Jan
12
The Agency must seek a better balance between disposing of unneeded facilities and the mission needs of each of its component Centers.
The National Aeronautics and Space Administration’s (NASA) current complex real property portfolio is both very unique and, yet, indicative of the complex issues facing federal agencies as they address their needs for improved real property asset management in an environment of reconsidered missions and austere budgets.
Consisting of more than 5,000 buildings and other specialized structures, the NASA portfolio includes such things as wind tunnels, laboratories, launch pads, and test stands. These assets are largely scattered among ten geographically distinct component Centers and total some 44 million square feet of built structures. This infrastructure has a replacement value in excess of $29 billion. At the same time, at least 80 percent of this inventory is more than 40 years old with diminishing functional value.
 At the same time, the Agency is undergoing considerable changes in their mission focus as the Space Shuttle Program concludes after a 39-year run. Needless to say, this creates significant uncertainty about facilities NASA will need for their next space launch program. Moreover, the Agency is dealing with these challenges in an era of growing budget deficits that are straining resources across the federal government. Indicative of this trend, during the 2012 budget process, OMB reduced the Agency’s projected budget for facility upgrades from $1.7 billion to $750 million for the period from 2013 to 2017.
As if this weren’t enough—in the 2010 NASA Authorization Act—Congress charged the Agency to carefully examine its real property assets and downsize its portfolio in concert with current and future missions and expected levels of funding. They were directed to pay particular attention to “identifying and removing unneeded or duplicative infrastructure”.
As a result, the Agency is in the unenviable position of making exceptionally difficult decisions about the essential components of its real property inventory that will both support its expected mission and can be sustained under present budget realities. Thus, NASA established an overall goal of cutting its $29 billion infrastructure current replacement value 10% by 2020 and 15% by 2055.
Just before Christmas, NASA’s Office of Inspector General released its audit report on the Agency’s infrastructure and facilities. The bottom line was NASA has a lot of aging facilities that are in less than desirable condition and do not necessarily align well with the Agency’s evolving missions.
In response, NASA is undertaking the development of its first integrated agency-wide real property master plan with a strategy of consolidating individual real property plans developed by each of the Agency’s Centers. The intent is to guide portfolio decision-making and development planning considering shared programmatic objectives and integrated proposals. This would permit NASA to most effectively distribute resources while ensuring that Center plans align with the overall agency missions.
The IG found managers struggling to meet the targets as they transitioned to an agency-wide master planning initiative versus a traditional approach where center managers determined their facilities’ needs.
Though NASA has disposed of 645 buildings with a total replacement value of $931 million since 2005, and has plans for 140 demolitions through 2015, the IG called for a number of improvements in the Agency’s planning process. In particular, NASA leadership must establish clear guidance to Center managers to establish better correlation between facilities needs and the Agency’s future missions and projects.
The full report contains food for thought and can be useful for any federal agency contemplating an agency-wide plan for their real property portfolio.
Check out our latest e- news article for additional information on this.
Dec
15
Bill’s sponsor disputes CBO estimate that legislation’s near-term implementation would cost $200M.
Late last week, the Congressional Budget Office (CBO) released its cost analysis of H.R. 1734 (Civilian Property Realignment Act, or CPRA)-- approved by the House Transportation and Infrastructure Committee back in October. It estimated the bill would result in direct spending of some $200M for implementation (mostly to support the new CPRA Commission) and generate net savings of almost $600M over the next 10 years.
The CBO report produced an immediate negative response from Representative Jeff Denham’s office—the Congressman who initially sponsored this bill. According to an article in last Friday’s the Washington Business Journal, a spokesperson for the California Republican called the $200M near-term cost overinflated since getting the CPRA Commission process off the ground would cost much less than CBO anticipates.
It was further noted that the CBO based its cost analysis (in part) on historical spending patterns for the way the government has traditionally disposed of federally owned properties. Denham’s spokesperson noted the CPRA legislation is intended to significantly streamline those disposal processes and the new approach to disposals inherent in the bill would reduce disposal costs compared to past practice.
In its analysis, the CBO assumed that the government would be forced to discount the value of properties it is seeking to sell in the first year by about 20 percent. Such a discount would be necessary since private sector buyers could not access the purchased properties while current federal employee occupants were being relocated to other space. Accordingly, CBO indicated proceeds from the initial auction of properties worth $500M would actually yield only $400M, or $100M less than their presumed market value.
