Federal Real Property:

Strategy Needed to Address Agencies' Long-standing Reliance on Costly Leasing

GAO-08-197: Published: Jan 24, 2008. Publicly Released: Feb 25, 2008.

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In January 2003, GAO designated federal real property as a high-risk area, citing the government's overreliance on costly, long-term leasing as one of the major reasons. GAO's work over the years has shown that building ownership often costs less than operating leases, especially for long-term space needs. GAO was asked to identify (1) the profile of domestically held, federally leased space including the overall amount and type of space agencies lease, and any related trends; (2) the factors that drive agencies to lease space that may be more cost-effective to own; and (3) any actions taken by the administration and alternative approaches proposed to address this issue. GAO reviewed fiscal year 2006 Federal Real Property Profile (FRPP) leasing data and relevant documents and interviewed officials from the General Services Administration (GSA), the Office of Management and Budget (OMB), and the U.S. Postal Service (USPS). GAO also reviewed 10 building leases that were among those with the largest dollar value in 3 locations GAO visited.

Federal agencies rely extensively on leasing, occupying about 398 million square feet of leased building space domestically in fiscal year 2006, according to FRPP data. GSA, USPS, and the U.S. Department of Agriculture lease about 71 percent of this space, mostly for offices, with the military services leasing another 17 percent. GSA is increasing its use of leased space and predicts that in 2008 it will, for the first time, lease more space than it owns. In the 10 GSA and USPS leases GAO examined, decisions to lease space that would be more cost-effective to own were driven by the limited availability of capital for building ownership and other considerations, such as operational efficiency and security. For example, for four of the seven GSA leases GAO analyzed, leasing was more costly over time than construction--by an estimated $83.3 million over 30 years. Although ownership through construction is often the least expensive option, federal budget scorekeeping rules require the full cost of this option to be recorded up-front in the budget, whereas only the annual lease payment plus cancellation costs need to be recorded for operating leases, making them "look cheaper" in any year even though they generally are more costly over time. USPS is not subject to the scorekeeping rules and cited operational efficiency and limited capital as its main reasons for leasing. While the administration has made progress in addressing long-standing real property problems, efforts to address the leasing challenge have been limited. GAO has raised this issue for almost 20 years. Several alternative approaches have been discussed by various stakeholders, including scoring operating leases the same as ownership, but none have been implemented. The current real property reform initiative, however, presents an opportunity to address the leasing challenge.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: OMB has not implemented this recommendation.

    Recommendation: The Director of the Office of Management and Budget should direct the Deputy Director for Management, Office of Management and Budget, in conjunction with the Federal Real Property Council and in consultation with key stakeholders including Congress, to develop a strategy to reduce agencies' reliance on leased space for long-term needs when ownership would be less costly. The strategy should, at a minimum, analyze current and past legislative and administration proposals that addressed the budget scorekeeping issue in relation to real property, gauge stakeholders' perspectives on what proposals are most viable, and identify the conditions, if any, under which leasing is an acceptable alternative even if it is not the most cost-effective option.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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