System. IRIS is a web-enabled
       application that supports GSA in developing, planning, and
       authorizing work for its buildings. IRIS is used to plan and schedule all
       repairs and alterations projects for its buildings and track execution of
       construction projects. Through its direct link to the ABP, projects in
       IRIS are vetted and prioritized by the asset business teams.
•      Pegasys. GSA’s financial management information system, Pegasys,
       tracks information such as revenue generation and operating costs for
       each building in GSA’s owned portfolio.

GSA also tracks customer satisfaction with its building services through
an annual survey, a leading needs assessment practice, which allows
GSA to use customer feedback to improve its property management
processes to provide a base level of information about what conditions
might need priority attention. GSA has tracked the satisfaction of its
tenants since 1993. It does so for both its owned and leased portfolios at
the national level and for each of its 11 regions. Since fiscal year 2008,
satisfaction rates at the national level for its owned and leased portfolios
have ranged from 74 percent to 84 percent. 31

While GSA’s needs assessment efforts substantially meet leading
practices, GSA’s portrayal of facilities with no recorded maintenance and
repair liability could be misleading. In particular, 392 assets—about one-
fourth of total assets—are listed as having a maintenance and repair
liability of zero, but this may not accurately reflect the condition of each
asset. As discussed earlier, having no recorded maintenance and repair
liability may indicate that there are no maintenance needs for that asset;



31
     A satisfied tenant is one that gave a 4 or 5 on a 5-point satisfaction scale.




Page 24                                                     GAO-12-646 Federal Buildings Fund
                          however, it may also indicate that a physical condition assessment was
                          not conducted or that its maintenance needs are recorded under a larger
                          facility. In addition, in our report on excess and underutilized property, we
                          found that GSA gave higher condition ratings to some properties in very
                          poor condition than properties elsewhere in their portfolio in good
                          condition. 32

                          In addition, our review of documentation and data for GSA’s four highest
                          cost repair and alteration projects in fiscal year 2012 found that the ABPs
                          for three of the four projects had data from a condition survey conducted
                          within the last 2 years. 33 Only the State Department Headquarters
                          (Truman Building) renovation project did not have an ABP with data from
                          a condition survey completed within the last 2 years. We also conducted
                          spot checks of 11 real property data fields supplied by the ePCS, REXUS,
                          and Pegasys databases for the ABPs of these four projects and found
                          that the data generally seemed to match.


Alternatives Evaluation   GSA’s process for evaluating capital investment alternatives substantially
                          conforms to leading practices. As outlined in its Project Planning Guide,
                          GSA is supposed to evaluate a range of project alternatives during
                          feasibility and program development study phases. Information from
                          these studies helps decision makers evaluate project alternatives.
                          Alternatives typically include a repair and alteration project, a leasing
                          option, and a new construction option to meet an agency’s space needs.
                          GSA’s feasibility study considers alternatives and sets a course of action
                          for the project. GSA’s program development study refines the project
                          created in the feasibility study phase, further considers alternatives, and


                          32
                            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.)
                          33
                             To assess whether key GSA documents associated with project development showed
                          alignment of GSA practices to leading needs assessment and alternative evaluation
                          practices, we reviewed documentation from the four highest cost repairs and alterations
                          projects of GSA’s fiscal year 2012 budget submission. We examined the physical
                          condition surveys, asset business plans, and feasibility studies, among other
                          documentation, associated with each project to the extent that they were available. The
                          four repairs and alterations projects that we examined were for the Burton Federal
                          Building in San Francisco, the Prince Jonah Kuhio Kalanianaole Federal Building in
                          Honolulu, and the Department of State (Truman Building) and Interior headquarters
                          buildings in Washington, D.C. Our findings are not generalizable across GSA’s real
                          property portfolio.




                          Page 25                                               GAO-12-646 Federal Buildings Fund
develops a sound foundation to pursue construction funding. During both
the feasibility study and program development study phases, GSA
conducts a financial analysis through its Automated Prospectus System
(TAPS) that examines net present value.

