Executive Summary

Much of the debate on creating a meaningful framework for the federal government to employ public/private partnerships and other alternative financing mechanisms for federal real estate has revolved around how budget scoring has negatively affected the government's ability to use alternative project delivery methods, such as public/private partnerships. But scoring is NOT a bad thing. In fact, scoring is intended to shed light on the financial implications of government actions, to monetize decisions, and to create a framework for transparency and tradeoff.

However, as project Advisory Group member Dorothy Robyn wrote in an April 2014 piece for the Brookings Institution, "The budgetary rules that govern investment in these assets are a blunt instrument that does serious collateral damage. Reforming these rules would allow the government to shrink its real estate footprint, modernize its legacy infrastructure for the 21st century, and save billions of dollars."2

We now have nearly 25 years of experience with the current scoring and evaluation regime and can review the outcomes-both intended and unexpected-of the Budget Enforcement Act of 1990 and its subsequent modifications. In addition, the new administration and Congress will continue to face fiscal constraints, pressure for a balanced budget, and the need to demonstrate success and progress. We believe the installation of a new administration and Congress presents an opportunity to reconsider current practice and to develop and present a thoughtful set of strategies for the new leadership to explore alternatives.

Therefore, we are recommending that the incoming administration prioritize reform of the means of financing and budgeting for the federal real estate investments. These reforms should include creating avenues for private and commercial investment and finance. Our key recommendation is that the administration and Congress revisit the existing regime of scoring operating and capital leases, capital investments, and purchases to eliminate the exceptions that allow the costs of such investments to be spread over multiple fiscal years. In place of the current regime, these types of investments should be evaluated on a life-cycle cost basis and budget authority for the net present value of the investment recorded in the year of the supporting appropriation.

The project Advisory Group explored the following four ideas:

In the short term, the Office of Management and Budget (OMB) should test an alternative approach to scoring real property transactions that eliminates exceptions that allow the budgeted cost of investments to be spread over multiple fiscal years.

Federal investments in real estate assets should be evaluated on a life-cycle cost basis, with upfront funding provided for the net present value of long-term costs for all investments.

OMB should develop and evaluate a model that calculates the long-term cost of deferred maintenance of federally owned real estate, effectively scoring the "cost of doing nothing."

The administration and Congress should reconvene a Commission on Budget Concepts to review the performance of the current model and to develop new paradigms for assessing the cost and value of capital investments.