GSA'S FY 1999 Budget and Related Issues
PUBLIC BUILDINGS SERVICE
GENERAL SERVICES ADMINISTRATION
SUBCOMMITTEE ON PUBLIC BUILDINGS AND ECONOMIC DEVELOPMENT
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
UNITED STATES HOUSE OF REPRESENTATIVES
MARCH 5, 1998
I am pleased to be here today to present the Administration's FY1999 budget and program for the Public Buildings Service of the General Services Administration. In doing so, I want to report on measures we are taking to improve management, service to our federal customers, operational and financial performance, and the condition of our inventory.
First, I want to report to you that the FY 1999 budget reflects our successful resolution, in one year's time, of the revenue problem that accumulated in fiscal years 1996 and 1997. By reducing expenditures starting in FY 1996 and adhering to a stringent fiscal regime this current 1998 fiscal year, we will have made good the fiscal imbalance that resulted from a 7% gap between estimated and actual revenue collections in fiscal years 1996 and 1997. We have overhauled our estimating procedures and sharpened our collection practices, so that we have confidence in our revenue projections from here on out. Our revenue collections by the close of FY 1997 were within 0.3% of the revised 1997 revenue estimate we provided with the FY 1998 budget submission one year ago.
PBS provides workspace for a million federal employees nationwide and controls 39% of the Federal Government's owned and leased office space, in addition to Federal courthouses, border stations, laboratories and warehouses. We manage more than 300 million rentable square feet of space in which the federal government does its business on behalf of the public. Our revenues and expenses for Fiscal Year 1999 are projected to be just over $5 billion. We are the largest commercial-style real estate organization in the United States.
Most years, we fund the preponderance of our budget from the Rent payments of our tenants, the agencies of the Federal government, which are deposited into the Federal Buildings Fund. (By law, the Rents we set must approximate commercial rates found in the marketplace.) In the current fiscal year, our entire new obligational authority is funded out of Rents from the FBF. We propose no appropriation for FY 1999 so, once again, our revenues will support our entire budget.
We have an advantage possessed by few other agencies in government: with clearly articulated revenue and expense flows, we can identify net income, a financial bottom line by which we can measure our performance. Our net income is not a profit, of course, but it is crucial: our income net of fixed expenses (which are comprised of building operations, leasing and installment payment costs) is the funding we depend on to carry out major repairs, renovations and new construction. We can and should operate in a businesslike manner, measuring our efficiency in terms of time and money and making our customers?eral agencies? our shareholders? American taxpayers?isfied customers.
For FY 1999, PBS requests New Obligational Authority of $5.1 Billion for the Federal Buildings Fund. This spending request is matched by our estimate that we will produce Rent revenues in the same amount. The estimated Rent revenues reflect a 3% increase in rental rates, as well as a slight increase in the government-owned inventory and a static leased inventory. There has been no general increase in PBS rent rates since 1996 and, as we reported last year, in 1995 we actually decreased rents in 18 selected large markets across the country to compensate for rent rate decreases in the private market that had built up during the recession. With the economy continuing to grow today, real estate markets nearly everywhere throughout the country are experiencing low vacancy rates and commensurate rate increases.
We are streamlining our Rent pricing procedures, as well. We are piloting a new approach for leased space that adopts a number of best practices from private industry, while retaining the benefits that GSA provides to federal agencies as a result of our market leverage:
?xteen classifications of space, all with different Rent rates, are replaced with just four; most buildings will have only two.
?encies and GSA will sign an Occupancy Agreement setting out Rent rates, terms and other conditions; federal occupancy in GSA space was not memorialized in writing before and it led to misunderstandings.
?nts in buildings we lease will be set simply at the rent we pay the owner plus an administrative fee.
? lieu of prescriptive regulations describing in detail what space finishes are authorized, there will be a budget schedule for tenant improvements; this is also analogous to private practice. Agencies will be able to choose among space layouts and costs and their decisions will be reflected in the Rent that they will then pay into the FBF.
?nally, bills will be clearer, less complicated and will facilitate a comparison with market rents.
