Capital Fund Proposal: Upfront Funding Could Benefit Some Projects, but Other Potential Effects Not Clearly Identified

GAO-21-215 Published: Sep 10, 2021. Publicly Released: Sep 10, 2021.
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Fast Facts

Buying buildings can be a better deal than leasing—but federal agencies may not have the funds to buy up front. For example, the General Services Administration leased a headquarters building for the Department of Transportation for 14 years before DOT could afford to buy. Buying up front might have saved $1.2 billion.

In 2018, a fund was proposed to front agencies the money to buy buildings and allow the agencies to pay over 15 years. A related bill was introduced to Congress in May 2021.

We recommended that GSA analyze how such a fund could affect its overall finances. Federal real property management is on our High Risk List.

Department of Transportation Headquarters

DOT Headquarters

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Highlights

What GAO Found

Federal agencies have long struggled to obtain full, upfront funding for capital investments to acquire and maintain federal buildings. GAO's review of three selected federal capital projects suggests that such funding might have benefitted those projects and their agencies. For example, GAO estimated that full, upfront funding for the Department of Transportation's headquarters building might have saved up to $1.2 billion by allowing construction of a new headquarters versus what did occur—the General Services Administration (GSA) leased space for years and eventually purchased the building that it had leased.

U. S. Department of Transportation's (DOT) Headquarters Washington D. C.

U. S. Department of Transportation's (DOT) Headquarters Washington D. C.

In an effort to improve federal agencies' access to full, upfront funding for capital investments, the Office of Management and Budget (OMB) proposed the $10 billion Federal Capital Revolving Fund Act of 2018 (Capital Fund). The Capital Fund, which would be administered by GSA, could provide upfront funding for certain capital projects of $250 million or more, with agencies repaying the Capital Fund over a 15-year period. While the 2018 Capital Fund proposal has not been enacted, a Capital Fund was referenced in each of the President's budgets since 2019 and in a bill that was introduced in the Senate in May 2021.

During the course of GAO's review, officials from GSA and OMB expressed different perspectives on the proposed Capital Fund, and how it might affect the existing Federal Buildings Fund (Buildings Fund) is unclear. GSA officials said that the proposed Capital Fund could divert revenue away from the existing Buildings Fund, which receives rent from GSA tenant agencies and from which GSA pays maintenance and repair costs. OMB officials told us that the Capital Fund could benefit the Buildings Fund by promoting federal ownership over leasing and possibly adding assets to GSA's inventory. GAO identified additional circumstances in which the Capital Fund could affect the Buildings Fund. For example, while the tenant agency would pay operating costs during the first 25-years, the proposal does not directly address what would occur if GSA incurred significant repair costs during this period. As GSA would administer the Capital Fund and manage the Buildings Fund, it is in the best position to analyze when these circumstances might occur and their potential scope as well as how the two funds might interact. Identifying and communicating the possible effects would help OMB and Congress more fully consider legislative proposals.

Why GAO Did This Study

Since 2003, federal real property management has been on GAO's High-Risk List, in part due to upfront- funding challenges. If enacted, the Capital Fund could provide upfront funding to agencies for certain projects to acquire, construct, or renovate buildings and other federal real property. The existing Buildings Fund funds such projects and the operations and maintenance needs of GSA's portfolio.

GAO was asked to review the Capital Fund proposal. This report: (1) describes how federal agencies might have used expanded access to full, upfront funding had it been available, for three selected projects and (2) assesses stakeholder views on the proposed Capital Fund and whether it would affect the Buildings Fund.

To assess how agencies might have used full, upfront funding, GAO reviewed three recent capital projects of $250 million or more, selected for the differences in type of project (i.e., acquisition, new construction, and renovation). GAO also analyzed the Capital Fund proposal, GSA's budget, and other documents. Additionally, GAO interviewed GSA and OMB officials.

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Recommendations

GAO is recommending that GSA identify the potential effects of the proposed Capital Fund on the Buildings Fund and communicate the analysis to OMB and Congress. GSA agreed with the recommendation.

Recommendations for Executive Action

Agency Affected Recommendation Status
General Services Administration The Administrator of GSA should identify the potential effects of the proposed Capital Fund on the Buildings Fund—including when such effects might occur and their potential scope and consequences—and communicate the analysis to OMB and Congress. (Recommendation 1)
Closed – Implemented
In September 2021, GAO reported that federal agencies have long struggled to obtain full, upfront funding for capital investments to acquire and maintain federal buildings. GAO's review of three-selected federal capital projects of $250 million or more, which are not generalizable to all federal acquisition projects, suggested that full, up-front funding could have benefitted those projects and their agencies. In an effort to improve federal agencies' access to full, upfront funding for capital investments, OMB proposed the $10 billion Federal Capital Revolving Fund Act of 2018 (Capital Fund). The Capital Fund, which would be administered by GSA, could provide upfront funding for certain capital projects of $250 million or more, with agencies repaying the Capital Fund over a 15-year period. While the 2018 Capital Fund proposal had not been enacted, a Capital Fund was referenced in each of the President's budgets since 2019 and in a bill that was introduced in the Senate in May 2021. As GSA had not formally analyzed how the proposed Capital Fund could affect the Buildings Fund, the possible effects were unclear. During the course of GAO's review, GSA and OMB officials expressed different perspectives on the proposed Capital Fund, and how it might affect the existing Federal Buildings Fund (Buildings Fund) was unclear. GSA officials said that the proposed Capital Fund could divert revenue away from the existing Buildings Fund, which receives rent from GSA tenant agencies and from which GSA pays maintenance and repair costs. OMB officials told GAO that the Capital Fund could benefit the Buildings Fund by promoting federal ownership over leasing and possibly adding assets to GSA's inventory. The Standards of Internal Control in the Federal Government include, among others, the underlying principles that management should define objectives clearly to identify risks, and use and communicate the necessary quality information to achieve objectives. As GSA would administer the Capital Fund and manage the Buildings Fund, it is in the best position to analyze when these circumstances might occur and their potential scope as well as how the two funds might interact. Identifying and communicating the possible effects would help OMB and Congress more fully consider legislative proposals and making decisions on the use of limited federal resources. GAO recommended that GSA identify the potential effects of the proposed Capital Fund on the Buildings Fund and communicate the analysis to OMB and Congress. In March 2022, GAO confirmed that GSA studied the potential effects of the proposed Capital Fund to the Buildings Fund. GSA concluded that the Capital Fund could provide some benefits over the Buildings Fund for addressing the Federal Government's largest capital investments and that the two funds could complement each other. GSA also noted that the Capital Fund would not address the majority of unfunded projects for the assets under GSA's jurisdiction, custody and control that contribute to and are sustained by the Buildings Fund. GSA communicated this analysis to OMB. As a result of its actions, GSA has met the intent of GAO's recommendation as OMB is now better informed regarding the proposed Capital Fund and related funding decisions.

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