Things Fall Apart
ohn Beeman maintains some of the most baby-faced buildings in government. Of the 119 National Weather Service forecasting offices under Beeman's care, the oldest are celebrating their 10th birthdays this year. Most were built in the last seven years. The Miami office is in a 6-year-old hurricane-resistant building. The Pendleton, Ore., office is just six years old as well. The Weather Service spent $250 million building the new facilities over the past decade as part of a $4.5 billion modernization that also gave the agency's meteorologists new radar equipment and a new weather forecasting system. But Beeman, an 11-year Weather Service general engineer, still is concerned about the long-term health of the youthful weather offices.
The wear and tear of daily use already have led to a leaky roof here, parking lot potholes there and worn-out carpet elsewhere. The effects of aging add up to $8 million to $10 million a year in maintenance needs for the offices, Beeman says. But he's only getting $3 million to $4 million a year to cover those needs. "These buildings aren't falling apart," Beeman says from Weather Service headquarters in Silver Spring, Md. But the Weather Service needs to invest more money in maintenance "to prevent us from having to do another facilities modernization 20 years from now," he says. "These buildings do run down."
A Trillion-Dollar Inventory
Across government, facilities and equipment managers accept deficient maintenance funding as a fact of life. At the Forest Service, managers estimate that deferred maintenance has created backlogs of $13 billion in work on roads and bridges, $2.4 billion in building needs, $710 million in recreation site improvements and $180 million in trail maintenance. The 185 Bureau of Indian Affairs-supported schools, attended by 50,000 American Indian students a year, are waiting for $802 million in repairs. Maintenance accounts usually don't get an influx of funds until the consequences of neglect become apparent to agency executives or congressional appropriators. Sometimes maintenance woes don't grab leaders' attention until the neglect is so bad that facilities or equipment must be destroyed and replaced.
The government is responsible for maintaining a stock of physical assets-buildings, vehicles and equipment-worth more than $1 trillion in 1999, according to the 2001 federal budget. The assets range from office buildings to aircraft carriers to computer systems. In 1999, federal agencies owned more than 400,000 buildings on 630 million acres of land, the General Services Administration estimated. Agencies leased another 89,000 buildings from private companies.
The government's equipment inventory includes NASA's spacecraft and launch pads, the Weather Service's forecasting equipment, the military's weapons systems and the Postal Service's fleet of mail delivery vehicles. As part of the year 2000 computer effort, agencies inventoried more than 26,000 computer systems. The nation relies upon those systems to process Social Security and other benefits, control air traffic, identify criminals, gather intelligence data and perform other essential government tasks.
To help federal managers make smart decisions about the government's assets, the Office of Management and Budget in 1997 issued the "Capital Programming Guide." The guide is now an entrenched part of OMB's budget guidance and has become the model by which agencies must manage their assets if they hope to get OMB budget examiners on their side. The guide identifies four phases of capital asset management: planning, budgeting, procurement and management-in-use.
Budgeting and management-in-use (a.k.a. maintenance) are the two phases that give the agencies profiled in this year's Federal Performance Report the most headaches. Many observers also question the strength of agencies' long-term planning practices, which are hampered by agencies' difficulties with keeping track of their existing assets. However, agencies are using innovative procurement approaches to avoid the cost overruns and schedule delays that defined acquisitions in the 1980s and early 1990s, particularly in the area of big technology buys.
Of the five agencies with significant physical assets in this year's review, only the Postal Service, motivated by the requirement that its revenues cover its expenses, has conquered all the phases of physical assets management. The Weather Service also is in generally good shape, primarily because it has a stock of state-of-the-art assets after spending $4.5 billion on a 10-year modernization. Elsewhere in government, including asset-intensive NASA and the far-flung Forest Service and Bureau of Indian Affairs, it will likely be years before managers exercise full control over their physical assets. But, when money gets tight at all five agencies, maintenance and capital investments are some of the first line items to go.
Costs Spiral
Through years of use, assets depreciate in value, while maintenance costs rise. These costs rise even faster when preventive measures are put off. Facilities managers like to use the car maintenance analogy. If you put off enough oil changes, you'll have to replace your engine. If you wait even longer, you may wind up buying a new car.
