Alternative Approaches to Funding for Federal Real Property

GAO Report Capital FinancingA recent bounce in GSA’s funds from Congress has modestly improved the agency’s ability to reduce the federal footprint and shift more toward owned space, as we discussed earlier this month. But the slight budget relief may be only temporary and does not resolve chronic funding problems faced by GSA and other agencies needing to acquire, renovate or dispose of federal real property without full upfront funding. This enduring difficulty—more acute in times of fiscal stress—is the focus of a new GAO report on how selected agencies have used other funding mechanisms to meet real property needs. The result of the GAO’s careful analysis appeared this month, “Capital Financing: Alternative Approaches to Budgeting for Federal Real Property.”

The GAO identified management of federal real property as a high-risk issue back in 2003. Efforts to improve the situation have included a 2010 presidential directive for agencies to save money through disposal of excess real property and by consolidating and increasing space utilization. A 2012 OMB memorandum specifically directed agencies to “Freeze the Footprint,” that is, not increase their real estate inventory. “As a result,” states the GAO report, “acquisition has become more about consolidation and identifying opportunities to share space rather than acquiring new space.”

A 2006 GAO analysis found upfront funding to be the ideal approach to fulfilling federal commitments and maintaining fiscal control. But purchases or capital leases are recorded in full in the budget year in which they are made. In contrast, short-term, operating leases require only the first year’s lease payments (plus cancellation costs) to appear in that year’s budget, making costly operating leases often preferable on paper to construction or renovation projects. Consequently, agencies regularly face funding challenges to acquiring or renovating federal real property.

In lieu of upfront funding, agencies turn to alternatives. Because legal authorities vary between and within agencies, alternatives are not universally available, and preferred alternatives also vary. The GAO chose to examine financing alternatives through case studies of four agencies that were among the top 10 federal real property holders in 2012: GSA, Department of Agriculture (USDA), Department of Veterans Affairs (VA), and Department of the Interior (DOI). Methodology involved analyzing agency documents, reviewing federal laws, regulations and policies and interviewing officials. The report emphasizes that the results are “nongeneralizable” but meant to illustrate a range of possibilities.

Alternative funding mechanisms used by selected agencies include:

  • Land swap—used, for example, by the USDA which exchanged land with the city of Ames, Iowa, which gave the city space to build a water treatment plant and the USDA space to dispose of diseased animals’ manure.
  • Retained fees—used in the case of DOI’s National Park Service to direct recreation fees toward essential repairs to eroding beaches and outdoor amenities and to install energy efficient features in a renovated park building in Massachusetts.
  • Enhanced use lease—notably used by the VA to lease excess space to the Volunteers of America of Greater Ohio, which renovated and maintained a building, resulting in cost savings to the government.

The report points out that many of the alternative mechanisms relied on partnerships, often public-private partnerships, to leverage resources. One consequence was that additional time was required to identify potential partners and work out beneficial arrangements for both parties. In the USDA’s Agricultural Research Service example, it took 10 years to successfully complete a land exchange.

Each alternative mechanism, in fact, had shortcomings for the agencies, and the report also considers how changing the budgetary structure itself might offer greater benefits for meeting federal property needs. The GAO offers options for consideration, rather than making recommendations. For example, Congress could improve flexibility for agencies needing to make acquisitions or repairs by allowing full access to the Federal Buildings Fund (FBF). Or, a capital acquisition fund could be created with authority to fund approved projects by borrowing from the Federal Financing Bank. The report concludes that there is no single best option for federal real property budgeting, but alternative budget structures should attempt to balance the need to provide agencies with flexibility with goal of promoting transparency and fiscal control for Congress.

The GAO also includes comments from the four selected agencies as appendixes to the report. Most are technical, but a letter from GSA Administrator Dan Tangherlini agrees that alternative budgetary structures could lead to improvements. While the report does not make recommendations as to which alternatives to pursue, Tangherlini contends that some are indeed preferable to others. His concluding remark is a call for a continuing discussion with the GAO and GSA’s congressional oversight committees “to help ensure that the Government has the capital and the flexibility to make cost effective real estate decisions.”

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