Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / How the Federal Government Loses Billions on Underused Buildings
Transcript
- Lucas: You know, I was looking at a GAO report from late last year, and one number jumped out at me: the federal government spends roughly 1.7 billion dollars a year renting office space it barely uses. Luna: That's a lot of empty desks. How much of that is actually vacant? Lucas: Well, the GAO looked at 24 major agencies and found that about 25 percent of their space is underused — meaning either empty or occupied at less than half capacity. That's millions of square feet. And unlike a private company that would sublease or downsize, the government has all sorts of incentives to hold onto it. Luna: Let me guess — if you give up space, you lose your budget for it, and you can't get it back next year. Lucas: Exactly that. Agency budgets are allocated annually, and if you return a lease, the money just disappears. So there's no reward for efficiency — only risk. If you give up space and then need it later, you have to go through a multi-year appropriations process. Much easier to just renew the lease and let the space stay empty. Luna: Right, and they're spending real money. One point seven billion annually — that's not nothing. But is there a specific example that makes it concrete? Lucas: Yeah, the Social Security Administration is a great case. They lease about 1.4 million square feet in a suburban Maryland complex. The GAO found that more than half of it was empty — roughly 700,000 square feet of vacant office space. Their own internal data showed they only needed about 400,000 square feet for the staff they actually had. But they renewed the full lease anyway. Luna: Because the alternative would have been to negotiate a smaller lease, go through procurement, maybe face a protest from the current landlord. Too much hassle. Lucas: Right. And it's not just SSA. The Department of Agriculture has a similar story — they were leasing space in Kansas City that was 40 percent empty for years. Eventually they consolidated into a new building, but only after a decade of paying for unused offices. Luna: So what's the actual mechanism here? Is it just inertia, or are there budget rules that lock them in? Lucas: There are real structural problems. First, the budgeting system: agencies get separate pots for rent and for operations. If you save on rent, you can't use that money to hire more staff or buy equipment. So there's no incentive to minimize space costs. Second, the leasing process itself — the General Services Administration, or GSA, handles most federal leasing, and they charge agencies a markup for their services. So the agency's rent bill includes a GSA fee, which gives GSA an incentive to keep leases large and long. Luna: That's a perverse incentive. GSA makes more money when agencies lease more space, even if it's empty. Lucas: Exactly. And the fee is a percentage of the lease value. So if an agency wants to downsize from 200,000 square feet to 100,000, GSA's fee drops proportionally. There's no penalty for GSA if the space sits vacant — they still collect their fee. Luna: So the taxpayer is paying the landlord, paying GSA's markup, and paying for empty cubicles. Triple whammy. Lucas: That's the picture. Now, there have been reform efforts. In 2016, Congress passed the Federal Property Management Reform Act, which required agencies to report their space utilization and set targets. But the compliance has been spotty. The GAO found that only about half the agencies even submitted complete data. Luna: And without data, you can't manage it. So what's the 2026 version of reform? Lucas: There's a bill called the Federal Real Property Reform Act of 2026, introduced earlier this year. It would require agencies to submit annual utilization reports and give GSA more authority to consolidate space across agencies. It also includes a pilot program that would let agencies keep a portion of the savings from downsizing — so they could reinvest it in their mission. Luna: That last part is key. If you let an agency keep, say, 50 percent of the rent savings to use on other priorities, suddenly downsizing looks attractive. Lucas: Exactly. Behavioral economics 101 — align incentives. But the bill is still in committee. There's opposition from landlords who benefit from the status quo, and from some agencies that don't want the hassle of moving. And of course, the federal workforce is still partly remote — post-pandemic, many offices are even emptier than before. Luna: That's a huge factor. If your staff is in the office two days a week, you need way less space. But agencies are still locked into five-day-a-week leases from 2019. Lucas: Right. A lot of these leases were signed pre covid, for ten or fifteen years. So we're stuck paying for space we don't need until 2030 or later, unless the government can negotiate early exits. But landlords have little incentive to let them out early — they're collecting guaranteed rent. Luna: So the best-case scenario is that the reform bill passes, agencies start reporting real data, and GSA uses its authority to consolidate. How much could that save? Lucas: The Congressional Budget Office estimated that similar reforms in the past could save about 200 to 300 million dollars a year, at least initially. That's not huge relative to a 6 trillion dollar federal budget, but it's real money. Over a decade, that's 2 to 3 billion. And it's money that doesn't require cutting programs or raising taxes — it's just stopping waste. Luna: Right, it's low-hanging fruit. And if this is useful to you, the way we stay ad-free is through listener support. You can find us at buy me a coffee dot com slash fexingo. Lucas, what else could agencies learn from private-sector practices? Lucas: Private companies are ruthless about space utilization. They use sensors to track desk occupancy, hot-desking, subleasing excess space. The government is starting to experiment with that — GSA has a few pilot projects using occupancy sensors in Washington D.C. But it's early days. One challenge: unions often resist hot-desking because they see it as a threat to assigned workspaces. Luna: And there's the security angle. In some agencies, you can't just hot-desk because you need secure, cleared spaces. So it's not a one-size-fits-all solution. Lucas: True. But the scale of the problem suggests there's a lot of room for improvement. I think the key takeaway is that this isn't a scandal — it's a systemic incentive problem. Agencies aren't evil; they're rational actors responding to the rules they're given. Change the rules, and you change the outcome. Luna: So the question is whether Congress will actually change those rules, or whether this will be another GAO report that sits on a shelf. Let's see what happens with the 2026 bill. Lucas: Yeah. It's one of those quiet, unglamorous policy fixes that could save a few billion without anyone noticing. And that's the kind of efficiency we could use more of.