No reliable governmentwide figure exists for maintenance spending because agencies typically cover upkeep out of their general operating budgets. But most observers agree that agencies aren't spending enough. "Maintenance is one of those things that you think you can just wait to do until the next year," says Bernard Ungar, head of the General Accounting Office's public buildings team. "Then you wait until the next year. And the next year. And the next year."
Take Building 4 of the Suitland Federal Center in Suitland, Md., for example. The 60-year-old edifice is home to about 550 employees and contractors of the National Oceanic and Atmospheric Administration, the Weather Service's parent agency. An additional 550 Census Bureau employees work in the building. The General Services Administration, which runs the building, must provide bottled water for the building's tenants because the tap water is unsafe to drink. A conference room was plagued last year by mysterious, chronic leaks that took weeks to fix. Asbestos makes doing any work above the ceilings or under the floors prohibitively expensive.
If Building 4 managers wanted to run computer cables above the ceiling tiles, they would have to hire an outside asbestos abatement contractor to come in. Workers would have to wear protective suits in order to install the wires. So instead, computer cables simply hang from the ceiling. GSA works with NOAA to come up with creative solutions, such as the hanging cables, to deal with the effects of deterioration. In the long term-assuming Congress will provide funding-GSA will construct a new building for the 1,100 employees in Building 4. But the earliest they would be able to move out is 2004, says Anthony Costa, head of public buildings for GSA's National Capital Region.
With its budget tightened over the past eight years, NASA also ended up cutting funding for upkeep. "We have not had the budgets that we would like to have had for maintenance and repair and revitalization of our facilities," says Jeff Sutton, director of NASA's Office of Management Systems. Rather than just let things slide, NASA adopted an approach called reliability-centered maintenance, which helped the agency avoid thousands of dollars in unnecessary fixes. To avoid unnecessary work, NASA facilities engineers use infrared thermography to identify hot spots in electrical circuits, ultrasonic inspections to detect leaks in pipes and ducts, and vibration analysis to pinpoint bearings that need to be replaced. Engineers can concentrate their efforts on machines that truly need repair and avoid taking equipment apart for inspections when everything is working just fine.
"Reliability-centered maintenance was based on an understanding of actual condition as opposed to something that was time-driven," says Bill Brubaker, NASA's director of facilities engineering. "In other words, we didn't just change the oil after 3,000 miles. We would change the oil when the oil really needed changing."
NASA also revamped some of its maintenance contracts, converting them into performance-based agreements. Under old-style contracts, NASA managers specified and paid for a certain number of inspections per year and then coughed up extra fees for any additional maintenance needs that popped up. Under the new deals, NASA officials came up with performance objectives for equipment, awarded fixed-price contracts to companies and let the companies figure out the best maintenance methods to meet those objectives. Often, the contractors use reliability-centered maintenance techniques to reduce their costs. Where performance-based agreements are in place, NASA is saving about 20 percent over what it previously paid for the same objectives, Brubaker says.
The Bureau of Indian Affairs, meanwhile, performs a sort of maintenance triage. Faced with financial limits, the bureau has committed to keeping only half of its 24,000 miles of roads free of potholes, smoothly paved or properly graded and clear of water, ice and snow. Over the past four years, the agency has replaced only 15 fire trucks that protect remote BIA schools, dormitories and other facilities, even though a 1997 review found 25 trucks were unsafe or unserviceable. While inadequate funding is part of the problem, some critics say BIA poorly manages its maintenance programs. Sen. Ben Nighthorse-Campbell, R-Colo., introduced a bill in February that would put more control of road maintenance programs in the hands of tribal leaders, explaining on the Senate floor "that one of the obstacles appears to be the administration of the program by the Bureau of Indian Affairs, BIA, itself."
Budget Anarchy
While maintenance is one of the first casualties when budget slashers go looking for victims, the current budget process also makes it tough for agencies to get capital investments approved in the first place. Federal budget rules call for full up-front funding for capital projects. That method prevents Congress from starting to fund a project and then cutting off funds in mid-stream, wasting the initial investment.
But capital projects tend to be pricey, making them difficult to fit under the annual caps on spending that limit the appropriators who work on each of the 13 appropriations subcommittees. A major capital project would produce a big spike in an appropriations area. If the State Department, for example, wants billions of dollars for embassy construction, that request would raise spending in the Commerce-Justice-State appropriations bill. Other capital investment proposals that fall under the bill would have to compete with the State Department's request.
