US Government Efficiency Failure - Real Property Inventory Management

Miniseries on the US Government's Failure to Efficiently Manage its Built Infrastructure Portfolio

This Asset Management Partnership (AMP) Newsletter continues a miniseries that covers how the US Government is failing to manage its built infrastructure and how this problem can be solved.

Clear evidence of the US Government’s failure in its fiduciary duty to efficiently and effectively manage its built infrastructure need go no further than real property inventory reporting. The US Government has a long and dubious record of accurately counting its buildings and built structures. Most Federal agencies continue to fail in accurately reporting what it owns, what it leases, and the status of each asset. For those that do or are close to doing so, it has been a challenge to get there taking many years, even decades of concerted effort.

This concerted effort for agencies to accurately count and report their real property inventory began in 2004 with the release of Executive Order (EO) 13327 – Federal Real Property Asset Management. The first action established by this Executive Order was to “identify and categorize all real property owned, leased, or otherwise managed” by each agency. The need to achieve this objective was amplified through subsequent Government Accountability Office (GAO) reports and its “High Risk” list published in cycle with every new Congress.

Today, twenty years after the release of EO 13327, this work continues. In the Department of Defense, the initiative supporting this is known as FIAR – Financial Improvement and Audit Readiness. FIAR includes requirements to accurately count real property assets and assign a unique identification number to each so that it can be tracked, and inventories can be audited. This is representative of the work all federal agencies are doing to have a clean and accurate balance sheet on the real property assets they are responsible for and dependent on to operate and perform their missions.

The efficiency failure issue is hidden in the question about accurate real property inventory reporting and not the answer. Reporting accurate real property inventory data is the answer. The question to ask is: Why must this requirement be stated as policy, and why has it been so hard for agencies to get this information right? The answer to this question is because having an accurate count of real property assets is non-consequential to investment decision making, otherwise known as asset management decision making.

Current laws, regulations, and policies do not require accurate inventory data to justify budget requirements. Also, in many cases, internal real property funds allocation is insensitive to accurate information regarding real property requirements. For example, many agencies allocate real property funding using a slice-of-the-pie method based on inaccurate reporting of agency real property data.

If having real property inventory data was important, Federal agencies would have incentive to maintain accurate inventory data on their own. This should not need to be a mandate from up-on-high. In the end, many Federal agencies do not have accurate real property inventory data because it is non-consequential to getting and executing budget. That is the US Congress does not correlate budget allocation with Federal agency demonstration of competence in managing accurate real property inventories. Remarkably, the total budget consumed by Federal real property each year is estimated to be around $70B.

This is a systematic failure and aberration to effective and efficient management. Some agencies have, from time to time, attempted to do better using methods such as zero-based budgeting and requirements-based funds allocation, but these initiatives typically spudder and fade quickly. For example, an industry standard recognized by the National Academies in Committing to the Cost of Ownership (1990) and Strategies to Renew Federal Facilities (2023) cites that a sum between 2% and 4% of an agency’s real property portfolio Present Replacement Value (PRV) should be dedicated to its maintenance and repair.

Today, most agencies do not even reach the minimum 2% of PRV threshold. Compounding this is Federal agencies use this target as justification for budget while having no idea how much budget is spent on their real property assets. This is due to Federal accounting problems identified in the introduction to this miniseries, that is Federal accounting is activity-based and does not enable asset-based accounting of real property / built infrastructure costs.

In summary, the US Government has failed in its basic fiduciary responsibility to effectively and efficiently manage its built infrastructure portfolio. This portfolio is one of the largest in the world operating under one single authority. It consumes about $70B in funding annually. Yet, current governing laws, regulations, and policies perpetuate a budget management activity that is divorced from effective asset management. This is an efficiency failure, and a failure in good management practices.

For more information and insight on asset management, management system, and its relationship to facility / built infrastructure portfolio management subscribe to the Asset Management Partnership (AMP) Newsletter.

Written to Jack Dempsey | December 3, 2024

AMP Newsletter #100

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