Our review of GSA’s documentation for the four highest cost repair and
alteration projects from GSA’s fiscal year 2012 budget submission found
that GSA generally conducted alternative analyses as leading practices
suggest prior to initiating a project. 34 For example, in evaluating
alternatives for the Prince Jonah Kuhio Kalanianaole Federal Building and
Courthouse in Honolulu, we found that GSA considered four alternatives
including a repairs and alterations alternative, two new construction
options, and a lease option. For the Burton Federal Building in San
Francisco, GSA officials explained that after initially considering leasing,
new construction, and renovation alternatives through its TAPS analysis,
they determined that renovation of existing federal space was the clear
best alternative and that a typical feasibility study that fully explored these
alternatives was not necessary. 35 GSA’s use of existing federal space to
meet federal space needs is a leading practice. GSA officials explained
that GSA did not consider alternatives to the renovations of the Truman
and Main Interior Buildings in Washington D.C. because these projects
are ongoing modernizations of historic buildings that began decades ago
requiring upgrades to meet fire and life safety or historic preservation
requirements, and there are no feasible alternatives. In addition,
according to GSA officials, Truman and Main Interior Building repairs and
alterations projects began prior to development of GSA’s 2004 Project
Planning Guide.

Leading practices for alternatives evaluation also suggest that an agency
consider project risk, level of control, and time horizons to ensure that
projects are on time and within budget and that the agency considers the
length of time it will need space. According to GSA planning
documentation and senior officials, GSA considers these factors. GSA
must evaluate project risk to determine the impact of not receiving
requested funding and whether it can complete projects on time and
within projected costs. Considering level of control is important to help


34
     Our project review is not generalizable across GSA’s entire real property portfolio.
35
  GSA did conduct a realignment and expansion study of the proposed move of the
Federal Bureau of Investigation into the Burton Federal Building.




Page 26                                                    GAO-12-646 Federal Buildings Fund
                         GSA understand aspects such as the security requirements of a particular
                         agency, for example, when assessing its space needs and determining
                         whether leasing or ownership would afford the agency a desired level of
                         control. Time horizons are an important consideration because GSA must
                         know how long an agency will likely need a building when deciding
                         whether to own or lease space. For long-term, mission-critical functions,
                         agencies may wish to have maximum control through ownership provided
                         that funding is available; for the short term, leasing may be the most cost-
                         effective option. Following are examples of GSA’s use of these leading
                         practices in evaluating capital investment alternatives:

                         •    Project risk. GSA mitigates risks to completing phased construction or
                              repairs and alterations projects from non-availability of funds by
                              designing each phase to stand alone. For example, GSA designed the
                              renovation of its Washington, D.C., headquarters to be completed in
                              independent phases. When a later phase of the project did not receive
                              funding, GSA was still able to use all of the partially renovated
                              building.
                         •    Level of control. A key consideration in GSA’s selection of the St.
                              Elizabeth’s campus for the consolidation of the Department of
                              Homeland Security’s (DHS) headquarters in Washington, D.C., was
                              the level of control that the site affords the agency. In particular, the
                              site allows for the use of certain security features that will help DHS
                              improve its security posture. For example, the St. Elizabeth’s site
                              provides some natural buffer zones based on its terrain, whereas
                              costly alteration of buildings for security purposes would be required if
                              DHS were to remain in locations downtown.
                         •    Time horizon. As we have previously reported, shifting demographics
                              are a key consideration in GSA’s choice of space to meet the Social
                              Security Administration’s (SSA) needs. Because SSA needs to be in
                              facilities that are close to its customers, it requires the flexibility to
                              relocate as population centers move and may not have a long-term
                              need for some of its facilities. As a result, GSA often relies on leasing
                              rather than ownership to give SSA the ability to relocate its smaller
                              field offices closer to its customers, as necessary. 36


Project Prioritization   GSA’s process for prioritizing capital investment projects partially meets
                         leading practices, but its transparency can be improved. Leading capital


                         36
                           GAO, Federal Real Property: Strategy Needed to Address Agencies’ Long-standing
                         Reliance on Costly Leasing, GAO-08-197 (Washington, D.C., January 2008).




                         Page 27                                            GAO-12-646 Federal Buildings Fund
planning practices suggest that an agency’s project prioritization process
(1) have weighted criteria for ranking and selecting projects, (2) have core
information to help decision makers evaluate a project, (3) consider all
capital projects as a portfolio, (4) prioritize projects using an
organization’s goals as a criterion, (5) prioritize projects using a full set of
economic factors as criteria, (6) prioritize projects using project risk as a
criterion, (7) consider an organization’s long-term capital plan when
prioritizing projects, and (8) be transparent about how project rankings
were determined.

GSA’s project prioritization process meets some elements of leading
practices including using criteria for ranking and selecting projects, having
core information to help decision makers, considering organizational
goals as a prioritization criterion, and considering economic factors as
prioritization criteria.

•   Established criteria. GSA has established criteria to rank and prioritize
    major proposed capital investments. According to GSA, these criteria
    include customer urgency and mission dependency, urgency based
    on physical condition, economic justification, asset utilization, project
    timing and execution, historical significance, alignment with mandated
    building performance criteria, and improvement of energy efficiency
    and sustainability.
•   Core information for decision makers. We found that in the four
    projects we examined, documentation generally included a core set of
    information for decision makers. For example, GSA’s repairs and
    alterations project for the Prince Jonah Kuhio Kalanianaole Federal
    Building and Courthouse in Honolulu included a physical condition
    survey, prospectus, building evaluation report, feasibility study,
    program development study, asset business plan, and TAPS analysis
    for use by GSA decision makers when considering this project in
    relation to others. GSA completed most core documents for the other
    three projects we examined, but GSA did not complete building
    evaluation reports and TAPS analyses for the Truman and Interior
    buildings because these were multi-phased, multiyear projects begun
    decades ago that did not have feasible alternatives other than
    continued modernization.
•   Organizational goals. GSA considers links to an organization’s goals
    when prioritizing projects. For example, according to GSA senior
    officials, GSA considers customer need and mission dependency as
    top criteria for prioritizing projects.
•   Economic factors. GSA considers a full set of economic factors as
    part of its economic considerations. For example, GSA considers



Page 28                                          GAO-12-646 Federal Buildings Fund
     projects’ net present value 37 in its analyses to help make decisions
     about which projects are least costly over the long term. GSA also
     considers project affordability to determine whether a project is likely
     to be funded given budget constraints.

However, GSA’s project prioritization process does not fully incorporate
other elements of leading practices such as promoting transparency in
ranking projects, evaluating projects as a single portfolio, considering a
long-term capital plan when ranking projects, and considering risk.

•    Promotion of Transparency. We found GSA’s project prioritization
     process lacked transparency in that we were unable to determine how
     GSA used its criteria to prioritize major projects amongst each other,
     how or whether criteria are weighted in any way, and why certain
     projects are ultimately selected over others. In particular, we asked
     GSA officials for the rationale used in developing annual budget
     requests since 2008 and its fiscal year 2011 5-year prioritized project
     list. In response, these officials said they used their project
     prioritization criteria to develop these lists; however, they did not
     provide documentation of how the criteria were applied.
•    Evaluation of projects as a portfolio. We found that GSA does not
     consider all projects as part of a single portfolio as leading practices
     suggest. In addition to its own project list, GSA provides separate lists
     for courthouse (Judiciary) and land port of entry (Department of
     Homeland Security) new construction projects in its annual budget
     requests. Because these projects are listed separately, it is difficult to
     ensure that the most deserving projects meeting the established
     criteria are selected for funding. GSA explained that these projects
     are listed separately because both agencies prepare and submit their
     own plans to OMB and Congress.
•    Consideration of long-term capital plan priorities. GSA’s long-term
     capital plan, discussed further in the next section of this report, does
     not meet most leading practices so it is difficult for GSA to fully
     consider long-term priorities. A comprehensive long-term capital plan


37
   When comparing two or more competing projects, analyzing the net present value of
each is important for determining the more valuable project choice. This is done by using
a rate—known as a discount rate—to convert the value of benefits and costs that will
occur in future years to a value today, taking into account that the further into the future a
cost is incurred or a benefit is received, the smaller that value is today. Applying a
discount rate establishes a consistent basis for comparing alternative investments that
have differing patterns of costs and benefits over many years.




