The Inherent Stupidity of Budget Math

For anyone who’s ever had to decide between renting or buying a home, know well that you’re not alone. Every year, the federal government is also forced to choose whether to lease or purchase its offices, warehouses, schools and other facilities that support its agencies. And according to a Government Accountability Office (GAO) report (pdf) released today, its tendency to lease is costing taxpayers hundreds of millions — perhaps billions — of dollars in unnecessary expenses.

For example, in the case of just four leases held by the General Services Administration (GSA) — which acts as a leasing agent for most federal agencies — the GAO found that the cost to rent over the next 30 years will be roughly $83 million more than the cost to own. For the FBI’s Chicago field office alone, the GSA could save $40 million over that span by purchasing the space rather than leasing it.

But this is not just another tale of government ineptitude. Rather, the rules governing budget scorekeeping bear much of the blame. Why? Because those rules require that all the costs of ownership be applied to the budget in the first year. “In contrast,” the GAO reports, “for operating leases, only the amount needed to cover yearly lease payments plus cancellation costs is required to be recorded in the annual budget, thereby making operating leases ‘look cheaper’ in any given year.”

This inanity is analogous to a homeowner being forced to front the full cost of the house in year one, rather than budget for mortgage payments. (Under such a system, one can imagine how quickly renting would become the more attractive option.)

As a result, of course, the federal government rents space more often than it might like, causing long-term budget problems that otherwise might be mitigated. And the trend is getting only worse: The GSA predicts that, for the first time in its history, it will lease more space that it owns in 2008.

“This is a long-standing challenge,” the GAO says, “and overreliance on leasing is one of the major reasons we designated federal real property management as a high-risk area.”