Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / The Hidden Economy of Government Surplus Auctions
Transcript
- Lucas: So there's this building in Washington, D.C. — the GSA's central office — and every day, federal agencies send lists of stuff they don't need anymore. Old computers, office chairs, forklifts, even boats. Luna: Wait — the government sells its own junk? I thought they just auctioned off seized assets or military surplus. Lucas: They do that too. But the General Services Administration runs a massive surplus property program. Any federal agency can declare something 'excess,' and the GSA tries to sell it. If it doesn't sell, it gets donated to states or nonprofits. Last resort: destruction. Luna: How big are we talking? Like, yard-sale scale, or does this actually move the needle on the budget? Lucas: In fiscal year 2024, the GSA's surplus sales generated about $450 million in revenue. That's tiny relative to the $6 trillion federal budget. But here's the interesting part — the auction design itself matters a lot. The government sometimes leaves serious money on the table. Luna: So they're not just selling stuff — they're running a real-time market experiment every time they post a lot. Lucas: Exactly. And the most telling case is the federal vehicle fleet. In 2024, the GSA auctioned off roughly 12,000 used cars, trucks, and SUVs from agencies like the Forest Service and the Park Service. These are government-owned vehicles, often well-maintained, with known service histories. Luna: I'm guessing they don't sell them at Kelly Blue Book value. Lucas: Not even close. The GSA uses a sealed-bid auction format for most vehicles. Bidders submit one blind offer. The highest bid wins. But here's the problem — the starting price, or reserve, is set by the GSA's own appraisal, which tends to be conservative. In 2024, the average sale price was about 70% of the average wholesale value, according to a Government Accountability Office report. Luna: So if the wholesale value was, say, $20,000, the government got $14,000. That's a 30% haircut. Luna: Why not just use an open ascending auction like eBay? Let people bid against each other. Lucas: That's exactly what private auction houses like Ritchie Bros. do. They run live auctions with a floor and online bidders, prices escalate in real time. A 2023 study compared Ritchie Bros. auctions of similar government vehicles and found they fetched 12 to 18 percent more than GSA's sealed-bid results. Luna: Twelve to eighteen percent on $200 million in vehicle sales — that's $24 to $36 million left on the table. That's not pocket change. Lucas: No, it's not. And the GSA has tested open auctions in pilot programs. They actually ran a small pilot in 2022 selling 500 vehicles via a live online auction platform. The average price jumped 22 percent compared to sealed-bid sales of similar vehicles. Luna: So why haven't they switched? Lucas: Partly it's inertia. The sealed-bid system is automated, low-touch, and doesn't require a live auctioneer. But there's also a legitimate concern: open auctions can attract more speculative bidders who drive up prices but then fail to pay. Default rates are higher. The GSA has to balance revenue maximization against administrative hassle. Luna: That makes sense. If 10% of winning bidders default, the extra revenue from higher bids could vanish. Lucas: Exactly. And the GAO report noted that the GSA's default rate on sealed bids was under 2 percent, while the pilot's open auction default rate hit nearly 8 percent. So the net gain might be smaller than the headline 22 percent suggests. Luna: Still, there's probably a sweet spot — maybe a hybrid model where you run an open auction but require a substantial deposit upfront. Lucas: Some states do exactly that. California's Department of General Services uses a live online auction with a 10% deposit required within 24 hours of winning. Their default rate is around 3 percent, and they consistently get above-wholesale prices for vehicles. Luna: So the federal government could learn from California. That's kind of ironic — the state known for budget problems teaching the feds how to sell cars. Lucas: It is. And this isn't just about vehicles. The GSA sells everything from office furniture to scientific equipment. There's a whole market for used federal IT gear — servers, routers, even decommissioned supercomputers. The auction format varies by item type, but the same principle applies. Luna: I remember reading about the GSA auction of seized yachts and luxury cars from drug forfeitures. Those were sold through private auction houses, not the GSA's own system. Lucas: Right. The Department of Justice uses different channels for forfeited assets. But the GSA is the default for ordinary surplus. And one of the biggest categories is real estate. The GSA sells off federal buildings, land parcels, even lighthouses. Luna: Lighthouses? Who buys a lighthouse? Lucas: Nonprofits, historical societies, even private individuals. In 2023, the GSA auctioned the Boston Light — the oldest lighthouse in the US — for $1.3 million to a historical preservation group. That was an open auction, by the way. Luna: So for unique, high-value assets, they use open auctions. But for bread and butter items like sedans, they stick with sealed bids. Lucas: That's the pattern. And it's not irrational. Low-value items might not justify the overhead of a live auction. But the scale suggests there's room for optimization. The GSA's total surplus sales of $450 million could potentially be $500 million or more with better auction design. Luna: And that's money that goes straight into the Treasury, reducing the deficit by a tiny fraction. Every bit helps. Lucas: Look, if walking through the economy with us has made something click about public finance, you might be the kind of person who appreciates what we do. We keep this show ad-free, and that's thanks entirely to listeners who've tossed a few bucks into the hat. If today's episode was worth the price of, say, a coffee to you, there's a link: buy me a coffee dot com slash fexingo. It's the smallest possible ask, and it genuinely does keep us going. Luna: Yeah, and it's not like we're asking for a monthly subscription. It's a one-time thing. No pressure at all. Lucas: So back to the auction puzzle. One other factor is information asymmetry. Private buyers often know more about a vehicle's condition than the GSA does. The GSA provides basic descriptions and photos, but no test drives. That uncertainty depresses bids. Luna: That's a classic 'lemons' problem. Buyers assume the worst because they can't inspect, so they bid lower. Lucas: Exactly. Ritchie Bros. addresses this by offering detailed inspection reports and sometimes letting bidders preview vehicles in person. The GSA's online listings are less detailed. If they invested in better condition reports, they might reduce the discount. Luna: Is there any movement on that? I know the GSA has been modernizing its digital infrastructure. Lucas: There is. In early 2025, the GSA launched a new online auction platform called 'GSA Auctions 2.0' that includes better search filters, high-resolution images, and a feedback system for bidders. Early data from the first quarter shows a small uptick in average sale prices — about 4 percent — but it's too soon to tell if it's sustainable. Luna: Four percent on $450 million is $18 million. Not bad for a website upgrade. Lucas: And that's just the direct revenue. There's also the environmental benefit. Surplus sales keep usable items out of landfills, which saves disposal costs. The GSA estimates it diverted about 80,000 tons of material from landfills in 2024 through sales and donations. Luna: So it's a triple win: revenue, reduced waste, and cheaper goods for buyers. I actually bought a used government desk once. Solid oak, cost me $75 at a local GSA auction. Lucas: There you go. The system works reasonably well, but it's not maximizing value. And that's the tension at the heart of public asset sales — the government isn't a profit-maximizing firm. It has other goals: speed, simplicity, fairness. But there's still room to nudge the dial toward better outcomes. Luna: So what's the one change you'd recommend if you were advising the GSA? Lucas: I'd say move to open ascending auctions for all items with an estimated value above $5,000. Use sealed bids for the small stuff. That's roughly what the state of Texas does, and they consistently outperform the GSA on price realization for vehicles and equipment. Luna: And require a refundable deposit for all bidders to keep default rates low. Lucas: Exactly. A 5 percent deposit held in escrow would cover most defaults. If the GSA implemented that, they could probably capture most of that 12 to 18 percent uplift without the downside. Luna: It's funny — we think of the government as this monolithic spender, but it's also a massive seller. And the details of how it sells matter a lot more than most people realize. Lucas: That's the fiscal policy angle we don't talk about enough. Revenue isn't just about taxes. It's also about how well you manage what you already own.