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United States General Accounting Office: 
GAO: 

Testimony: 

Before the Subcommittee on Economic Development, Public Buildings and 
Emergency Management, House Committee on Transportation and 
Infrastructure: 

For Release on Delivery: 
10:00 am. EDT: 
Thursday, April 18, 2002: 

Federal Real Property: 

Views on Real Property Reform Issues: 

Statement of Bernard L. Ungar: 
Director, Physical Infrastructure Issues: 
		
GAO-02-622T: 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to assist the Subcommittee in its 
consideration of H.R. 3947, the Federal Property Asset Management 
Reform Act of 2002. This bill would amend the Federal Property and 
Administrative Services Act of 1949, as amended, to enhance federal 
real and personal property management and bring the policies and 
business practices by which federal agencies manage their property 
into the 21st century. This statement is based on the work that we 
have performed within the last several years in the area of real 
property management including our recently released report on 
governmentwide real property data.[Footnote 1] 

The U.S. government is one of the world's largest property owners. 
Available data show that the federal government owns hundreds of 
thousands of properties worldwide. These real property assets are very 
diverse and include military installations, office buildings, 
laboratories, courthouses, embassies, postal facilities, national 
parks, forests, and other public lands, estimated to be worth hundreds 
of billions of dollars. Overall, government-owned real property is 
under the custody and control of at least 30 federal agencies, 
[Footnote 2] although most is under the jurisdiction of 8 agencies-the 
Departments of Agriculture, Defense, Energy, the Interior, and 
Veterans Affairs (VA); General Services Administration (GSA); the 
Tennessee Valley Authority; and the U.S. Postal Service. 

As we and others have previously reported, federal property managers 
find themselves confronted with numerous challenges in managing this 
multibillion-dollar real estate portfolio, including a large deferred 
maintenance backlog, obsolete and underutilized properties, and 
changing facility needs due to rapid advances in technology. These 
challenges must be addressed in an environment marked by budgetary 
constraints and growing demands to improve service. 

Although time constraints did not enable us to do a detailed analysis 
of each provision in this bill, we believe that a number of provisions 
in H.R. 3947 would go a long way toward helping agencies to recognize 
real property as a major component in carrying out their missions and 
improving the federal government's management of its multibillion-
dollar real property holdings. We generally support the provisions of 
this bill relating to improving real property management leadership 
and information and using enhanced asset management tools and 
incentives. However, the impact of this bill on property management 
will largely depend on how well its provisions are implemented. Given 
this, I would like to highlight some specific issues the subcommittee 
may wish to consider in its deliberation of H.R. 3947. These issues 
include the importance of having real property-holding agencies: 

* link their real property strategic plans to their missions and 
related capital management and performance plans; 

* ensure that senior real property officers have the knowledge, 
skills, and expertise needed to effectively perform their duties and 
be accountable for the reliability, usefulness, and timeliness of 
their real property data; and; 

* adopt an effective process to monitor and evaluate the 
implementation of any management tool authorized by the bill. 

It is equally important that (1) GSA provide written guidance to 
agencies on the development of their business plans, specifically when 
they propose to use enhanced asset management tools authorized by the 
bill, as well as their property asset management plans and (2) 
Congress provide appropriate control and oversight regarding agencies' 
intended and actual use of the funds retained from real property 
transactions. 

Now with that as a backdrop, Mr. Chairman, I would like to 
specifically comment on the aspects of this bill that are designed to 
(1) promote more effective property management leadership, (2) improve 
governmentwide real property information, and (3) provide enhanced 
asset management tools and incentives to make federal real property 
management more effective. These are areas where our past work has 
shown that improvements were needed and that federal agencies could 
use best practices of private and public organizations to achieve 
better results with regard to real property management and oversight 
[Footnote 3] 

Property Management Leadership: 

