BACKGROUND
GSA's Public Buildings Service is the largest owner/operator of commercial-style real estate in the United States, managing 350 million square feet of space in office buildings, courthouses, laboratories and border stations, and housing one million Federal employees. Approximately 55 percent of that space is in 1,993 government-owned buildings, housing nearly 500,000 employees. The remainder of the space and employees is housed in approximately 6,400 privately owned leased buildings. Our customers include all Federal departments, independent agencies and commissions, the Judiciary, and Members of Congress.
Our funding comes principally in fiscal year 2000 it is coming exclusively from the rents that we charge to the more than 100 Federal agencies. The rent revenues, expected to amount to approximately $5.5 billion in fiscal year 2000, are deposited into the Federal Buildings Fund (FBF) and are used to operate the government's buildings, pay rent to the private sector for our leased space, provide security, and fund our administrative costs. More than 90 percent of the $5.5 billion we plan to spend in fiscal year 2000 will be
paid out in the form of contracts with the private sector. More than half of the FY 2000 expenditures, $3 billion, will go toward lease payments in private buildings.
Since the Oklahoma City bombing, we have doubled our rate of spending on building security, doubled the size of our uniformed force, and improved our security organization to upgrade its capabilities and focus it on the violent threats we face.
Improved Performance through Businesslike Measures
While we carry out the public buildings program in accordance with government contracting procedures and socio-economic preferences, we are now operating more like a business. Our performance measurements link our budgeting process to performance in tangible ways. We have established nine performance measures, which have quickly become known as the "Big Nine" in our organization. These measures have allowed our 11 regions to compete among each other to do our business in the cheapest, best, and fastest manner possible. Regional budget allocations and even individual bonuses are tied directly to a region's ability to meet specific performance improvement targets.
In business, they say you get what you measure and we have found that, too. Since we began our "Linking Budget to Performance" program, we have had the following results:
-- Our funds from operations have increased approximately 38 percent from fiscal year 1998 to 1999.
-- We have reduced the non-revenue producing space in our total inventory from 13 percent to 10 percent in just the last fiscal year.
-- Our operating costs per square foot in government-owned space are approximately 13 percent below the private industry average; in the past three
years, our cleaning costs per square foot have actually gone down, while the private industry average has gone up.
-- The average rents we have paid in our leased buildings across the country have been at or below the average rate that private sector tenants pay, with a cost avoidance to the government in the tens of millions of dollars.
-- The average time it takes us to negotiate new leases for client agencies is down from 244 days in 1996 to 152 days in 1999, a decrease of 38 percent.
-- Our energy consumption was reduced 17.3 percent from 1985 to 1999. Our goal is to further reduce this another 2.7 percent by the end of fiscal year 2000 and an additional 10 percent by the end of fiscal year 2005.
-- Our customer satisfaction scores, measured in hundreds of buildings by the Gallup organization, have improved steadily from 74 percent in 1993 to 80 percent in 1998. Our long-term customer satisfaction goal is 85 percent.
These results are depicted graphically in an attachment to my statement.
This improved financial performance has a direct bearing on the capital program we are proposing. By pricing more realistically and reducing expenses, we have produced more net income, which for us is the only available source of funding to upgrade our aging buildings, and thus provide Federal workers the productive workspace they need. Increased net income allows us to propose more capital improvement projects. We are proposing some new construction funding from the FBF, as well. We consider this to be a secondary priority for FBF net income and are recommending it for some urgent security and law enforcement projects only.
Improving the Public Quality of Public Buildings
In addition to focusing on our bottom line, the Public Buildings Service has a broader goal of improving the benefits that Federal buildings bring to local communities across the country, recapturing the tradition of quality and vitality in Federal buildings that was begun by Washington and Jefferson.
-- We are designing and constructing landmark public buildings that are efficient and dignified, sources of community pride, and positive government investments in their localities.
-- Our urban livability program has improved the way we integrate our site and design decisions with local planning and development needs. We are making public building plazas centers of downtown activity, in the tradition of the American courthouse square.
-- We have kicked off a First Impressions program to redesign the entry and lobby areas of our Federal buildings, making them more welcoming and functional as well as secure for the public and employees.