Page 29                                                   GAO-12-646 Federal Buildings Fund
                             would include, for example, alternatives to meeting project goals given
                             budget projections and constraints to aid in annual project
                             prioritization.
                         •   Consideration of risk. GSA’s project prioritization criteria lack explicit
                             consideration of risk. A senior GSA official told us that risk is
                             considered throughout the project development process, if not the
                             prioritization process, but we found that GSA does not document how
                             risk is considered, if at all, during prioritization. Without having risk as
                             an explicit criterion in its prioritization criteria, GSA cannot ensure that
                             projects that are inherently risky are ranked to reflect this.

                         According to GSA officials, the agency is currently working with its
                         regional offices to refine weighted project prioritization criteria for use in
                         new software that would allow them to more systematically prioritize
                         projects in the future. GSA expects to have this software available for use
                         this summer during the development of the fiscal year 2014 budget, which
                         will in turn better position GSA to fully meet leading practices for project
                         prioritization.


Long-term Capital Plan   GSA’s long-term capital plan minimally conforms to leading practices,
                         which could limit GSA’s ability to make fully informed choices about long-
                         term investment decisions. Both GAO and OMB guidance emphasize the
                         importance of developing a long-term capital investment plan to guide the
                         implementation of organizational goals and objectives and to help
                         decision makers establish priorities over time. GAO guidance explains
                         that requiring agencies to develop capital plans encourages them to think
                         about the long term and reduces the number of surprise projects. It also
                         encourages agencies to weigh and balance the need to maintain existing
                         capital assets against the demand for new assets. According to GAO’s
                         Executive Guide, the long-term capital plan, covering 5 years or more and
                         completed annually or biennially, should identify the proper mix of existing
                         assets and new investments needed to fulfill an organization’s mission,
                         goals, and objectives, and should reflect decision makers’ priorities for the
                         future. In particular, according to OMB, elements of a capital plan should
                         include:

                         •   a linkage of projects to agency missions, goals, and objectives;
                         •   a baseline needs assessment and agency objectives that cannot be
                             met with existing assets;
                         •   a ranking of approved capital projects;
                         •   an explanation of why projects selected are the best alternative;
                         •   alternatives to meeting project goals;


                         Page 30                                          GAO-12-646 Federal Buildings Fund
•    budget projections and financial forecasts and their implications;
•    a summary of a risk management plan; and
•    a discussion of timing issues, if part of a multiagency acquisition.

We found that GSA has developed limited information similar to what
might be found in a comprehensive long-term capital plan. For example,
GSA has developed a 5-year prioritized list of projects that it included with
its fiscal year 2011 budget submission. However, this 5-year list is only
one of several elements that leading practices suggest a comprehensive
long-term capital plan include. It is not apparent, for example, how GSA
used its criteria to prioritize projects, why some projects are ranked higher
than others, and how higher-priority projects better contribute to meeting
agency goals. GSA’s 5-year plan also does not lay out GSA’s baseline of
needs and where there might be gaps in what GSA’s real property
portfolio provides. In addition, the 5-year plan does not consider
alternative courses of action, the implications of varying budget levels and
revenue forecasts, or include a risk management summary that includes
an analysis of alternative ways of meeting program objectives should
disruptions occur. As a result, GSA lacks a comprehensive analysis of
options over a 5-year period given funding variability and how long-term
investment decisions affect them. This situation is similar to what we
found 12 years ago when we cited GSA’s lack of a comprehensive plan
that (1) identified the total repair and alteration needs and corresponding
funding requirements, (2) established the benefits and priorities of all
competing projects, and (3) proposed a strategy and the funding needed
to repair or modernize its most seriously deteriorated buildings. 38

In discussing challenges related to long-term capital planning, senior GSA
officials and OMB staff explained that determining future requirements
can be difficult because GSA’s customers may not know their needs, and
therefore cannot articulate requirements to GSA. In addition, GSA officials
said that fluctuating levels of annual obligational authority creates
uncertainty that affects their ability to implement long-term plans,
requiring adjustments to both the long-term plan and annual budget
requests. While GSA does face uncertainty regarding the needs of its
customers and its annual level of obligational authority, leading long-term
capital planning practices suggest that there is still value to establishing


38
  GAO, Federal Buildings: Billions are Needed for Repairs and Alterations,
GAO/GGD-00-98 (Washington, D.C.: Mar. 30, 2000).




