The Reagan administration has opened a four-pronged attack on the skyrocketing cost to the federal government of leased commercial office and warehouse space.
The decision commits the government to occupying less space per employe and to putting government workers in federally owned facilities whenever possible. For the real estate market, already faced with falling prices in many cities and more new buildings on the way, the news is not good.
Currently about 53 percent of federal employes work in government-owned facilities; the rest work in leased space. The General Services Administration (GSA) now expects 70 to 75 percent of the federal work force to be in owned space by fiscal 1988.
The changes in the works include:
* At the White House, an executive order would put President Reagan's stamp of approval on the plan to reduce the average federal work space to 135 square feet. As drafted, the order would give the GSA increased responsibility for enforcing the restrictions on space it controls and space controlled by other federal agencies.
* At the GSA's Public Buildings Service, Commissioner Richard O. Haase is expected next week to order federal agencies to review about 25,000 different spaceholdings. Each agency will have 60 days to document its needs for the next three years and outline a plan to relinquish space above the 135 square feet per person target.
* On Capitol Hill, GSA officials are pressing the House to agree to a rewrite of the 24-year-old Public Buildings Act along the lines of a bill drafted by Sen. Robert T. Stafford (R-Vt.) and Sen. Daniel Patrick Moynihan (D-N.Y.). The House has failed to follow the Senate's lead in acting on similar legislation in the last two Congresses.
* The fourth part of the plan, already underway, involves subletting unneeded federally leased space. Last year, GSA subleassed 3.4 million square feet that private owners would not take back and in the process picked up $4.4 million in rent.
The scope of the leasing problem is enormous and growing.
Reagan's budget calls for a record expenditure of $852 million in fiscal 1984 to lease office and warehouse space. That is 62 percent more than was spent on leasing property in fiscal 1980. And projections by Congress and by GSA show that, if no steps are taken, the annual leasing bill will top $1 billion by fiscal 1986.
The cost increases are expected despite administration plans to trim 75,000 federal workers from the payroll by fiscal 1984 and to occupy only 90.1 million square feet of leased space by the end of fiscal 1984 (compared to 96.1 million at the end of fiscal 1980).
Through the past decade, GSA has been under attack from congressional subcommittees for signing leases that were not to the government's advantage and for failing to maintain the traditional two-to-one ratio of government-owned to government-leased office space.
GSA has maintained that to rectify the situation Congress must revise the Public Buildings Act of 1959. For the past four years, the House and the Senate have squabbled over whether Congress should review and authorize federal buildings and leases one at a time (as the House side wants) or handle these authorizations on an annual basis (as the Senate now does).
"Project-by-project approval procedures defy establishment of priorities and prohibit judicious analysis of alternative approaches to meeting program objectives," Stafford said in a floor statement earlier this month. "Prospectuses arrive unpredictably and are approved piece-meal."
"It is by no means to disparage past or present management of the Public Buildings Service to say that there is a need for institutional over-haul of this $2 billion-a-year program," Moynihan commented."Some of its most grievous failings directly result from the notorious 'prospectus' system through which the Public Works Committees of Congress authorize its major projects and leases. The efforts of the most brilliant manager would be frustrated by this antiquater and ad hoc process."
Under the prospectus system, Congress must approve all leases of $500,000 or more. In the new bill, there is no threshold amount. Instead, GSA would have to present information on all proposed renewals annually. But a spokesman for the House subcommittee that handles the reviews said the snail's pace has been intentional because GSA has failed to come up with a comprehensive way to move more federal workers into government-owned space and cut the leasing tab.
From GSA's point of view, the key ingredient to a compromise is now in place: "The House subcommittee [on public buildings] has a new chairman [Rep. Robert Young (D-Mo.)] who is very receptive to making this system work better, and I think we'll have a bill this year that will be acceptable to him to us and to the Senate," said Haase.
Although he has reservations about some portions of the Senate bill, Haase said he still "backs it strongly. It creates an annual appropriation that is manageable and allows us to get on with the work without political interruption. What can you do if the committee authorizes a building in a district one day after you've spent a year planning your workload?"
But most on Capitol Hill who are familiar with the prospectus system for new federal construction and for leasing say it is nothing more than pork-barrel politics.
"Being chairman of the House Public Works subcommittee on public buildings is for the most part a boring job," said a Senate Public Works Committee staff member familiar with the process. "You take the job because you can provide political chits for your buddies. You can give them a lease for a friend or a building for their constituents."
The growth of rents is easy to see in a spot check of the prospectus submissions to Congress. For example:
* In Atlanta, the federal government was paying $5.56 for a square foot of office space at the Pershing Point Plaza complex when its lease expired. Under a new lease this year, the space will cost the government $8.50 a square foot -- an increase of 53 percent.
* In Anchorage, the government's rental rate at the Professional Plaza office building jumped from $17.47 a square foot to $28.87 a square foot -- an increase of 65 percent.
* And in Los Angeles, where rent in space on Wilshire Boulevard was $9.43 a square foot, the federal government is now leasing at $20.19 a square foot -- a 114 percent increase.
"Rental rates were pretty flat for years," Haase, a former real estate appraiser, said. "But all of a sudden, in the late 1970s, we experienced a tremendous inflation in the building industry; $10 to $12 leases were jumping to $40 a square foot."
Currently, GSA has to go to Congress 18 to 24 months in advance with a prospectus for the new lease, in the process affirming that workers could not be moved to federally-owned space because of budget constraints. In each submission, GSA has to judge the market a year ahead. More often than not, the "best guess" is just that -- and not a guide that Congress could use to determine what was in the best interest of the government.
The recent softening of the market took the agency by surprise. For example, GSA estimated that leasing space in four locations in Phoenix would cost from $20 to $28 a square foot. But according to one nation-wide real-estate guide used by GSA -- produced by Howard Ecker & Co., of Chicago -- space in Phoenix averaged $8.50 to $14. The same was true for two Boston-area prospectuses submitted to Congress. In one case, GSA guessed that a $9.11 per-square-foot lease would cost the government $27 to $32 a square foot, but market rates in Boston now are $18 to $24. In a second case, renewal of a $10.93 a-square-foot lease was estimated at $30 to $35.
Haase said he was surprised at both figures and admitted it was unlikely that GSA would sign new contracts on any of those buildings at those rates.
The statistics also show that in the prospectus for the Atlanta building, GSA "guessed" that the renewal rate could be as high as $14 and in Anchorage GSA projected $30. In Los Angeles the guess was $35.
"It doesn't do us, or Congress, any good to send up numbers like this," he admitted. "But if we did it all under the proposed new system, with an annual authorization, we would be getting our requests up to the Hill six months before a new fiscal year -- not one or two years before."