Furthermore, a project may have the theoretical support of budget makers, but it could be up against other projects that are higher on congressional and executive branch decision-makers' list of priorities. Proposed investments compete with each other for a limited number of federal budget dollars each year. In the 2001 budget cycle, for example, every federal agency's investment proposals competed with the $2.7 billion appropriation awarded to the Federal Aviation Administration for facilities and equipment modernization. Projects are also competing with non-capital priorities, such as education spending, military pay and tax cuts.
The budget produces such anomalies as a completely new portfolio of facilities for the Weather Service at the same time that NOAA and Census employees in Building 4 can't drink the water and Bureau of Indian Affairs schools need $802 million in repairs and maintenance. "The current nature of the allocation process to subcommittees makes it very difficult to fund capital items," says Ed DeSeve, former deputy director for management at OMB and founder of Governmentum, a Washington-based consulting service. "There's a need for a lot of funds in a concentrated period. That's very difficult for the subcommittees to accommodate."
The budget environment has created a shift toward leased, rather than owned, facilities. From 1996 to 1999, federal agencies increased their leased space by about 25 million square feet, or 8 percent, and eliminated 56 million square feet, or about 2 percent, of their owned space, GSA figures show. But leases tend to be more expensive than federal ownership over time. Because of the full, up-front funding requirement, agencies sometimes cannot get approval for long-term leases and are forced into short-term agreements, which tend to be even more expensive.
William Early, chief financial officer for GSA, points to the Transportation Department headquarters as an example of the effect of the budget process on facilities costs. The department has been occupying a leased building in Southwest Washington for more than 30 years. The lease expired last year-10 years after Transportation and GSA officials began talking about relocating or renovating the headquarters. The decision-makers-Congress, the Office of Management and Budget, GSA and Transportation-put off action year after year and still had not made a decision by the time the lease expired in 2000. GSA was forced to negotiate a short-term lease to keep headquarters employees at the 30-year-old facility while all the players reach a decision on what to do. If the headquarters moves to another leased facility, employees won't be relocated for at least three more years. "In the private sector, time is money," Early says, pointing to the faster pace at which private real estate deals move. "In the government, time has no value. That makes it hard to deliver."
What's more, facilities managers don't have the option of just waiting until Congress and the administration come to a decision, Early notes, because employees must work somewhere. So agencies are often forced to enter into agreements that are not the best long-term deals for taxpayers.
Some agencies have special authorities to use alternative arrangements to fund capital projects. Others are using new procurement techniques to obtain equipment for which they might otherwise not be able to get funding. Agencies are experimenting with revolving funds, public-private partnerships, share-in-savings contracts and user fees. Many experimental approaches require special congressional approval.
Congress allows the Forest Service and other land management agencies to collect fees from national forest visitors and then invest those fees in maintenance and facility improvement projects. Fees collected at the Chattahoochee-Oconee National Forest in Georgia, for example, have been used to improve restrooms and to maintain parking lots. Such approaches are more likely to gain approval than are changes to the full, up-front funding method that governs the appropriations process. In 1999, the President's Commission to Study Capital Budgeting urged that all capital projects be fully funded before work begins so "Congress can fully evaluate their likely costs and benefits before appropriating funds for them." According to the commission, "policy-makers would be tempted to fund only a portion of a capital project in the initial years, which means it would be too far along to stop later."
Planning Matters
The Postal Service is the only agency in this year's Federal Performance Project that does not have to obtain congressional approval for capital investments. Instead, the Postal Board of Governors provides the final word on whether the agency should purchase a physical asset.
Any capital investment worth more than $10 million goes through a rigorous internal review process before it gets to the Board of Governors. Sponsors must prepare a decision analysis report justifying their projects, which are then reviewed by officials all the way up the Postal Service's chain of command. The fate of a proposed South Carolina facility illustrates the process. In recent years, as the population of coastal South Carolina boomed, Postal Service managers in the state began planning a new processing facility. Their proposal worked its way through several levels of approval and review, including the finance office, inspector general and several headquarters and regional vice presidents. But the project stalled when the Postal Service's chief operating officer had a look at the plan. "The COO had some problems with the project," recalls Charles Hartsock, USPS capital and program evaluation manager. Hartsock guides capital projects through the preparation of initial proposals and the various levels of review all the way to the day when project sponsors stand before the Board of Governors and justify their requests. The COO killed the project and instructed managers in South Carolina to wring out efficiency from existing processing facilities.
