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Cost Saving > General government

Improved cost analyses used for making federal facility ownership and leasing decisions could save tens of millions of dollars

Why Area Is Important

Federal building ownership is often more cost-effective than leasing to meet long-term space needs, and its increased use could save millions of dollars over the period used. Federal agencies rely extensively on leasing, and leased about 289 million square feet of buildings in 2008. The General Services Administration (GSA), the central leasing agent for most agencies, leases more than 8,000 assets and now leases more space than it owns.

The Office of Management and Budget (OMB) is responsible for reviewing agencies' progress on real property management and chairs the Federal Real Property Council, which includes representatives from major property-holding agencies. Congressional committees that provide oversight of this area include the Senate Committee on Environment and Public Works, Senate Homeland Security and Governmental Affairs, House Transportation and Infrastructure, House Oversight and Government Reform, and appropriations committees.

GAO added managing federal real property to its high-risk list in 2003 due in part to costly leasing.

What GAO Found

GAO's work over the years has repeatedly shown that building ownership often costs less than operating leases, especially for long-term space needs.

  • In December 1989, GAO found that GSA could have saved $12 billion over 30 years by constructing instead of leasing real property in 43 projects.
  • In July 1995, GAO found that 55 of 73 GSA proposed operating leases cost $700 million more than construction over 30 years.
  • In January 2008, GAO found that decisions to lease selected federal properties were not always driven by cost-effectiveness considerations. Four of seven GSA leases GAO analyzed were more costly than construction by $83.3 million based on 30-year net present value calculations. For example, the decision to lease the Federal Bureau of Investigation's field office in Chicago, Illinois, instead of constructing a building the government would own, was estimated to cost about $40 million more over 30 years. GSA officials stated that limited availability of upfront capital and security considerations, among other reasons, prevented ownership at that time.

While federal ownership is less expensive than leasing in many cases, in certain situations it is not. For example, in 2008, GAO found that for three of seven GSA leases it analyzed, leasing was less costly than construction by $35 million over 30 years. Agency operational requirements such as immediate space needs, security requirements, or desire for flexibility as well as short-term or small space needs are also situations where leasing is often preferred by agencies and may be economically advantageous over ownership.

Federal budget scorekeeping rules require the full cost of construction to be recorded upfront in the budget, whereas only the annual lease payments plus cancellation costs need to be recorded for operating leases. As a result, leases appear less expensive in any single year when compared to new construction even though they generally are more costly over time. GAO has raised the scorekeeping issue as a challenge that needs to be addressed in several reports and testimonies over the past 20 years. According to GSA officials, constraints on capital funding influence their ability to pursue ownership as a realistic option in many cases. If not addressed, GAO expects continued reliance on leasing at a potentially high cost over the long term.

The Federal Real Property Profile, a real property inventory, is an important tool available to track governmentwide trends on real property management, including leasing. Updated annually, it includes information helpful to measuring overall volume as well as annual operating costs of leased versus owned properties, among other factors.

Actions Needed

OMB has not yet implemented GAO's recommendation, made in April 2007 and January 2008, to develop a strategy to reduce agencies' reliance on costly leasing where ownership would result in long-term savings. Such a strategy could identify the conditions under which leasing is an acceptable alternative, include an analysis of real property budget scoring issues, and provide an assessment of viable alternatives. This strategy would inform future decision making on this difficult issue. As GAO reported in January 2008, implementation challenges such as obtaining consensus on specific changes to scoring rules are expected. Efforts to resolve the leasing challenge could benefit from input from Federal Real Property Council and stakeholders, including Congress.

Framework for Analysis

The information contained in this analysis is based on the related GAO products listed under the "Related GAO Products" tab, interviews with federal government officials at OMB and major property holding agencies including GSA, and analysis of governmentwide and agency-level real property plans and reports.

Area Contact

 

For additional information about this area, contact David Wise at (202) 512-2834 or wised@gao.gov.

 

 

Related GAO Products

Federal Real Property: An Update on High Risk Issues
http://www.gao.gov/products/GAO-09-801T

GAO-09-801T: Published: Jul 15, 2009. Publicly Released: Jul 15, 2009.
Public Buildings: Budget Scorekeeping Prompts Difficult Decisions
http://www.gao.gov/products/T-AIMD/GGD-94-43

T-AIMD/GGD-94-43: Published: Oct 28, 1993. Publicly Released: Oct 28, 1993.

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