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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: 

GAO Highlights: 

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: 

GSA serves as the primary steward of the federal government’s civilian 
real property portfolio of nearly 10,000 assets. Since 1972, GSA has 
funded its real property acquisition, operation, maintenance, and 
disposal through the rent it collects from tenant agencies that is 
deposited into the FBF. GAO has previously reported, however, that the 
FBF has faced difficulty providing sufficient resources to support 
GSA’s mission. 

GAO was asked to examine (1) the factors affecting the resources in 
the FBF, (2) GSA’s potential repair liability and the implications for 
the FBF, and (3) the information GSA considers when evaluating capital 
investments and how these practices compare to leading practices for 
prioritizing capital investments. GAO reviewed legislation and GSA 
documents and compared leading practices on making capital investment 
decisions from OMB and GAO capital planning guidance to GSA practices. 
GAO also analyzed budget and financial data from fiscal years 2006 
through 2012, facility condition data from fiscal year 2011, and 
interviewed GSA officials and OMB staff. 

What GAO Found: 

The Federal Buildings Fund’s (FBF) balance has increased from $56 
million in fiscal year 2007 to $2.2 billion in fiscal year 2012 
primarily due to the growing difference between the resources provided 
to the FBF and the General Services Administration’s (GSA) use of 
these funds as determined through the budgeting and appropriations 
process. In the last 2 years, Congress has provided fewer resources 
than requested by the executive branch and generated by the FBF. 
Office of Management and Budget (OMB) staff and GSA officials 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 
needs. However, GSA, through the annual President’s Budget Request, 
has sought less obligational authority 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 less costs 
excluding depreciation—that contribute to FBF income have declined 
from 2006 to 2011 when adjusted for inflation. Revenues have declined 
while costs have outstripped inflation over this time period. In 
addition, portions of GSA’s inventory operate at a loss. For example, 
about 30 percent of GSA’s owned assets lost money in 2011, while GSA’s 
total leased portfolio lost about $75 million. Despite the losses in 
its leased portfolio, GSA continues to rely extensively on leasing. 
GSA is taking steps to reduce the size of its overall real estate 
portfolio. 

GSA has identified $4.6 billion in maintenance and repairs expected 
from 2012 to 2021 and anticipates that nearly a quarter of this amount 
is needed immediately. However, funding for maintenance and repairs 
has declined since 2006. GSA officials noted that reduced funding for 
capital reinvestments could result in deferred maintenance and 
repairs, and increase the cost and extent of such work in the future. 
These concerns are consistent with the National Research Council’s 
findings that each $1 in deferred maintenance and repair work results 
in a long-term capital liability of $4 to $5. 

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 process for prioritizing projects and a comprehensive long-
term capital plan that fully aligns with leading practices. GSA keeps 
a baseline of information on its assets and needs-—as leading 
practices suggest-—through various tools and databases. GSA’s process 
and guidance for evaluating capital investment alternatives 
substantially meet leading practices as its project planning process 
explores alternatives to meeting investment needs. GSA’s process for 
prioritizing capital investments partially meets leading practices, 
but its project prioritization transparency could be improved by 
laying out in its annual budget submission how it uses its criteria to 
determine which projects get selected for funding over 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 range of priorities over 
the next 5 years. In short, more transparency through a comprehensive 
long-term capital plan would allow for more informed decision making 
by GSA and Congress among competing priorities. 

What GAO Recommends: 

GAO recommends that GSA (1) document in its budget submission how it 
prioritizes capital investments and (2) develop and annually submit a 
5-year long-term capital plan to OMB and Congress. GSA agreed with our 
recommendations. Technical comments from GSA and OMB were incorporated 
as appropriate. 