H.R. 3947 would require the GSA administrator to take a leadership 
role, in consultation with the heads of other federal agencies and the 
director of the Office of Management and Budget (OMB), in establishing 
and maintaining a current set of real property asset management 
principles. We support this provision. Agencies would use these 
principles as guidance in making decisions about property planning, 
acquisition, use, maintenance, and disposal. The bill would also 
require the GSA administrator, in consultation with the heads of other 
landholding agencies, to establish performance measures to determine the
effectiveness of federal real property management. Performance 
measures could address such areas as operating costs, security, 
occupancy rates, and tenant satisfaction. The performance measures 
should enable Congress and heads of federal agencies to track progress 
in the achievement of property management objectives on a 
governmentwide basis. This should allow Congress and the agencies to 
compare federal agencies' performance against the performance of 
private sector and other public sector agencies. In addition, these 
provisions would emphasize the importance of effectively managing the 
government's multibillion-dollar portfolio of federal real property 
assets, help facilitate a uniform approach to asset management, and 
assist federal managers in monitoring progress and measuring results. 

Another important provision in H.R. 3947, which we support, is the 
establishment of a senior real property officer in each landholding 
agency that emphasizes the importance of having someone with real 
property experience oversee agencies' real property assets. This bill 
includes qualification requirements for the senior real property 
officer, such as real estate portfolio or facilities management 
experience. The senior real property officer would continually monitor 
real property assets to ensure that they are being used and invested 
in a way that supports the goals and objectives of the agency's 
strategic plan. This provision would make federal agencies with real 
property holdings accountable for the management and oversight of 
their real property assets. 

One important feature of having senior real property officers is that 
they can be held accountable for providing reliable, useful, and 
timely data on their agencies' real property assets to GSA for 
inclusion into its worldwide inventory. As you know, using data from 
over 30 real property-holding agencies, GSA maintains a governmentwide 
real property database commonly referred to as the worldwide 
inventory. This database is the only central source of descriptive 
data of governmentwide real property assets. As we found during our 
recently completed review of this inventory, which I will discuss 
later in more detail, decisionmakers, including Congress and OMB, 
currently do not have access to quality data for strategic management 
and budgeting purposes. Attempting to strategically manage and budget 
for the government's vast and diverse portfolio without quality data 
puts the government's real property operations at risk and can be 
likened to navigating the oceans of the world without the benefit of 
oceanographic charts. 

Although the senior real property officers would be responsible for 
developing their agencies' real property asset management plans, there 
also is a need for guidance in establishing standards for the plans so 
they are developed in a consistent manner. The adequacy of these plans 
will play a key role in improving real property management and 
oversight throughout the government. Consequently, this would provide 
GSA with an opportunity, in its role as the government's real property 
manager, to develop and provide specific guidance for agencies to use 
in preparing their real property management plans. This guidance 
should describe the types of analyses to be included in the plans to 
support planned actions to be taken and conclusions reached in the 
plans. For example, the plan should include a discussion of the 
benefits to the agency or government that would result from the 
proposed actions, and it should provide an analysis of the asset 
performance necessary to deliver the required service outcomes over 
the duration of the asset strategy planning period. We believe such 
guidance would help ensure that the strategic actions that agencies 
plan to take relative to their properties will best meet the intended 
service delivery outcomes defined in their strategic plans. 

We envision that the senior real property officers would work together 
with three other senior agency officials—the chief financial officer 
(CFO), the chief information officer (CIO), and the head of human 
resources—to integrate the strategic planning and management of 
facilities, financial management, technology, and human capital to 
ensure that the agencies' asset management plans are linked to the 
agencies' overall missions and strategic plans. Given the significant 
responsibilities foreseen for senior real property officers, we 
believe that in addition to the qualification requirements specified 
in the bill, the officers should also have a recognized professional 
designation or certification, such as certified facility manager or 
real property administrator. 