Another aspect of the CBO study which we also found lacking was its failure to adequately account for the money the federal government will save from not having to operate or maintain the properties that will be disposed of as part of the CPRA legislation’s Commission process. As we have observed previously, every building square foot that our federal government retains in its facilities portfolio represents a long-term financial obligation to operate and maintain that space. Reducing the federal facilities footprint has an immediate affect of decreasing the dollars spent on the operation and maintenance (O&M) of space and this savings continues to accumulate over time. This pattern of long-term savings is illustrated in the following graph.
No doubt, Congress is looking for some immediate returns from reducing the federal real property portfolio and this H.R. 1734 appears to provide a positive step in that direction. Even if we accept some investment on the front end, the long-term payback can represent a meaningful contribution towards reducing our national deficit. As I have noted before, both reducing the deficit and managing the federal real property portfolio are, after all, long-term propositions.
In their March 2011 report, Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue, the GAO estimated that 60-85% of the lifetime costs of owning a building are attributable to O&M. One can conclude, then, that reducing overall facilities O&M costs by eliminating our building footprint will have a positive effect on the lifetime cost of ownership. Our recent analysis of the former military installation, the Presidio of San Francisco (see my blog post of August 4, 2011) reinforces the substantial nature of long-term accumulated savings. Let’s hope that CBO can embrace this reality as part of their analysis.
Dec
01
H.R. 665 would accelerate sales, but proposed CPRA legislation holds key to sustained success.
No question, Congress is looking for immediate “green” from the federal real property portfolio given the “super committee’s” recent failure to come up with a deficit reduction plan. Several bills are in play that would reap big sales revenues and savings from real property management improvements. For maximum return, Congress should combine the best ideas from these various proposals.
Just two weeks ago, the House Oversight and Government Reform Committee approved the Excess Federal Building and Property Disposal Act of 2011 (H.R. 665). If codified into law in anything near its present form, H.R. 665 would empower and require GSA to implement a 5-year pilot program for the sale of 15 high-value federal properties deemed excess. There are, of course, other details but this is the principal thrust.
H.R. 665 has merit given its primary objective of near-term sales of high-value properties with proceeds going directly towards deficit reduction. Unclear at this moment, however, is how (or if) provisions of H.R. 1734, the Civilian Property Realignment Act (CPRA)—approved by the House Transportation and Infrastructure Committee in October—might fare in competition with this newest proposal.
In my view, a combination of HR. 665 and H.R. 1734 offers the best chance for real reform.
CPRA offers several improvements to provisions in H.R. 665, including:
- An independent commission which can package assets as a group, and, through an “up or down” vote, mitigate political influence on property selection that might diminish an effective outcome. Successive rounds of Defense BRAC have demonstrated tremendous successes that could be replicated for civilian federal property.
- As proposed, CPRA would foster a management process that continuously revisits the operating efficiency and effectiveness of the federal portfolio. Rightsizing this portfolio would become an ongoing practice—incrementally reducing assets, thus, decreasing recurring operating expenditures over time. Results, in turn, for deficit reduction are sustainable, predictable, and significant.
There’s nothing bad about selling a few high-value assets and realizing several billion dollars towards deficit reduction. However, 15 buildings and a few billion dollars represent a small drop in a big bucket. As is, H.R. 665 does not adequately address the larger and more systemic challenges of effectively managing the ongoing financial obligations inherent in our substantial federal real property asset base. In my Senate testimony back in June, I insisted the big challenge and opportunity must be addressed head-on.
My hope is that some provisions of CPRA could be added to strengthen H.R. 665—or provisions of H.R. 665 be amended into H.R. 1734. Combining the best from each will give this initiative a solid and lasting management structure. It would support the mandate for agencies to make difficult downsizing choices, mitigate contrary political influence, and create a sustainable paradigm for incremental long-term reductions in operational spending for real property.
There is no reason why accelerated programs like those in H.R. 665 cannot be crafted to ensure long-term viability and sustainability. It seems only logical given the complexities of the challenges before us. To that end, I encourage the authors of H.R. 665 to consider the significant long-term benefits offered by the CPRA approach and incorporate those salient provisions. Both reducing the deficit and managing the federal real property portfolio are, after all, long-term propositions.
Nov
10
New Los Angeles courthouse deemed unnecessary by GAO gets caught in the crosshairs.