View [hyperlink, http://www.gao.gov/products/GAO-12-646]. For more 
information, contact Dave Wise at (202) 512-2834 or wised@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Growing FBF Balance Belies Revenue and Cost Challenges: 

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

GSA Could Better Conform Some of Its Capital Planning to Leading 
Practices: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Objectives, Scope, and Methodology: 

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

Appendix III: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Changes to the Federal Buildings Fund, Fiscal Years 2006-2012 
(Dollars in millions): 

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

Table 3: Leading Capital Planning Practices for Using Information to 
Make Capital Investment Decisions: 

Table 4: GAO's Assessment of GSA's Conformance to Leading Practices 
for Using Information to Make Capital Investment Decisions: 

Figures: 

Figure 1: Funds from Operations Generated by GSA-Owned Assets, Fiscal 
Years 2006-2011: 

Figure 2: GSA-leased Asset Income, Fiscal Years 2006-2011: 

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

Figure 4: Repairs and Alterations and New Construction Obligational 
Authority, Fiscal Years 2005-2012: 

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: 

[End of section] 

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).[Footnote 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.[Footnote 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. 
[Footnote 3] We reported in 2000 that GSA had struggled to fund the 
capital repairs identified at its buildings and that GSA faced a 
potential repair liability of billions of dollars.[Footnote 4] These 
conditions contributed to our initial characterization of federal real 
property management as a high-risk area in 2003.[Footnote 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[Footnote 6] and GAO's Executive Guide;[Footnote 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. 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. 

Background: 

The FBF, administered by GSA, is a quasi-revolving fund financed by 
rents received from other agencies and authorized and established by 
the Public Buildings Act Amendments of 1972.[Footnote 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.[Footnote 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. 
[Footnote 10] During fiscal year 2011, GSA deposited about $9 billion 
into the 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 authorization and funding.[Footnote 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.[Footnote 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. 

Table 1: Changes to the Federal Buildings Fund, Fiscal Years 2006-2012 
(Dollars in millions): 

Fiscal year: 2006; 
Beginning fund balance[A]: $521; 
Fund deposits[B]: $7,495; 
Total available resources: $8,016; 
President's Budget Request: $7,769; 
Appropriated obligational authority[C]: $7,961; 
Change from the beginning fund balance: ($465). 

Fiscal year: 2007; 
Beginning fund balance[A]: $56; 
Fund deposits[B]: $7,583; 
Total available resources: $7,639; 
President's Budget Request: $8,047; 
Appropriated obligational authority[C]: $7,498; 
Change from the beginning fund balance: $85. 

Fiscal year: 2008; 
Beginning fund balance[A]: $141; 
Fund deposits[B]: $8,280; 
Total available resources: $8,420; 
President's Budget Request: $8,091; 
Appropriated obligational authority[C]: $8,133; 
Change from the beginning fund balance: $147. 

Fiscal year: 2009; 
Beginning fund balance[A]: $288; 
Fund deposits[B]: $8,765; 
Total available resources: $9,053; 
President's Budget Request: $8,378; 
Appropriated obligational authority[C]: $8,450; 
Change from the beginning fund balance: $316. 

Fiscal year: 2010; 
Beginning fund balance[A]: $604; 
Fund deposits[B]: $8,956; 
Total available resources: $9,560; 
President's Budget Request: $8,531; 
Appropriated obligational authority[C]: $8,527; 
Change from the beginning fund balance: $428. 

Fiscal year: 2011; 
Beginning fund balance[A]: $1,032; 
Fund deposits[B]: $8,841; 
Total available resources: $9,873; 
President's Budget Request: $9,154; 
Appropriated obligational authority[C]: $7,659; 
Change from the beginning fund balance: $1,156. 

Fiscal year: 2012; 
Beginning fund balance[A]: $2,239; 
Fund deposits[B]: $9,223[D]; 
Total available resources: $11,462; 
President's Budget Request: $9,509; 
Appropriated obligational authority[C]: $8,018; 
Change from the beginning fund balance: $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. 

[End of table] 

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 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 and Costs: 

GSA's owned assets generate most of the resources used for capital 
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 square feet.[Footnote 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.[Footnote 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.[Footnote 15] (See figure 1.) 

Figure 1: Funds from Operations Generated by GSA-Owned Assets, Fiscal 
Years 2006-2011: 

[Refer to PDF for image: line graph] 

Fiscal year: 2006; 
Owned: $1.660 billion; 
Owned (2006 dollars): $1.660 billion. 

