Federal Real Property:
Greater Transparency and Strategic Focus Needed for High-Value GSA Leases
GAO-13-744: Published: Sep 19, 2013. Publicly Released: Oct 23, 2013.
What GAO Found
The General Services Administration's (GSA) 218 high-value leases GAO reviewed represented only about 3 percent of the total number of GSA leases, yet made up about one-third of its leased portfolio in terms of cost and size. GSA has reduced the costs of its high-value leases in line with the administration's goal to reduce real property costs. GSA's efforts include helping agencies improve space utilization. However, for leases nearing expiration, GSA and tenant agencies have faced challenges in funding space renovations and moving costs. This lack of funds has contributed to delays and some cases in which GSA continues to occupy space after the lease expires.
GSA officials stated that for most high-value leases, federal ownership would be more cost effective over the long term, but GSA did not have the funding available to purchase, renovate, or construct a building. GAO found that GSA's capital-planning approach lacks transparency and a strategic focus that could support more informed decision making in this area. Specifically, GSA does not follow capital-planning practices involving alternatives evaluation, project prioritization, and long-term capital planning:
- GSA's lease prospectuses do not discuss the length of time of the space need or alternative approaches to meeting it--which are key to understanding whether leasing or owning would be more cost-effective. Twenty-seven of the prospectuses (for leases expiring from 2012 through 2027) contained an analysis that showed potential savings of over $866 million if the spaces were owned rather than leased. GSA and OMB have decided the analysis is no longer necessary in light of the lack of capital funding for acquisitions and construction. GAO's case studies highlighted long-term, mission critical space needs, such as a lease for the Environmental Protection Agency in Seattle for space it has occupied for over 40 years. Another high-value lease is for the State Department's diplomatic security bureau in Virginia. State invested at least $80 million in security upgrades into a facility that GSA leased for 10 years.
- Further, GAO found that nine ongoing high-value leases did not go through the prospectus process. For example, GSA mistakenly did not prepare a prospectus for a 10-year Los Angeles lease for the U.S. Army Corps of Engineers. GSA did not notify Congress of these leases, further limiting transparency.
- GSA has not systematically prioritized which space needs currently in high-value leases it would be most beneficial to move to federally-owned solutions. GSA has not incorporated space needs that are the highest priority for ownership investment into a long-term capital plan.
This lack of information on the long-term consequences, including costs and risks, of high-value leases could inadvertently contribute to the federal government's overspending on long-term space needs. In contrast, a strategic vision incorporating leading practices for capital decision making could better position the government to save money over time. Increased transparency could promote collaboration with decision makers, which could help GSA address challenges and identify cost savings opportunities as leases expire.
Why GAO Did This Study
Overreliance on costly leasing is one reason that federal real property has remained on GAO's high-risk list. GAO's work has shown that building ownership often costs less than leasing, especially for long-term space needs. For leases with a net annual rent above a threshold--$2.79 million in fiscal year 2012--GSA is required to submit a prospectus, or proposal, to Congress. GAO was asked to review these high-value leases. This report (1) identifies their characteristics and what GSA has done to reduce their cost and (2) assesses the extent to which GSA's capital-planning approach supports informed leasing decisions. GAO reviewed GSA data for all 218 active high-value leases as of November 2012 and selected 12 leases for case studies based on expiration dates, locations, and tenant agencies. GAO reviewed relevant legislation and guidance, interviewed agency officials, and compared GSA actions to leading practices.
What GAO Recommends
GSA should enhance the transparency of decision making for high-value leases by (1) including more information in the prospectus to Congress, such as the agency's prior and future need for the space, major investments needed, and an appropriate analysis of the cost of leasing versus the cost of ownership; (2) reporting to congressional committees about certain leases without a prospectus; and (3) prioritizing potential ownership solutions for current high-value leases to help create a long-term strategy for targeted ownership investments. GSA concurred with the recommendations.
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Recommendations for Executive Action
Comments: As of March 2017, GSA had not incorporated the recommended information into its fiscal year 2016 lease prospectuses and did not plan to do so in future prospectuses. GSA officials stated that GSA may not know how long an agency will need the space or the amount of investment that will be needed, so this information would be difficult to incorporate. However, in its 2013 review, GAO found that 9 of the 12 case study leases included space for long-term or mission critical space needs for tenant agencies. Some of the tenant agencies in these leases had been housed in multiple successive leases far longer than the statutory term limit of 20 years for a single GSA lease-situations that would lend themselves to analyzing the extent to which it would be more cost-effective for the government to own rather than lease. Moreover, GSA and the agency are likely to have general information on the complexity and likely investment needed to meet an agency's mission-related needs in leased space that could be included in the prospectus. Including the recommended information would increase transparency and facilitate more informed decision making by Congress.