Real Property Information: 

H.R. 3947 would require the GSA administrator to establish and 
maintain a single, comprehensive, and descriptive inventory database 
of all real property interests under the custody and control of each 
federal agency. Subject to certain limitations, and as deemed 
appropriate by the administrator, portions of this database would be 
available to interested stakeholders and the public. We believe that a 
comprehensive, reliable listing of federal properties, as envisioned 
by H.R. 3947, is essential for the government to oversee and manage 
its large portfolio of federal assets. Lack of good data makes it 
difficult for the government to select the optimal level of capital 
spending needed for the acquisition and maintenance of real property. 
Inadequate data also impede the government's ability to identify real 
property assets that are no longer needed or cost effective to retain. 

As I previously mentioned, GSA currently maintains a worldwide 
inventory of real property holdings. This week we reported that GSA's 
worldwide inventory of federal real property contained data that were 
unreliable and of limited usefulness. Worldwide inventory data for 12 
of the 31 reporting agencies, which held an estimated 32 percent of 
the inventory in terms of building square footage, were not current in 
the most recent inventory report. In addition, the inventory did not 
contain key data-such as data related to space utilization, facility 
condition, historical significance, security, and facility age-that 
would be useful for budgeting purposes and the strategic management of 
these assets. Given this, decisionmakers, including Congress and OMB, 
do not have access to quality data on what real property assets the 
government owns; their value; whether the assets are being used 
efficiently; and what costs are involved in preserving, protecting, 
and investing in them. Without quality data, decisionmakers have 
difficulty strategically managing and budgeting for such significant 
real property management issues as deteriorating federal buildings, 
disposal of underutilized and unneeded properties, and the protection 
of people and facilities. 

Consequently, we recommended, among other things, that the 
administrator of GSA exercise strong leadership and work with 
Congress, OMB, the Department of the Treasury (Treasury), and real 
property-holding agencies to design a cost-effective strategy for 
developing and implementing a reliable, timely, and useful 
governmentwide real property database. GSA agreed with the report's 
recommendations. Because there is a concern that GSA lacks specific 
statutory authority to compile the inventory, we also asked Congress 
to consider enacting legislation requiring GSA to maintain an accurate 
and up-to-date governmentwide inventory of real property assets and 
requiring real property-holding agencies to submit reliable data on 
their real property assets to GSA. This would give GSA added leverage 
in obtaining the data it needs from other federal agencies. 

GSA recognizes the problems associated with the worldwide inventory 
and has proposed several legislative initiatives in recent years to 
help correct the problems. This provision in H.R. 3947, if effectively 
implemented, can help GSA make the worldwide inventory a valuable 
resource. However, it is important to recognize that even if this 
provision is enacted, GSA will face formidable challenges in compiling 
reliable, timely, and useful data on federal real property. GSA will 
be challenged to identify and compile this data in a manner that the 
many real property-holding agencies, Congress, the Treasury, and OMB, 
agree is cost effective. Another challenge for GSA would be to work 
with participating agencies to make their real property databases 
capable of producing the common data that are needed to make the 
worldwide inventory an effective and valued resource. 

Enhanced Asset Management Tools and Incentives: 

H.R. 3947 would also provide agencies with enhanced asset management 
tools and incentives for better property management. These proposed 
changes would give agencies the flexibility to establish real property 
portfolios that most appropriately, effectively, and efficiently meet 
the agencies' mission requirements. The bill provides four new 
enhanced asset management tools for effective management of federal 
property: (1) interagency transfers or exchanges, (2) sales to or 
exchanges with nonfederal sources, (3) subleases, and (4) outleases 
and public-private partnerships. In addition, H.R. 3947 provides 
incentives for agencies to use these enhanced asset management tools 
and dispose of excess property by allowing them to retain proceeds 
generated to pay expenses associated with the property and fund other 
capital needs. Currently, the law for most federal agencies requires 
that proceeds from the sale of federal land and buildings go either to 
the general treasury or the Land and Water Conservation Fund. 