Fiscal year: 2007; 
Owned: $1.594 billion; 
Owned (2006 dollars): $1.548 billion. 

Fiscal year: 2008; 
Owned: $1.645 billion; 
Owned (2006 dollars): $1.562 billion. 

Fiscal year: 2009; 
Owned: $1.579 billion; 
Owned (2006 dollars): $1.478 billion. 

Fiscal year: 2010; 
Owned: $1.678 billion; 
Owned (2006 dollars): $1.556 billion. 

Fiscal year: 2011; 
Owned: $1.669 billion; 
Owned (2006 dollars): $1.518 billion. 

Source: GAO analysis of GSA information. 

[End of figure] 

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 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.[Footnote 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.[Footnote 
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 other assets in the owned portfolio.[Footnote 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 place for a number of years.[Footnote 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 figure 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. [Footnote 20] 

Figure 2: GSA-leased Asset Income, Fiscal Years 2006-2011: 

[Refer to PDF for image: line graph] 

Fiscal year: 2006: $92 million. 

Fiscal year: 2007 $11 million. 

Fiscal year: 2008 -$44 million. 

Fiscal year: 2009 -$66 million. 

Fiscal year: 2010 -$42 million. 

Fiscal year: 2011 -$75 million. 

Source: GAO analysis of GSA information. 

[End of figure] 

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.[Footnote 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 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 figure 
3.) GSA officials 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.[Footnote 
22] 

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

[Refer to PDF for image: line graph] 

Rentable square feet in millions: 

Fiscal year: 2006; 
Owned: 174; 
Leased: 172. 

Fiscal year: 2007; 
Owned: 172; 
Leased: 175. 

Fiscal year: 2008; 
Owned: 177; 
Leased: 177. 

Fiscal year: 2009; 
Owned: 177; 
Leased: 183. 

Fiscal year: 2010; 
Owned: 178; 
Leased: 190. 

Fiscal year: 2011; 
Owned: 182; 
Leased: 193. 

Source: GAO analysis of GSA information. 

[End of figure] 

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 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.[Footnote 23] At the end 
of fiscal year 2011, GSA identified a $4.6 billion liability for the 
next 10 years.[Footnote 24] Of this total, $1.3 billion is for 
immediate maintenance and repair needs, and $3.3 billion is for 
maintenance and repairs that will be needed in future years.[Footnote 
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 (over the next 10 years): $1 to 
$500,000; 
Number of assets: 681; 
Percent of owned portfolio[A]: 39.5%; 
Median gross square feet: 7,169. 

Liability of maintenance and repair (over the next 10 years): $500,001 
to $1,000,000; 
Number of assets: 133; 
Percent of owned portfolio[A]: 7.7%; 
Median gross square feet: 52,254. 

Liability of maintenance and repair (over the next 10 years): 
$1,000,001 to $2,000,000; 
Number of assets: 147; 
Percent of owned portfolio[A]: 8.5%; 
Median gross square feet: 64,421. 

Liability of maintenance and repair (over the next 10 years): 
$2,000,001 to $5,000,000; 
Number of assets: 184; 
Percent of owned portfolio[A]: 10.7%; 
Median gross square feet: 134,846. 

Liability of maintenance and repair (over the next 10 years): 
$5,000,001 to $10,000,000; 
Number of assets: 85; 
Percent of owned portfolio[A]: 4.9%; 
Median gross square feet: 233,987. 

Liability of maintenance and repair (over the next 10 years): 
$10,000,001 to $20,000,000; 
Number of assets: 45; 
Percent of owned portfolio[A]: 2.6%; 
Median gross square feet: 414,691. 

Liability of maintenance and repair (over the next 10 years): 
$20,000,001 or more; 
Number of assets: 58; 
Percent of owned portfolio[A]: 3.4%; 
Median gross square feet: 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. 

