Public-Private Partnerships: Key Elements of Federal Building and Facility Partnerships

Published by the Government Accountability Office on 1999-04-29.

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

                          United States General Accounting Office

GAO                       Testimony
                          Joint Hearing Before House Subcommittees on
                          Government Management, Information and Technology,
                          and on Economic Development, Public Buildings,
                          Hazardous Materials and Pipeline Transportation

For Release on Delivery
Expected at
10:00 a.m., EDT
April 29, 1999            PARTNERSHIPS

                          Key Elements of Federal
                          Building and Facility
                          Statement of
                          J. Christopher Mihm, Associate Director
                          Federal Management and Workforce Issues,
                          General Government Division


Public-Private Partnerships: Key Elements of
Federal Building and Facility Partnerships

                         Messrs. Chairmen and Members of the Subcommittees:

                         I am pleased to be here today to discuss the findings of our recent study on
                         public-private partnerships, which we initiated at the request of Chairman
                         Horn. In your request for the study, you asked us to identify the key
                         elements of partnerships between the federal government and the private
                         sector that were formed to help the government acquire and operate
                         federal real estate and facilities more efficiently and effectively. I am also
                         pleased to provide the Subcommittees with a glossary of terms, practices,
                         and techniques related to building and facility partnerships that was
                         released this week.

                         Today, I will briefly discuss some of the weaknesses that are making it
                         necessary for agencies to think strategically when managing buildings and
                         facilities. Then, I will focus on one response to these challenges–public
                         private partnerships–and review the key elements and related experiences
                         of the six federal partnerships we examined in our report.

                         The U.S. government is one of the world’s largest property owners, with a
The Need to              real estate portfolio of almost 435,000 buildings and over half a billion
Strategically Manage     acres of land. Most of the government’s real property holdings are national
Federal Facilities and   parks, forests, other public lands, and military facilities. Overall,
                         government-owned real estate is under the custody and control of at least
Assets                   30 federal agencies, although most is under the jurisdiction of 8
                         organizations: the Departments of Agriculture, Defense, Energy, the
                         Interior, and Veterans Affairs; the General Services Administration; the
                         Tennessee Valley Authority; and the U.S. Postal Service.

                         Our work and that of others over the last several years has identified
                         several important weaknesses in federal agencies’ management and
                         maintenance of facilities and real property. The following are a few of the
                         federal agencies’ weaknesses in this area:

                          Public-Private-Partnerships: Key Elements of Federal Building and Facility Partnerships (GAO/GGD-
                         99-23, Feb. 3, 1999).
                          Public-Private Partnerships: Terms Related to Building and Facility Partnerships (GAO/GGD-99-71,
                         Apr. 1999). This glossary was developed to help facilitate a better understanding of asset management
                         terms as they are used in the federal government.
                          See, for example, VA Healthcare: Capital Asset Planning and Budgeting Needs Improvement (GAO/T-
                         HEHS-99-83, Mar. 10, 1999); Stewardship of Federal Facilities: A Proactive Strategy for Managing the
                         Nation’s Public Assets, National Research Council, Oct. 1998; National Park Service: Efforts to Identify
                         and Manage the Maintenance Backlog (GAO/RCED-98-143, May 14, 1998); Portfolio Investment
                         Initiative Pilot Program, General Services Administration, Apr. 1998; Deferred Maintenance Reporting:
                         Challenges to Implementation (GAO/AIMD-98-42, Jan. 30, 1998); Governmentwide Review of Property

                         Page 1                                                                             GAO/T-GGD-99-81

• Capital planning: The relationship of facilities to agency missions has not
  been recognized adequately in federal strategic planning and budgeting
  processes. This situation has been exacerbated by the relatively common
  agency practice of using funds originally intended for maintenance as a
  contingency fund to meet other needs encountered throughout the year.
  Furthermore, ineffective governmentwide asset disposal policies, when
  combined with traditional facility management practices, often restrict
  agencies from taking fullest advantage of their capital assets.
• Deferred maintenance: The deferral of necessary maintenance for public
  buildings has also often resulted in the permanent reduction of both the
  facilities’ useful life and costly losses in their asset value. The backlog of
  necessary maintenance has grown so large that the cost of eliminating this
  situation will likely be in the tens of billions of dollars.
• Underutilized and unneeded properties: Over time, numerous agencies
  have accumulated excess and unneeded facilities that have deteriorated.
  Federal agencies own and are responsible for more facilities than they
  need to support their missions or than they can maintain with current
  and/or projected budgets. Rather than treating these surplus facilities as
  resources that, properly handled, might be used to advance an agency’s
  mission, agencies often allow them to lay fallow and unused, their
  potential unrealized.
• Lack of adequate data: Agencies have had limited success in making
  effective use of data they gather for either timely budget development or
  the ongoing management of facilities. For example, it is difficult to
  determine how many federal buildings are underutilized or unneeded, or
  how much money the federal government as a whole spends on the
  maintenance and repair of federal facilities. Definitions and calculations
  vary with regard to facilities–related budget items, methodologies for
  developing budgets, and accounting and reporting systems for tracking
  maintenance and repair expenditures.