Page 31                                               GAO-12-646 Federal Buildings Fund
              organizational priorities over time and considering alternatives to meeting
              organizational goals given funding constraints and uncertainties about
              agency needs. By thinking strategically long term rather than simply from
              year to year, GSA would better ensure that it makes fully informed
              choices about long-term investment needs and maximizes its use of
              available funding over time. GSA could better address budget uncertainty
              by analyzing what projects to pursue given various levels of funding in its
              long-term capital plan.


              Since its inception, the FBF has been challenged to provide sufficient
Conclusions   revenue to support GSA’s real property portfolio. In recent years,
              budgeting and appropriations decisions made by the executive branch
              and Congress, respectively, have limited the amount of resources made
              available to GSA to fund its real property operations. The FBF is further
              constrained by other factors including the declining value of revenue,
              growing operating costs, and an increased reliance on leasing, among
              other things. These conditions make it increasingly difficult for GSA to
              maintain its real property portfolio in an acceptable state of repair. As
              GSA works to address the maintenance and repair needs of its assets
              and improve the overall condition of its portfolio, it is important that the
              agency base its actions on a well-conceived investment strategy. GSA
              follows many leading practices to gather and evaluate information from its
              assets to inform its investment decisions, but it is not clear how it
              prioritizes and selects projects for funding consideration. In addition, the
              agency’s lack of a comprehensive long-term capital plan could limit its
              ability to provide perspective on how funding for requested projects aligns
              with its long-term investment strategy. Having such a plan would enable
              GSA and Congress to better evaluate the full range of real property
              priorities for using funds in the FBF both over the next 5 years and
              annually and, should fiscal constraints so dictate, identify which might
              take precedence over others. In short, more transparency would allow for
              more informed decision making among competing priorities. Without more
              insight into how GSA prioritizes repair and replacement of its assets, GSA
              cannot ensure that decision makers within the executive branch and
              Congress understand why the projects proposed by GSA merit selection
              when measured against competing priorities, both within and outside of
              GSA’s portfolio.




              Page 32                                       GAO-12-646 Federal Buildings Fund
                      To enhance transparency, allow for more informed decision making
Recommendations for   related to GSA’s real property priorities, and make a stronger case for
Executive Action      using funds in the FBF to meet capital investment needs, we recommend
                      that the Administrator of GSA take the following two actions:

                      •   Document in its annual budget request to OMB how GSA uses its
                          prioritization criteria to generate its annual and 5-year lists of
                          prioritized projects to ensure that Congress understands the rationale
                          behind prioritized project lists and that GSA is maximizing return on
                          FBF investments.
                      •   Develop and publish a comprehensive 5-year capital plan and include
                          a summary of it annually in its budget request to OMB and Congress
                          to help ensure that long-term goals are fully considered when making
                          decisions and to document how GSA would spend needed FBF funds.

                      We provided a draft of this report to GSA and OMB for review and
Agency Comments       comment. GSA’s comments are reproduced in appendix II.

                      GSA agreed with our findings and recommendations. GSA commented
                      that it is taking steps to refine weighted prioritization criteria for use in a
                      decision-making software tool that will help the agency to more
                      systematically and transparently prioritize projects. GSA expects to use
                      this software tool in development of its fiscal year 2014 budget request.
                      With respect to our second recommendation, GSA indicated that it will
                      work with stakeholders, OMB, and Congress in developing and providing
                      a 5-year capital plan to include in its budget request. GSA and OMB also
                      provided technical suggestions and clarifications, which have been
                      incorporated in the report as appropriate.


