Reining in Lease Extensions: A New GAO Report Promises More Oversight on Federal Leases

GAO Lease Expirations Graph

The federal government spends too much money, and it doesn’t keep tabs on what it’s spending money on. That’s the constant complaint, especially from critics in an election cycle—but it’s also a refrain that’s coming from the federal budgetary watchdog, the Government Accountability Office, with respect to the huge portfolio of properties that the government leases.

A GAO report issued earlier this month notes that U.S. General Services Administration leases 7,435 properties from the private sector, for a total of almost 195 million square feet. Yet, in a study leases expiring in the FY 2012 to FY 2014 time period, more than half (1,455) of the leases that were set to expire in that window went into extension or holdover–or both. In addition, GAO found that 1,603 leases were already in extension or holdover status at the beginning of their study period. GSA’s liberal application of holdovers–or their close cousin, the short-term extension–can, as the report notes, understandably cause tension and ill will. The report adds that the strategy is thus risky and “should be avoided.”

Uncertainty is the chief driver for these extensions. In a climate of cutbacks and partisan division over funding, many agencies lack a clear picture of staffing and space requirements from one year to the next. “Such uncertainty can make it challenging for federal tenant agencies to effectively plan and budget for the long term,” observed GAO auditors in presenting the report to the Senate Homeland Security and Governmental Affairs Committee. Even though the government overall operates under the terms of the Office of Management and Budget’s “Freeze the Footprint” mandate, which specifies that agencies may not increase the total square footage of their domestic office and warehouse space beyond a baseline set in 2012, there is uncertainty even there, particularly as agencies are called on to do more—to serve, for example, an ever-growing number of retirees in the case of the Social Security Administration or of federal prisoners in the case of the Department of Justice.

As case studies, the GAO report focuses closely on ten instances of privately owned properties whose leases exceeded $500,000 annually. More than half of these were in the Washington, DC (National Capitol) area. GAO found that the agency most responsible for extensions or holdovers was the Department of Homeland Security, accounting for 21 percent of holdovers and 19 percent of extensions. The report does not say as much, but given the ongoing difficulties surrounding the consolidation of DHS space at the St Elizabeths Hospital site, it is not hard to see that future planning for employees and assets is a pretty fluid process.

But why worry about extensions at all? Hard feelings are one thing, but more to the point, as the report observes, federal agencies are forced into a weak bargaining position when they’re in danger of losing their space and have often responded by paying higher than the market rate to renew the lease.

Given that billions of dollars are at issue, better planning should yield better ability to bargain and reduce the need for extension, which the GSA deems “a lease action of last resort.” Even good planning cannot fully take into account the uncertainty produced by sequestration and budgetary reduction, but the GSA has announced that, effective in FY 2015, it will implement a portfolio planning initiative that is meant to ensure that leasing plans are in place before a given agreement expires. The initiative will focus on leases set to run out in the next three years.

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