To Rent Or Buy? For The Federal Government, It's Complicated

The Bureau of Indian Affairs has been in the hot seat in recent weeks for mishandling the leases for some of its office space. The Department of the Interior's inspector general found that BIA violated multiple rules, including overpaying for space and renting too much of it — in some cases without government authority to do so.

In all, the report found the BIA actions will cost taxpayers $32 million.

But experts and federal reports suggest it's just the latest example in a long list of problems when it comes to the government's oversight of property it rents and owns.

"This is not illegal," says Leslie Paige, who examines the issue for Citizens Against Government Waste. "It's just simply bad management practices that there are no incentives to fix."

Every year the federal government spends $4.2 billion renting office space. Some agencies rent instead of own because they operate in critical locations with specific security or workplace needs. But other situations are more curious.

For example, when Health and Human Services' lease expires on its Rockville, Md., building, the agency will have paid rent on a private building for 60 years.

Leslie Paige says that makes little fiscal sense.

"The truth is some of this stuff is the big-ticket items," Paige says. "These are very expensive boondoggles."

The Government Accountability Office, the government's watchdog agency, looked at a number of properties and found other examples. According to one report, the Environmental Protection Agency in Seattle is renewing a lease that will keep it in its building for 50 years.

Many of these buildings have expensive rents. The Department of Commerce in Alexandria, Va., pays $60 million year in rent.

But leasing gives agencies flexibility to grow, shrink, upgrade or move, says Kurt Stout, who represents companies that lease to the government for the real estate company Colliers International.

"It's kind of like buying a car," he says. "Over time, the annual cost of repairs and maintenance and upgrades to your space, and even things like furniture and telecom, far outweigh the actual cost of the real estate itself."

However, he agrees that if the federal agency knows it will stay in a place for several decades, it makes sense to own.

"The thing is ... ultimately in the federal government, capital is scarce, so a dollar spent on real estate is a dollar not spent on something else that may be more fundamental to the federal government's mission," Stout says. "With private capital so plentiful in the commercial real estate world, why not take advantage of it?"

Procuring upfront capital has been an increasing problem in a cash-strapped Congress. The GAO found in its reports that the government rarely has the money to cover the costs of buying land and buildings, even if that means the agencies will end up paying 10 times as much in rent over the years.

Once agencies become used to renting a particular place, things can get more complicated when they start renovating space they don't own. The Consumer Financial Protection Bureau in D.C. recently told Congress it plans to spend $95 million to renovate the building it's renting from another agency.

The State Department also just spent $80 million renovating office space for a lease that's up in five years. It has an option to buy, but if it can't come up with the money, chances are the landlord will think about that when it's time to renegotiate the rent.

"That just is counter-intuitive," says Rep. Jason Chaffetz, R-Utah, who sits on the Committee on Government Oversight and Reform.

Chaffetz has introduced legislation to help get rid of thousands of government buildings that are sitting vacant or unused.

"When you see these departments and agencies leasing a building and then investing millions and millions of dollars to retrofit them for their specific need, it just sort of drives you nuts," he says, "At the same time that we've got 77,000-plus buildings that are under-utilized."

Chaffetz says federal agencies like the General Services Administration have been unable to account for all the buildings the government owns so it's hard to know if they can be of use. General Services told Congress they're working on it.

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