The government’s property bloat

Do you need a place to fit 20 million elephants or 250 million donkeys? Look no further than the buildings of the federal government. According to the latest data, federal agencies own nearly half a million buildings, occupying 3.3 billion square feet. These figures do not even include structures like parking garages and storage yards or the government’s vast tracts of undeveloped land.

The buildings alone represent enough space to fit 1.4 million average-sized new American homes. With the Feds taking up so much space, it is worth asking whether it is being used effectively.

A 2009 government report by the Federal Real Property Council indicates that the agencies themselves don’t even know how to use that much space. Of the 429,000 federal buildings, about 11 percent were underutilized in 2009. The definition for underutilization varies by building type, but the data indicates that 15 percent to 50 percent of the underutilized buildings’ capacity is simply not being used. 

Even more egregious, about 2.4 percent of federal buildings — more than 10,000 — are designated as excess buildings, which means they have been “formally identified as having no further program use.”

Not merely an empty symbol of federal waste, these underutilized and excess buildings generate real operation and maintenance costs. In 2009 alone, the cost of maintaining federal excess buildings was $134 million, and the operating cost of underutilized buildings was $1.7 billion. The additional waste associated with the unused capacity of underutilized buildings is between $250 and $830 million a year

This is not a new problem. For decades, U.S. presidents have been urging federal agencies to reduce real estate costs through a more efficient use of resources and the disposal of excess property. In 2004, then-President George W. Bush issued an executive order requesting $15 billion in cuts by 2015. President Obama issued a similar order in 2010, asking the agencies to cut $3 billion by 2012. These goals do not solely rely on the reduction of operating costs to generate savings; they require significant profits from the sale of buildings and property. 

Despite frequent discussion and recommendation, very little has been done. Due to a set of complex regulations and incentives, disposing of buildings is hard — and selling them for a profit is nearly impossible.

For many agencies, there is no real incentive to sell unused property. Only six of the 10 largest property-holding agencies receive any of the proceeds from the sale of their buildings. The other agencies have almost no incentive to raise revenue from the sale of a property. What’s more, while private landowners might sell property to reduce their tax burden, the federal government is exempt from property taxation and has no such incentive. 

There are significant regulatory hurdles that many agencies must clear before auctioning a building to the highest bidder. These include offering the building, in successive and time-consuming steps, to other federal agencies, homeless organizations, states and local governments at a discount of up to 100 percent. Laws like the National Historic Preservation Act and local zoning ordinances can make property sales even more difficult.

The upshot is that agencies are more likely to knock a building down than sell it. In 2009, demolition was the most common method of disposing of property — almost four times more properties were demolished than sold. Also, many properties are transferred to other entities for a pittance. The now infamous example is New York’s Governors Island, near Manhattan. The General Service Administration was required to dispose of the building, and appraised it at $300 million. It was ultimately sold to the state of New York for $1.

This summer, Obama sent his own bill to Congress in an attempt to reduce the deficit through the expedited sale of excess property, and recently, he identified the bill as a revenue source to help pay for his Jobs Act. The Congressional Budget Office, however, has scoffed at the optimistic revenue claims, concluding that the proposal might actually increase spending over the next 10 years. Perhaps the weakest aspect of the president’s plan is that it pushes for disposal of property without mandating that properties be sold to the highest bidder. 

Congress has not acted on the president’s bill, but given the bipartisan support for selling excess federal property, we should not miss this opportunity to raise revenue and reduce costs. Any new proposal should be guided by the following three principles.

First, agencies should be required to offer at auction every valuable property that is slotted for disposal. A shortcut to the auction block should be provided by repealing the onerous regulations that delay the process and ultimately lead to donation or discounted sale of properties to other parts of the government.

Second, agencies should not receive funding for their waste. Every dollar that an agency spends paying operating costs on unutilized or excess square footage should be subtracted from that agency’s budgetary allotment in the following year. This measure would incentivize agencies to sell properties, and could have reduced the federal deficit by $400 million to $1 billion in 2010.

Third, incentives — not just mandates — should encourage agencies to eliminate waste. Every agency should receive some cut of the proceeds from the sale of their buildings. Obama’s proposal offers 40 percent of proceeds to agencies. Different treatments might be suitable for different agencies, but no agency should receive 100 percent of proceeds, and no agency should receive nothing.

A citizen, spending far more than he made every year and buried in massive debt, would not leave his valuable Porsche in the garage for a decade before ultimately giving it away to his brother, or worse, pushing it off a cliff. We should not allow the government to do so, either.

Hill is program manager for economic policy studies and Jensen is an economics researcher at the American Enterprise Institute.