A Look at the Federal Buildings Fund

One of the lessons learned from the October shutdown, as recently discussed on this blog, is that GSA rent is subject to congressional appropriations even though the Federal Buildings Fund (FBF) has the needed money. In fact, the FBF is flush with rents collected from GSA customer agencies that expect the nation’s landlord to professionally maintain the 9,600 assets it owns or leases. Yet, years of underfunding repairs have led to more than $4.6 billion of deferred maintenance nationwide. In its 2014 budget, the GSA requested authorization to use rent monies for facility repairs and renovations, but Congress is holding tight to the strings on the $11.2 billion FBF purse*. How did this unwieldy situation come about?

In 1972, the FBF was established in the Treasury to fund the Public Buildings Service, the GSA component responsible for acquisitions and operations of government owned and leased facilities. Under Title 40 of the United States Code, agencies occupying GSA-controlled space are charged rates comparable to rents for similar commercial space, and payments are deposited in the FBF. Funds are available for management expenses, according to the code, “in the amounts specified in annual appropriations laws without regard to fiscal year limitations.” Notably, to prevent accumulation of an FBF surplus, appropriation laws can also specify an amount to be transferred out of the fund “and deposited as miscellaneous receipts in the Treasury.”

Almost from the outset, problems arose. In 1981, the Government Accountability Office (GAO) determined that the FBF was failing to meet two primary objectives of the fund: providing sufficient money for new construction, and improving agencies’ efficient use of space. It’s interesting to note that over 30 years ago, the GAO concluded that charging tenant agencies for occupied space had not led to expected cost savings through reduced worker space requirements (from 175 SF to 135 SF per person in the 1981 report).

A 2012 GAO report on the FBF identified other concerns. The fund’s balance has increased (from $56 million in FY 2007 to $2.2 billion in FY 2012, according to the report), largely because Congress has authorized less spending each year than requested by the GSA. Yet revenues have been declining; the GSA lost about $75 million from its leased portfolio in FY 2011, and 30% of its owned assets also lost money. Funding for maintenance has also declined since 2006, resulting in an urgent need for over a billion dollars in critical repairs. The GAO recommended that the GSA develop a transparent process of prioritizing projects and a long-term capital plan to improve the FBF’s ability to meet investment needs.

Over the decades, Congress has conflated the shortcomings of the FBF with other perceived GSA problems such as its struggles to dispose of vacant and underused buildings, extravagant employee bonuses and the Las Vegas conference scandal. Critics, such as Representative Jeff Denham (R-CA), call the FBF a slush fund lacking sufficient congressional oversight and aggressively seek to limit access to the funds. For a graphic representation of how GSA budget hawks have limited funds for construction, acquisitions, repairs and alternations, see our post from August. Note that since 2004, even as the average age of GSA buildings has increased, appropriations for repairs and alternations have decreased.

Some relief for GSA construction and renovation needs came in 2009 when President Obama signed the American Recovery and Reinvestment Act (ARRA). Implementation provided $5.5 billion to the FBF, primarily for enhancing energy efficiency of existing federal facilities and constructing new high performance offices, courthouses and land ports-of-entry. Some of these long-term investments in lower energy and water use and other operations costs have been profiled herehere and here. But ARRA-related funds for the FBF are now mostly obligated or spent.

In FY 2012, over half of the FBF’s gross revenue came from five federal customer agencies (DOJ, DHS, Judiciary, SSA and Treasury). Net revenues for FBF in FY 2012, calculated by subtracting operating costs from gross revenues, were $377 million for owned space (the FBF recorded a $67 million loss that year on leased space). Theoretically, net revenues are used for repairs and alternations, but under the current continuing resolution, the GSA has only $280 million to work with for renovations (plus $50 million for construction). Chronic maintenance neglect of owned buildings reduces the rent that can be charged, which reduces funds available to invest in the portfolio, which further reduces the cash flow available for repairs and upgrades…and so it goes. The net result is increased demand for leased space that is typically better capitalized, newer, more efficient and professionally managed.

The big question, of course, is whether the FBF will ever be capable of sustaining the federal inventory. Various GAO reports and congressional hearings appear to suggest that, even unhindered by appropriations restrictions, FBF revenue is insufficient to support the inventory. Given the backlog of federal capital required that is probably true but I don’t accept the notion that the FBF can’t support GSA’s portfolio. The private-sector has proven that real property assets leased at market rents can not only yield an annual profit but they can also increase in value.

Admittedly, the private-sector has two notable advantages over the federal government. The first is that private-sector lessors generally have improved access to capital. This is counter-intuitive, given the federal government’s $3.8 trillion budget, but it’s true for the reasons outlined above. This access to capital allows property owners to invest in their assets to reduce operating costs, increase rents and fund improvements. All of this investment is geared to improve cash flow.

The second advantage is that private-sector asset managers can plan. Lease contracts are generally long-term and cash flows can be forecasted asset by asset, even when lease expirations are expected. 5-year asset plans are the norm in the private sector. GSA, on the other hand, is doomed to react to year-to-year appropriations over which it has little control. Under the circumstances–and despite its multi-billion dollar Federal Buildings Fund–GSA will continue to struggle in its efforts to protect the value of federal properties and achieve the Public Building Service mission: “to provide superior workplaces for federal customer agencies at good economies to the American taxpayer.”

*The $11.2 billion in the Federal Buildings Fund includes $9.8 billion in revenue plus net amounts carried over from the prior year.