                      As agreed with your office, unless you publicly announce the contents of
                      this report earlier, we plan no further distribution until 21 days from the
                      report date. At that time, we will send copies of this report to
                      congressional committees with responsibilities for federal real property
                      issues, the Director of OMB, and the Administrator of GSA. In addition,
                      this report will be 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) 512-2834 or wised@gao.gov. Contact points for our Offices
                      of Congressional Relations and Public Affairs may be found on the last




                      Page 33                                          GAO-12-646 Federal Buildings Fund
page of this report. GAO staff who made key contributions to this report
are listed in appendix III.

Sincerely yours,




David J. Wise
Director, Physical Infrastructure Issues




Page 34                                      GAO-12-646 Federal Buildings Fund
Appendix I: Objectives, Scope, and
                            Appendix I: Objectives, Scope, and
                            Methodology



Methodology

                            This report focuses on (1) the factors that have affected the resources
                            available in the Federal Buildings Fund (FBF); (2) the General Services
                            Administration’s (GSA) potential maintenance and repair liability for its
                            owned assets and the implications for the fund; and (3) the information
                            GSA considers when evaluating capital investment proposals and how its
                            practices compare to leading practices for making capital investment
                            decisions.


Factors Affecting the FBF   To determine what factors have affected the resources available in the
                            FBF, we analyzed legislation, including the Public Buildings Act
                            Amendments of 1972 and congressional appropriations acts to
                            understand congressional direction and priorities for the FBF. We
                            reviewed GAO, Congressional Research Service (CRS), and GSA Office
                            of Inspector General reports on historical issues affecting the ability of the
                            fund to generate revenue. We also analyzed GSA information on rent
                            restrictions and exemptions granted to its tenant agencies to understand
                            how these agreements have affected the resources in the FBF. In
                            addition, we reviewed GSA’s congressional budget requests to obtain
                            information on the amounts of obligational authority requested by GSA
                            compared to the amounts provided by Congress and the amount
                            available in the fund from fiscal year 2006 through fiscal year 2012.

                            To understand how the financial performance of GSA’s portfolio has
                            changed over time, we analyzed data on GSA’s approximately 10,000
                            assets from 2006 through 2011 from the agency’s real property and
                            financial management database systems. Specifically, we analyzed data
                            on each of GSA’s assets from GSA’s Real Estate across the United
                            States (REXUS) system as well as its System for Tracking and
                            Administering Real Property to describe how the number of assets, the
                            average age of the assets, and the amount of owned and leased space
                            managed by GSA has changed. We also analyzed information from
                            Pegasys, GSA’s financial management system. In particular, we obtained
                            and analyzed information on the revenues, costs and various metrics,
                            including funds from operations, used by GSA to describe the financial
                            condition for each asset to provide a summary description of GSA’s
                            financial performance.

                            We also analyzed financial data from the FBF using indices to account for
                            inflation. To understand how the value of the revenue generated and cost
                            incurred by the FBF had changed since 2006, we used a chain-weighted
                            Gross Domestic Product index based on data from the averages of
                            quarterly indexes from U.S. Department of Commerce Bureau of


                            Page 35                                         GAO-12-646 Federal Buildings Fund
                           Appendix I: Objectives, Scope, and
                           Methodology




                           Economic Analysis, National Income and Product Accounts, table 1.1.4
                           (last revised Jan. 21, 2012). To measure how construction costs had
                           changed since 2006, we used the Engineering News-Record’s
                           Construction Cost Index to calculate the increase in construction costs
                           from October 2005 to September 2011. The index measures how much it
                           costs to purchase a mix of construction labor and materials of goods
                           compared to what it was in the base year.

                           As part of our review of GSA’s data, we tested the data for missing
                           variables and abnormal trends from 2006 through 2011. We found no
                           abnormal patterns or significant number of missing values for the rentable
                           square footage, the leased or owned facility, age of building, or real
                           property type data elements. We also interviewed GSA system
                           administrators, analysts, and managers about their views of the quality of
                           the data. We compared the results of our analyses to information
                           published in other GSA documents, including GSA’s budget submissions,
                           financial statement audits, and GSA’s State of the Portfolio report. While
                           we did not independently verify the information for each asset, we believe
                           these data are generally reliable for our purposes, which was to describe,
                           at a summary level, the overall financial performance of GSA’s assets
                           from 2006 through 2011.


