To fix Infrastructure, Fix the Budget Scoring Process

Dan Tangherlini — Thu, 08 Jun 2017 15:13:35 -0400

Last fall I led an effort, co-sponsored by the Urban Land Institute and the National Council for Public Private Partnerships, to figure out the best way to leverage public private partnerships, or P3s, to invest in infrastructure. What we found (described in our report, Enabling Infrastructure Investment: Leveling the Playing Field for Federal Real Property) is instructive. Given that we are wrapping up what the Trump administration has deemed Infrastructure Week, perhaps our findings can inform the White House and Congress on the best ways to encourage effective partnerships.

Infrastructure financing is complicated. For starters, the definition of infrastructure itself is open to debate, and there are shelves of reports on the state of disrepair of some of our critical systems. Multiple congressional committees have jurisdiction over a sprawling set of programs, subsidies and credit facilities. One of the main problems with our national infrastructure financing regime is its very complexity. However, we explored another frequently cited concern: the budgetary or “scoring” treatment of these investments—particularly federal real property investments.

Scoring has become a popular topic recently because of the health care debate. But scoring rules have an impact on federal investments and programs in many less visible but equally profound ways. While people who watch the P3 market closely decry the budget treatment of these partnerships, we came to a different conclusion. Scoring is, in fact, not bad. It provides for comparison, prioritization and recognizes there are limits to what we can afford.

However, the current approach to scoring capital investments causes a number of unintended consequences. The rules require the full upfront cost of a capital investment to be scored in the year it is appropriated. Alternatively, operating expenses, such as rent, are scored according to costs in any given year. The underlying, simplified assumption is that a capital investment will obligate the government to pay the full cost, while a lease will only obligate the government for one year’s expense at a time. This is not how it works in the real world.

An excellent example of how events actually transpire is the former David Nassif Building in Washington. The Nassif Building was built in 1969 with the express purpose of housing the then new Transportation Department. It would be the first agency headquarters not owned by the government and the largest privately owned building in Washington. The land for the building was purchased from a quasi-federal agency, the Redevelopment Land Authority, for $5.9 million, and construction was financed for $38 million (with an original cost estimate of $27.5 million). The initial 20-year lease cost a total of $98 million. DOT extended its lease several times until 2000, when it announced it would leave the building, which it did in 2007. After a two-year renovation costing $250 million and two years of lease-up, the building was renamed and sold fully leased for $734 million. It is appraised as the most valuable privately owned building in Washington. It is occupied exclusively by federal agencies with 10-year term leases at $50 per square foot.

None of the private developers did anything wrong. The system we have created, with the theoretical goal of preserving cost transparency and operational flexibility has instead added tremendous cost to leasing commercial real estate and encouraged the neglect of government-owned assets. The current regime of fully scoring capital expenditures (or capital leases) in the first year of obligation has the effect of favoring operating costs, entitlements, or tax expenditures over capital or other asset-based funding priorities. More starkly put, these rules tilt spending toward transfers over investments, bypassing a first principle of infrastructure financing—user pays.

How do you fix it?

To avoid this outcome, we concluded that the best approach would likely be to place the various options—such as construction of the building by the federal government, leasing from the private sector, or some hybrid—on an equal analytical and scoring footing so that the net present value of each option could be calculated and a decision made, based on the best long-term value to the government at the lowest overall—not annual—cost. Too many of the general statements made about one approach or another are based on assumptions and received wisdom. The best approach would be to evaluate alternatives, solicit market input, and make decisions on estimated net present value that are based on actual project data and experience.

We also discussed the idea that our accounting for assets should be much more robust. As it stands now, the failure to provide for the ongoing maintenance of a federal asset has no budgetary sanction. One result of this failure to recognize the “cost of doing nothing” is much higher overall long-term costs for repairing, upgrading or replacing assets. It also contributes to the retention of unnecessary or outmoded facilities or property.

Since 1990, with the passage of the Federal Chief Financial Officers Act, the government has dramatically improved its capacity to account for its assets and expenditures. Regrettably its decision-making and capital-allocation (appropriation) processes have not matured as much. Agencies and their private sector partners have the capacity to conduct the sort of analysis that would allow for an actual determination of the relative cost of public, private or P3 delivery of capital investments. The current scoring and appropriation regime does not allow for a more transparent and analytical approach to investment decisions.

If there is more than a rhetorical desire for government to run like a business, the approach to evaluating investments in our nation’s assets should change.

Dan Tangherlini is President of SeamlessDocs Federal. A former administrator of the General Services Administration and chief financial officer at the Treasury Department, he also chaired the advisory group that authored the report “Enabling Infrastructure Investment: Leveling the Playing Field for Federal Real Property” sponsored by the Urban Land Institute and the National Council for Public Private Partnerships.

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1,000 Chainsaws Delivered: How GSA Supports Sandy Relief

Dan Tangherlini — Wed, 05 Dec 2012 10:12:00 -0500

In late October, when Superstorm Sandy battered the Northeast, parts of the Mid-Atlantic, and even the Midwest with heavy rain, damaging winds and devastating floods, the U.S. General Services Administration was ready.

While this agency plays a significant role in the daily success of the federal government, our job is never more important than it is during an emergency. When disasters hit, it is our responsibility to ensure that first responders and government agencies have exactly what they need, when and where they need it.

During both the response and recovery from Sandy, GSA has provided vital services to help get needed assistance to affected communities throughout the country. The GSA Disaster Relief Program provides federal agencies, as well as local and state governments with quick access to disaster and emergency related supplies, equipment, and services. This program has enabled us to work with FEMA to target resources as diverse as medical supplies, generators, rental cars, portable water containers, portable toilets, wash stations, and even all-terrain vehicles to provide appropriate support to a variety of recovery efforts.

Whether it was fulfilling a shipment request of 1,000 chainsaws to support FEMA's relief efforts in Pennsylvania, securing office space in New York and New Jersey for government agencies supporting the relief effort, or locating a contractor who can supply a rare relay part needed to assist the Port Authority of New York and New Jersey in getting the transit system back up and running, GSA staff found a way to provide what was needed.

Through our Disaster Relief Program we are making sure that the American Red Cross has access to the kind of important resources that they have identified as necessary for the recovery effort. We provided them with a comprehensive list of vendors to procure clothes for adults and children in shelters who have lost personal belongings in the flood. At the same time, GSA is providing important infrastructure in the midst of this crisis by making IT products and added services available to the entire federal government.

During an emergency, this system can be used to provide invaluable IT solutions for preparedness, response, and support during an emergency. Our IT center also provides state and local procurement programs to assist in disaster recovery and emergency response. Thanks to their access to our agency’s cloud-based freight management program, FEMA has been able to ship 30 million pounds of much needed cargo, including generators, food, water, cots, and other supplies.

GSA has played an important role in the federal government’s response to Superstorm Sandy. The men and women of GSA are dedicated to public service and were ready for this opportunity to help our fellow citizens. We recognized the fact that the magnitude of this storm created significant challenges, and GSA committed to making sure that every agency and every community received the kind of timely support and the necessary resources that they needed to move forward.

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Government Executive - Authors - Dan Tangherlini

To fix Infrastructure, Fix the Budget Scoring Process

1,000 Chainsaws Delivered: How GSA Supports Sandy Relief