As part of the fiscal year 2000 budget formulation, we will consider similar improvements in pricing for our owned space. We will propose to set the price according to market rates at the time the agency occupies a block of space: before we set uniform rates for an entire building on a 5-year fixed schedule and market rates and our rates can diverge significantly over that period of time.
The FY 1999 request includes $1.6 Billion for Building Operations, $2.6 Billion for Rental of Space, $668 million for Repairs and Alterations, $216 million for Installment Acquisition Payments and $44 million for Construction and Acquisition. More than 90% of the PBS program dollars will be spent in the private sector for architectural, engineering, construction, maintenance, cleaning, repair, security and information technology services, for utilities, for lease payments in private buildings and the like.
The budget for Building Operations in government-owned space, after a nearly 7% reduction in new obligational authority for FY 1998, is back at approximately the FY 1997 level. The 1998 reduction was necessary to bring the books into balance following the FY 1996 and FY 1997 FBF revenue problems. While our employees are showing ingenuity in operating our buildings safely and productively despite this reduction, it is not a reduction that can be borne another year. In 1998, for example, we are eliminating many minor repairs that cannot be avoided for long. Surveys indicate that we already operate our buildings at a cost equal to or slightly lower than that experienced in private sector buildings.
The budget for Rental of Space is based on projections of a "flat" inventory from FY 1998 to FY 1999. While many agencies are downsizing and releasing unused space to us, permitting us to terminate some leases as they expire, other tenant agencies, such as law enforcement arms of the Justice Department, are expanding. Meanwhile, the market rents we pay for space continue to increase and each year we roll over about one-sixth of the leased space inventory into new lease agreements that reflect these market increases.
On behalf of the United States, PBS has responsibility for more than 1,800 government-owned federal buildings across the nation. More than 200 are on the National Register of Historic Places and several hundred more are considered eligible for this historic designation. More than half of the buildings in the total inventory are more than 45 years old, which is old by commercial standards.
Our FY 1999 budget includes approximately $324 million in new obligational authority for 10 prospectus-level repair and alteration projects, 9 prospectus-level R&A designs, and the ongoing chlorofluorocarbon reduction and energy- saving programs. A list of the projects is attached and the prospectuses which detail these proposals will be transmitted to the Congress shortly .
Like any real estate organization, we first must maintain our existing assets. The facilities which we hold on behalf of the taxpayers have a replacement value of about $30 billion. The repair and upgrade of these assets will always be our top priority for capital funds. If we do not have sufficient funds to properly maintain and modernize our buildings, the value of our inventory will decline. Worse, federal agencies are beginning to balk at utilizing and paying Rent for government-owned facilities. In fiscal year 1999, as in the past, we will give first priority to using FBF revenues, after satisfying operating and fixed expense obligations, to finance our Repair and Alteration program.
We have changed the way we evaluate repair and alteration projects. We are using a "return on investment" measure to determine the financial impact of each repair and alteration project. This use of ROI is similar to the way capital real estate investments are screened in the private sector. The screening tells us whether, among other things, an R&A project will add to or detract from net income in the FBF when the project is completed. Using the ROI measure thus strengthens the long-term fiscal health of the FBF.
We are also evaluating the components within proposed major R&A projects to see if we can reduce the scope of work while still providing a productive, modern building. Reducing the scope can reduce the time and cost of the project.
The prospectus-level R&A program, combined with the smaller-project, routine repair and alteration program, is budgeted at approximately 2% of the value of GSA's government-owned inventory. This is the minimum funding level recommended by the Building Research Board of the National Research Council and is consistent with private sector practice.
The Administration proposes $44 million in new construction and acquisition obligational authority in FY 1999, all funded out of FBF revenues. The most noteworthy new project is for a government-owned headquarters for the Department of Transportation in Washington, DC. The budget proposes $14 million for design and anticipates construction in succeeding years amounting to about $300 million. DOT has been in leased space for nearly 30 years and the government would realize a significant long-term economy (approximately $200million in net present value calculated over a 30-year span) by building and owning, as opposed to leasing, this headquarters.