Within the last year we have issued two reports that addressed issues 
related to one of the enhanced management tools proposed in H.R. 
3947public-private partnerships. In our report on repairs and 
alterations, we said that GSA faced long-standing obstacles, including 
limited funding, in reducing its multibillion-dollar inventory of 
repair and alteration needs.[Footnote 4] In this report, we asked 
Congress to consider providing the administrator of GSA the authority 
to experiment with funding alternatives, such as exploring public-
private partnerships when they reflect the best economic value 
available for the federal government. The other report identified the 
potential benefits of allowing federal agencies to enter into public-
private partnerships.[Footnote 5] 

A public-private partnership allows the federal government to lease 
federal property to a nongovernmental entity to develop, rehabilitate, 
or renovate the facilities on that property for use by federal 
agencies and/or private sector tenants. We hired consultants to 
develop and analyze hypothetical partnership scenarios for 10 
judgmentally selected GSA properties. Appendix I contains a flowchart 
that shows how a public-private partnership may be structured. This 
work showed that 8 of these properties were potential candidates for a 
public-private partnership, and 2 did not appear to be viable 
candidates. We identified several potential net benefits to the 
federal government of entering into these public-private partnerships. 
These potential benefits included improved space, lower operating 
costs, and the conversion of buildings that are currently a net cost 
to GSA into net revenue producers. Location in a strong office real 
estate market with demand for federal and nonfederal office space and 
untapped value in underperforming assets were two key factors when 
considering properties for partnership opportunities. However, public-
private partnerships will not necessarily be the best option available 
to address all real property issues. Ultimately, public-private 
partnerships and all other alternatives such as federal financing 
through appropriations or sales or exchanges of property would need to 
be carefully evaluated to determine which option offers the best 
economic value for the government. 

Public-private partnership arrangements are not new to some federal 
agencies. Congress has previously provided statutory authority for some 
specific public-private partnership projects. In addition, Congress 
has enacted legislation that gives VA and the Department of Defense 
(DOD) specific statutory authority to enter into such partnerships. We 
are currently evaluating issues related to DOD's implementation of the 
military housing privatization initiative. 

H.R. 3947 would give the administrator of GSA the sole discretion to 
review and disapprove any transaction by agencies proposing to use 
enhanced asset management tools. The bill would require agencies to 
consult with GSA when developing their business plans for specific 
properties when they intend to use any enhanced asset management tools 
specified in the bill. A business plan outlines the scope of the 
project from an output and cost perspective, analyzes the cost and 
benefits associated with the project, and demonstrates that it has net 
benefit. In addition, a business plan should include an overview of 
the structure of the proposed arrangements as well as other elements. 
Consequently, the business plan is the key step in the decision-making 
process. Given GSA's role as the government's real property manager, 
other agencies would naturally look to GSA to develop and provide 
specific written guidance on how to develop their business plans. 

We believe that federal asset managers need the proper tools, 
expertise, and knowledge to effectively manage and oversee federal 
assets. Given this, the tools provided in H.R. 3947 are steps in the 
right direction for agencies to begin exploring opportunities to 
better utilize federal assets. However, it is important to recognize 
that enhanced asset management tools may result in complex real 
property transactions. For example, in structuring public-private 
partnerships for individual properties, it must be remembered that 
each property is unique and thus will have unique issues that will 
need to be negotiated and addressed as the partnership is formed. In 
addition, great care will need to be taken in structuring partnerships 
to protect the interests of both the federal government and the 
private sector partner. The senior real property officers will need to 
have access to individuals with the appropriate knowledge, skills, and 
expertise when they decide to explore more complex real estate 
transactions authorized by the bill. The proposed enhanced asset 
management tools and other asset management tools currently available 
for real property management will also need to be carefully evaluated 
to ensure that they provide the best economic value and outcome for 
the government. 