Recommendation: To enhance transparency and allow for more informed decision making related to the appropriate role of leasing in GSA's real property portfolio, the Administrator of GSA should include in the lease prospectus a description of the length of time that an agency estimates it will need the space, an historical account of how long the agency has been in the particular building it is occupying at the time of the prospectus, and any major investments the agency will have to make to the leased space to meet its mission. For those spaces for which the agency has a long-term projected need, also include an appropriate form of cost-to-lease versus cost-to-own analysis.
Agency Affected: General Services Administration
Comments: As of March 2017, GSA had taken some actions to respond to GAO's September 2013 recommendation. Specifically, GSA stated that it is now standard operating procedure for GSA to send all leases that are above the prospectus threshold to Congress. This statement builds on GSA's 2014 efforts, which included writing a letter to the Chairman of the Senate Committee on Environment and Public Works to notify the Committee that GSA had not submitted prospectuses to the Committee for three leases that exceeded the prospectus threshold. GSA also made efforts to improve internal controls in this area. These are positive steps that could improve accountability and transparency . Based on these actions, GSA considers the recommendation addressed. However, GAO continues to consider this action partially addressed because GSA has not taken action to inform Congress about leases that started below the prospectus threshold but grew above the prospectus threshold over time. Specifically, GSA has not taken action to inform Congress about four high-value leases that GAO identified in 2013 that started below the prospectus threshold but grew over the prospectus threshold due to expansions of space in supplemental lease agreements. According to GSA officials, GSA's policy is that if a modification to a lease after occupancy causes a below-prospectus lease to exceed the prospectus threshold, a new prospectus is not necessary unless the changes were foreseeable before occupancy. As a result, decision makers do not have complete information on the full scope of GSA's high-value leased portfolio-information that could be used to analyze the extent to which leasing is the best alternative in these cases.
Recommendation: To enhance transparency and allow for more informed decision making related to the appropriate role of leasing in GSA's real property portfolio, the Administrator of GSA should report to the appropriate congressional committees any leases above the prospectus-threshold that did not follow the congressional prospectus process.
Agency Affected: General Services Administration
Comments: As of March 2017, GSA had taken some steps to address this recommendation. GSA had developed a list of criteria to help identify high-value lease purchase opportunities, according to a GSA official in the Public Buildings Service's strategic portfolio planning division; however, GSA had not created a long-term, cross-agency strategy, as GAO recommended in September 2013. This GSA official stated that GSA was using the criteria it had developed for high-value leases in order to identify high-value lease purchase opportunities, such as the American Red Cross Building in Washington, D.C., which was part of the fiscal year 2017 capital program. The GSA official also stated that GSA had most recently used the criteria to evaluate one segment of GSA's high-value leased inventory-Federal Bureau of Investigation (FBI) field offices. GSA's consideration of ownership solutions for certain high-value leases in line with its criteria is a positive step toward rationalizing its real property portfolio. GAO continues to recommend that GSA use the criteria it developed to consider its portfolio of high-value leases as a whole in order to rank and prioritize potential long-term ownership solutions to current high-value leases among other capital investments. Without a specific focus on its portfolio of high-value leases in line with the criteria it developed, GSA has not yet developed a cross-agency strategy that would help it consider targeted investments in ownership specifically related to these costly leases. Taking these additional steps would enhance transparency and allow for more informed decision making related to the appropriate role of leasing in GSA's real property portfolio.
Recommendation: To enhance transparency and allow for more informed decision making related to the appropriate role of leasing in GSA's real property portfolio, the Administrator of GSA should develop and use criteria to rank and prioritize potential long-term ownership solutions to current high-value leases among other capital investments. Use this ranking to create a long-term, cross-agency strategy that facilitates consideration of targeted investments in ownership. This strategy could be incorporated initially as a separate but related part of the capital plan we previously recommended that GSA develop in 2012, or integrated into the capital plan itself.
Agency Affected: General Services Administration