GSA is reassessing the 1992 Master Plan for the Southeast Federal Center. That plan assumed that this large site would be developed for the single purpose of housing a number of large Federal agencies. In coordination with the Department of the Navy, which is moving 5,000 employees to the adjacent Washington Navy Yard, we are reevaluating the tenant mix, scenarios for private sector participation, and the potential for mixed use of the site. At this time we do not intend to develop those elements of the infrastructure that depend on our having more definite plans than we currently possess.
We do, however, have an obligation to perform environmental remediation on the Southeast Federal Center. We need a total of $30 million for remediation; we are expending $20 million in previously appropriated funds, and are requesting $10 million in our FY 1999 budget. We will continue to keep this Committee informed as the development of this site evolves.
While we propose no new obligational authority for courthouse construction again in 1999, we continue work on 46 courthouse projects previously funded (in whole or in part). In FY 1998, we will deliver 9 new courthouses and an additional 11 courthouses are scheduled for competition in FY 1999. New funding for courthouses in FY 1999 lost out to other priorities during the Administration's budget review.
As I have testified before, a historical look at FBF performance and our projections for the next several years indicate that the FBF produces adequate net income to fund the capital repairs and modernizations necessary to keep the existing inventory functional and productive and to provide for a modest new construction program. Indeed, in recognition of this fact, Congress has appropriated funds to the FBF to provide for a construction program of the magnitude of the current courthouse program. Appropriations to the FBF for new construction between FY's 1990 and 1997 amounted to over $2.8 billion.
As I noted at the outset, PBS is a businesslike organization. We produce net income. We carry out thousands of transactions each year, from lease negotiations, to executing security guard contracts, to performing reimbursable space alterations for our building tenants. In each of our many activities, we can define the performance measures that tell us and you whether we are performing well.
There are many private and public sector organizations doing the same kinds of things we do and we can compare measures and benchmarks with them. We are doing that. We have eleven regions, operate 1,800 buildings, lease space in 6,000 others and house agencies in 23,000 space assignments. Because we are so large and diverse, we can also measure success? create friendly competition?ernally.
When I arrived at GSA a little over two years ago, PBS had begun to develop performance measures in conformance with the Government Performance and Results Act of 1993 (GPRA). We have not completed the transition to GPRA management but we are making good progress.
Last year, we selected 13 key measures that we will use to manage PBS on the national level. (Our regions and field offices, as well as some of our other business operating units, have their own more detailed performance measures which they use to guide their parts of our operation.) The 13 national performance measures (there is no priority order) are:
1. Overall Tenant Satisfaction - By survey, measures tenants' overall satisfaction with PBS space and services.
2. Funds from Operations - National Net Income [Revenues minus expenses] plus Depreciation.
3. Percent of Gross Potential Income - Compares actual income as a percentage of gross potential income (a vacancy measure).
4. Building Operations (Cleaning, Maintenance, Utilities) - Compares government-owned office space cleaning, utilities and maintenance costs to private sector costs for the same functions by market.
5. Leasing Costs - Compares the rental rates GSA pays on private leases to those paid by the private sector in each market.
6. Cycle Time for Leases - By size of lease, measures average time to execute a lease in response to a determined need.
7. Construction Cost - Compares the unit costs of GSA construction to those of the private sector.
8. Major R&A/New Construction On-Schedule - Measures the timeliness of GSA construction and renovation projects-in-progress on a national and regional basis.
9. Major R&A/New Construction On-Budget - Measures the percentage of estimated construction costs for work in progress on, below and over budget.
10. Space Alterations, Guarantee Discounts - Provides information on the quality and timeliness of GSA's reimbursable space alterations work.
11. Property Disposal - Measures the cost of disposal operations as a percentage of the value of assets sold or transferred.
12. Protection Costs - Compares the costs of GSA building security to those of the private sector.
13. Overhead Costs - Currently under development, will provide a comprehensive look at overhead on a national and regional basis.
One measure of our success with improving performance is our Can't Beat GSA Leasing program. In October, 1996, our customers were given the opportunity to continue to use us as their provider of choice or to take on the leasing function themselves. Agencies decided to do it themselves on only 14 of 900 leases in fiscal year 1997. As a result of going competitive, we have seen great improvements in project cycle time, and our customers can expect continued improvements in how we acquire space.