Last Friday—November 4th—Representative Jeff Denham (R-CA), chairman of the House Subcommittee on Economic Development, Public Buildings and Emergency Management, held a hearing that dealt with the justification of a third courthouse and the cost implications of the entire courthouse complex in greater Los Angeles. The story was reported by the media and essentially, Rep. Denham summed up the issue as follows.
“This is a prime example of government waste. Ten years ago, $400 million was appropriated for a building that still doesn’t exist, to house federal judges that don’t exist. This vacant lot in downtown LA could be sold and used for private sector growth to create jobs,” said Denham. He added, “There are fewer judges in Los Angeles now than there were when the project was first proposed - over 20 years ago. In a time when Congressional leaders are scrambling to find ways to reduce our $14.3 deficit, the government should look at the buildings that it owns and identify the tens of thousands of empty buildings it doesn’t need. I have introduced the Civilian Property Realignment Act to ensure the sale or consolidation of these properties whose upkeep and management has cost the taxpayer for too long.”
The fact that Rep. Denham leveled his ire on a federal courthouse isn’t surprising. Amongst all federal facilities, courthouses are extremely expensive to build and operate. What is surprising, even refreshing, is that Rep. Denham was willing to take aim at a high profile project in his own home state and close to his district. Clearly, Denham sees that the nation’s fiscal situation merits the sacrifice of politically sensitive expenditures and that curbing the one time and recurring cost of the federal facilities portfolio is a substantial way to aid in deficit reduction.
The broader observation here is that bureaucracies tend to self-perpetuate and when it comes to real property, growth in inventory is a long standing trend; a difficult challenge to resolve. Understandable as that may be, it takes both personal and political fortitude to challenge the status quo, eliminating underperforming programs and, as in this case, taking decisive action to eliminate waste in facilities before it occurs.
Rep. Denham deserves our respect and encouragement for taking the stand he did. Clearly, he sees that the issues are larger than any single building and, so far, seems both willing and able to take this challenge forward through the hurdles of legislative processes. I commend Rep. Denham, not because he acted to strike down one wasteful project, but because he is addressing the larger issues of downsizing a federal portfolio that we cannot afford. Simply, Jeff Denham “gets it” and is taking needed action to bring about a necessary result.
Oct
27
For those who have been following legislative progress around the Civilian Property Realignment Act (CPRA), there has been a lot of activity over the past two weeks:
- On October 13, the House Transportation and Infrastructure Committee (John Mica, R-FL, Chair) approved Jeff Denham’s CPRA bill (HR 1734) which sets up a CPR Commission focused on long-term restructuring of how the federal government manages and consolidates its real property portfolio to drive savings towards deficit reduction.
- The following day, Congressman Denham submitted a letter to the Joint Select Committee on Deficit Reduction. It urged them to include his bill—which was approved on a bi-partisan basis—as part of their proposal to meet the $1.2 trillion deficit reduction goal outlined in the Budget Control Act of August 2011.
- Just last week, Jeffrey Zients, Deputy Director for Management at the Office of Management and Budget (OMB), posted a new entry to his blog saying that the government has already saved $1.5 billion by disposing of excess federal property and now expects to realize $3.5 billion in savings by the end of FY2012 through a combination of sales, consolidations, canceled projects, and reduced maintenance and utility costs. Furthermore, he indicated that Agencies also have identified 1,500 new pieces of property to sell.
Meanwhile, in the Senate, legislation similar to Denham’s bill has been introduced by Sen. Scott Brown (R-MA). Sen. Tom Carper, (D-DE) has indicated he also plans to introduce a bill that would push agencies to dispose of excess property and curtail long-term leasing agreements.
It seems that all sides have begun to rally around this push for better management of our federal real property portfolio. By applying some aspects of the Defense BRAC concept, it will help cut through bureaucratic red tape and remove politics from the process of shedding vacant and underutilized properties.
While on-going actions by OMB and agencies in identifying underused or unneeded properties are commendable, there are no guarantees that these properties will be readily sold or otherwise disposed. CPRA legislation can greatly improve the chances that we actually remove these assets from federal responsibility and make substantial reductions in our government’s long-term financial obligation to operate and maintain these properties. Given the fast moving circumstances and the critical need to drive down the deficit over the coming years, I believe there is a very strong chance that the Super Committee will include CPRA as part of its deficit reduction plan, due out just before Thanksgiving. Stay tuned.
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