Public-Private Partnerships:

Pilot Program Needed to Demonstrate the Actual Benefits of Using Partnerships

GAO-01-906: Published: Jul 25, 2001. Publicly Released: Aug 24, 2001.

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The U.S. government is one of the world's largest property owners, with a real estate portfolio of more than 400,000 defense and civilian buildings and more than one-half billion acres of land. Each year, the federal government spends billions of dollars to maintain its buildings. Even so, the General Services Administration (GSA) contends that it needs $4 billion, over and above these expenditures, to maintain its existing inventory. This report identifies the potential benefits to the federal government of entering into public-private partnerships on real property--an arrangement in which the federal government contributes real property and a private entity contributes financial capital and borrowing ability to redevelop or renovate the real property. GAO found that public-private partnership authority could be an important management tool to address problems in deteriorating federal buildings, but further study of how the tool would actually work and its benefits compared to other options is needed. Potential net benefits to the federal government of entering into these public-private partnerships include better space, lower operating costs, and increased revenue without up-front federal capital expenditures if further analysis shows that they would not be treated as capital leases for budget-scoring purposes. The potential benefits of public-private partnerships do not diminish the need for GSA to pursue other alternatives for addressing problems in deteriorating federal buildings. GAO summarized this report in testimony before Congress; see Public-Private Partnerships: Factors to Consider When Deliberating Governmental Use as a Real Property Management Tool, by Bernard L. Ungar, Director for Physical Infrastructure Issues, before the Subcommittee on Technology and Procurement Policy, House Committee on Government Reform. GAO-02-46T, October 1 (11 pages).

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Bills were introduced in 2002 and 2003 that would have authorized federal landholding agencies, including GSA, to use such tools as public-private partnerships to manage their real property portfolios. None of these bills were passed. The Consolidated Appropriations Act, 2005 included a provision that allows GSA to retain the net proceeds from the disposal of real and related personal property. These funds are to be deposited into the Federal Buildings Fund and shall only be expended as authorized in annual appropriations acts.

    Matter: Congress should consider providing the Administrator of GSA with the authority to proceed with a pilot program to demonstrate the actual benefits that may be achieved using public-private partnerships that achieve the best economic value for the government as a real property management tool. If such authority is granted, Congress should consider allowing GSA to enter into master ground leases of sufficient length to attract private sector interest in participating in partnerships with the federal government. GAO's study found that a 50-year master ground lease was generally sufficient to attract private sector interest. As GAO stated in April 2001, Congress should also consider allowing agencies to retain the funds from real property transactions. If such authority is granted, Congress should continue its appropriate control and oversight over the use of any funds retained by agencies.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In January 2002, GSA undertook an initiative to evaluate and restructure its owned-real-property portfolio. Each asset was evaluated and scored at to its physical and financial condition. GSA is making efforts to address its poorest performing buildings. GSA is also currently working with OMB to develop a pilot program that would allow it to enter into quasi-enhanced use leases using authority currently available.

    Recommendation: The Administrator of GSA should use all available strategies to address the problems of buildings in GSA's inventory that have or are at risk of having a negative cash flow as a result of their deteriorating condition.

    Agency Affected: General Services Administration

  2. Status: Closed - Implemented

    Comments: Over the last several years GSA has actively worked with congressional staff to provide input for legislative language that would allow it to enter into public-private partnerships. Several bills have been introduced, but none have passed.

    Recommendation: The Administrator of GSA should seek statutory authority to establish a pilot program that would demonstrate the actual benefits that may be achieved from public-private partnerships that achieve the best economic value for the government.

    Agency Affected: General Services Administration

 

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