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Government Leader home > November 2005 issue
November 2005; Vol. 1 No. 4
Getting real about real property: PMA is transforming federal property management
By Christopher M. Wright
About a year and a half ago, President Bush, with little fanfare, issued Executive Order 13327, making federal property management part of the effort to transform government and folding it into his management agenda.
The order required the 23 executive agencies to designate senior real-property officers, outlined their duties, and directed them to share best practices via a Federal Real Property Council through the Office of Management and Budget.
The affected agencies, which include the Defense and Veterans Affairs departments and the General Services Administration, account for the majority of federal real-property holdings. These would be no ordinary landlords: The government owns more than $300 billion worth of real-property assets, according to various estimates.
The stakes are high and the problems immense in federal real-property management. The Government Accountability Office first pinpointed federal real property as a high-risk area in 2003.
In June 2005, a GAO official told the House Government Reform Committee that reductions in the workforce, changing technology and agency mission shifts have left a lot of government buildings empty or underutilized (estimated at 5 percent of inventory or $15 billion by OMB).
GAO led off its written submission by drawing a big, red circle around the former main VA hospital site in Milwaukee and the former main post office in Chicago as prime examples of the government’s vacant buildings problem.
Other problems abound. “Many assets are in an alarming state of deterioration, potentially costing taxpayers tens of billions of dollars to restore and repair,” GAO said. Moreover, the government relies too much on costly leasing instead of ownership (leasing is ultimately four times as expensive, GSA estimates) and lacks reliable inventory information and other property data that would support sensible decision-making.
The President’s Management Agenda cited many of the same problems and pointed to the lack of accountability within the government for fixing them (“seldom are responsible individuals in place for implementing a coherent plan to manage federal properties”). Enter the senior real-property officer, the person now responsible under the executive order for agency property asset planning.
So far, progress on the PMA goals is uneven. To date, all senior real-property officers have been designated, but OMB has approved asset management plans for just six agencies. And while no agency has scored green for real-property status on the PMA scorecard, senior real-property officers across the government have begun the process of complying with the executive order and trying to raise their scores.
But there is no question that the administration’s transformation strategy on real property is having a major impact.
At VA, for example, James Sullivan, acting senior real-property officer and deputy director of the department’s Office of Asset and Enterprise Man- agement, endorses the new approach.
“Every agency in town is having to grapple with ‘what are we doing with aging infrastructures,’ so I think it’s absolutely critical and long overdue,” Sullivan said. Property management has much more institutional support now that it has been added to the PMA, he said.
How is property management different from before it became part of the PMA? “The main difference is we’re looking at it as a portfolio,” he said. “It’s basically portfolio management that we’re doing here—not only what you buy, but how you maintain what you own and what do you do when it reaches the end of its lifecycle.”
To leverage the portfolio approach, VA began identifying high-performing assets in August 2005 using such metrics as cost and number of veterans served per square foot. VA can now compare acquisition, leasing and maintenance costs across properties, identify the outliers and take corrective action.
Some properties are way out of whack, Sullivan said. “We’re in the process of identifying the reasons,” he said. “Was it the abnormality of the market? Was it just a bad deal we did? Did we have no choice? One of the benefits of this data and the portfolio review is for [people in the field] to see how other people are doing.”
VA’s asset management plan is finished and approved by OMB, but the agency already had a similar process in place in 2001 that, Sullivan believes, served as a model for other agencies.
“We already had an asset office, a departmental function on asset management and we had started coming up with seven portfolio goals,” he said. VA’s process for the Capital Asset Realignment for Enhanced Services (CARES) had begun to address the agency’s vacant buildings problem, brought about by a mission shift from inpatient to outpatient services, and to redirect resources from the maintenance of empty buildings to anticipated veterans’ health care needs.
Regarding the vacant space in Milwaukee, VA is nearly ready to issue a request for proposals from developers and nonprofits as to what should be done with the 35-acre site and historic buildings. The RFP will be issued under VA’s “enhanced-use leasing” authority and will require that the agency benefit from any proposed use in the form of cash or services.
