Calculate a Housing-Cost Fee to be Charged to State Agencies

The General Services Commission s Building and Property Services Division should develop a methodology to calculate a housing-cost fee to be charged to state agencies occupying space in buildings maintained by the division.


Background
In 1992, Texas Performance Review (TPR) conducted a review of the General Services Commission (GSC); a report summarizing TPR s conclusions was published in October 1992. 1 The following recommendation, taken from that report, would require legislative action.

In Texas, costs associated with housing state agencies in state-owned buildings are not paid by the agencies. Instead, the majority of these costs are paid by GSC s Building and Property Services Division (BPS). BPS is responsible for maintaining, repairing and operating state buildings and grounds on behalf of state agencies.

The costs of housing state agencies include building use (the cost of building construction and improvements), utilities, custodial and maintenance expenses, security and parking. In Texas, the first component building use is appropria ted at the time a building is constructed or improvements are made. Agencies are not charged or appropriated funds for these costs. Funding for utilities, custodial services, building and ground maintenance for state buildings is appropriated to GSC and to tals more than $21 million for fiscal 1993. Funding for agency security and parking is appropriated to the Department of Public Safety (DPS) and totals $2.7 million for fiscal 1993.

Texas state agencies are housed either in state-owned, state-bonded or privately owned facilities. In the case of privately owned facilities, a lease is executed and rent is paid by the agency. Agencies in leased space also pay for utilities, custodial services, maintenance and other housing costs, either through the lease a greement or through budgeted funds. In the case of state-owned and state-bonded facilities, agencies do not pay a fee for rent or other housing costs.

According to a 1987 report by the Texas Research League:

Next to personnel costs, the costs incurred in housing, maintenance and utilities are the largest categories of cost in most agencies. But for the most part, these are hidden costs. Hidden does not mean that the data are surreptitiously concealed; rather, it simply means that the data are unallocated and undelineated. 2

At least 18 states charge agencies a housing-cost fee for building maintenance, utilities, custodial and security services and parking. 3 Some of these states (including Florida, Tennessee, Arizona and Michigan) have a central agency res ponsible for assigning this housing-cost fee to individual state agencies. Methods for assessing housing-cost fees differ among states, but most states charge a fee based on the cost per square foot of building space occupied by an agency plus a proportion al share of any common areas. For example, if an agency occupies 75 percent of the space within a building, its share of the common areas is also 75 percent.

Another common practice among states is to charge self-supporting agencies those financed from fees for their housing costs. In Texas, for example, the State Board of Insurance is charged for the costs of maintaining and operating space occupied by the agency in various state buildings through a service transfer from the insurance board s operating fund to general revenue.

Texas current policy of not charging agencies for their housing costs has several deficiencies. First, the cost of housing individual state agencies is not accounted for in the state s budgeting process, and little information pertaining to such costs is available. This makes cost comparisons with other public- and private-sector organizations more difficult. Instead, BPS only accounts for the costs of state buildings they maintain.

The only source of information on housing costs appropriated to BPS is the Statewide Cost Allocation Plan (SWCAP), submitted annually by the Governor s office, which allocates costs to specific state agencies. SWCAP was developed to assist state agencies in setting fee rates and recovering costs from t he federal government. This document is complex and, thus far, has been used primarily by agencies that receive federal reimbursements for indirect costs incurred in administering federal aid programs (so-called indirect cost-recovery plans).

SWCAP identifies indirect support-service costs, including auditing, accounting, budgeting, legal services, centralized purchasing, building maintenance and operations and other costs. Using SWCAP, agencies can account for and recover a portion of these co sts either from the federal government or through their program fees.

Second, state agencies lack incentive to save on housing costs when they are not charged for these costs. For example, the cost of utilities is a controllable expense, but appropriations for utilities are made to GSC instead of the agency that controls the cost. Also, BPS requests funding for housing costs on behalf of agencies occupying space in GSC-maintained buildings. Many agencies fail to assist the division in developing funding requests for specific building maintenance projects and other housing-related costs, since the costs are not reflected in their budgets. Given the current backlog of deferred maintenance projects at GSC, it is evident that the agency has been unsuccessful in obtaining higher funding for building maintenance.