THE CAPITAL INVESTMENT AND LEASING PROGRAM
This month we submitted to Congress the GSA Fiscal Year 2001 Capital Investment and Leasing Program, which you have before you today. We are pleased to note our proposed budget request this year includes a substantial new construction program as well as an increase in the amount proposed for critical repair and alteration projects.
The highlights of the program include:
Projects Funded from the FBF
-- 9 prospectus-level (non-courts) design and new construction projects estimated at $82,351,000;
-- 14 prospectus-level repair and alteration projects budgeted at $349,278,000;
-- 12 prospectus-level repair and alteration designs for future projects at $21,915,000;
-- An ongoing chlorofluorocarbon reduction and energy-saving programs budgeted at $10,000,000 and $20,000,000, respectively; and
-- A glass fragmentation program budgeted at $30,000,000.
Projects Funded from a Direct Appropriation to the FBF
-- 2 new construction projects the FDA consolidation in Montgomery County, MD, for $101,239,000 and ATF Headquarters project in Washington, DC, for $83,000,000; and
-- 7 new courthouse construction projects totaling a budget request of $488,464,000.
Capital Planning
Our Capital Investment and Leasing Program plays a key role in providing the necessary resources to maintain the current real property assets and acquire new or replacement assets. Our proposed projects are evaluated in the context of the entire national portfolio. We consider three options when evaluating our client agency requirements: construction and acquisition, repair and alteration, or leasing space from the private sector. When evaluating and prioritizing our capital program, we consider a number of factors:
-- Economic justification in terms of financial return and present value cost;
-- Project timing and execution;
-- Physical urgency based on building conditions;
-- Customer urgency; and
-- Historic preservation and community considerations.
Repair and Alteration Program
More than half of our government-owned buildings are older than fifty years and nearly a quarter of the inventory bears historic designation, so we have a particularly significant need for funds to maintain and renovate our existing inventory. Our first capital program priority therefore must be repair and alteration of our existing inventory to ensure that its value and condition do not decline. For fiscal year 2001, we are proposing a budget of $721.2 million, an 8 percent increase over $665.6 million received in fiscal year 2000. Our annual repair and alteration program is approximately 2.5 percent of the inventory's replacement value, which falls within the range (2-4 percent) of private sector practice. However, given the age of the inventory, we are currently studying what is an appropriate level of funding.
To help allocate the limited resources of the FBF for repair and alteration projects, we use a Return on Investment (ROI) methodology--in addition to the criteria highlighted above. ROI determines if a project adds or detracts from the net income the building contributes to the FBF after project completion. Simply stated, if we invest dollars in a building, we want to make sure that the investment will bring increased revenues. Using a
ROI approach in evaluating projects assists our efforts in strengthening the long-term fiscal health of the FBF.
New Construction and Acquisition
Through revenues generated by the FBF, we are proposing to fund 7 border stations; demolition and construction of a new U.S. Mission to the United Nations; and the acquisition of a site and design of a new Federal Bureau of Investigation (FBI) Field Office. By increasing our net income -- through new pricing policies and our focus on performance measures -- we have released some of that net income for modest, yet urgent, security-related new construction projects. Nonetheless, we continue to have unmet needs in our existing buildings and our first priority for the use of net income is for building repairs and alterations.
Through a direct appropriation, we are requesting funding and authority for 7 courthouse projects across the nation, the FDA consolidation in Montgomery County, MD, and the ATF Headquarters project in Washington, DC. You will also notice a request for your Committee to authorize the Suitland, MD, NOAA project. Design funds for this urgently needed facility, which will house some of the nation's most important weather satellite technology, was provided in the Department of Commerce's fiscal year 2000 appropriation. Our request for authorization, along with an advance appropriation requested in the Fiscal Year 2001 President's Budget, will allow GSA to proceed expeditiously with the design and construction of this important facility. Our fiscal year 2001 budget request also includes advance appropriations in fiscal years 2002, 2003, and 2004, which will complete funding of the FDA consolidation in Montgomery County, MD.
