What You Should Know About the Public Buildings Reform Act

The relationship between the 112th Congress and GSA is not particularly cozy. The House of Representatives, under the leadership of Transportation and Infrastructure Committee Chairman, John Mica (R-FL), has sparred with GSA over efforts to relocate the FTC from its current headquarters, over lavish conferences, over bonuses for GSA Senior Executives, over space utilization, over the 1 World Trade Center lease and over the slow pace of property dispositions. And that’s just since the beginning of this year.

Now, Mica, along with Economic Development, Public Buildings and Emergency Management Subcommittee Chairman Rep. Jeff Denham (R-CA), is pushing forward with a bill that rolls many of these skirmishes into comprehensive legislation that would add the weight of law to Congress’ efforts to curb GSA. This new bill, H.R. 6430, is entitled the “Public Buildings Reform Act of 2012’’ and on September 20th it was approved in subcommittee. The bill addresses a laundry list of items that are best summarized in a press release issued by the House Transportation and Infrastructure Committee.

There is an awful lot that begs for comment in this bill but here are three items we think are most notable, especially for lessors:

No Net Growth

H.R. 6430 excerpt: “Any prospectus that proposes new space, whether leased or owned,… for fiscal years 2014, 2015, and 2016 shall contain information outlining the details of the elimination of at least a corresponding amount of space.”

The concept of “no net growth” is largely bi-partisan. In May the President issued a memorandum through the Office of Management and Budget meant to freeze the size of the civilian federal leased and owned inventory, stating that approval for acquisition of net new space will only be granted where the total square footage is offset through consolidation, co-location or disposition of space from that same agency.

The innovation in H.R. 6430, however, is that GSA must demonstrate to Congress that its prospectus requests do not grow the inventory. That opens the door for further scrutiny, which is probably Mica’s intent. Yet, the House committee’s track record for approvals of recent prospectuses has been abysmal.  The House places the blame squarely on GSA, for its slow response to their inquiries regarding prospectus details. Whatever the reason, there is dysfunction in the Congress-GSA working relationship.

Space Reduction

H.R. 6430 excerpt: “Each calendar year through 2016, the Administrator of General Services shall reduce by a minimum of 1,000,000 square feet of the leased and owned property in the inventory of the General Services Administration…”

While the concept of a cap on the federal inventory size has bi-partisan support, it is primarily the Republicans who seek deep cuts to the overall size of the inventory. In fact, numerous legislative proposals have been issued that seek to reduce the federal inventory, workforce and payroll. The provisions of H.R. 6430 simply quantify those goals more specifically.

For lessors, the concern is obvious. On the one hand, we note that a three million square foot reduction is only about 1.5% of the GSA leased portfolio. Yet, if you are a lessor with a major lease expiration in the next three fiscal years, your odds of being stung are probably a lot higher. Further, GSA has termination rights in most of its leases. The provisions of this bill would likely force them to be exercised far more often.

Rental Rate Restriction

H.R. 6430 excerpt: “The Administrator may not lease space at an amount below the average annual rental rate established pursuant to [the provisions of 40 U.S.C. Section 3307] that exceeds the maximum rental rate established by the Administrator for the respective geographical location…”

This one confuses us. Title 40 of the United States Code includes a provision requiring GSA to seek congressional authorization to enter into lease transactions expected to have an annual full service rent higher than a specified amount. That “prospectus threshold”, as we often call it, is $2.79 million this year. Also, unique to the National Capital region, a maximum per-square-foot rent cap is applied generally to all prospectus-level leases in a particular jurisdiction. So, for example, if a lease in the District of Columbia will have an average annual rent above the prospectus threshold, GSA is not authorized to pay any more than $49.00 per rentable square foot, full service. We call that the “prospectus cap”. Geography-based maximum rent caps are also established for the Northern Virginia and Suburban Maryland markets but (to our knowledge) nowhere else in the United States. H.R. 6430 suggests that the GSA Administrator will need to establish similar geography-based caps in all regions of the country. Further—and this is the kicker—these maximum rent caps will apply to all lease transactions, regardless of whether they exceed the prospectus threshold. The mayhem that will stem from this one clause is beyond contemplation. We assume there is more to learn here.

Less than 4% of bills are signed into law, but H.R. 6430 has the support of a senior Congressman and committee chair in Rep. Mica.  It is also indicative of other bills generated in the last 2-3 years.  Many of the concepts outlined here have broad support in the House and they should be followed closely.

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