Improve State Management of Fixed Assets

Texas should improve and consolidate its fixed-asset management systems to reduce costs in leasing space and to better plan, budget and manage the state s assets.


Background
In fiscal 1991, the State of Texas owned $3.9 billion in general fixed assets, including $529 million acquired during the year. These assets can be grouped into two categories, real property and personal property. Real property includes land, buildings, im provements to land and buildings and other infrastructure. Personal property includes furniture and equipment, vehicles, boats and aircraft, livestock, library books, artifacts and other assets.

All state-owned real property is reported to the General Land Office (GLO) for incorporation into GLO s real property inventory database. GLO maintains information on all real property holdings of the state. Deeds to land and titles to buildings are normally held at the agency level, but summary title information is transmitted to the GLO. Howe ver, since real property has been acquired over a long period of time, many deeds and titles to state-owned land and buildings are missing. Efforts to centralize storage of state-owned titles have met with agencies resistance and ultimately have not worked.

Another problem is that state property is owned by individual agencies, instead of a centralized authority. This may cause legal problems, similar to those that occurred after the closing of the Ft. Worth State School. This property was donated to the Texas Department of Mental Health and Mental Retardation (TxMHMR) and dedicated to public use, with certain restrictions.

When the school closed, officials found the property could not be sold, and that its recommended uses were severely limited because of the original deed s restrictions. While TxMHMR is negotiating with a consortium of local, county and state agencies so that the property will ultimately be put to good use, problems such as these will occur again unless the state can exercise better control and management over state-owned properties, deeds and titles.

The General Services Commission (GSC) is responsible for maintaining the database tracking all state-owned personal property. According to the GSC, there are currently 92 summary status agencies using GSC s state property inventory system and 162 reporting status agencies using their own systems to track personal property. Summary agencies submit all property information to GSC on a monthly basis. Reporting agencies, on the other hand, submit magnetic tapes of their inventories once each year. These tapes are submitted at different times during the year based on GSC s processing capabilities and staff load. The implication of the current process of tracking personal property is that there is never any point in time when the state has an accurate record of all of its personal property.

With the passage of H.B. 39, 72nd Legislature, second called session, the responsibility for tracking personal property was transferred from the GSC to the Comptroller of Public Accounts. This transfer is scheduled to take effect on September 1, 1993. The GLO, however, maintains responsibility for reporting real property. As one of the requirements of H. B. 39, the Comptroller assumes responsibility for the development of the personal property accounting system, including all policies and procedures for administration of the system. Now, however, Texas has an opportunity to centralize the personal property management information systems of the state. A single data base would make personal property information readily available to state management for planning and budgeting purposes.

State Space Leasing
GSC negotiates leases for the space needs of all non-exempt state agencies. Exempt agencies include the Texas Employment Commission, House and Senate district offices and the Texas Alcoholic Beverage Commission. The University of Texas System and the Texas A&M System also are exempt by authority of GSC. 1~

When a non-exempt agency or institution of higher educa tion wishes to lease space, the agency applies to GSC, listing the location, amount and type of space desired. GSC must first attempt to place the agency in any available state-owned property. If no appropriate space is available, GSC may then lease from o ther governmental agencies or seek space from private sources, in which case competitive bidding or competitive sealed proposals are required. 2~

GSC also may consolidate leases for multiple agencies at the same location. GSC recently used this co-location authority to respond to legislation consolidating health and human service agencies and facilities. 3~ GSC has also used this authority during lease negotiations. In one instance, an agency leasing space found it had excess space, due to a program cutback. GSC leased the excess space to a second agency, which pays a prorated share of the total negotiated l ease. 4~

GSC currently leases 11.2 million square feet of space for state agencies and institutions of higher education. 5~ When additional space leased d irectly by colleges and universities is added in, the total reaches 12.9 million square feet. 6~ The additional costs of higher education-initiated leases are not available because this information is not reported to the Texas Higher Education Coordinating Board (THECB), but the annual cost of GSC-initiated leases currently is $92.3 million (Table 1) . 7~