  As federal agencies find themselves confronted with these and other
  problems in an environment simultaneously marked by budgetary
  constraints and demands to improve service, the importance of their
  making the most effective use of capital assets is especially great. In

  Disposal Policy, General Services Administration, Aug. 15, 1997; Deferred Maintenance: Reporting
  Requirements and Identified Issues (GAO/AIMD-97-103R, May 23, 1997); Defense Infrastructure:
  Demolition of Unneeded Buildings Can Help Avoid Operating Costs (GAO/NSIAD-97-125, May 13,
  1997); Committing to the Cost of Ownership: Maintenance and Repair of Public Buildings, National
  Research Council, 1990.
   See Executive Guide: Leading Practices in Capital Decision-Making (GAO/AIMD-99-32, Dec. 1998) and
  Budget Issues: Budgeting for Capital (GAO/T-AIMD-98-99, Mar. 6, 1998).

  Page 2                                                                          GAO/T-GGD-99-81

                 order to do this, federally owned buildings and land need to be
                 strategically acquired, managed, and disposed of so that the taxpayer’s
                 return on the investment is maximized.

                 To maximize returns on buildings and facilities, federal agencies are
Public-Private   increasingly interested in managing them in a more businesslike manner.
Partnerships     Partnership between the federal government and the private sector
                 through contracts or agreements is one of these approaches. These
                 arrangements typically involve a government agency contracting with a
                 private partner to renovate, construct, operate, maintain, and/or manage a
                 facility or system, in part or in whole, that provides a public service.

                 The six partnership projects we examined in our report were located in
                 three agencies: the National Park Service (Park Service) within the
                 Department of the Interior, the Department of Veterans Affairs (VA), and
                 the U.S. Postal Service (Postal Service). We selected them on several
                 grounds, including our consultation with building and facility management
                 experts from the public and private sectors.

                 Although each of the six projects tailored its efforts to address its specific
                 needs and environments, we found five common elements that appeared to
                 play a key role in the implementation of the partnerships we reviewed.
                 These elements are shown in figure 1.

                     Federal Real Property: Key Acquisition and Management Obstacles (GAO/T-GGD-93-42, July 27, 1993).
                  See appendix I of this testimony for a brief description of these projects. Appendixes II through IV of
                 GAO/GGD-99-23 contain detailed descriptions of these projects.

                 Page 3                                                                              GAO/T-GGD-99-81

Figure 1: Key Elements of Public-Private Partnerships

                                          Note: The sequence in which these key elements occurred during implementation varied by project.
                                              Business plans may identify issues that require legislative action.
                                          Source: GAO analysis of selected federal building and facility public-private partnerships.

                                          Page 4                                                                             GAO/T-GGD-99-81

                          First of all, there was a catalyst for change that led each of the three
Five Key Factors in the   agencies to form a partnership with the private sector. For example,
Implementation of         community pressure and fiscal constraints were the catalyst in the two
Partnerships              Park Service projects we reviewed, in which the Park Service entered into
                          public-private partnerships mainly to obtain partners that could finance
                          needed preservation efforts.

                          Second, for all six projects we reviewed, Congress enacted legislation that
                          provided a statutory basis for the agency to enter into the partnership and
                          keep the revenues it received from that partnership. The legislation was
                          either project-specific, as it was for one of the Park Service projects, or
                          broader in scope, as was the 1991 law that authorized VA to lease its
                          properties and retain the resulting revenues. According to building and
                          facility managers in all of the projects we reviewed, a primary reason for
                          an agency to enter into these partnerships was the ability to keep for its
                          own use the revenue that it would receive from the partnership.

                          Third, the agencies we reviewed also told us that they established
                          organizational structures and acquired the necessary expertise to interact
                          with private-sector partners to ensure effective partnership
                          implementation. For example, VA established an Office of Asset and
                          Enterprise Development to promote the partnership concept within VA, to
                          design and implement public-private partnership projects, and to be a
                          single point of contact with VA’s private-sector partners. The office was
                          staffed, VA officials said, with professionals experienced in portfolio
                          management, architecture, civil engineering, and contracting.

