United States General Accounting Office Report to the Honorable Kent Conrad, U.S. Senate September 1990 FACILITIES LOCATION POLICY, GSA Should Propose a More Consistent and Businesslike Approach : General Government Division B-238787 September 28, 1990 The Honorable Kent Conrad United States Senate Dear Senator Conrad: In response to your request, this report provides information and analysis to answer your specific question on (1) the policies that guide federal civilian agencies in selecting facility locations, (2) whether rural areas receive first priority in location decisions as required by the Rural Development Act of 1972, and (3) whether any changes in federal location policies are warranted. As arranged with your office, we are sending copies of this report to the cognizant congressional committees, the Director of the Office of Management and Budget, the Administrator of the General Services Administration, and other interested parties. The major contributors to this report are listed in appendix II. If you have any questions concerning this report, please contact me on 275-8676. Sincerely yours, L. Nye Stevens Director, Government Business Operations Issues - Executive Summary The location of an organization’s facilities has far-reaching and long- Purpose lasting impacts on such crucial elements as its operational costs and its ability to attract and retain workers. Changes in telecommunications technology in recent years have given employers more options to con- sider when locating sites for administrative functions. In consideration of these recent changes and the current budget situation, Senator Kent Conrad asked GAO to examine (1) how federal civilian agencies make location decisions, (2) the extent to which rural areas receive considera- tion in these decisions, and (3) whether any changes in federal location policies are warranted. (See pp. 10 and 11.) Congress and the execut,ive branch have established federal facilities Background location policies intended to help promote economic development of both rural areas (the Rural Development Act of 1972) and the central busi- ness districts of cities (Executive Order 12072). Other federal policies, such as the Public Buildings Act requirement to assure an “equitable distribution” of projects throughout the nation, and a circular generally requiring the location of agency regional offices in 10 regional cities, also affect location decisions. (See pp. 8 to 10.) Although the Rural Development Act of 1972 requires agencies to give Results in Brief first priority to rural areas, it has not been an important factor in loca- tion decisions. Almost 88 percent of federal civilian workers are located in metropolitan statistical areas-an increase of 3 percent since 1980. Agencies that have grown during the last decade attributed mission demands or the need to be in areas where the populations they serve were located as the primary reasons urban areas received more facilities than rural areas. Political considerations, inertia, and short-term budget pressures also often affect location decisions in practice. Those agencies that did locate in rural areas said it was more because they served rural populations than because of their following the requirements of the 1972 act. A growing number of corporations in the private sector have moved to suburban and rural settings. The private sector is taking advantage of incentives offered by localities to attract employers and of the ability to separate administrative functions resulting from changes in telecommu- nications technology. GAO believes that federal agencies should more systematicallyconsider locality incentives and technological advancements in making location Page 2 GAO/GGINIC-109Facilities Location Executive Summary decisions and that a more consistent and cost-conscious federal location policy is warranted. The new policy should reflect a more businesslike approach in meeting agency mission and organizational needs by (1) requiring agencies to maximize competition in identifying potential facility locations; (2) comparing the costs and benefits of each, consid- ering such factors as real estate and labor; and (3) selecting sites that meet the needs while offering the best overall value to the government. Some of the obstacles to such a change include the reluctance of agen- cies to move once they are established in a community and a traditional view that the government’s role should be to promote economic develop- ment in either rural areas or central business districts of cities, regard- less of its own economic interests. Because the General Services Administration (GSA) is the central man- agement agency responsible for governmentwide facility management policies, GAO believes the Administrator of GSA should develop a pro- posed location policy for congressional consideration that would provide broad guidance for agencies. GAO’s Analysis Location Policies Followed The agencies that experienced growth in full-time employment during by Growth Agencies the last decade have generally selected locations where the demand for their services was greatest, despite the policies set forth in the Rural Development Act of 1972 or Executive Order 12072. Several agencies said political considerations affected their ability to close and relocate facilities. (See pp. 12 I;0 16.) Location Factors The private sector generally views location decisions as labor market Considered by the Private decisions. Headquarters operations are generally located in major metro- politan areas where professional and managerial personnel can be Sector attracted. Administrative operations, characterized by clerical workers, are generally located in smaller cities that have lower labor costs. Technological changes, such as fax machines and personal computers, have enabled the private sector to separate headquarters and adminis- trative operations and have made less urbanized areas more attractive. Page 3 GAO/GGDSk103 FadlitlesLocation Executive Summary The private sector is also well attuned to the incentives, such as infra- structure development and training programs, that states and local com- munities offer to attract businesses. (See pp. 16 to 18.) Urban Areas Can Be GAO'S analysis of Washington, DC., and the 10 standard federal regional cities-which together account for 30 percent of the total 1.8 million Costly federal civilian workers-showed that the rental rates of central busi- ness districts averaged about 26 percent higher than the suburban areas of these cities. Cost of living in 59 areas in the country with at least 5,000 white-collar federal workers varied but averaged 5 percent higher than the national average. Washington, D.C., and five of the 10 standard regional cities had even higher costs of living-some as high as 47 percent more than the national average. Primarily because the private sector pays higher salaries than the fed- eral government, the federal government is experiencing employee recruiting and retention problems, reduced service delivery, increased recruiting and training costs, more overtime pay, and the problem of higher level employees having to do lower level work. If enacted, recent congressional and Administration locality pay proposals will rectify these problems but will make some areas less costly to employ federal workers than others. (See pp. 18 to 20.) Corporations Can Localities routinely offer incentives to attract potential employers to their communities, but the government typically does not take full Capitalize on Local advantage of such incentives. GAO found one case, however, in which the Incentives Bureau of Engraving and Printing was able to generate widespread com- petition in meeting its space needs and was offered substantial conces- sions by communities The Bureau received expressions of interest from 82 localities for an expansion facility, four of which offered no-cost land and buildings. It ultimately selected the Fort Worth, Texas, offer. The 100 acres of land and a building shell that were offered were valued at over $12 million. Bureau officials were confident that similar deals could be obtained by other agencies if they sought them, due to the will- ingness of communities to attract employment opportunities. (See pp. 20 to 22.) Page 4 - Executive Summary GSA Should Propose GSA, the central management agency for federal facilities, has responsi- bility for leadership, oversight, and guidance in facilities management. Governmentwide Policy GAO, in its 1989 management review of GSA, reported that GSA had not effectively fulfilled its policy guidance and oversight role. GAO officials said that because of political obstacles and GSA'S belief that agencies should make their own location decisions, GSA has not assisted agencies in formulating procedures and specific guidelines to implement the various existing location policies. The lack of a clear location policy provides no counterbalance to the Office of Management and Budget and Members of Congress, who sometimes interject short-term budget or political objectives. This situation results in a general reliance on costly long-term leases or the construction of federal buildings in areas with low-priority needs. (See pp. 22 and 23.) GAO believes that GSA should develop an alternative location policy that considers a more businesslike approach, so that Congress could consider whether factors such as the current and long-term budget implications, changes in office technology, and the movement toward locality pay, warrant endorsement of a revised policy. (See pp. 24 and 25.) The Administrator of GSA should develop for congressional consideration Recommendation a more consistent and cost conscious governmentwide location policy. This new approach should require agencies, in meeting their needs, to maximize competition and select sites that offer the best overall value considering such factors as real estate and labor costs. (See p. 25.) GAO discussed its findings and recommendation with GSA officials on Sep- Agency Comments tember 13, 1990. GSA generally agreed with the report’s overall message and recommendation but said the report’s characterization of its lack of leadership did not reflect political constraints or the principle that agen- cies are better able than GSA to determine their facility needs. GAO made some changes to the report on the basis of GSA'S comments, including a more explicit recognition that political considerations are an obstacle to a consistent location policy. GAO does not believe that a more active policy role for GSA would require GSA to determine agency needs; rather, GSA would provide the framework for agencies to use in assuring that their needs are met with locations offering the best overall value to the government. (See p. 25.) Page 5 GAO/GGD90409 FadUUes Location Contents Executive Summary 2 Chapter 1 8 Introduction Federal Policies on Location Decisions Most Federal Jobs and Facilities Are in Urban Areas 8 9 Objectives, Scope, and Methodology 10 - Chapter 2 12 Location Policies in Location Policies Followed by Growth Agencies Actual and Planned Moves of Selected Functions 12 14 Practice ___--. Chapter 3 16 Federal Location Location Factors Considered by the Private Sector Urban Areas Can Be Costly 16 18 Policies Warrant Competition Can Help Agencies Capitalize on Local 20 Reconsideration Incentives GSA Should Propose Governmentwide Policy 22 Conclusions 23 Recommendation 25 Agency Comments 25 Appendixes Appendix I: Important Private Sector Locational Factors 28 Appendix II: Major Contributors to This Report 30 Glossary 31 Tables Table 1.1: Civilian Federal Employment in MSAs and Non- 9 MSAs, Fiscal Years 1980 and 1989 Table 1.2: Total Square Footage of Buildings Occupied by 10 Civilian Agencies, Fiscal Years 1986 and 1988 Table 2.1: Facility Location Factors Considered by High- 14 Growth Agencies Table 3.1: Rental and Cost-Of-Living Rates for Selected 19 Urban Areas Page 6 GAO/GGDSO-168FmAlitie.eLmxtion Abbreviations BEP Bureau of Engraving and Printing BOP Bureau of Prisons CBD central business district DEA Drug Enforcement Administration EPA Environmental Protection Agency FBI Federal Bureau of Investigation GSA General Services Administration INS Immigration and Naturalization Service IRS Internal Revenue Service OMB Office of Management and Budget OPM Office of Personnel Management MSA metropolitan statistical area USDA Department of Agriculture page 7 GAO/GGDSlUM) Facilities Location Chapter 1 Introduction - For the past 20 years, Congress and the executive branch have attempted to set policies for locating federal facilities primarily from the perspective of promoting economic development in certain types of localities, such as rural areas or urban central business districts (CBD). Such policies do not always provide for the best financial interest of the government. Despite a requirement that first priority be given to rural areas, most federal ,jobs and facilities are located in metropolitan areas. Several laws and executive branch orders and regulations frame the Federal Policies on government’s general policy on location decisions. The guidance sets Location Decisions forth certain objectives-including economic development of rural areas and CBDs-but does not always provide for the best financial interest of the government. The Rural Development Act of 1972 requires all executive departments and agencies to “establish and maintain departmental policies and pro- cedures giving first priority to the location of new offices and other facilities in rural areas.” Executive Order 12072, promulgated by Presi- dent Carter in August 1978, requires that centralized community busi- ness areas be given first preference for locating federal facilities in urban areas. Economic development is the goal of both of these policies. The General Services Administration’s (GSA) Federal Property Manage- ment Regulations require each agency to determine where its facilities are to be located and to assure that its location decisions are in compli- ance with the Rural Development Act of 1972 and Executive Order 12072, among other requirements. GSA says that it does not attempt to steer agencies to one area or another. Other laws that apply to location decisions are (1) the Competition in Contracting Act of 1984, which requires that federal procurements be made using full and open competition and (2) the Public Buildings Act of 1959, which requires congressional authorization of large lease actions or construction projects by the House and Senate public works commit- tees to assure an “equitable distribution” of such projects throughout the