Gerald Carmen, administrator of the General Services Administration, says he wants authority from Congress to sign leases with purchase options -- the latest wrinkle in a crusade to wrestle down the GSA's monster leasing bill. That bill is expected to reach a record $722 million this year.
It is cheaper in the long run to own rather than lease office space. But concern over short-term construction costs -- mostly on the Office of Management and Budget's behalf -- has diverted the government from billing for itself, denying taxpayers benefits of building appreciation and creating the leasing burden. The previous administration advocated a multibillion-dollar construction program, but Carmen rules out this approach as too costly.
"If you are leasing a building and giving the owner a 20-year lease," he said in an interview, "and if he can go to the bank and finance the whole building with the lease -- and most times come up with a profit -- then you ought to be able to buy the building from him."
This alternative, which theoretically would spread out new construction costs through the lease term, could play a major role in the agency's quest to house 70 percent of the federal work force in federally owned space by 1993. Carmen, in an attempt to raise the percentage from its current 47 percent, also will tear up leases at renewal time as the work force shrinks in size while constructing a few public buildings "when individual needs" dictate.
The federal government, according to the General Accounting Office, registered virtually no increase in the space it owns between 1976 and 1979, while space it leases jumped by 100 percent to 93.3 million square feet. Starting in fiscal year 1983, a GSA master plan submitted to Congress last year asked for $5.9 billion to acquire and build 31.5 million square feet of office space over four years. David Bibb, GSA's acting director of planning, said if Congress gave GSA the lease-purchase option tool, "it is safe to assume a lot of the buildings we plan to construct would be converted to lease purchase options."
The Senate last year passed legislation giving the housekeeping agency lease purchase option authority as part of a public building reform act, but a similar House bill didn't get out of the public buildings and grounds subcommittee. The bill is being held up over a proposal -- opposed by GSA -- to make the agency state the full cost of a lease in any given budget year so it can be compared with new construction costs.
A decade ago, Congress gave GSA power to experiment with purchase options on contracts of less than $500,000. Nancy Vitali, a public buildings and grounds subcommittee staffer, said the dollar threshold limited activity to small towns, but she said people on both sides of the aisle considered it a success. If lease purchase authority eminates from the House, Vitali said, it would probably be tied to a requirement that GSA show this alternative is cheaper than outright ownership.
To shield GSA from paying high rents to secure a purchase option, the House and Senate legislation mandates a competitive bidding process. GSA also would be required to give developers building specifications comparable to those used on government construction, and to check the project periodically. While the specifications would dictate somewhat how the building looks, they would leave room for developers to find cost-effective construction methods with minimum government interference, Bibb said. This would probably reduced project costs and rents GSA would be asked to pay, he said.
Local developers by and large supported the plan. "As a taxpayer, the most effective use of their money is to buy a building that someone else built," said Mike Smith, business management director of Turner Construction Co. "This wouldn't be a bad deal because the federal government by its own regulation adds to the cost of buildings that it constructs."
Smith, whose company builds nationally for GSA, said the agency wouldn't have trouble finding eight to 10 Washington developers willing to bid on such a project, enough to insure a competitive bid. He pointed out that developers could take advantage of new, acceleration depreciation schedules -- where the country couldn't because it doesn't pay taxes -- perhaps passing on some of the advantage in lower rents. Such an arrangement though likely would require leases of more than 15 years before purchase.
Depreciation tax benefits and building appreciation would keep Trammell Crow & Associates, the nation's largest developer, from bidding on such a project, said Jim Underhill, a leasing agent with the company. Underhill supposed the developers willing to bid would ask for "pretty lucrative leases of say, 20 to 25 years, which the government may not buy."
Steven Altman, a senior leasing vice president with Charles E. Smith Companies, supported Carmen's plan but disputed his statement that developers in most cases use government leases as leverage to secure mortgage financing. "It's a misconception," said Altman, whose company leases the federal govenment in excess of one million square feet of office space. "Ninety nine out of 100 office buildings in the Washington, D.C. area are built on speculative basis," he said.
Robert Peck, a legislative assistant to Sen. Patrick Moynihan (D-N.Y.) who has led the call for changes in the public buildings program, warned it would remain in the public interest for GSA not to lease under any terms buildings with high public use, heavy equipment such as computers, or where national security matters are discussed. Peck also said Carmen could achieve the 70 percent goal with his plan if current trends and work force reductions continue.