Third, the current practice of allocating housing costs to state agencies does not maximize the amount of revenue the state collects either from fees or from the federal government as reimbursement for indirect costs.

Currently, agencies administering federal programs can recover from the federal government a portion of housing costs appropriated to GSC, through the SWCAP. According to David M. Griffith and Associates (DMG) the state s consultant on cost recovery matters the state recovers about 35 cents on the dollar from the federal government for costs allocated to state agencies through the SWCAP. If the cost of housing were directly charged to an agency, the state s recovery rate would increase to about 50-60 cents on the dollar. 4 In addition, these costs would be recovered from the federal government at least two years faster if directly charged to agencies. As for fee rates, some agencies do not know if their fees are set high enough to recover the cost of housing, since these co sts are not reflected in their budgets.

Finally, the 1993 SWCAP report shows that housing costs for some agencies may be funded out of the General Revenue Fund even when those agencies have separate funding sources (Table 1). This me ans that general revenue may be used when other funding sources are available to pay for housing costs.

Table 1 Building-Related Appropriations to the General Services Commission, By Agency, Fiscal 1993
Total BPS Building Asbestos
Agency Cost Maintenance Utilities Management

General Services Commission $ 794,335 $421,720 $ 279,477 $93,138
Comptroller of Public Accounts 1,836,376 813,233 1,023,143
Attorney General-Admin 40,209 27,359 12,850
Texas State Library 514,684 288,051 226,633
Department of Information Resources 580,539 282,739 297,800
Office of Governor s Budget and Planning 66,174 41,965 24,209
State Treasury 209,664 93,594 116,070
Senate 961,327 588,237 373,090
House of Representatives 1,472,181 829,078 643,103
Legislative Council 396,267 204,363 191,904
Legislative Budget Board 115,028 60,293 54,735
Legislative Reference Library 107,345 66,259 41,086
Sunset Advisory Commission 55,118 26,681 28,437
Supreme Court 128,895 87,031 41,864
Court of Criminal Appeals 25,924 17,589 8,335
Prosecuting Attorney 4,659 3,116 1,543
Courts of Appeal 110,772 71,969 38,803
State Law Library 59,915 40,822 19,093
Governor 619,938 436,465 183,473
Attorney General 332,442 199,486 132,956
General Land Office 595,974 307,805 288,169
Secretary of State 771,474 415,119 356,355
State Securities Board 2,725 2,725
Blind Commission 494,485 299,197 195,288
Human Services 1,906,381 704,836 1,201,545
Employees Retirement System 90,052 90,052
Rehabilitation Commission 1,129,816 645,445 484,371
Office of State/Federal Relations 5,370 3,405 1,965
Aircraft Pooling Board 138,654 81,422 57,232
Public Finance Authority 8,149 4,625 3,524
Bond Review Board 11,107 7,043 4,064
Incentive and Prod. Commission 5,038 3,290 1,748
Veterans Commission 37,947 24,782 13,165
Department of Public Safety 2,153 1,330 823
Criminal Justice Policy Council 19,173 12,159 7,014
Department of Licensing and Reg. 263,809 169,747 94,062
Board of Insurance 1,626,396 923,126 703,270
Railroad Commission 894,404 576,640 317,764
Aeronautics Commission 99,105 73,278 25,827
Board of Irrigators 4,188 1,131 3,057
Department of Commerce 133,869 93,760 40,109
Board of Private Investigators 2,956 1,926 1,030
Public Utility Commission 8,894 8,894
Department of Health 143,474 66,279 77,195

(Continued on next page.)

Table 1 Buildings-Related Appropriations to the General Services Commission, By Agency, Fiscal 1993
(Continued)
Total BPS Building Asbestos
Agency Cost Maintenance Utilities Management

Cosmetology Commission $ 72,314 $ 45,135 $ 27,179
Hearing Aid Examiners 3,812 2,709 1,103
Nursing Home Administrators 12,704 9,029 3,675
Agriculture Department 375,408 190,040 185,368
Water Development Board 245,953 123,806 122,147
Water Commission 985,594 456,947 528,647
Department of Transportation 3,306 3,306
Health & Human Svcs. Coord. Council 14,575 10,686 3,889
MHMR 75,076 22,621 52,455
Youth Commission 408,761 234,482 174,279
Board of Pardons & Paroles 79,636 51,882 27,754
Texas Education Agency 739,319 468,564 270,755
UT-Austin 1,402 1,402
Texas State University System 14,184 8,995 5,189
Historical Commission 33,587 23,234 10,353
Preservation Board -17,979 -28,659 10,680
Commission on the Arts 39,716 25,937 13,779
Other 447,443 272,399 175,044

Totals $20,362,196 $11,040,581 $9,228,477 $93,138

Source: 1993 Statewide Cost Allocation Plan (SWCAP).