nation. Further, Office of Management and Budget (OMB) Circular A- 105, issued in April 1974, generally requires that federal regional offices be located in 10 federal regional cities that are among the largest cities in the nati0n.l ‘The 10 standardfederal regionalcities are Atlanta, Boston,Chicago,Dallas.Denver,Kansa City, New York, Phdadelphia,SanFrancisco,and Seattlr. Page 8 GAO/GGD90109 Facilities Location Chapter 1 Introduction Once agencies determine the area where their facilities are to be located, GSA then obtains the space for them, either in government-owned or gov- ernment-leased space. GSA’s summary reports on owned and leased real property indicated that GSA provided space for federal employees in 2,884 government-owned and 4,225 government-leased buildings during fiscal year 1988. - Although the Rural Development Act of 1980 rescinded the requirement Most Federal Jobs and established by the Agricultural Act of 1970 to report on the location Facilities Are in Urban ( rural or urban) of new federal offices and other facilities (and some Areas data sources no longer use the terms urban and rural),2 data that are available show that most federal jobs and facilities are in metropolitan areas. Data from the Office of Personnel Management (OPM) indicate that in fiscal year 1989, I.6 million full-time government civilian employees (excluding U.S. Postal Service employees) worked in metropolitan areas and 0.2 million worked in non-metropolitan areas. In fiscal year 1980, 1.5 million full-time government workers were in metropolitan areas and 0.3 million were in nonmetropolitan areas. As shown in table 1.1, while the civilian workforce grew slightly in the last decade, the net effect was a ‘i-percent federal employment increase in metropolitan areas and a 21 percent decline in nonmetropolitan areas. Table 1.1: Civilian Federal Employment in MSAs and Non-MSAs, Fiscal Years 1980 Fiscal year Fiscal year Percent and 1989 1980 Percent 1989 Percent change MSA 1,504,573 85 0 1,610,083 aa 5 7.0 Non-MSA 265,931 150 209,579 11 5 -21.2 Total 1.770.504 100.0 --l.s19.661%ki.iZ--22 Note Excludes U S Poslal Service employees Source Offlce of Personnel Management Similarly, GSA data on the amount of space occupied by civilian agencies in 1988 indicated that 419 million square feet were in urban areas and 208 million square feet in rural areas.3 In fiscal year 1986, the govern- ment occupied 407 million square feet in urban areas and 185 million ““Metropolitan statistical arm” (ZISA)ha replaced“urban,” and “non-MSA”has replaced“rural.” Seeglossaryfor definitions. ‘GSAhad not yet compiledfwal year 1989data and said that data for years beforefiscal year 1986 were no longer availablr. Page 9 GAO/GGD99-109Facilities Location Chapter 1 introduction square feet in rural areas. The amount, of square footage grew from 1986 to 1988, both in urban and rural areas. (See table 1.2.) Table 1.2: Total Square Footage of Buildings Occupied by Civilian Agencies, Fiscal year Fiscal year Percent Fiscal Years 1986 and 1988 Location’ 1986 ._____. 1988 change -_____-__ ~~ Urban 407.080,589 419.436,186 3.0 Rural 184,773,496 207,905,223 12.5 Both urban and ruralb 28,555,308 33,418,790 ___--~ 17.0 Not desIgnate@ 164,861,472 194,013,209 177 Total 765,276,065 - 054,773,400 a.9 Ylata excludes all U S Postal Serwce facllltles ‘Bulldlngs reported with both urban and rural acreage ‘Bulldlngs not designated as &her urban and rural Source General Serv~es Admlnlstratw As agreed with Senator Conrad’s office, the objectives of our work were Objectives, Scope,and to (1) identify the policies that growing federal civilian agencies follow Methodology in choosing facility locations; (2) determine if rural areas receive first priority in such decisions; and (3) determine if any changes to federal location policies are warranted, considering policies followed by the pri- vate sector and changes in office and telecommunications technology. To identify the federal location policies, we reviewed the laws and exec- utive branch guidance affecting location decisions. We interviewed offi- cials at the government’s central management agencies--oMB, GSA, and oPM-and obtained their views on location policies. We also interviewed officials in eight civilian agencies that had grown in full-time permanent employment between fiscal years 1980 and 1989-the Department of Agriculture (USDA), the Bureau of Prisons (BOP), the Customs Service, the Drug Enforcement Administration (DEA), the Environmental Protection Agency (EPA), the Federal Bureau of Investigation (FBI), the Immigration and Naturalization Service (INS). and the Internal Revenue Service (IRS)-and discussed how they made location decisions. To determine the rationale used for site selections, we reviewed actual and planned moves of data processing, payroll processing, teleservicing facilities, detention centers, and research and development laboratories for these agencies for fiscal years 1989 to 1991. We limited our work to these types of facilities because facility experts in government and the Page 10 GAO/GGB90.109FacilitiesLoeation private sector said they offered the most flexibility as to where they could be located. Further, we reviewed the process followed by the Bureau of Engraving and Printing (BEP) to select an expansion facility in the western United States. GSA officials had identified the process the Bureau followed as unusually innovative. To determine private sector policies on location decisions, we researched literature on this subject since 1985 and retained the services of a con- sultant-Real Estate Sciences International, Inc.-to assist us. Our con- sultant did a more extensive literature search, covering 1971 to the present; surveyed several corporations that made recent site selection decisions (Travelers Insurance, Citicorp, GTE, Rockwell, Mack Truck, and J.C. Penney) and several experts in the corporate real estate consul- tation field; and surveyed all 50 states to determine what programs they have to assist corporations in making location decisions. To obtain an indication of where federal workers and buildings were located, we also reviewed data maintained by OPM on federal employ- ment from 1980 to 1989 and data maintained by GSA on federally owned and leased space from 1986 to 1988. GSA did not have data available for 1989 or years before 1986. We did our work from .January to July 1990 in accordance with gener- ally accepted government auditing standards. At your request, we did not obtain official agency comments on a draft of this report, but we did discuss our findings with GSA officials and included their views in the report. Page 11 GAO/GGD-90199Facilities Location Chapter 2 Location Policies in Practice The eight civilian agencies that experienced growth in full-time perma- nent employment during the last decade generally selected facility loca- tions where the demand for their services was greatest, irrespective of the policies set forth in the Rural Development Act of 1972 or Executive Order 12072. These agencies, which are primarily engaged in law enforcement and revenue collection, generally selected sites in urban areas where the populations they serve were located. The agencies also located support facilities requiring little or no direct client contacts, such as computer operations and