[End of table] 

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 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 Alteration Projects: 

As previously discussed, GSA's overall obligational authority has 
trended 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.[Footnote 26] 
Obligational authority for construction, decreased from $760 million 
in 2005 to $50 million in 2012. (See figure 4.) 

Figure 4: Repairs and Alterations and New Construction Obligational 
Authority, Fiscal Years 2005-2012: 

[Refer to PDF for image: line graph] 

Fiscal Year: 2005; 
Repair and Alterations: $855,490.000; 
New Construction: $760,353,000. 

Fiscal Year: 2006; 
Repair and Alterations: $1.14 billion; 
New Construction: $819,527,000. 

Fiscal Year: 2007; 
Repair and Alterations: $618,241,000; 
New Construction: $648,302,000. 

Fiscal Year: 2008; 
Repair and Alterations: $818,151,000; 
New Construction: $737,841,000. 

Fiscal Year: 2009; 
Repair and Alterations: $724,234,000; 
New Construction: $736,317,000. 

Fiscal Year: 2010; 
Repair and Alterations: $489,515,000; 
New Construction: $901,961,000. 

Fiscal Year: 2011; 
Repair and Alterations: $341,000,000; 
New Construction: $82,385,000. 

Fiscal Year: 2012; 
Repair and Alterations: $280,000,000; 
New Construction: $50,000,000. 

Source: GAO analysis of GSA information. 

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. 

[End of figure] 

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 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."[Footnote 27] 

GSA Could Better Conform Some of Its Capital Planning to Leading 
Practices: 

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

Table 3: Leading Capital Planning Practices for Using Information to 
Make Capital Investment Decisions: 

Leading practice: Needs assessment; 
Description: A comprehensive needs assessment identifies the resources 
needed to fulfill both immediate requirements and anticipated future 
needs based on the results-oriented goals and objectives that flow 
from the organization's mission. A comprehensive assessment of needs 
considers the capability of existing resources and makes use of an 
accurate and up-to-date inventory of capital assets and facilities, as 
well as current information on asset condition. Using this 
information, an organization can make decisions about where to invest 
in facilities. 

Leading practice: Alternatives evaluation; 
Description: Agencies should determine how best to bridge performance 
gaps by identifying and evaluating alternative approaches. Before 
choosing to purchase or construct a capital asset or facility, leading 
organizations carefully consider a wide range of alternatives, such as 
using existing assets, leasing, or undertaking new construction. 

Leading practice: Project prioritization; 
Description: Leading organizations have processes in which proposed 
capital investments should be compared to one another to create a 
portfolio of major assets ranked in priority order. 

Leading practice: Long-term capital plan; 
Description: The long-term capital plan should be the final and 
principal product resulting from the agency's capital planning 
process. The capital plan should cover 5 years or more and should 
reflect decision makers' priorities for the future. Leading 
organizations update long-term capital plans either annually or 
biennially. Agencies are encouraged to include certain elements in 
their capital plans, including a statement of the agency mission, 
strategic goals and objectives; a description of the agency's planning 
process; baseline assessments and identification of performance gaps; 
and a risk management plan. 

Sources: GAO and OMB. 

[End of table] 

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.) 

Table 4: GAO's Assessment of GSA's Conformance to Leading Practices 
for Using Information to Make Capital Investment Decisions: 

Leading practice: Needs assessment; 
Conformance to leading practice: Substantially conforms to leading 
practices. 

Leading practice: Alternatives evaluation; 
Conformance to leading practice: Substantially conforms to leading 
practices. 

Leading practice: Project prioritization; 
Conformance to leading practice: Partially conforms to leading 
practices. 

Leading practice: Long-term capital plan; 
Conformance to leading practice: Minimally conforms to leading 
practices.  

Source: GAO analysis. 

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. 

[End of table] 

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.[Footnote 29] PCSs, typically 
conducted by GSA's building management personnel and asset business 
teams,[Footnote 30] 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. 

