The Advisory Group believes that real property, or commercial real estate (CRE), could serve as the ideal pilot category for exploring new capital budgeting and scoring concepts. CRE is a particularly useful category for study and potential disparate treatment, given the very robust nature of the parallel private sector marketplace for this type of asset. The robust private marketplace and widely available data for assessing cost, price, and value should alleviate the traditional concerns of opening a proverbial Pandora's box of additional "investment" types, such as missile systems. In other words, the idea of a CRE pilot study serving as a budgetary wedge is addressed by the fact that the CRE market is vibrant, transparent, and well-functioning. As such, considerable information is available for evaluating comparable pricing, performance, and value.
In addition, federal CRE already has (a) a well-developed mechanism for evaluating the prices of alternatives, for recovering cost through agency rental payments, and for financing through the robust structure of the Federal Buildings Fund; and (b) a robust review process for both the executive and legislative branches. Evaluating recent Federal Buildings Fund investments-such as the new DOT headquarters, the Old Post Office lease, and the pending FBI relocation-could provide excellent examples of life-cycle cost comparisons under today's budgetary rules versus a comprehensive reformed budgetary scoring structure.
The next administration should work with key congressional committees to rethink capital and operating lease scoring rules to consider total cost, continuing need, and residual values. In particular, attention should be paid to the fact that under current rules, any lease agreement that commits to terms, the net present value of which exceeds 90 percent of the value of the asset, must be scored upfront, ignoring the reality that average federal tenancies exceed 25 years and lease re-sign rates exceed 85 percent.
Furthermore, purchase options, lease purchases, lease/leasebacks, and capitalized improvements are largely out of bounds for operating lease scoring treatment. As a result, the first principles of the current budget concepts are violated as accountability, transparency, and flexibility are not preserved.
The Advisory Group believes that more creative approaches that leverage private capital, allow for federal long-term ownership, and encourage consolidation should be evaluated equally, with similar scoring treatment across all alternatives. The implications for appropriations caps are not insignificant-at least in the case of the congressional committee that has jurisdiction over the GSA appropriation. This issue is discussed at length below.