records management facilities, in urban areas in order to consolidate operations or to be near their operational centers. Generally, the eight agencies said the determinant factor in selecting Location Policies locations was agency mission and that they selected locations where the Followed by Growth demand for their services was greatest, which usually was in urban Agencies areas, irrespective of the Rural Development Act of 1972 requirement or the guidance in Executive Order 12072. OMB said that it has not enforced Circular A-105 regarding regional offices for many years because it was not a high priority in recent administrations. For the most part, agencies whose mission required them to be in rural areas specifically or urban areas specifically said they gave first priority to locations that fit this specific location need but not because of the policies and guidance in applicable site location law. DEAsaid it selects field office sites by considering drug pattern usage, size of the city, and commuting distance to courts and local police departments. DEA said it is primarily concerned with apprehending major drug traffickers, and therefore locates its offices in major popula- tion centers and cities where local police forces are overwhelmed by drug traffickers. DEA said it has also established offices in more rural areas in Arizona and Washington to combat drug trafficking along U.S. borders. BOP said it always tries to obtain sites near large population centers and where land is offered at no cost. To assure an adequate workforce to draw from and housing opportunities for its employees, BOP said it only considered cities with populations of 50,000 or more inhabitants. Several agencies cited the location of the target population as the most important factor in selecting sites. BOP said it locates prisons in areas with growing inmate populations. IRS said the location of its district offices is dependent on the location of taxpayers. In recent years, this Page12 GAO/GGD-90109FacilitiesLocation Chapter 2 Location Policies in Practice has meant that IRS has opened offices in the West to meet the shift in population and the demand for services. The FBI also said that it estab- lishes offices in areas with the greatest workload. EPA’S facilities are often specialized, such as facilities for research and development and environmental science laboratories, and are located near major universities. USDA’S Federal Grain Inspection Service officials said they locate their offices near grain elevators. Similarly, Customs and INS officials said their offices are located at ports of entry into the linited States. Several agencies’ officials also mentioned that political considerations affected their ability to close and relocate offices and facilities. DEA and 1RSmentioned that more consideration is given to certain areas depending on the influence of local Members of Congress and their com- mittee assignments. FBI said that political intervention caused it to keep open its Butte, Montana, office in spite of a decreased workload in that office. The office in Butte now primarily does word processing work for the FBI’s San Francisco office, where word processing personnel are dif- ficult to recruit due to relatively uncompetitive government wages in San Francisco. FBI also said that low government wages were impeding its ability to retain employees for its Washington, DC., Identification Division. FBIis in the process of finding a new location for the division in West Virginia. FBI said that a Member of Congress had approached the FBI Director with a proposal to relocate to West Virginia. The factors the eight high-growth agencies said they considered in choosing sites for new facilities are listed in table 2.1. Page 13 GAO/GGB9@103Fmilities Location Chapter 2 Location Policies in Practice Table 2.1: Facility Location Factors Considered by High-Growth Agencies Factors considered USDA BOP Customs DEA EPA FBI INS IRS Locatlon of target population or clIentsa x x x x x x x Polltlcal lnterventjon X X X Proxlmlty to courts and local pohce X Avallablllty of no-cost land X Infrastructure development of locality X Proxlmlty to major universities X %cludes agriculture storage fachtles. inmates, ports of entry, drug traff!ckers, crlmlnals, lmmlgrants, and taxpayers Because the mission of the primary offices of the eight agencies Actual and Planned appeared to be directly related to their target populations, which were Moves of Selected generally in urban areas, we asked the eight agencies detailed questions Functions concerning any facility openings and relocations involving computer operations, cash and payroll processing, records management, and supply and warehouse storage for fiscal years 1989 to 199 1. These func- tions are good candidates for location in rural areas since they require little or no direct client contact and can be done in many locations. The surveyed agencies informed us of 10 planned or actual moves involving these fmkctions for these years. All of the moves were to urban areas. The moves included relocating one computer center, four records management offices. and five warehouse and supply facilities. DEA moved its records management operations and computer operations from Washington, D.C.. to its headquarters in Arlington, VA, to consoli- date operations in a central location and did not consider a rural area. IRS relocated two records management offices and two warehouse and supply facilities within urban areas that were close to its headquarters and major service centers, without considering rural areas. IRSsaid it locates records management and warehouse operations as close as pos- sible to its main computing centers. IKSis also planning to move three other warehouse and supply facilities to urban areas this year. Two of the warehouses are being expanded and will be located near existing IRS service centers. The third warehouse move involves an exl)iration of an existing lease. Page 14 GAO/GGD90199 Pacilities Location Chapter 2 Location Policies in Practice The only planned move for fiscal year 1992 involves relocating FBI’S records management division from Washington, DC., to Hagerstown, MD. FBI said it considered communities within a 150-mile radius of Washington and selected Hagerstown based on travel time to headquar- ters, economic stability of the town, its slow growth, cost of living, appeal to transferees, and a labor market to support recruitment of sev- eral hundred employees. Page 16 GAO/GGDW109 Factities Location Chapter 3 Federal Location Policies Warrant Reconsideration As indicated in chapters 1 and 2, existing federal location policies pri- marily are concerned with economic development of certain areas and may not be the determinant factors used by agencies to make actual location decisions. Factors considered by the private sector in making location decisions, the relatively high cost of urban areas where most federal facilities are located, and the potential benefits that can be achieved through wide competition, also indicate that current federal location policies need reconsideration. Further, changes in office tech- nology also point to the possibility that current policies are out of date, particularly in light of the current budget situation. Because one of GSA’S roles as a central management