Hearing On The Subcommittee On Economic Development, Public Buildings And Emergency Management Of The House Committee On Transportation And Infrastructure Committee - "Capital Assets Crisis: Maintaining Federal Real Estate With The Dwindling Federal Build

Statement

Hearing On The Subcommittee On Economic Development, Public Buildings And Emergency Management Of The House Committee On Transportation And Infrastructure Committee - "Capital Assets Crisis: Maintaining Federal Real Estate With The Dwindling Federal Building Fund"

Good morning, and welcome to today's hearing on the Federal Building
Fund (FBF). Today, we will examine whether the Federal Building Fund offers
the General Services Administration (GSA) Public Building Service (PBS) a
valuable tool for meeting its mandate of optimizing the use of federal office
space and providing a source of revenue to maintain existing buildings and
fund new federal construction. GSA owns more than 1,500 Federal buildings,
totaling 176.5 million rentable square feet of space. It leases 177.5 million
rentable square feet of space in almost 7,100 leased properties. However, in
recent years the GSA construction program has essentially been reduced to
land ports of entry and courthouses, with few exceptions, and GSA increasingly
relies on private commercial office space to meet its needs, straining the
Building Fund, and creating a growing crisis in meeting GSA's vital functions.
The FBF was created in 1975 by P.L. 92-313 to provide a revolving fund
that required agencies to pay for the space they occupied and to provide a
revenue source for new federal construction and upkeep of federal buildings.
Today, we will hear from witnesses across the spectrum to help us evaluate
GSA's capital asset management strategies and how GSA can manage federal
assets more effectively. Our witnesses include two private sector witnesses
with experience in maintaining and repairing buildings and an expert on capital
asset management. We also will hear from an official from the Financial
Accounting Standards Board, who will discuss how new accounting rules may
affect how the federal government will evaluate the Public Building Service
Capital Investment and Leasing Program. The current guidelines for the
budgetary treatment of leases require the full cost of a capital lease or lease-
purchase to be scored up-front, rather than only the first year's annual rent and
the value of any cancellation provision, as in the case of operating leases. And
of course, we will hear from Robert Peck, the PBS Commissioner, currently in
his second tour of duty with GSA as the PBS Commissioner. We will want to
focus on what it takes to properly maintain a capital assets portfolio, and on the
true costs of leasing versus owning federal office space.
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Since its inception, the FBF has struggled to meet its original mission.
As early as 1981, the Government Accountability Office (GAO) found that
there was no evidence that the FBF had promoted a more efficient use of space
or produced enough funds for new construction. Periodically since then, the
GAO has noted the inability of the FBF to fund the repair and maintenance of
existing federal assets. More importantly, the current head of the PBS has
indicated that the FBF is on an unsustainable course, and will be unable to fund
the proper maintenance of its federal capital assets in the near future. The FBF
recently received a much needed infusion of cash, with $5.5 billion provided by
the American Recovery and Reinvestment Act (P.L. 111-5). Even with this
investment, there are public reports of a maintenance and repair backlog of
almost $8.8 billion. Yet, the PBS building portfolio has a replacement value of
nearly $42 billion, which makes mandatory the development of a more effective
approach for generating the funds necessary to maintain our capital assets.
Two examples show that the government is beginning to recognize that
it must right-size its Capital Investment and Leasing Program. The
administration's Fiscal Year 2010 budget request included $100 million for the
GSA to exercise the purchase option for the Columbia Plaza building located
in Washington, D.C. In addition, the Fiscal Year 2011 Capital Investment and
Leasing Program also includes a proposal to purchase an IRS Building in
Martinsburg, West Virginia for $25 million. We continue to applaud the efforts
of the agency to parse through the purchase opportunities available to them
and to exercise them whenever it is prudent to do so. The GSA had long
leased the Columbia Plaza building, but finally purchased this much-needed
asset housing State Department employees at nearly 50% of its 2006 appraised
value. The building, close to the State Department headquarters, would
otherwise have required another round of leasing and lost dollars to the FBF
and to federal taxpayers.
The Committee on Transportation and Infrastructure and this
subcommittee have repeatedly expressed concern about the expensive trend
toward providing Federal office space through leasing and not Federal
ownership, to the point that for the first time, the Federal government was
occupying more leased space than owned space in Fiscal Year 2008, according
to a July 2009 GAO report. In almost every case, over the long term, leasing is
more expensive than Federal ownership, and deprives the FBF of direct
payments from agencies occupying government-owned space, which instead go
to developers. The intended purpose of the FBF, which was to provide the
resources to enable GSA to construct, maintain, and repair buildings in the
Federal inventory, is undermined by the steady shrinking of available funds to
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maintain Federal assets, much less to generate funds for new Federal
construction. This skewed "leased-to-owned" ratio trend presents a distressing
portrait of the condition of federal asset management, which is an essential
government function.
We need to determine if the financial and managerial systems are in
place for GSA to properly administer the FBF and maintain existing assets. We
plan to address the assumptions used to justify the current capital asset
management strategies. Finally, and perhaps most importantly, this
subcommittee will examine whether GSA has the existing statutory authority to
address its need to maintain its capital assets. We have consistently pressed
GSA to use all the authority available to it, including Section 412 of the
Omnibus Appropriations At 2005, which grants GSA the authority to enter
into agreements that include selling, leasing, exchanging of capital assets and
retaining the proceeds within the FBF. When Congress granted this authority,
it was contemplated that GSA would have a powerful tool at its disposal to
enhance its ability to properly manage its capital assets portfolio and the FBF.
Instead, this authority has not been exercised yet and we are facing, perhaps, a
looming crisis in managing our nation's public buildings.
I look forward to hearing from today's witnesses.

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