Condition of GSA’s Owned   To assess the condition of GSA’s owned assets and the implications for
Assets                     the FBF, we reviewed literature from the National Research Council, and
                           prior CRS and GAO reports to determine the types of obstacles
                           previously faced by GSA and discuss the known and possible
                           consequences associated with delaying or not performing needed repairs
                           and alterations. We reviewed GSA’s State of the Portfolio reports to
                           understand how GSA manages and categorizes its assets. We also
                           reviewed GSA’s budget requests to compare funding requested by GSA
                           for repairs and alterations from fiscal year 2006 to fiscal year 2012 to the
                           amount of new obligation authority granted by Congress.

                           We analyzed data from GSA’s real property and maintenance databases
                           to understand what data GSA maintains about the condition of its owned
                           assets. Specifically, we analyzed data from REXUS databases to
                           describe demographic characteristics of the portfolio. We analyzed data
                           from GSA’s enhanced Physical Condition Survey (ePCS), which GSA
                           uses to track the results of its biannual condition inspections, to describe
                           the total identified maintenance and repair liability of its owned assets
                           over the next 10 years.



                           Page 36                                        GAO-12-646 Federal Buildings Fund
Appendix I: Objectives, Scope, and
Methodology




We excluded assets where GSA reported zero maintenance liability
because GSA stated that the condition of these assets may have been
incorporated as part of an assessment of a larger asset. In order to verify
this information, we matched the address of assets with zero
maintenance and repair liability with addresses of assets with a reported
value of maintenance and repair liability greater than zero. We found that,
of the 392 assets with zero reported maintenance and repair liability, 151
were located at the same address of an asset with a maintenance and
repair liability greater than zero.

To assess the overall quality of the data, we interviewed GSA system
administrators, analysts, and managers about the quality of the data and
tested the data for missing variables and abnormal trends. During the
course of our discussions with GSA, we were informed that GSA’s
approach for calculating metrics to measure has recently undergone a
variety of changes. Specifically, GSA officials informed us that the
calculation of functional replacement values had changed in fiscal year
2011 in order to improve the precision of these values. As a result,
because the data were not comparable across years, we limited our
analysis to the maintenance and repair liability of GSA’s assets as of
September 2011. In addition, we conducted a variety of data tests and
found no abnormal patterns or significant numbers of missing values in
the “age of building” or “real property type” data elements for GSA’s
owned portfolio. However, during discussions with GSA officials about the
“gross square footage” category, we observed that a number of assets,
particularly those identified as structures, had values of “1” or similarly
small numbers. GSA officials told us that the gross square feet for
structures are measured in units that vary widely. Thus we did not
aggregate or average the total square footage in a given year. To reduce
the effect of these outliers, we used the median square feet in our report
to describe the size of GSA assets. While we did not independently verify
the information for each asset, we believe these data are generally
reliable for our purposes, which was to describe, at a summary level, the
overall condition of GSA’s assets as of the end of September 2011.

We interviewed GSA program managers to gain an understanding of how
GSA conducts condition assessments and assesses the general
condition of its owned assets. In addition we held discussions with GSA’s
portfolio managers who oversee the buildings in the owned portfolio to
discuss the overall condition of the assets, and understand the
consequences associated with not completing needed repairs and
alterations. We also spoke to senior leadership from Office of
Management and Budget (OMB) to discuss their impressions of the


Page 37                                       GAO-12-646 Federal Buildings Fund
                        Appendix I: Objectives, Scope, and
                        Methodology




                        condition of GSA’s assets and perspectives on the amount of obligational
                        authority available for repairs and alterations within GSA’s portfolio.