agency is to set governmentwide facilit,y management policies, GSA should develop a pro- posed locational policy for congressional consideration. Congress could then decide whether the current budget situation permits continuation of policies that give priority to local economic development over policies that would take a more’ competitive, businesslike approach. Recent literature indicates that in the private sector, location decisions Location Factors are viewed as labor market decisions. The private sector uses different Considered by the criteria for locating “front” offices (or headquarters operations) and Private Sector “back” offices (or administrative operations). Front office location decisions are affected primarily by the ability to attract professional and managerial personnel. Companies consider such factors as the number of job opportunities available in a community for two-career families, cost of living, and quality of life. Also, the private sector considers access to various aspects of communications-such as travel time and distance to other operations, availability of air and mail services, and opportunities for professional “networking’‘-that are usually available in larger cities. Many front office relocations result from changes brought about by mergers or reorganizations that result in separation of headquarters from divisional functions. Changes in tech- nology allowing the transmission of data over long distances-such as fiber optics, high-technology electronic switch systems, electronic mail, fax machines, personal computers, and modems-have also enabled the separation of headquarters functions from administrative functions and have made less urbanized areas more attractive to the private sector. We found numerous examples of front offices being relocated from high- cost urban areas in part because of the inability to recruit and retain professional and managerial personnel; from small cities with limited Page 16 GAO/GGlMO-109Facilities Location chapter3 Federal Location Policies Warrant Reconsideration opportunities to develop business networks, few jobs for spouses, and limited lifestyles; and from areas with high real estate costs. Back offices are characterized by customer service, claims processing, telemarketing, credit and accounting processing, and order processing operations. The majority of workers are in clerical positions. Minimizing labor costs is a major concern when locating back offices. Small cities are likely candidates for many back offices, especially those requiring little travel and support services. However, back offices that have a high percentage of professional and managerial employees and that require support services, large workforces, frequent travel, or use hard- ware requiring a high degree of t,echnical service are more likely candi- dates for larger cities. The corporate trend appears, in recent literature, to be in favor of locating back offices in small cities to get away from competition for labor in larger cities and to take advantage of lower space costs avail- able in smaller cities. Our consultant, Real Estate Sciences International, Inc., performed an extensive literature search, surveyed several major corporations and real estate experts, and asked all of the states about factors they consid- ered in attracting the private sector. Twenty-six states provided infor- mation to our consultant. Our consultant identified the primary factors considered by the private sector in making location decisions (listed in app. I) and the following trends in the private sector: l Labor issues, such as the availability of basic skills in the labor pool, workers’ ability to train for specific functions, labor costs, and attitudes towards a work ethic, are among the most important factors facing busi- ness today. . Many major metropolitan cities are becoming unattractive to the private sector because of their shrinking supply of skilled labor, deteriorating infrastructure, poor school systems and lower educational levels of workers, traffic congestion, excessive real estate costs, high taxes, busi- ness regulation, and high crime rates. l Nonmetropolitan locations often offer more potential for higher worker productivity, lower space costs, higher quality of life for employees, proximity to both managers’ homes and quality higher education institu- tions, and lower operating costs. 0 Transportation systems, whether airports, highways, railroads, or waterways, are important to locational decisions for both manufac- turing and service industries. Page 17 GAO/GGD-90109Facilities Location chapter3 Federal Location Policies Warrant Reconsideration s Virtually all state and local communities now offer incentives, such as funding for infrastructure development, training programs, promises to provide qualified labor, or reduced taxes, to attract businesses. These incentives usually become a deciding factor when companies are unable to differentiate among acceptable alternatives. . Metropolitan areas for headquarters offices are still favored by many service-oriented corporations, such as insurance companies, financial institutions, brokerage and financial advisory organizations, communi- cations and utilities firms, and general business service organizations, because they can offer prestige locations and easy access to major cli- ents and support services. Although many location decisions of agencies-particularly the high- Urban Areas Can Be growth agencies that are involved with law enforcement and revenue Costly collection-often require the government to locate in large metropolitan areas, costs could still be reduced by selecting sites in non-central busi- ness districts or in t.hc more suburban areas of cities. We analyzed the average commercial rental rates for office space in the 10 federal regional cities and Washington, D.C. As shown in table 3.1, rental rates for CBDS averaged $24.83 per square foot, which was $5.09, or about 26 percent, higher than the non-cBD average rate of $19.74. The CBD rate was higher than t,he non-cRD rate in 9 of the 11 cities. We also analyzed cost-of-living data for these cities. We used cost-of- living data obtained by a consultant for our work on comparability pay, which was gathered for 59 areas in the country, each with at least 5,000 white-collar federal workers. The cost-of-living index for all 59 cities averaged 1.05, or 5 prrcent higher than the national average. As shown in table 3.1, Washington, D.C., and five of the standard regional cities had cost-of-living indexes higher than 1.05, and the average index of the 11 cities was 1.14, or 14 percent higher than the national average. Of the total 1.8 million civilian government workers, 0.6 million, or about 30 percent, work in these 11 cities. Page 18 GAO/GGD90-109Facilities Location Chapter 3 Federal Location Policies Warrant Reconsideration Table 3.1: Rental and Cost-Of-Living Rates for Selected Urban Areas Average rental rates per square Employee cost-of- foot for commercial space’ City living indexb CBD Non-CBD Difference Atlanta 1 03 $21 56 $20 32 $1 24 Boston 1.33 $32 00 $22.00 $1000 Chicago 114 $35 00 $24 00 $1100 Dallas 0 97 $15 50 $13 50 52 00 Denver 0.97 511 00 512 50 (51 50) Kansas City 0 98 $18.00 $18 00 $0 00 New York 1.47 542 52 5% 22 $7 30 Philadelphia 1 14 523.50 51700 56 50 San Francisco 1 33 $25 01 $19 76 $5 25 Seattle 1.02 51977 513.07 56.70 Washington, D C 1 14 $29 24 $21 72 57 52 Average 114 524 83 519.74 55 09 Y990 Guide lo Industrial and Offlce Real Estate Markets, WashIngton, D C Society of lndustrlal and Off102 Realtors, 1990 bPlan on Lung Cost Standards, a report prowded to GAO from Runzhelmer lnternatlonal I” April 1989 Runzhelmer International IS a management consultant group for travel and liwng costs, located in Roch- ester, Wisconsin The cost-of-llvlng data include houslng, taxes, transportation, goods and services, and other expenses, based on a family of four earning 530,000 annually currently buyang a home The labor market also affects the costs of location policies. We reported that the private sector paid more than the federal government about 90 percent of the time in over 60 metropolitan statistical areas for the 10 job occupations studied. These occupations were file clerk, stenogra- pher, secretary, typist, computer operator, computer programmer, com- puter systems analyst, key entry operator, accounting clerk, and drafter.’ The federal government’s noncompetitive salary rates in these cities were cited by agency officials as the major cause of recruiting and retention problems, particularly in areas where nonfederal salary rates and the cost of living were the highest. Agency officials said these low salary rates also lead to high turnover rates, which cause numerous operational problems. These problems include reduced service delivery, increased recruiting and training costs, more overtime pay, and upper- level employees having to do lower-level work. In response to the widening gap between federal and private sector sala- ries-which was estimated to be about 25 percent at the time of this report-the House Post Office and Civil Service Committee and Senate ‘Federal White-CollarEmployeeSalary Reform(GAO/T-GGD-90-22,Mar. 14, 1990),and Federal Pay:ComparisonsWith the Private Sectorby .Joband Locality, (GAO/GGD-RO-SlFS,May 15, 1990) Page 19 GAO/GGD90)-109Facilities Location Chapter 3 Federal Location Policies Warrant Reconsideration Committee on Governmental Affairs recently approved legislation that would create a more systematic annual adjustment process to prevent the overall pay gap from widening. The legislation would also institute a “locality pay” approach whereby federal white-collar salary rates would vary by geographic area. Federal blue-collar employees’ wages have differed by area for many years, on the basis of prevailing private sector wage rates in each area. The Bush Administration has advocated a similar proposal, but it initially is limited to New York, San Francisco, and Los Angeles. The final outcome of such proposals remains to be settled. It is clear, however, that by locating employees in high-cost metropolitan areas, the government’s operational costs-either through lost productivity or in higher wages-are higher. An OPM official said that if locality pay is implemented, agency costs in some locations will increase and agencies will be forced to find a way to minimize costs. Localities routinely offer incentives to attract potential employers to Competition Can Help their communities. Because of the way the government usually obtains Agencies Capitalize on space-agencies determine where they want to locate and then have GSA Local Incentives obtain suitable space in that area for them-it typically does not take advantage of such incentives. We found one case, however, in which the government was able to create competition over a wide area for its space needs. As a result, this agency--%+--received a substantial incentive. BEP needed to expand its ability to print currency, which at the time of this report was all done in its Washington, DC., facility. BEP made a deci- sion to locate its expansion facility in the western area of the country, to help reduce currency shipment costs to western Federal Reserve Banks. Lacking construction funding and authority to build its own space, BEP initially sought to find an offeror who would lease space to the govern- ment for a 20-year period, after which the title to the facility would revert to the government. In 1985, BEP announced its plans and asked for interested parties in 13 western states for expressions of interest. BEP published its minimal needs and explained how offers would be evaluated. Among BEP’S needs were availability of labor, short distance to an airport that offered frequent flights to selected Federal Reserve Banks, and security requirements for the building. BEP received expressions of interest from 82 localities. BEP screened this initial list of offers and went back to the 11 top-ranked offerors, who Page 20 GAO/GGD9@109Facilities Location chapter3 Federal Location Policies Warrant Reconsideration were then asked to submit proposal packages addressing more detailed BEP project requirements. During this phase of the evaluation, BEP received four offers to donate land and a building from Fort Worth, Texas; Aurora, Colorado; Las Vegas, Nevada; and Pierce County, Wash- ington. The Pierce County proposal did not include as much land as the other three and did not include the construction of the building. There- fore, the Pierce County offer was not considered further. BEP evaluated the other three offers in more detail and ultimately selected the Fort Worth offer. This offer included a donation of 100 acres of land and the construction of a building shell, both of which have been valued at between $12.5 million and $15 million. BEP officials said that BEP will spend about $110 million to complete the building, which is scheduled to become operational in January 1991. The annual operating cost of the facility is estimated to be between $30 mil- lion and $35 million, including salaries for about 300 workers in the Fort Worth area. BEP officials said that due to the willingness of communities to attract employment opportunities, they were confident that similar incentives could be obtained by other agencies if they sought them. GSA officials said that a competitive procedure like the one BEP used would probably be beneficial to the government, especially for computer centers, warehouses, training facilities, and laboratories but would be harder to implement for regional offices and offices that have to serve particular clients. Although we agree with GSA in some respects, we think that when selecting a site for a regional office serving five states, for example, an agency should consider locations in all five states and select, among those offers that meet its needs, the one that offers the best overall value considering such factors as real estate and labor costs. Further, if an agency has to be located in a particular metropolitan area to serve its clients, it should not be expected to consider areas that will not meet its needs but should entertain offers from suburban and non- CBD areas within that metropolitan area. The GSA officials also said that individual agencies would be better equipped to handle broad competitions than GSA, which is organized on a regional basis. The GSA officials also said that equal employment oppor- tunity goals would have to be considered by agencies if they used proce- dures similar to the one used by BEP to make location decisions. OMB officials also said that