Report 2000-117 Summary - January 2001

The State's Real Property Assets:

The State Has Identified Surplus Real Property, but Some of Its Property Management Processes Are Ineffective

RESULTS IN BRIEF

California law requires that most state agencies review their landholdings (property) each year to identify real estate that exceeds the agencies' property needs. The State considers properties surplus when the agencies that own them no longer use the sites or do not use them fully and when the agencies have no plans to use the sites in the future. Two agencies responsible for disposing of most of the State's excess property are the Department of General Services (General Services) and the Department of Transportation (Caltrans). Although these two agencies have many surplus properties, the surplus status of some of the properties is questionable because some of these properties are not actually available for disposal. In addition, the disposal of surplus properties can take years. When such properties sit idle, the State does not benefit from funds it would receive by selling or leasing these properties, and it may incur unnecessary maintenance costs. Moreover, until leased or sold, these properties are not available for other purposes, such as housing, parks, or open space.

In requesting this audit, the Legislature expressed an interest in the availability of surplus state property in high-cost counties for public use, such as low-cost housing. We identified 15 counties, referred to here as high-cost counties, in which the cost of real estate is relatively high, housing is relatively scarce, and the State owns a significant amount of land. General Services has 27 properties, totaling 754 acres, in its current surplus property inventory that are located in these high-cost counties. However, not all of the properties are available for immediate disposal or for unrestricted use after the State does dispose of them. Specifically, only 7 of the 27 surplus properties are available for sale or have sales pending. The agencies that own 5 of the other 20 surplus properties have reassessed their program needs and now want to keep the sites. Of the remaining properties, 11 are not available for immediate disposal, and 4 have been designated for sale or transfer to specific entities by legislation authorizing their disposition.

General Services can take years to dispose of surplus property. In fact, its current surplus properties have been pending disposal for an average of 6.7 years. These delays occur for several reasons. For example, state agencies often declare properties surplus before the agencies are ready to vacate the sites because the agencies want to facilitate timely acquisitions of new properties or prompt exchanges with other state or local agencies for other properties. As a result, these excess properties appear in the surplus property inventory long before they are available for disposal. In addition, the law requires General Services to offer surplus properties first to other state agencies, then to local government agencies, and finally to the public. Interest in surplus properties by local governments can delay disposition of the real estate while the governments search for interested parties to develop the properties in ways that most benefit the affected local communities. Further, staffing shortages in its Surplus Sales Unit have contributed to delays in General Services' disposition of surplus properties.

Caltrans, which is the other agency that disposes of most of the State's excess real estate, has 1,928 properties, totaling 1,829 acres, in its surplus property inventory for the high-cost counties we reviewed. However, its surplus property inventory is incomplete because Caltrans district offices have not recorded all of their surplus property in the inventory. After Caltrans identifies a property as surplus, it may be years before the property is available for disposal. At three of the four districts we visited, Caltrans' surplus property inventory showed properties had been pending disposal for as little as several days to as long as 50 years. In addition, sales during the last 10 years have taken as little as several days to as long as 38 years from the time the property was identified as surplus to the time it was sold. Caltrans places a higher priority on completing highway projects than on processing and disposing of surplus property, and this emphasis causes some of the delays. Because the activities necessary for making surplus property ready for disposal require some of the same professional services as those needed when acquiring property and preparing property records for highway construction, disposal activities must compete with construction project activities for department staff and resources. Caltrans performs tasks required to dispose of surplus properties, such as preparing surveys, appraisals, maps, and deeds as highway project construction schedules allow. Although it is understandable that Caltrans places its highest priority on completing the construction of highway projects, its project management standards also address staff's making surplus properties ready for sale, and its project management guidelines assign responsibility to project managers to ensure that Caltrans completes all aspects of projects.

Our review of state-owned properties in high-cost counties was not the first examination to uncover problems with the State's management of its real estate. Previous studies, including those performed by the Office of the Auditor General and the Little Hoover Commission, expressed much concern over the State's property management practices and offered many suggestions for improvement. In spite of these studies and the actions taken by the State in response to their findings, the State still lacks an effective process for evaluating whether it needs the property it owns and for identifying surplus.

The agencies' efforts are inadequate, in part, because the State lacks oversight of property management activities to ensure that landowning state agencies are adequately reviewing their property holdings and identifying property that is surplus to their program needs. Although General Services is responsible for collecting information on surplus properties when reported by agencies, it does not have the authority to ensure that agencies perform diligent reviews of their property holdings, nor does it have the authority to review or question the decisions of other agencies about property retention or the status of their properties. Studies of the State's property by General Services suggest that efforts of state agencies have not identified surplus property effectively. In a 1995 study mandated by the Legislature, General Services identified 123 unused or underused properties owned by 12 agencies that the owning agencies had not identified as surplus even though the State's agencies have been required since 1988 to review their property holdings annually.

State law requires most state agencies that own real property to evaluate their holdings each year and to report surplus property to General Services for disposal. Although agencies are responsible for conducting reviews of their property holdings to identify property that is surplus to their current or foreseeable program needs, state agencies generally have not developed and implemented adequate procedures to do so. For example, of the eight agencies we queried that have large landholdings in high-cost counties, none had written procedures to evaluate its real property holdings and to identify property that is surplus to its needs. Few incentives exist for most landowning agencies to actively identify and dispose of property that is surplus to their current and foreseeable program needs. For example, the proceeds from most property sales do not benefit the selling agency but are deposited in the State's General Fund.