As you know, this is the first year the Administration has requested a courthouse program since 1997. The fiscal year 2001 funding request for new courthouse construction reflects the Administration's view that courtroom sharing is a cost effective means for providing the space needed by the courts. This has resulted in the elimination of 22 courtrooms in the 7 new courthouse projects proposed in the budget. Although some redesign will be required, GSA's fiscal year 2001 budget request was reduced by approximately $25 million as a result. Our projections indicate that the expenditure of almost $33 million will be avoided in future years as these projects move from the design phase into construction. Additional significant cost savings of approximately $85 million will result, for instance, from the construction of a companion courthouse to the Roybal Building in Los Angeles, as opposed to a new stand-alone courthouse.
The following table summarizes the status of the courthouse construction program:
| Project Stage | Number of Projects | |
|---|---|---|
| Completed | 9 completed in 1999 | |
| Construction Funded | ||
| Under Construction | 9 to completed in fiscal year 2000* | |
| Construction Pending | Fully funded and authorized | |
| Partially Funded | ||
| Site Acquisition | Received only site funding/authorization | |
| Design | Received only site funding/authorization | |
| Site and Design** | Received only site funding/authorization | |
| TOTAL PROJECTS | ||
| TOTAL DOLLARS |
**The Seattle, WA, Courthouse project is an example where GSA is in the site acquisition and design process. GSA will not proceed with construction until such funding and authorization are obtained.
The 25 projects that have already been completed provide 244 courtrooms for the Judiciary's use. The 9 projects that will be completed this fiscal year will add 123 courtrooms to the inventory.
The remainder of the new courthouse construction program is projected to cost approximately $4.5 billion. This amount includes construction funding for the 16 projects that have received only partial funding and also includes full funding for the 97 projects that have received no funding to date.
Leasing Program
This year we have also submitted for your consideration 12 lease prospectuses. These 12 leases total approximately $80 million in obligations in fiscal year 2001. These prospectus-level leases represent a small percentage of our $2.94 billion rental of space budget request for fiscal year 2001.
By managing ourselves in a more business-like manner, we are working to control the growth of our leased inventory. As mentioned previously, one of our performance measures is the amount of vacant space in our inventory. We focus on reducing vacancy in both owned and leased space by renovating and backfilling vacant-owned space, realigning space assignments to consolidate vacant space, and where possible, buying out leases and moving tenants from leased to vacant-available space in Government-owned buildings. We believe our efforts have been successful. The proposed $721.2 million repair and alteration program, for instance, will allow us to backfill more than 1.1 million square feet of vacant space in our owned inventory, which in many cases involves moving client agencies back into government-owned buildings from leased space.
Conclusion
While the FBF can support maintaining our existing inventory and a modest new construction program to fund border station needs and specialized law enforcement needs, such as the occasional FBI building, it cannot support a large-scale new construction program, such as that needed by the U.S. courts. This is evidenced by the $3 billion Congress has appropriated to the FBF between fiscal years 1990 - 2000.
To propose a large new construction program as we have this year, it is necessary for us to ask for an appropriation to the FBF. We have found, however, that our business-like approach has helped us maximize the net income from our portfolio, and in turn, invest more in our existing inventory. The higher our net income, the higher the number of prospectus-level repair and alteration projects we are able to submit to Congress. A higher net income also allows us to fund more new construction projects within the FBF, which is evidenced by the $102,194,000 we submitted in the fiscal year 2000 budget and the $107,085,000 we are proposing for fiscal year 2001.
Last year marked the 50th anniversary of the founding of the General Services Administration. We were created as an outgrowth of the Hoover Commission in 1949. Over the past year we have been evaluating the impact that additional asset management tools would have on the Government's management of real estate. We are working closely with the Administration, and hope in the near future to submit a proposal that Congress agrees will allow us to operate our real property inventory even more effectively. Finally, we are also evaluating the need to increase the prospectus threshold above the FY 2001 level of $1.99 million. We believe a higher threshold would enable us to meet agencies' space needs -- such as replacing a single building systems or backfilling vacant space -- more rapidly than the current threshold allows, and would still provide for the Committee's review the significant capital improvement and construction projects that Congress has traditionally been concerned about.
Mr. Chairman, this concludes my formal statement. I would be glad to answer any questions that you may have about our proposed Fiscal Year 2001 Capital Investment and Leasing Program, or any other aspects of the public buildings program.