But to Hartsock, the South Carolina experience was anything but a failure. Instead, it demonstrated the value of the capital investment review process that he oversees. Managers in South Carolina have so far successfully met operating demands with existing facilities. The Postal Service avoided an unnecessary capital expenditure. "Our job is holding the sponsors' feet to the fire," Hartsock says. "When they come out from the Board of Governors meeting, they thank us for it."
The process is an important tool in helping the Postal Service manage its far-flung assets. In 2000, USPS invested $1.5 billion in construction and building purchases and improvements, nearly $800 million in mail processing equipment, $500 million in vehicles and retail equipment and $400 million in postal support equipment. The capital investment process helps the Postal Service determine when it has to cut back on investments. When the service initially set its capital plan for 2001, executives planned to spend $3.6 billion. With the Postal Rate Commission's decision not to raise rates as high as USPS had requested and the slowing of the economy, the Board of Governors in February ordered the agency to cut 2001 capital investments by $1 billion. In March, the agency canceled more than 800 construction, leasing and expansion projects across the country. Capital planning helps the board decide which investments must be made immediately and which can be deferred.
Other agencies are not as sophisticated as the Postal Service at centralized asset planning. The Forest Service has no central plan for physical assets or facilities. Though work on a central database system to track assets began in 1992, the system still fails to provide Forest Service managers with a complete picture of their equipment and building inventory.
Financial auditors criticized the Bureau of Indian Affairs in fiscal 1999 for listing demolished items in its property and equipment inventory, while failing to include equipment and facilities still in use. BIA officials say they conducted a new inventory of physical assets in 2000 and started taking photographs of BIA property to include in the asset tracking system.
Making the Case
While effective asset inventory control, strategic capital planning and investment prioritization can help an agency get funds for physical assets, John Cheek, executive director of the National Indian Education Association, has found that anecdotal evidence is also an effective tool in making a case for more funding. Recently, Cheek brought an Indian school principal to Washington-while students were on spring break-to ask Congress for construction and maintenance budget increases. While the principal was in Washington, the winds picked up back at the reservation and the school cafeteria roof blew off. If the children had been at school, some could have been hurt. American Indian educators and children have appeared repeatedly on Capitol Hill in recent years to draw appropriators' attention to their aging schools.
"Our children come to school with this huge spirit to learn," Frank Rapp, an Oglala Lakota Nation member, told the Senate Indian Affairs Committee in September. "The federal government kills that spirit by putting them in overcrowded buildings that have torn up tile, broken windows and a lack of heat and cooling systems. . . Water faucets and toilets frequently do not work. Pieces of the buildings are falling off. School is dark and dreary."
Albert Yazzie, executive director of the Wide Ruins School in the Navajo Nation, has testified about his deteriorating 70-year-old facilities. "We have problems constantly," Yazzie says. The remote school's sewer system clogs up and overflows almost daily-its clay pipes need to be completely replaced. The school and dormitory roofs leak every time it snows or rains. Yazzie became director of the school in 1998, when the Bureau of Indian Affairs transferred direct control of Wide Ruins to the Navajo Nation-just as the state of New Mexico identified 200 health and safety violations and threatened to close the school. Yazzie fixed enough of the violations to save the school, but three years later, he is still at least several years away from receiving BIA funds for new facilities. Even in its decrepit state, the school is No. 9 on the BIA school replacement list; only six schools will get new construction funds this year. There is hope, however. In the 2001 budget competition, the American Indian leaders scored the beginning of a victory. Appropriators boosted the Bureau of Indian Affairs school construction budget by $160 million. And the Bush administration has pledged to eliminate the BIA school maintenance backlog within five years.
While money is one tool agencies need to manage their physical assets, facilities managers are pushing Congress to give them additional powers. GSA officials are pushing legislation that would allow agencies to exchange property with outside organizations, sub-lease government property and lease federal buildings to private sector firms. Agencies should be allowed to keep the revenues from such leases to invest in their capital assets, says David Bibb, head of GSA's Office of Real Property. "People can plan until the cows come home, but they have to have the tools to implement their plans," Bibb says.