GSA in Shutdown Mode

An eerie quiet has descended over much of the 354 million square feet of real estate owned and leased by the General Services Administration (GSA). Facilities around the U.S. and its territories emptied on October 1 when the new fiscal year arrived without a budget approved by Congress. As required by law for all federal agencies, the GSA had prepared a contingency plan in anticipation of possible shutdowns that directs the orderly egress of all staff deemed  “non-excepted.” After powering down their computers on October 1st, 7,732 of the GSA’s 11,821 employees headed home, along with about 800,000 colleagues from the EPA, DOE, DOJ and other agencies.

The Constitution holds that Congress retains the power of the purse: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law. . . .” And as we discussed last year, this principle is enforced by the Antideficiency Act (ADA). Enacted in 1884, the ADA blocks the Executive Branch from creating a “coercive deficiency” by taking on financial obligations without funding approval from the legislature. Violations can result in civil and criminal penalties (so furloughed employees need to stay off those Blackberries). Implications of the ADA have already rattled government contractors during the sequester as addressed on this blog earlier this year. Fortunately, most leases administered by the GSA are immune from sequester-related cancellation because of the revolving Federal Buildings Fund. In a shutdown, though, the ADA has additional consequences for contractors, employees and throughout the government.

Yet some employees of the GSA and other agencies are remaining on the job. Their paychecks will be delayed, but workers specifically excepted are allowed to keep functioning under the ADA. At the GSA, 3,166 employees continue working because their compensation is provided by permanent and no-year appropriations, while 928 employees have been retained to protect human life and federal property. The remnant staff is expected to assist federal agencies in GSA-owned and -leased buildings to provide IT services, communications, lights, power, security and human safety. Facilities including parking remain open with limited services similar to “weekend mode.” Security continues to be provided by the Federal Protective Service of the Department of Homeland Security and the GSA website is available for reference, although not maintained. 

The agency’s diminished crew will also strive to fulfill orders for products, services and workspace to support excepted or exempt government activities. But other orders will not be accepted, and no payments can be made to contractors for goods or services obligated after appropriations lapsed. In fact, an “Industry Partner Letter” posted by the GSA one day after the shutdown indicates the agency may drop pending solicitations and rescind some existing contracts. According to the letter, “As a consequence of the [funding] lapse, certain planned procurements may be cancelled and certain existing PBS [Public Building Service] contracts may be stopped, reduced in scope, terminated or partially terminated.” Dan Sernovitz over at the Washington Business Journal has called this notice a “red flag” to contractors in general and the commercial real estate industry in particular. GSA appears to be proclaiming a flexibility to reduce contracted commitments including purchases of goods and services. Of particular interest to our readers, existing lease contracts will not be cancelled but rent could be delayed until after the shutdown is lifted. Also, new lease contracts will be suspended until authorized under a continuing resolution or new budget.

If the lapse in funding drags on, the ADA will rear its head higher. Without Congressional authorization, the GSA cannot tap into the Federal Building Fund to pay obligations including rents on existing leases. As I told Dan Sernovitz, “The irony is that the money is there but GSA can’t access it.” Late fees may be accumulating before there is funding to allow retroactive payment of rents incurred during the budget dispute.

A new report from the Congressional Research Service notes that shutdowns can affect the economy before, during and after the event. The longest cessation of operations to date, from December 16, 1995 to January 6, 1996, resulted in disruptions including curtailed veterans’ services, closed parks and monuments, delayed application processing by the Bureau of Alcohol, Tobacco, Firearms and Explosives and a stoppage of disease surveillance by the Centers for Disease Control and Prevention. Notably, according to the report, $3.7 billion (over 20%) of D.C. area contracts were adversely impacted by the shutdowns. Will the current funding gap extend as long as the one in FY 1996? And how might the looming debt ceiling affect the GSA, the government, and the national economy? Like hundreds of thousands of federal workers, landlords for the GSA and the rest of the federal government must face protracted uncertainty.

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