* 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. 
[Footnote 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; 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.[Footnote 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.[Footnote 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 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.[Footnote 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.[Footnote 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 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.[Footnote 36] 

Project Prioritization: 

GSA's process for prioritizing capital investment projects partially 
meets leading practices, but its transparency can be improved. Leading 
capital 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 
projects' net present value[Footnote 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 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; 

* 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. [Footnote 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 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. 

Conclusions: 

Since its inception, the FBF has been challenged to provide sufficient 
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. 

Recommendations for Executive Action: 

To enhance transparency, allow for more informed decision making 
related to GSA's real property priorities, and make a stronger case 
for 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. 

Agency Comments: 

We provided a draft of this report to GSA and OMB for review and 
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 [hyperlink, 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 of this report. GAO staff who made key contributions to 
this report are listed in appendix III. 

Sincerely yours, 

Signed by: 

David J. Wise: 
Director, Physical Infrastructure Issues: 

[End of section] 

Appendix I: Objectives, Scope, and 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 
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 Assets: 

To assess the condition of GSA's owned assets and the implications for 
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. 

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 
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 Capital Practices: 

To assess how GSA's use of Information to make capital investment 
decisions conforms with leading practices, we identified leading 
practices for using information to make capital investment decisions 
from GAO's Executive Guide[Footnote 39] and OMB's Capital Programming 
Guide.[Footnote 40] 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 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. 

[End of section] 

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

GSA: 
U.S. General Services Administration: 
The Administrator: 
1275 First Street NE: 
Washington, DC 20417: 
Telephone: (202) 501-0800: 
Fax: (202) 219-1243: 
 
June 21, 2012: 

The Honorable Gene L. Dodaro: 
Comptroller General of the United States: 
U.S. Government Accountability Office: 
Washington, DC 20548:  

Dear Mr. Dodaro:  

The General Services Administration (GSA) appreciates the opportunity 
to review and comment on the draft report, "Federal Buildings Fund - 
Improved Transparency and Long-term Plan Needed to Clarify Capital 
Funding Needs" (GAO-12-646). The Government Accountability Office 
(GAO) recommends that GSA takes the following two actions:  

* Document in its annual budget request to the Office of Management 
and Budget (OMB) how GSA uses its ranking and prioritization criteria 
to generate its annual and five-year lists of prioritized projects to 
ensure that Congress understands the rationale behind prioritized 
project lists and that GSA is maximizing the return on Federal 
Building Fund (FBF) investments.  

* Develop and publish a comprehensive five-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.  

GSA agrees with the findings and recommendations and will use them to 
improve our capital investment planning process. However, we are 
concerned that certain aspects of the report do not accurately reflect 
the information and feedback GSA provided throughout the audit 
process. Specifically, sections of the report that reference the 
alternatives analysis of the Burton Federal Building project; the 
impact of deferring investment in the Heating, Operation and 
Transmission District system; the consideration of project risk as 
part of alternatives evaluation; and the use of new software to make 
project prioritization more collaborative and transparent do not 
accurately reflect information that GSA had previously transmitted to 
the GAO.  

In addition, the report states that the FBF balance has increased from 
$56 million in fiscal year 2007 to $2.2 billion in fiscal year 2012. 
As noted in the report, Congress has provided fewer resources than 
requested by the executive branch and generated by the FBF Budget. As 
background, the FBF is an intra-governmental revolving fund that 
finances real property management and related activities of the GSA 
Public Buildings Service. Principal activities include the operation, 
maintenance, and repair of GSA-owned and leased buildings, and the 
construction of Federal buildings, courthouses, and land ports of 
entry. The FBF is financed by income from rent charged to occupants of 
GSA-controlled space. The FBF is subject to annual Congressional 
enactment of New Obligational Authority a limitation on the use of 
revenue. 

OMB and GSA officials 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 needs. GSA, however, in accordance with the 
President's goals and priorities has sought less obligational 
authority than the balance available in the fund. Additionally, 
Congress, through the appropriations process, has not given GSA the 
authority to expend all of the funds requested. As funds become 
available for GSA's use, GSA will prioritize requests and allocate 
funding in alignment with capital planning needs. 

Technical comments that update and clarify statements in the draft 
report are enclosed. 