Most agencies don’t have the statutory public-private venture authority VA does. It would take legislation to allow most other agencies to engage in enhanced-use leasing or to retain proceeds from asset sales for their own capital accounts instead of turning them over to the Treasury.
Before disposing of excess facilities outright, VA first assesses the potential for sharing them with another agency (as with the Navy in Chicago) or for outleasing, under which the agency can lease a property for up to three years. VA has identified 140 sites under this approach so far and has another 20 under study. It has signed 20 to 25 outleases in the last two years with developers, nonprofits and local government agencies to use VA properties for homeless shelters, child care centers, office space, hospices and mental-health clinics, among other uses.
GAO also criticized the government for leasing space when it is cheaper in the long run to own. According to the VA Web site, the agency spends millions more on leasing than on new construction. However, Sullivan said, “Due to the pending CARES studies, Congress didn’t give us any significant capital funds before fiscal 2004.” He expects costly leasing to be less of a problem as Congress appropriates more capital money in the future.
Leasing vs. ownership at HHS. At the Health and Human Services Department, leasing costs exceed $300 million a year. Bill Stamper, HHS’ senior real-property officer and deputy assistant secretary for facilities management and policy, oversees 4,200 buildings, only 2,300 of which are owned. The rest are tribal, leased by HHS, or owned by GSA.
Leases may look cheaper in any single budget year because the up-front costs of owning are so large. But in Stamper’s mind, it’s still an open question whether the cost savings justify ownership in all cases.
“It’s over 10 years before you get to break-even,” said Stamper, who has 31 years of experience in federal property management. If you’re going to be in the facility more than 10 years, “it’s cheaper to own, but how much cheaper, really?“ he asks. He is just beginning to study the question at HHS.
HHS had virtually eliminated its facilities office in the 1980s and ‘90s, Stamper said. All that was left was a skeleton crew to file mandatory reports, but management responsibility was delegated to the operating divisions. Without effective oversight, the divisions developed a number of problems in construction, leasing and policy implementation, Stamper said. HHS reversed course and reinstituted the facilities office in 2002. Stamper embarked on a new strategy which, as it turned out, closely matched the requirements of Bush’s executive order: a senior person for real property, an asset management plan and an inventory database.
A key result of adding property to the PMA is that property management is being approached much more systematically.
“There hasn’t been an integrated focus or emphasis on real property in the government up to now,” Stamper said. The new approach also goes a long way toward addressing the lack of accountability cited in the PMA. OMB is ensuring his accountability with deliverables and scorecards, and the timetable is forcing him to do a lot of things at once. “We’re accountable for what we’re getting done and not getting done,” he said.
Four key new metrics from the Federal Real Property Council also ensure accountability: facilities condition index (ratio of repair needs to replacement value), mission dependency index, facilities utilization (vacancy rate) and operating costs. Agencies are supposed to report their data to the GSA’s master database in December. Analysis of the data will let Stamper and other SRPOs benchmark against other federal agencies for the first time. Stamper said this will help him decide whether there is anything to be gained from pursuing suggested best practices.
HHS has been tracking facility conditions for a number of years, but the operating divisions had not all been using the same formula, preventing effective in-house comparisons from being made. “This is the first time that we will have performance measures that are actually meaningful across [divisions],” Stamper said.
NASA finds new approach useful. NASA’s real-property office has benchmarked with selected other agencies from time to time, but SRPO Jeff Sutton, assistant administrator for infrastructure and administration at NASA headquarters, believes the governmentwide comparisons under the new approach will be very useful.
He thinks NASA’s facilities, some 5,100 buildings and other structures, are in decent shape compared with other agencies but, in contrast to the private sector, “what we find is that industry generally is quicker to revitalize their facilities and generally maintains their facilities to a higher condition than we do,” he said.
Overall, he finds the executive order’s approach extremely beneficial. “It already has helped make things better,” he said, “particularly for some of the smaller agencies where things like real property get pushed so far down in the food chain that it is barely a caretaker-status kind of work. For them, I think the benefit is exceptional.”