Table 1 - State-Owned and State-Leased Property
Fiscal 1993

Owned Leased Annual
Square Footage Square Footage Cost

Higher 88,505,832 (By GSC) 494,506 $ 4,458,721
Education (By Institution) 1,757,228 (not available)

(Sub-total) 2,251,734

State (GSC) 3,905,645 (By GSC) 10,680,410 $87,888,873
Agencies (Other) 42,498,434

(Sub-total) 46,404,079

Total 134,909,911 (By GSC) 11,174,916 $92,347,594

(All) 12,932,144

Sources: General Services Commission, Facilities Leasing Analysis (Austin, Texas, October 1992); Texas Higher Education Coordinating Board, Facilities Summary Report (November 1992) and Leasing Report (November 1992), and General Land Office, Real Property Inventory Data Base (August 1992).


Over the past decade, GSC reports that demand for leased space has risen from 6.5 million square feet in 1983 to a projected level of 11.2 million square feet in 1993 an increase of 73 percent over the decade and an average annual increase of 5.6 percent. 8~ Over the same period, annual lease expenditures have risen from $35.1 million in 1983 to the $92.3 million detailed in Table 1. The latter figure represe nts an increase of 163 percent over the decade and an average annual increase of 10.1 percent (Table 2).

The shared-facilities system does not work effectively because GSC lacks a database of state-owned properties except for those that the agency manages in Travis County and its Sutton Complex in San Antonio. When GSC seeks property for state usage outside o f Travis County, the agency relies entirely on the competitive bid process with no check for available state-owned spaces, since no such information i s available. Without a means of identifying other state-owned facilities in the area, GSC essentially operates in the dark. It is likely that some of the state s leasing needs could be met with unoccupied state-owned facilities. However, this is difficult to determine because GLO s property inventory database does not include the detailed occupancy and use information necessary for building management purposes.

Table 2 - Annual Increase in State Leased Space

Fiscal Square Footage Percent Annual Percent
Year Leased Change Expenditure Change

1983 6,456,310 $35,150,340
1984 6,969,184 7.9% 42,816,803 21.8%
1985 6,637,739 (4.8) 45,558,255 6.4
1986 6,829,554 2.9 47,680,982 4.7
1987 6,788,623 (0.6) 46,061,946 (3.4)
1988 7,452,168 9.8 51,193,490 11.1
1989 7,771,340 4.3 58,085,666 13.5
1990 8,880,089 14.3 60,147,908 3.6
1991 9,575,494 7.8 77,916,364 29.5
1992 10,666,588 11.4 77,818,165 (0.1)
1993* 11,174,917 4.8 92,347,594 18.7

Average Annual Increase 5.6% 10.1%

* Estimated
Source: General Services Commission, Historical Lease Data Report (Austin, Texas, November 1992).


Availability of State-Owned Facilities
About 42.5 million square feet of state-owned facility space are not in GSC s inventory. These buildings, owned by exempt agencies, might yield additional space for state use.

In reporting property to GLO, agencies have the option to indicate building vacancies. GLO s data base lists slightly more than 1.2 million square feet of unused space in vacant buildings. Since agencies are not req uired to report vacant buildings to GLO, other unused buildings may exist. For example, the THECB reports four buildings on two college campuses that are mothballed, or not currently in use. These buildings are located on the campuses of East Texas State University in Commerce and West Texas State University in Canyon and have a combined area of 135,669 square feet. In addition, THECB reports that there might be additional space available in some empty dormitory buildings on various campuses.

THECB recommends that classroom usage be considered full capacity at 38 hours per week. Yet 25 institutions currently report 28 hours or less of classroom usage per week, indicating substantial availability of space at various times on these campuses.

Much of the leasing initiated by institutions of higher education currently is handled via leasing agreements among institutions. Some of this leasing is done at little or no charge. When institutions lease their own facilities to outside entities, the inc ome received goes into the colleges local funds and is not reported to THECB. This income can be used for whatever purposes the institution deems appropriate.

Recommendations
A. State law should require that General Services Commission (GSC) coordinate with General Land Office (GLO) and Texas Higher Education Coordinating Board (THECB) to establish a database of all state-owned real property.