using competition to obtain local incentives offered some promise of reducing the government’s space acquisition _a costs, but some Members of Congress would resist such a policy because Page 21 GAO/GGBSO-109FacilitiesLoeation chapter 3 Federal Location Policies Warrant Reconsideration they view competition as contrary to the government’s role of assisting local communities. They also said that agencies often cite relocation costs as an inhibitor to moving from a location but in reality the agen- cies do not really analyze long-term costs and benefits and due to inertia are reluctant to consider relocating. In addition, the OMB officials said that GSA needed to provide broad guidance to agencies on how to select facility locations. GSA officials said that, because of political obstacles and GSA’S belief that GSA Should Propose agencies should make their own location decisions, GSA has not assisted Governmentwide agencies in developing procedures and specific guidelines to implement Policy the various existing location policies. As a central management agency, GSA has a responsibility in federal buildings management to provide leadership, oversight, and help in developing effective governmentwide management programs and policies. At least partly as a result of GSA’S failure to exercise its leadership role in facility management policies, the government’s ability to provide quality space for its employees at a rea- sonable cost has seriously diminished, particularly in recent years with large budget deficits. In our management review of GSA last year,2 we reported that GSA has had difficulty balancing its concurrent roles of making policy, providing oversight, and delivering services. We said that GSA’S primary role should be to set governmentwide policy. We also reported that l has done little to provide the necessary leadership and guidance for GSA effective governmentwide facilities management; . Congress sometimes interjects itself into operational decisions by, for example, directing GSA to construct a new building in a specific location even though GSA had not identified that sit,e for a new facility or had assigned a higher priority to other locations; and . GSA should focus more attention on overseeing governmentwide facilities management functions-including those over properties not under its control-in view of changing technologies and the recognition that quality workspace affects performance and productivity of the govern- ment workforce. 2General&vies Admimstratlon;‘;ustainedAttention Requiredto Improve Performance(GAO/ GGD-90-14,NW 6, 19891 Page 22 GAO/GGD99-109Facilities Location Chapter 3 Federal Location Policies Warrant Reconsideration More recently we testified on the government’s ability to provide quality office space for its employees at a reasonable cost.3 In that testimony, we reported the following: l One of the serious consequences of budget deficits has been to short change the investment in facilities, people, and computers needed to efficiently maintain government operations. . Pervasive shortfalls in financing the government’s infrastructure needs threatens to compromise the ability of federal agencies to accomplish their missions. l More than half of the government’s buildings are more than 40 years old and some are in poor condition. l GSA’slack of a comprehensive capital investment strategy leaves it in a weak position to guide federal facilities decisions and encourages others, like OMB, to substitute their own agendas, such as relying on costly long- term leases for most space needs. . OMB has argued against capital investment initiatives over the years because it perceived a tendency for Congress to “pork barrel” the funds with little regard for maximizing return on investments. Multiple laws and regulations guide federal agencies in selecting facility Conclusions locations, but they do not always provide for consideration of the best financial interest of the government as a factor in the decision-making process. Some have a primary goal of providing economic development assistance to localities. For example, the Rural Development Act of 1972 requires agencies to give first priority to rural areas when considering any facility location whereas Executive Order 12072 requires agencies to first consider central business districts for space in urban areas. Other policies that affect location decisions include those that require regional offices of agencies t,o be located in 10 standard federal regional cities, congressional authorization of large leases and construction projects to assure an equitable distribution of federal buildings throughout the nation, and agencies to use full and open competition when procuring property and services. GSA, the responsible central man- agement agency, has not provided leadership to assist agencies in imple- menting and complying with these policies. In practice, agency location decisions seem to be guided more by politics and inertia than by govern- mentwide policy. “The Disinvrstment in FederalOffwe Spacr(GAO/T-GGD-90-24,Mar. 20,1990). Page 23 GAO/GGDSO-109Facilities Location Chapter 3 Federal Location Policies Warrant Reconsideration Most civilian federal jobs and facilities are located in urban areas, which can have high real estate and operational costs. Agencies that have grown in the last decade, primarily those dealing with law enforcement and revenue collection, attribute the need to be in areas where they can best accomplish their missions or attend to the populations they serve as the primary reason urban areas receive more federal jobs and facilities than rural areas. The private sector is more cognizant of cost considerations for both facilities and labor in deciding where to locate than the government. The private sector views location decisions primarily as labor market deci- sions As a result of changes in telecommunications and automated data processing technologies, which make it easier for many operations to be done in dispersed locations, the private sector has been able to take advantage of economic benefits offered by suburban and rural locations. Congress has primarily considered location policy as a means of stimu- lating economic growth in rural or urban areas. An alternative policy, which would give more emphasis to the need to conserve limited finan- cial resources, would be to obtain locations-whether urban, rural, or suburban-that offer the best overall value to the government while still meeting its needs. Such a policy would (1) maximize competition; (2) where possible, take advantage of incentives offered by localities to attract jobs; (3) create a more businesslike approach to location deci- sions; (4) incorporate the effects of any future change to a locality pay concept; and (5) possibly reduce the impact of politics in such decisions. BEP’s competition process for Selecting a location for its new currency plant is a successful. but unique example of a government agency using this approach. Because one of GSA’S roles as a central management agency is to set policy for governmentwide facility management functions, we believe GSA should develop a proposed policy along these lines for Congress to consider. We realize that developing a revised location policy will not solve the broader capital investment problems facing GSA, but