More telling than our cycle time measures are examples of what we've done. In Montana, we fulfilled a 5,000 square foot requirement for the FBI in 24 hours. In Utah, we satisfied an 800 square foot requirement in 48 hours. In New York, we fulfilled a customer request for 7,000 feet in only 7 days. While all of our actions are not as dramatic, we are getting better and faster. Not only are we keeping old customers, we're gaining new ones. Since the start of our program, 20 new customers asked us to lease a total of 400,000 square feet for them.
Related to our Can't Beat GSA Leasing Program was our decision to issue a national real estate services solicitation. Eight contracts were awarded on July 2, 1997 and went into effect on Sept. 2, 1997. Through Nov. 30, 1997, 35 task orders were issued under the contracts for a total of nearly $600,000. Of these, 16 were for full lease acquisition services and 19 were for other services, such as conducting market surveys related to acquisition actions. Several additional task orders are expected to be issued in the near future.
The majority of the first round of work is still in process. In general, we have been satisfied with the work performed by the contractors, (although one task order for lease acquisition service was terminated due to the failure of the contractor to meet the agreed upon schedule.)
We have allotted significant resources in the past three years for security upgrades and the implementation of Building Security Committee recommendations. Through December, 1997, we are approaching completion of some 8,000 security countermeasures. As of December, 1997, we had 641 uniformed Federal Protective Service police officers on board, up from 389 in 1995. We continue to work toward our target, developed in a workload study, of 724 full-time officers.
Mr. Chairman, in the past year PBS continued to be a leader in reinvention, streamlining, and downsizing of its organization. Since 1993, PBS has reduced its workforce by 2,670 full-time employees, a decrease of more than 27%.
In 1997, PBS reorganized its central office operations in Washington. The new National Office is designed to ensure a focus on performance measures, on importing best practices from the private sector and sharing best practices among our regions, on the fiscal bottom line and on value-added activities that headquarters can provide with customers, OMB, the Congress, and other outside interests.
In the private sector today, firms are turning to the use of "corporate knowledge centers" to provide faster, better, and more cost-effective service to customers. Our reorganization provided us with the opportunity to implement this concept in PBS. We have 12 such centers, called Centers of Expertise: Property Disposal, Retail Tenant Services, Energy and Public Utilities, Design, Historic Buildings and Art, Presidential Libraries, Border Stations, Project Management, Courthouse Management, Complex Leases, Site Selection, and Childcare. These centers are comprised of teams committed to the delivery of critical services to our customers at the best price to the taxpayer.
The Centers concentrate our best PBS talent in national centers on activities in which in-depth expertise is required, or in which workloads vary over time or among regions. Most of the Centers are headquartered outside of Washington and, similarly, most of the Centers' staff (some full-time, some in "reserve" as needed) are outside Washington.
Finally, beginning in October, 1997, we began deploying our new space assignment and inventory management software. Called STAR (System for Tracking and Administering Real property), we licensed this system from AT&T, which has used it successfully (under a different name) for some time to track its real property holdings. The system is now fully deployed in all our regions.
STAR is a state of the art database tool that allows our property specialists to enter data instantaneously with transactions and allows management to derive up-to-the-minute data on the PBS inventory and space assignments. When combined with billing software in June, the system will revolutionize the way PBS does business and the way we interact with our customers. STAR replaces a system installed in the early 1970's. To call that earlier system antiquated would be charitable.
We have also now placed on the computer screens of every property manager a standardized spread sheet showing expected revenues and expenses for every building in our inventory. This Asset Business Data site will eventually allow each manager to track his or her progress in meeting annual building budgets and permit PBS management to track? reward?get performance down to the building level.
STAR, the Asset Business Data site and a number of other project-tracking systems that we are deploying will put everyone in PBS "on-line in real time" and are critical in helping us realize the promise of performance and financial measures.
We continue to be on the lookout for new and innovative ways to organize and structure PBS to provide better value to our customers and the taxpayers.
I would be pleased to answer questions.