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GAO Highlights How Improving Federal Leasing Can Save Taxpayer Dollars

Washington, DC, July 6, 2016 | Justin Harclerode (202) 225-9446
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The U.S. Government Accountability Office (GAO) released two reports today highlighting shortcomings in the federal leasing process that have led to taxpayers overpaying for federal office space.

The reports were requested by Transportation and Infrastructure Committee leaders.  One of the GAO reports examined agencies that have their own leasing authority, independent of the General Services Administration (GSA).  The Committee asked GAO to examine how agencies are using their independent authority, if they are acting within their legal authority, whether they are getting good deals for the taxpayer, and whether those agencies are reducing their costs and space footprint.  The second GAO report reviewed the use and potential benefits of purchase options in GSA lease agreements. 

The Committee also held a hearing today on the GAO reports, and received testimony from GAO, GSA, and two agencies that have their own leasing authority: the Pension Benefit Guaranty Corporation and the Smithsonian Institution.  Click here for more information from today’s hearing.

“The Committee requested that the GAO examine these issues as part of our effort to save the taxpayers money by reducing the federal footprint and improving how the government manages its real property portfolio,” said Transportation and Infrastructure Committee Chairman Bill Shuster (R-PA).  “GAO found that there is clearly room for improvement.  We will continue to press for reforms through legislation and oversight of the GSA and the way leasing authority is used throughout the government.”

“We have already saved taxpayers more than $3 billion by changing the way GSA manages its real estate portfolio, but this new information indicates just how much more work there is to do across the entire federal government,” said Economic Development, Public Buildings, and Emergency Management Subcommittee Chairman Lou Barletta (R-PA).  “As more and more leases expire over the next five years, we must get a better handle on the management of properties.  Federal agencies should have office space that is appropriate to their respective missions, but we must be good stewards of taxpayer dollars at the same time.”

While the GSA functions as the landlord for the federal government, the number of federal agencies with their own authority to lease space has grown over the years.  In recent years, there have been cases in which agencies with independent leasing authority have signed costly, wasteful leases.  For example, the Committee’s investigation of the Securities and Exchange Commission’s use of its leasing authority in 2011 revealed the pitfalls agencies can fall into.  The SEC exceeded its leasing authority and wound up committing the taxpayer to a $500 million lease that it did not need and, ultimately, had to be bailed out with help from GSA.

Furthermore, while purchase options give an agency the choice to buy a building at the end of a lease term and can save taxpayers a significant amount of money in some cases, changes to federal budget rules in the 1990s have all but ended the use of purchase options.  The practical effect can lead to taxpayers paying for a building several times over through lease payments without gaining any equity.  Taxpayers will have paid nearly $2 billion for the Department of Transportation headquarters space when the current lease expires without accruing any equity.

Several highlights from the report entitled “Federal Real Property: Actions Needed to Enhance Information on and Coordination with Federal Entities with Leasing Authority” (GAO-16-648) include:

  • There is no comprehensive list of agencies that have authority to lease space independent of GSA, but GAO found there are at least more than 50.
  • Many federal agencies with independent leasing authority have little accountability, as they are not required to follow OMB directives on reducing their space footprint or to report their leases to the government-wide Federal Real Property database.
  • Agencies with independent leasing authority often lease significantly more space than they need – even when able to negotiate rates comparable or better than GSA rates.
  • Agencies with independent leasing authority that use brokers can secure better rental rates, compared to GSA negotiated rates.

    Some highlights from the report entitled, “Federal Real Property: Leases with Purchase Options Are Infrequently Used but May Provide Benefits” (GAO-16-536R) include:

  • The scoring rules changes effectively ended the inclusion of discounted purchase options in leases, and have led to the unintended consequence of creating a greater incentive to use short-term operating leases, a practice that costs more in the long-run.
  • Of the three leases with purchase options GAO was able to identify, they resulted in more than $80 million in taxpayer savings.

    In May, the House passed H.R. 4487, the Public Buildings Reform and Savings Act, which provides a number of GSA reforms, including a leasing pilot program and authority for GSA to negotiate discounted purchase options in their lease agreements consistent with existing scoring rules.  The pilot program has the potential for significant savings by taking advantage of the current market and providing GSA with more flexibility to negotiate good lease deals.

    In addition, the Committee has encouraged GSA to use brokers more as a cost saving measure and to get through the current leasing backlog.

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