                          Fourth, in all six projects we reviewed, asset management officials used
                          business plans or similar documents to make informed decisions and
                          protect the government’s interests. According to Postal Service officials,
                          the development and execution of a business plan, which included
                          information about the division of risks and responsibilities between the
                          Postal Service and its private-sector partner, was critical to its success in
                          implementing its large-scale real estate development projects. For each of
                          the projects we reviewed, business plans were drafted jointly between the
                          public- and private-sector parties to help ensure the close involvement of
                          both parties in the design and implementation of the project.

                          Finally, support from project stakeholders was an important factor in
                          developing and implementing the public-private partnerships. In all of the
                          projects we reviewed, agencies had the support of the local community
                          and other stakeholders to create the partnership. For example, in the two
                          Park Service projects, community leaders who were worried about

                          Page 5                                                        GAO/T-GGD-99-81

preserving historic structures without over commercializing them became
sponsors of the projects.

In addition to presenting this framework of key elements, our report also
contains profiles that provide additional details on each of the
partnerships we reviewed. These profiles present specifics on the form of
the partnership used in each case, any constraining or facilitating factors
present, and the reported results.

                _        _             _            _           _

In conclusion, Messrs. Chairmen, the set of common elements that we
identified appear to be key to the implementation of the six partnerships
we examined. Of particular importance was the critical role played by
Congress, which had to provide the authority for the projects to occur.

As both we and the National Research Council have reported over the last
decade, the condition of the federal government’s portfolio of public assets
is deteriorating. In 1993, we reported that over half of the government’s
office buildings were over 40 years old and were designed and located to
meet the needs of an earlier era. Given the deteriorating condition of these
structures, Congress and federal agencies need to continue to work
together to find approaches that will encourage prudent management of
federal buildings and facilities. When accompanied by good financial
management and appropriate congressional oversight, public-private
partnerships may be one approach to facilitate effective building and
facility management at a time when it is increasingly needed.

This concludes my prepared statement. I would be pleased to answer any
questions you or other Members of the Subcommittees may have.


Page 6                                                       GAO/T-GGD-99-81
Page 7   GAO/T-GGD-99-81

Public-Private Partnership Projects We

Projects and related agencies                       Type                                        Brief description of projects

Department of the Interior,
National Park Service
1. Fort Mason Foundation, San Francisco, CA,        Cooperative agreement to develop/           These two urban parks were once military
1976, extended in 1984..                            operate (20 years)                          bases and contain many historic but
2. Thoreau Center at the Presidio,                  Lease/develop/operate (55 years)            deteriorating structures. In each instance, the
San Francisco, CA, 1995                                                                         Park Service contracted with a private sector
                                                                                                partner to obtain funding to restore historic
                                                                                                structures while keeping the park in public
                                                                                                use. The partners rent the restored structures
                                                                                                to nonprofit tenants.
Department of Veterans Affairs
3. VA Regional Office, Houston, TX, 1993.           Design/build/ operate (35 years)            VA used statutory authority to enter into
4. Cold Spring Medical Facility,                    Lease/develop/operate (35 years)            revenue-generating leases for both projects.
Indianapolis, IN, 1995.                                                                         In Texas, a private developer constructed a
                                                                                                VA regional office building on VA’s medical
                                                                                                campus. VA then leased land to the
                                                                                                developer on the medical campus. The
                                                                                                developer constructed buildings on the land
                                                                                                and rents space in them to commercial
                                                                                                businesses. VA must approve the buildings’
                                                                                                tenants. In Indiana, the state leased
                                                                                                underutilized land and facilities from VA to
                                                                                                use as a psychiatric care facility. The leasing
                                                                                                revenue that VA receives from both sites is to
                                                                                                be used to fund veterans programs.
U.S. Postal Service
5. Grand Central Station Post Office, New York,  Lease/develop/operate (99 years)               In both cities, the Postal Service owned an
NY, 1987.                                                                                       outdated, historic building in a highly
6. Rincon Center Post Office, San Francisco, CA, Lease/develop/operate (65 years)               desirable downtown location. It leased each
1985.                                                                                           property to private developers who built a
                                                                                                commercial building adjacent to and/or on
                                                                                                top of the historic structure. The Postal
                                                                                                Service earns revenue from its lease with the
                                                                                                developer, and the developer earns revenue
                                                                                                from renting out commercial space in the
                                                                                                new and historic buildings.
                                                Both of these projects fall under the authority granted under VA’s Enhanced-Use Lease (EUL)

                                               Page 8                                                                         GAO/T-GGD-99-81
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