Recommendations
A. General Services Commission s (GSC) Building and Property Services Division should develop a methodology to calculate a housing-cost fee to be charged to state agencies occupying space in buildings maintained by the division.

Given the complexity of this cost allocation, GSC should seek expert assistance to ensure that the methodology is allowable under cost-allocation guidelines established by the federal government. The goal of this process should be to accurately account fo r the cost of housing state agencies without placing an undue burden on the state s budgeting process.

The cost-allocation methodology should be based on the cost per square foot of building space an agency occupies pl us its proportional share of the common areas. The cost per square foot would include custodial services, utilities, maintenance, security and parking. The cost would not include rent or a building-use component for agencies occupying space in state-owned and state-bonded buildings. However, this should be considered as a future component of housing-cost calculations, since it could provide a funding mechanism to help reduce GSC s backlog of deferred maintenance projects. GSC should work with DPS to develop a methodology for allocating security and parking components currently appropriated to DPS.

B. Once the fee methodology is developed, GSC should provide a cost of housing for each state agency, based on its current level of funding, to the Legislative Budget Board and the Governor s Office of Budget for inclusion in the 1996-97 General Appropriations Act. (Time does not permit inclusion of this change during the 1994-95 biennium.)

GSC should be allowed to retain its appropriation for the costs of housi ng state agencies. Instead of funding housing costs strictly out of general revenue, a revolving account could be established for GSC to receive transfers from state agencies. Controls should be established to ensure that these transfers occur automaticall y, so that GSC is not required to collect funds from state agencies. The budget mechanism for transferring the cost of housing state agencies to GSC could be placed in a rider in Article V of the General Appropriations Act, similar to the service-transfer provision for the State Board of Insurance in Article I, Special Provisions, of the General Appropriations Act.

Accounting procedures must be established to ensure that agency fund transfers for housing costs are considered direct charges to the agency, to increase federal reimbursements. In cases in which state or federal law does not specifically provide for the coverage of housing costs via a specific source, agencies with multiple funding sources should proportionally share the cost of housing among their funds, thereby reducing the need for funding from general revenue.


Implications
State agencies that receive federal or fee funding would be required to pay for the cost of housing their programs and activities in state-owned and GSC-maintained facilities. This could alleviate some of the burden on the state s General Revenue Fund. Agencies funded from general revenue should not be directly affected by the recommendation; however, the cost of housing these agencies would be clearly identified in the state s budget. Developing the methodology for allocating building-use fees would place an additional responsibility on GSC.


Fiscal Impact
Assuming that the cost of housing state agencies remains at current (fiscal 1993) levels, identifying a housing-cost fee for state agencies would entail only limited costs to GSC. Ultimately, fees and associated costs would need to be recalculated based on the actual amount of housing costs appropriated to GSC by the Legislature.

Including the housing-cost fee in the state s budgeting process may reduce the need for funding housing costs out of general revenue, as other funding sources could be used for this purpose. Some agencies may need to increase their fees to recover their housing costs. Agencies that administer federal programs could recover more federal money for housing costs if the charge for these costs is a direct charge to the agency.

There may be some additional administrative costs to GSC, the Legislative Budget Board and the Governor s Office of Budget and Planning for developing and implementing this recommendation. The primary fiscal effect of this revised methodology would be reflected in the 1996-97 General Appropriations Act.



Endnotes
1 Comptroller of Public Accounts, Texas Performance Review, General Services Commission Performance Review (Austin, Texas, October 30, 1992).
2 Texas Research League, Maintaining and Housing State Agencies: The Hidden Costs (Austin, Texas, January 1987), p. 1.
3 Ibid., p. 5.
4 Interview with Joel Nolan, David M. Griffith and Associates, Phoenix, Arizona, August 10, 1992.