Comparison to Leading   To assess how GSA’s use of Information to make capital investment
Capital Practices       decisions conforms with leading practices, we identified leading practices
                        for using information to make capital investment decisions from GAO’s
                        Executive Guide 1 and OMB’s Capital Programming Guide. 2 We also drew
                        from the National Research Council’s research in this area. We assessed
                        whether GSA’s guidance and performance conformed to the criteria
                        established in these guides rating their performance in the areas of needs
                        assessment, alternatives evaluation, project prioritization, and long-term
                        capital planning as fully conforming, substantially conforming, partially
                        conforming, minimally conforming, or not conforming. For each capital
                        investment planning criterion assessed, a rating of fully conforming met
                        over 90 percent of criteria, a rating of substantially conforming met about
                        75 percent of criteria, a rating of partially conforming met about 50
                        percent of criteria, a rating of minimally conforming met about 25 percent
                        of criteria, and a rating of does not conform met less than 10 percent of
                        criteria. To conduct these analyses, one GAO analyst made the initial
                        assessment which a second analyst reviewed and then provided either
                        concurrence or suggested changes. We also reviewed past GAO reports
                        including GAO-07-274 and GAO-11-197 to determine how these reports
                        used these criteria to evaluate an agency’s capital planning process.

                        We conducted document analyses and interviews with GSA Public
                        Buildings Service budget, planning, and program officials to assess how
                        GSA is doing in each of these capital planning areas. Our document
                        analysis included an examination of GSA’s Project Planning Guide and
                        FY2013 Program Call to assess how GSA’s process for using information
                        to make capital decisions conformed to leading practices. To conduct
                        these analyses, one GAO analyst made the initial assessment which a
                        second analyst reviewed and then provided either concurrence or
                        suggested changes. To assess how GSA identifies its needs, we
                        examined information in GSA’s ePCS, REXUS, and financial



                        1
                         GAO, Executive Guide: Leading Practices in Capital Decision-Making, GAO/AIMD-99-32
                        (Washington, D.C.: December 1998).
                        2
                         OMB, Capital Programming Guide, Supplement to Office of Management and Budget
                        Circular A-11, Part 7: Planning, Budgeting, and Acquisition of Capital Assets (June 2006).




                        Page 38                                                GAO-12-646 Federal Buildings Fund
Appendix I: Objectives, Scope, and
Methodology




management information system databases as well as how these data
were used to update GSA’s Asset Business Plans. To evaluate needs
assessment data and how GSA evaluates project alternatives, we
reviewed documentation from the four highest cost repairs and alterations
projects of GSA’s fiscal year 2012 budget submission to assess the
justification and analysis for undertaking these projects. We examined the
physical condition surveys, asset business plans, feasibility studies,
program development studies, prospectuses, and Automated Prospectus
System (TAPS) analyses, among other documentation, associated with
each project to the extent that they were available. The four repairs and
alterations projects that we examined were for the Burton Federal
Building in San Francisco, the Prince Jonah Kuhio Kalanianaole Federal
Building and Courthouse in Honolulu, and the Harry S. Truman and Main
Interior buildings in Washington, D.C. Our findings are not generalizable
across GSA’s real property portfolio. To assess GSA’s project
prioritization and long-term capital planning, we interviewed GSA program
and budget officials and documentation that GSA provided in these areas
such as its 5-year prioritized project list from fiscal year 2011 to fiscal year
2015.

We conducted this performance audit from August 2011 to July 2012 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.




Page 39                                          GAO-12-646 Federal Buildings Fund
Appendix II: Comments from the U.S.
              Appendix II: Comments from the U.S. General
              Services Administration



General Services Administration




              Page 40                                       GAO-12-646 Federal Buildings Fund
Appendix II: Comments from the U.S. General
Services Administration




Page 41                                       GAO-12-646 Federal Buildings Fund
Appendix II: Comments from the U.S. General
Services Administration




Page 42                                       GAO-12-646 Federal Buildings Fund
Appendix III: GAO Contact and Staff
                  Appendix III: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  David J. Wise, (202) 512-2834 or wised@gao.gov
GAO Contact
                  In addition to the contact named above, Mike Armes (Assistant Director),
Staff             Amy Abramowitz, Colin Fallon, Imoni Hampton, Carol Henn, Paul Kinney,
Acknowledgments   Kieran McCarthy, Ruben Montes de Oca, Matt Voit, Crystal Wesco, and
                  Elizabeth Wood made key contributions to this report.




(542193)
                  Page 43                                     GAO-12-646 Federal Buildings Fund
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