This database should include information such as usable square feet, number and sizes of rooms, intended and possible building use, occupancy rates, building condition and other pertinent information for the effective management of the property.

Once all state-owned buildings become a part of GSC s building inventory, more efficient usage will be an immediate by-product. A complete database will allow GSC, to maximize the use of all available facilities and prevent unnecessary commercial leases.

The Texas Performance Review (TPR) further recommends that the database be modeled after the THECB database now in use. There are two advantages to this: First of all, the THECB database has been developed not only to record buildings and square footage, but also to track individual rooms within the buildings, their sizes, uses and use by the hour; secondly, modeling the new sys tem after THECB would offer the additional advantage of compatibility and transferability between systems.

B. The Legislature should mandate that any unused or underused facility should be shared with other agencies needing space, regardless of the property s ownership.

This requirement would expedite the maximum usage of all state-owned facilities. To maximize facilities sharing, the Legislature should authorize GSC to serve as the central clearinghouse for agencies seeking additional space. This clearinghouse duty wo uld not preclude higher education institutions from continuing to make their own sharing agreements. GSC would receive and process space requests and attempt to match these with currently available state-owned property. GSC should also co nstantly attempt to find appropriate state-owned facilities for agencies currently leasing commercial properties.

C. The Legislature should mandate that money received for leasing agency or higher education facilities should be specifically earmarked for deferred maintenance and building operating costs.

This requirement would help build up local funds dedicated for these purposes.

D. All personal property accounting systems should be consolidated and designed to meet specific asset-management functions.

A single personal property management database would make personal property information readily available to state management for planning purposes. Historical information regarding acquisition of assets by category and anticipated replacement dates of as sets would help manage the state s assets as well as providing information in planning for capital improvements and purchasing.

The personal property accounting systems should include computer technology information. The personal property system al so will be able to identify assets purchased using debt instruments, and the debt and leased property support schedules required by the Texas Public Finance Authority and Bond Review Board could be captured and reported on an ongoing basis.

Another advantage of a single personal property database is that financial statements could be prepared using perpetually maintained and reconciled information. Currently, the Financial Reporting section of the Comptroller s office develops the fixed asset supporting s chedules of the Comprehensive Annual Financial Report from over 250 individual agency and university annual financial statements. The current manual process of developing the state fixed asset schedules could be eliminated if the information were obtained from a central personal property database.


E. The Legislature should mandate that all real property of state agencies be centrally owned and that all related deeds, titles and legal documents be centrally stored and maintained. The Legislature also shou ld require GSC to evaluate how real property owned by institutions of higher education would be affected by similar, centralized ownership and to report its findings to the 74th Legislature.

All deed restrictions, special usage provisions, sources of funding and other pertinent information would be maintained in GSC s computerized real property database.


Fiscal Impact
Between the higher education building inventory and the other state-owned properties not currently under the inventory of GSC, it is reas onable to assume that as much as 5 percent (558,700 square feet) of currently leased space can be housed in state-owned facilities at a potential savings to the state of $4.6 million a year. No savings could be achieved in the first year due to the time ne eded to get the program in place. Creating an enhanced property accounting and management system would cost an estimated $300,000 the first year to establish, and an estimated $100,000 annually to maintain.



Endnotes
~1 Comptroller of Public Accounts, Breaking the Mold, New Ways to Govern Texas, Volume 2, Part II (Austin, Texas, July 1991), p. CG39.
~2 Ibid.
~3 Texas Co-location Work Group, Health and Human Services Co-location Report, August 1992.
~4 Interview with John Hodges, Director, Facilities Construction and Space Management Division, General Services Commission, Austin, Texas, November 12, 1992.
~5 General Services Commission, Facilities Leasing Analysis (Austin, Texas, October 1992). (Computer printout).
~6 Texas Higher Education Coordinating Board, Texas Public Universities and Health Institutions Leasing Report (Austin, Texas, November 1992). (Computer printout).
~7 General Services Commission, Facilities Leasing Analysis (Austin, Texas, October 1992). (Computer printout).
~8 Ibid.