Similarly, the few agencies, such as Caltrans, that are not required to report their surplus property to General Services but are instead responsible for reporting surpluses to specific oversight commissions have also neglected to perform adequate reviews of their property holdings. Caltrans has developed procedures that are generally adequate for reviewing its properties. However, we found that because of a lack of commitment from management, Caltrans district offices do not always follow those procedures and some do not perform adequate reviews of their property holdings. In addition, unreliable inventory reports hinder Caltrans' efforts to conduct property retention reviews.

The State could improve its real estate management by implementing practices used by other government entities. Various state governments and the federal government have implemented diverse practices to meet the challenges of managing real estate assets, including procedures for identifying and disposing of surplus property. Like California, other governments have cited challenges, such as a lack of specific criteria for determining when the governments no longer need particular properties and a lack of incentives for agencies to spend resources to identify and dispose of surplus property. To meet these challenges, other governments have proposed various options for managing real estate. One common suggestion from state governments and the federal government for improving decisions about surplus property is for the government to establish an independent body to review the processes and criteria for retaining property and to arbitrate property retention decisions.

California's agencies have not developed and implemented property inventory systems that serve as effective management tools for real property or that provide reliable reports. Neither General Services nor Caltrans has complete, accurate databases that would aid them in managing real property. Reports prepared to inform the Legislature of the status of the State's surplus real property are not always timely or accurate. General Services could also provide more useful information about the status of surplus property, such as the reasons for delays in the property's disposal. In addition, Caltrans does not always produce required annual reports, and it bases on incomplete and inaccurate databases the reports it does produce. Current, complete property inventories are important to effective management of the State's property.

Finally, General Services has not fulfilled all of its obligations to administer a state program to provide space for child-care facilities in state-owned buildings. Specifically, it has been remiss in executing required lease agreements and in collecting rent payments from child-care providers. General Services thus exposes the State to unnecessary liability and reduces tenant revenues for the State's buildings. To resolve one of these issues, a study group within General Services has recommended that the department waive rent payments; however, General Services cannot legally waive rent except when such an action is needed to ensure the viability of the child-care facility. Moreover, General Services does not conduct regional studies of office space occupied by state agencies or prepare plans to accommodate the State's office space needs as often as required by General Services' own guidelines.

RECOMMENDATIONS

To manage the State's real property effectively and to identify and dispose of its surplus real estate efficiently and promptly, the Legislature, General Services, and Caltrans can take the actions outlined below.

To speed the disposition of its surplus property, General Services should take the necessary steps to fill the vacant positions in its unit responsible for selling, leasing, or transferring surplus properties and promptly assign to staff surplus properties for disposal.

Caltrans should ensure that it properly accounts for and disposes of surplus property as promptly as possible. Specifically, Caltrans should make sure that staff list and correctly categorize all surplus property in the Caltrans' databases. In light of its competing priorities, Caltrans should also explore alternative methods to assist in the prompt identification and timely disposition of its surplus property. Such methods may include reassigning staff, hiring temporary staff or contractors, or seeking additional resources to perform some activities needed to identify and prepare surplus property for disposal.

To provide consistency and quality control over the review of the State's real property holdings, the Legislature should consider empowering an existing agency or creating a new commission or authority with the following responsibilities:

  • Establishing standards for the frequency and content of property reviews and land management plans.

  • Monitoring agencies' compliance with the standards.

  • Scrutinizing agencies' property retention decisions.
Alternatively, this entity could be responsible for conducting periodic reviews of the State's real property and making recommendations to the Legislature regarding the property's retention or disposal.

If the Legislature does not wish to establish such an oversight entity, it should consider replacing the current requirement for annual property reviews with a requirement for less frequent but more comprehensive reviews.

Furthermore, the Legislature should consider providing incentives to state agencies to encourage them to identify surplus and underused property so that the State can free the property for better uses. Such incentives could include allowing agencies to retain the proceeds from the disposition of surplus properties for use either in funding current or planned capital outlays for new property or in improving and modernizing existing facilities when the need exists.

To make certain that it adequately reviews its real property holdings and identifies surplus properties, Caltrans should ensure that its district offices follow department procedures for reviewing properties.

In addition, Caltrans should correct the property information in its real property databases to make sure it has reliable information to manage its real property holdings. Caltrans should also provide General Services with accurate, timely annual reports on the status of its real property holdings.

Similarly, to improve the value of reports to the Legislature about its surplus property inventory, General Services should ensure that it submits reports promptly, and it should consider including in reports more detailed information on the status of surplus inventory.

General Services should execute leases to provide space in state-owned buildings for child care and enforce required lease terms, including the collection of rent, in accordance with the law.

Finally, General Services should perform planned studies of regional office space to provide an adequate strategy for consolidating the State's office space.

AGENCY COMMENTS

General Services generally concurs with our recommendations and states that the recommendations will be promptly addressed. Caltrans concurs with our findings and also agrees to implement our recommendations. Further, the Business, Transportation and Housing Agency states that it will develop performance benchmarks to monitor Caltrans' progress in implementing our recommendations.


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