we believe it will be a step in the right, direction in GSA’S efforts to assume a greater governmentwide leadership role over facilities management. Resistance to change-both because of agencies being reluctant to move once established in a community and because of the well established tra- dition that local economic development is a prime consideration in locat,ing federal facilities-is an obstacle that a new policy would have to overcome. There, are also possible impacts on the government’s equal Page 24 GAO/GGD90-109Facilities Location Chapter 3 Federal Location Policies Warrant Reconsideration employment opportunity goals involved in location decisions that the proposed policy would need to incorporate. We also realize that some functions are better candidates for large area- wide competitions than others, but we believe that more competition for all space needs is possible. Thus, GSA should develop an alternative loca- tion policy that considers a more businesslike approach so that Congress can consider that policy in light of such factors as the current and long- term budget implications, changes in office technology, and the move- ment toward locality pay. The Administrator of the General Services Administration should Recommendation develop for congressional consideration a more cost conscious and con- sistent governmentwide location policy that would replace the require- ments in (1) the Rural Development Act of 1972, (2) the Public Buildings Act of 1959, (3) OMn Circular A-105, and (4) Executive Order 12072. The new policy should reflect a more businesslike approach in meeting agency mission and organizational needs by (1) requiring agencies to maximize competition in identifying potential facility locations; (2) com- paring the costs and benefits of each, considering such factors as real estate and labor; and (3) selecting sites that meet the needs while offering the best overall value to the government. We discussed our findings and recommendation with GSA officials on Agency Comments September 13, 1990. They generally agreed with the report’s overall message and recommendation. However, the officials said our discussion of GSA’S lack of leadership in location policy matters did not adequately reflect political constraints or GSA’S attempts in recent years to be less “dictatorial” in its relationships with agencies. The officials said that since agencies are better able than GSA to determine their needs and to fit them to the various policy requirements and political considerations, our report should more clearly reflect that location decisions are the responsibility of the agencies. They also said that agencies should select locations that provide the best overall value to the government, not nec- essarily the lowest overall cost. We made some changes to the report on the basis of GSA’S comments. We recognized more explicitly that politics are often a factor in location decisions and that the objective of good facilities management is best value rather than lowest cost. We do not believe that our recommenda- tion should make GSA more dictatorial over agencies or substitute GSA’S Page 25 GAO/GGD-90109Facilities Location Chapter 3 Federal Location Policies Warrant Reconsideration judgment for the agency’s in determining facilities needs. On the con- trary, a revised location policy should be developed in close collabora- tion with the agencies and should have as its objective consideration of broader geographic areas to meet agencies’ self-determined needs. Page 26 GAO/GGD9@109Facilities Location Page 27 GAO/GGDfi@lOSFacilities bcation Appendix I Important Private Sector Locational Factors Geographic location Sector of the country Urban/rural setting Larger city or town Transportation systems Airport access/proximity Highway access/proximity Port access/proximity Labor composition Availability cost Skilled/unskilled attributes Work ethic Proximity to special education Colleges/universities Technical schools/training Energy/utilities cost Availability and reliability Communication networks Proximity to markets, services, and raw materials Community incentives Tax Financing Other (including image building) Community chemistry “Fit” with the corporation Local economy and taxes Environmental regulations Land and building cost Availability Political issues Page 28 GAO,WXH@lO!l Fadlitiee Location Appendix I Important private Sector Lwxtioml Factors Quality of life Housing availability/cost Public schools Cultural opportunities Recreational facilities Colleges/universities Crime rate Climate Medical services Police/fire and environment Spousal opportunities Goods/services Cost of living Future real estate value/markets Source: Real Estate Sciences Internatmal. Inc. Page 29 GAO/GGIMt&199Facilities Location Appendix II Major Contributors to This Report John S. Baldwin, Senior Evaluator General Government Lucy M. Hall, Senior Evaluator Division, Washington, Eduardo N. Luna, Evaluator Helen M. Walsh, Secretary D.C. Jeffrey S. Forman. Senior Attorney Office of General Counsel Page 30 GAO/GGDS@lO9Fadlith LocatIon Glossary MSA An area with a city of at least 50,000 population or any urbanized area of at least 50,000 with a total metropolitan population of at least 100,000, together wit.h adjacent counties with a high degree of economic and social integration with the main nucleus. (OMB) Non-MSA h‘o official definition OMR considers any area not located in a MA to be in non-M&k Urban Any large cities and suburbs plus places of 2,500 or more inhabitants and other territory, incorporated or unincorporated, included in urban- ized areas. An urbanized area consists of a central city or a central core together with continuous closely settled territory, which together have a total population of at least 50,000. (U.S. Bureau of the Census) Rural Any area not classified as urban area constitutes a rural area; the open countryside area and places with fewer than 2,500 inhabitants that are not in the suburbs of large cities. (U.S. Bureau of the Census). However, the Rural Development Act of 1972 defines rural as any area in a city or town with a population less than 10,000 inhabitants. Note: Section 401 of the Rural Development Act of 1972 amended Sec- tion 901 (b) of the Agricultural Act of 1970, by changing areas of “lower population density” to rural areas. The Agricultural Act of 1970 consid- ered areas of lower population density to be areas located in a county not in a Standard Metropolitan Statistical Area or any city located in a Standard Metropolitan Statistical Area, which, along with its continuous urban areas, has a population of 35,000 inhabitants or less. (240013) Page 31 GAO/GGD90-103Facilities Location ,. * 9 . Ordering Information The first five copies of each GAO report are free. Additional copies are $2 each. Orders should be sent to the following address, accom- panied by a check or money order made out to the Superintendent of Documents, when necessary. Orders for 106 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20877 Orders may also be placed by calling (202) 2X-6241. . -.. .
Facilities Location Policy: GSA Should Propose a More Consistent and Businesslike Approach
Published by the Government Accountability Office on 1990-09-28.
Below is a raw (and likely hideous) rendition of the original report. (PDF)