lump sums. For years, funds for construction either through direct Congressional appropriations or from the General Services Federal Building Fund (a type of revolving fund, partially funded by receipts from GSA lessees and standard-level user charges) have not been sufficient to meet even the major federal building plans. Moreover, in recent years, this disparity has only increased, giving rise to alternative construction financing techniques as well as increased use of leased space to meet the dramatically increased space demands from a larger-than-ever federal government. The growth in federal leasing will be discussed at greater length below; for now, however, it is important to note that both of these patterns have undoubtedly been in response to the current federal government budget austerity. Rental fees and lease-back payments are obviously less noticeable in the federal budget than are the large, and rapidly growing, up-front capital costs associated with all types of construction.

*

More relevant to the concerns of this ACIR report, however, is the fact that current estimates of real estate taxes on the 43 buildings constructed under the "dual" method and the 23 buildings under the "single" method of purchase-contract through the year 2004 are $1.3 billion. 17 Rough calculations alone establish these tax payments at an average of $43 million a year.

Provisions similar to the purchase-contract agreements are also used by the USPS due to the special purpose nature of most of its buildings. The specific guidelines, which the USPS has set out in its realty acquisition and management handbook, state that tax clauses usually need not be included when leasing a building of less than 2,000 square feet to be constructed for the Postal Service and leased for less than ten years-"except," the handbook continues, "it may be more advantageous to include a tax clause in leasing such property in an area where lessors, as protection for mort

*U.S. GAO, Costs and Budgetary Impact, op. cit. Because they include interest payments, and real estate tax payments spread over what is essentially an amortization period, purchase-contracts do carry a higher financing cost than direct appropriation; yet at least one analysis has suggested that the purchase-contract route is less expensive in the long term than is leasing a comparable facility.

gage liens, are likely to, or will, require that taxes be paid by the Postal Service."18 Here again, construction is being undertaken for government use and to the government's specifications, for which the federal government has agreed to make the property tax payments.

Thus, the question of whether or not the federal government pays local property taxes is a function of the government's leasehold or ownership decision. Moreover, the amount of rental activity in the federal government is rising:

In the last ten years, the federal government has increased its rented building area (square feet rented) by 50% amounting to an annual rental increase of 134% for that period.

• The comparable figures for a 20-year period yield a 148% increase in leased floor area or a 542% increase in annual rental paid from 1957-77.

• The trend toward increased federal rental activity can be further illustrated by contrasting the growth in floor area owned by the federal government, which is only 17.5% for the same 20-year period.

To be sure, acquisition costs of real property owned by the federal government have increased substantially over this same period-169% for all federal property and 150% for buildings alone. Yet, the figures point to a clear trend of decisions to lease rather than own. Tables 12 through 17 document these trends with data gathered from GSA records for both military and civilian rental properties.

Table 12. All Real Property Leased by the Federal Government in the U.S., 1957-77.

Table 13. Real Property Leased by the Federal Government for Civil Agen

cies in the U.S., 1957-77.

Table 14. Real Property Leased by the Federal Government for Defense Activities in the U.S., Civilian Functions Only, 1957-77.

Table 15. Real Property Leased by the Federal Government for Defense Activities in the U.S., Military Functions, 1957-77.

Table 16. Percentage Growth in Real Prop

erty Leased by the Federal Government in the U.S., in FiveYear Intervals, 1957-77.

Table 17. Table 16, at Ten-Year Intervals. Several factors have contributed to this pattern, not the least of which are the rising capital costs associated with all types of construction in this country. Again, a primary contributor is likely to be the current federal government budget austerity, rental fees obviously being less in the short-term than the large initial capital costs required for federal construction. Moreover, the greater the fiscal stress at the federal level, the more likely it is that federal facilities will be leased rather than acquired.

The GSA's Public Buildings Service (PBS) is responsible for providing office space for federal agencies across the country. Certain federal agencies are also delegated authority to obtain (rent or purchase) their own facilities but are to use GSA procedures in doing so. The Federal Property Management Regulations identify those agencies and the situations in which leasing exceptions are granted; they are typically limited to agricultural experiment stations, military stations, and other specialpurpose space. Authority is also generally delegated to agencies for building and leasing in areas that are not in major urban centers. However, even in these situations, GSA is to have a supervisory role. Nevertheless, the Public Building Acts have mandated that GSA always survey the need for additional space or construction in an area prior to authorizing such activity. For PBS, this process has involved reviewing all costs associated with owning and operating a building over time-i.e., a life cycle cost analysis.

The GSA Life Cycle Planning and Budgeting computer model, set up to assist PBS in this life cycle planning decision, does not account for property taxes. However, a recent GAO report, which examined alternative methods of financing federal building space acquisitions, has recommended that federal cost analyses include real estate taxes "as an imputed cost of government ownership under the rationale that other federal support may be required to compensate the state and/or local governments for real estate revenues lost."19

In conclusion, the leasehold vs. purchase decisions made by the federal government and the resulting location of leased or owned federal facilities illustrate the federal/local and public/private inequities. The arbitrary decisions to lease or own federal real property distort a jurisdiction's property tax base and result in property tax payments that clearly are made without adherence to those principles of tax equity discussed throughout this report.

Federal Contracting (Procurement)

Each year, as the result of various statutory requirements, executive orders, and circulars, the U.S. government solicits billions of dollars in private sector contracts for the purchase and development of products and services. Thousands of items (both of regular stock and special design) and services are acquired from the private marketplace through "procurement" expenditures. This procurement activity is justified for a variety of reasons. The reasons range from a desire-expressed by a number of Congressional committees, national study commissions, and administrations of both political parties to implement a long-established goal of using the federal government as a consumer to strengthen private enterprise, to attempts to use the government's budget as a tool to achieve various social and economic goals. Through its contracting provisions the government can require suppliers to maintain fair employment practices, provide safe and healthy working conditions, help handicapped persons attain a more productive role in society, require industry to refrain from polluting the environment, and encourage small and minorityowned business.20

In 1979 the U.S. government spent $94.4 billion on contract procurement-19.2% of total federal outlays that year. * This is a particularly formidable amount, especially when combined with the billions spent on procurement-type grants to the private sector.

* Eight agencies account for $90.1 billion or 95.4% of the total: Department of Defense ($70.4 billion), Department of Energy ($5.8 billion), National Aeronautics and Space Administration ($3.9 billion), Tennessee Valley Authority ($3.5 billion), General Services Administration ($2.7 billion), Veterans Administration ($1.6 billion), Department of the Interior ($1.2 billion), and Department of Transportation ($1.0 billion). (Information provided by Robert Drake of the Federal Procurement Data Center, Washington, DC.)