Part of the benefit derives from the fact that high-level attention is being focused on real-property issues. At NASA, property management concerns now have the ear of senior officials, right up to the deputy-administrator and administrator levels. “We have support we might not otherwise have had for doing some things related to facilities maintenance and sustainment, for example,” Sutton said.
NASA had started to focus on real property before EO 13327, developing a management plan and new metrics and initiating a $10 million-a-year demolition fund to get rid of old buildings that were no longer needed. Consequently, Sutton is very far along with all of his duties under the order. NASA’s property inventory is done and received recognition from OMB and GSA as one of the best in government, Sutton said.
NASA’s asset management plan is also completed and approved by OMB, Sutton said. One of the ideas in the new approach is that real-property holdings should be aligned with the agency’s mission. This, of course, presumes that the agency is able to articulate a coherent strategy. “Where do we want to go? What does this program want to be when it grows up?” Sutton asked rhetorically. “Otherwise, we can’t fathom what the infrastructure needs to be.”
One danger lurking in all of this for SRPOs is that vacant buildings not needed today may turn out to be needed again when the mission shifts tomorrow. “The decision to retain or dispose of a facility cannot be made lightly,” he said. “You can’t keep it by default and you can’t cavalierly decide to get rid of it.” Sutton and his team have worked out an entire flowchart for disposal decisions.
Priorities shift at Postal Service
Though the Postal Service isn’t subject to President Bush’s executive order, it has already adopted many of the same practices. For instance, it has a very extensive asset-tracking database to support lease renewals, building maintenance and the identification of vacant space for better utilization, consolidation or disposal.
Rudy Umscheid, vice president of facilities, has had an asset management plan for eight or nine years that helps him carry out the mandate from his board of governors to maximize the potential value of underutilized assets through sale or outleasing.
USPS, because it is supposed to operate like a business, has perhaps the most flexibility of any federal agency to engage in partnerships with the private sector and public agencies. Other departments come to him for guidance, Umscheid said.
Umscheid has sold almost $700 million worth of property in the 12 years he’s been at the agency. Big facilities in downtown areas are outmoded and USPS is better served by moving large mail-handling operations to locations near airports and interstate highways.
In Kansas City, Mo., USPS moved some operations into modern facilities outside the city and was only using part of the old main post office downtown. Umscheid’s office worked with the city, GSA and a local developer to recycle the building. The IRS was brought in as a major tenant, letting USPS move into smaller delivery facilities in the area.
Similar discussions are going on in many other cities where the post office wants to move and municipalities are interested in redeveloping their downtown areas, a few examples being Boston, Indianapolis, Memphis, Tenn., and Portland, Ore.
Then there’s the mother of all vacant government properties, the former main post office in Chicago, a huge structure with 2.4 million square feet, one of three cases cited in GAO’s testimony in June 2005.
“This has been a huge financial drain to us,” Umscheid said. “The Postal Service has aggressively been pursuing every option to find a way to dispose of it.” But it’s not a very easy building to recycle, he said, because it sits over a freeway and a railroad, and has 70 easements running through it.
Umscheid has been working with a major Chicago developer for some years now to come up with a use that will attract commercial tenants. No other public agency was interested. “We have done everything possible to support the developer in terms of making it financially attractive,” Umscheid said. At this writing, the city is deciding whether to allocate tax increment financing to the project. If the decision is favorable, Umscheid expects the developer to acquire the property within three or four months.
Reading only the GAO testimony may leave the impression that the Postal Service has lots of vacant properties. Chicago is atypical, Umscheid said. USPS has little other vacant space, because mail volume is increasing, he said.
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| "There hasn’t been an integrated focus or emphasis on real property in the government up to now." —HHS’ Bill Stamper
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| ARCHITECT OF REFORM: HHS’ Bill Stamper instituted property management reforms in 2002 that closely matched what’s in last year’s executive order.
(Image: Drake Sorey) |
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