If you have any additional questions or concerns, please do not 
hesitate to contact me or Ms. Linda Chero, Acting Commissioner, Public 
Buildings Service, at (202) 501-1100. Staff inquiries may be directed 
to Ms. Martha Benson, Assistant Commissioner for Real Property Asset 
Management at, (202) 208-7176. 

Sincerely, 

Signed by: 

Dan Tangherlini: 
Acting Administrator: 

Enclosure: 

cc: Mark Goldstein, Director, Physical Infrastructure Issues: 

[End of letter] 

Government Accountability Office (GAO) Draft Report: 

Federal Buildings Fund — Improved Transparency and Long-term Plan
Needed to Clarify Capital Funding Priorities: 
GA0-12-646 — Dated June XX, 2012: 
General Services Administration: 
Comments to the Recommendations: 

Recommendation 1: GAO recommends that GSA documents in its annual
budget request to OMB how GSA uses its ranking and 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. 

GSA Response: GSA agrees with the need for a transparent process for
prioritizing projects and has refined weighted prioritization criteria 
for use in a decision-making software tool that would allow us to more 
systematically and transparently prioritize projects. GSA will be 
employing this method during the development of the fiscal year 2014 
budget. GSA believes this approach will help to improve the 
transparency of its capital investment prioritization process to 
ensure that key stakeholders such as OMB and Congress understand the 
rationale behind it. 

Recommendation 2: GAO recommends that GSA develop and publish a
comprehensive five-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. 

GSA Response: GSA agrees with the need to clearly communicate our 
capital funding needs, and will work with our stakeholders, OMB and 
Congress in developing and providing a five-year capital plan to 
include in our budget request. 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David J. Wise, (202) 512-2834 or wised@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Mike Armes (Assistant 
Director), Amy Abramowitz, Colin Fallon, Imoni Hampton, Carol Henn, 
Paul Kinney, Kieran McCarthy, Ruben Montes de Oca, Matt Voit, Crystal 
Wesco, and Elizabeth Wood made key contributions to this report. 

[End of section] 

Footnotes: 

[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). 

[4] GAO, Federal Buildings: Billions are Needed for Repairs and 
Alterations, [hyperlink, http://www.gao.gov/products/GAO/GGD-00-98] 
(Washington, D.C.: Mar. 30, 2000). 

[5] GAO, High Risk Series: Federal Real Property, [hyperlink, 
http://www.gao.gov/products/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, [hyperlink, http://www.gao.gov/products/GAO/AIMD-99-32] 
(Washington, D.C.: December 1998). 

[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, [hyperlink, 
http://www.gao.gov/products/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. 

[11] 40 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. 

[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. 

[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. 

[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. 

[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. 

[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. 

[22] GAO, Federal Real Property: Overreliance on Leasing Contributed 
to High-Risk Designation, [hyperlink, 
http://www.gao.gov/products/GAO-11-879T] (Washington D.C.: Aug. 4, 
2011.) 

[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. 

[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. 

[26] Obligational authority includes adjustments due to reprogrammings 
and rescissions. 

[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). 

[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. 

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

[32] GAO, Federal Real Property: National Strategy and Better Data 
Needed to Improve Management of Excess and Underutilized Property, 
[hyperlink, http://www.gao.gov/products/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. 

[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. 

[36] GAO, Federal Real Property: Strategy Needed to Address Agencies' 
Long-standing Reliance on Costly Leasing, [hyperlink, 
http://www.gao.gov/products/GAO-08-197] (Washington, D.C., January 
2008). 

[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. 

[38] GAO, Federal Buildings: Billions are Needed for Repairs and 
Alterations, [hyperlink, http://www.gao.gov/products/GAO/GGD-00-98] 
(Washington, D.C.: Mar. 30, 2000). 

[39] GAO, Executive Guide: Leading Practices in Capital Decision-
Making, [hyperlink, http://www.gao.gov/products/GAO/AIMD-99-32] 
(Washington, D.C.: December 1998). 

[40] 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). 

[End of section] 

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