As I discussed before, H.R. 3947 would allow agencies to retain 
proceeds generated from the transfer or disposition of their property. 
Under the bill, agencies would be authorized reimbursement for their 
costs of disposing of their property. The remaining proceeds would be 
deposited in agencies' capital asset accounts that would be authorized 
by the bill and could be used to fund capital asset expenditures, 
including expenses related to capital acquisitions, improvements, and 
dispositions. These accounts would remain available until expended. 

In our April and July 2001 reports, we asked Congress to consider 
allowing GSA to retain the funds it received from real property 
transactions. Accordingly, we support the intent of these provisions. 
However, it is important to have effective congressional oversight 
over any receipts retained by agencies from real property 
transactions. In considering whether to allow federal agencies to 
retain the proceeds from real property transactions, it is important 
for Congress to ensure that it retains appropriate control and 
oversight over these funds, including the ability to redistribute the 
funds to accommodate changing needs if necessary. Congress has done 
this by using the appropriations process to review and approve 
agencies' proposed use of the proceeds from real property 
transactions. Another approach could be for Congress to require 
agencies to submit plans on how they intend to use the proceeds in 
their capital accounts and report on the actual use of the proceeds. 
H.R. 3947 makes no distinction between facilities and land in 
permitting agencies to retain asset sales proceeds. Since our work has 
focused on facilities, our conclusions regarding sales proceeds are 
limited to facility sales. Specific issues related to the retention of 
land sales proceeds may need to be studied further and separately 
addressed. 

Mr. Chairman, this concludes my prepared statement. I would be pleased 
to answer any questions you or other members of the Subcommittee may 
have. 

Contacts and Acknowledgments: 

For information about this testimony, please contact Bernard L. Ungar,
Director, Physical Infrastructure Issues, on (202) 512-8387 or at 
ungarb@gao.gov. Individuals making key contributions to this testimony 
included Ron King, Maria Edelstein, Susan Michal-Smith, David 
Sausville, Gerald Stankosky, and Lisa Wright-Solomon. 

[End of section] 

Appendix I: Partnership Structure: 

[Refer to PDF for image: illustration] 

Contributions: 

Federal Property (Master Ground Lease); 
Private Sector Investment (Cash and financing ability). 

Together, form: Partnership. 

Partnership: 

Property Cash Flows: 

Operating income; 
minus Operating expenses; 
Equals Net operating income; 

minus Master ground lease (to government); 
minus Debt service; 
minus Replacement reserve; 
Equals Cash flow; 

minus Preferred return (to the private partner); 
Equals Net cash flow: 
- Private sector share; 
- Government share. 

[End of figure] 

[End of section] 

Footnotes: 

[1] U.S. General Accounting Office, Federal Real Property: Better 
Governmentwide Data Needed for Strategic Decisionmaking, [hyperlink, 
http://www.gao.gov/products/GAO-02-342] (Washington, D.C.: April 16, 
2002). 

[2] For purposes of this testimony, we are using the term agency to 
include all federal entities. 

[3] U.S. General Accounting Office, U.S. Infrastructure: Funding 
Trends and Opportunities to Improve Investment Decisions, [hyperlink, 
http://www.gao.gov/products/GAO/RCED/AIMD-00-35] (Washington, D.C.: 
February 7, 2000). 

[4] U.S. General Accounting Office, Federal Buildings: Funding Repairs 
and Alterations Has Been a Challenge—Expanded Financing Tools Needed, 
[hyperlink, http://www.gao.gov/products/GAO-01-452] (Washington, D.C.: 
April 12, 2001). 

[5] U.S. General Accounting Office, Public-Private Partnerships: Pilot 
Program Needed to Demonstrate the Actual Benefits of Using 
Partnerships, [hyperlink, http://www.gao.gov/products/GAO-01-906] 
(Washington, D.C.: July 25, 2001). See also, U.S. General Accounting 
Office, Public-Private Partnerships: Factors to Consider When 
Deliberating Governmental Use as a Real Property Management Tool, 
[hyperlink, http://www.gao.gov/products/GAO-02-46T] (Washington, D.C.: 
October 1, 2001). 

[End of section]