FACILITIES MANAGEMENT OCTOBER 1995 Management Audit Committee Senator H. R. "Hank" Coe, Chairman Representative Harry B. Tipton, Vice Chairman Senator April Brimmer Kunz, Secretary Senator Guy E. Cameron Senator Gregory A. Phillips Senator Jim Twiford Representative E. Jayne Mockler Representative Patricia Nagel Representative George W. "Bud" Nelson Representative Carolyn Paseneaux Representative Rick Tempest Staff Barbara J. Rogers Program Evaluation Manager David J. Dean Program Evaluator Charles T. Solomon Associate Program Evaluator Wendy K. Madsen Associate Program Evaluator Introduction A. Scope W.S. 28-8-107 (b) authorizes the Legislative Service Office to conduct program evaluations and performance audits. The general purpose of a program evaluation is to provide a base of knowledge from which policy makers can make informed decisions. In February 1995, the Management Audit Committee chose the Facilities Management Division (FMD) of the Department of Administration and Information (A&I) as the subject of a review. Further, the committee expressed an interest in statewide facility maintenance and leasing issues. This scope required us to draw information from FMD as well as individual agencies which hold state facilities. We focused our attention on six agencies with the largest portfolios of state-owned facilities - - the Department of Administration and Information, the Department of Transportation, the Adjutant General, the Department of Health, the Department of Corrections, and the Game and Fish Department. It should be noted that the Department of Transportation and the Game and Fish Department have autonomous facilities management programs. The research in our report centered around the following questions: What is the extent of state-owned and leased facilities? How much money does the state expend for upkeep of state-owned facilities? To which state entities do statutes assign facility management responsibilities? Are the state's facilities management activities supported by adequate plans? Does the state's budget process for facility maintenance, capital construction, and leasing provide a reasonable basis for decision making? Have facility managers developed effective performance measurement systems? B. Methodology This evaluation was conducted according to statutory requirements and appropriate program evaluation standards and methods. We conducted our research between March and June 1995. We reviewed relevant Wyoming statutes, rules, policies, annual reports, budget requests, academic literature, and a variety of other reports and agency records. To gain information about the condition of the state's more than 2,000 owned buildings, we did not attempt to inspect them. Instead, we relied on interviews with managers and technicians from FMD and from other agencies with large facility holdings. Additionally, we interviewed officials from the Capitol Building Commission, the Attorney General's Office, the Occupational Safety and Health Administration, the Cheyenne Fire Department, and professionals in fields related to facilities management. Finally, we conducted telephone interviews and reviewed documentation from several neighboring and western states, including Idaho, Colorado, and Kansas. C. Acknowledgements The Legislative Service Office would like to express appreciation to all the individuals who assisted us in researching this project, and especially to officials from the Facilities Management Division, the Capitol Building Commission, and the State Auditor's Office. Background To provide space for government services, the state of Wyoming owns and leases facilities throughout the state. According to the Department of Administration and Information's (A&I) central inventory system, the state owns 2,192 buildings with an estimated replacement value of $466,481,335. STATE-OWNED FACILITIES Agency Number Replacement Percent Owned Value Admin. & Information 19 $104,996,833 23% Transportation 343 $ 75,760,685 16% Adjutant General 217 $ 63,973,555 14% Health 129 $ 62,700,316 13% Corrections 92 $ 45,045,143 10% Game & Fish 624 $ 29,483,415 6% Commerce 585 $ 28,125,466 6% Family Services 62 $ 18,488,457 4% All Other Agencies 121 $ 37,907,465 8% Total 2,192 $466,481,335 100% Source: A&I Records show that state facilities vary substantially in size, from major office buildings to picnic shelters, storage structures, and residences. Also, facilities which are grouped for a single purpose (e.g. penitentiary facilities in Rawlins) are included on inventory records separately. Of these state-owned facilities, 125 are located in Cheyenne. The replacement cost of the Cheyenne facilities is $181,102,802, or 39 percent of the total replacement cost for all state-owned facilities. Facility management of all other state-owned buildings outside the capitol complex is the responsibility of individual agencies. This includes the state's institutions, correctional facilities, Department of Transportation, Game and Fish, and Adjutant General. Capitol Building Commission The Capitol Building Commission (CBC) consists of the state's top five elected officials -- Governor, Secretary of State, Auditor, Treasurer, and Superintendent of Public Instruction. Additionally, two members of the Legislature serve in a non-voting advisory capacity. Statutes authorize CBC to set policy for the operation, management, and use of any state-owned and leased buildings which have not been assigned to other state agencies. Facilities Management Division The Facilities Management Division (FMD) of A&I is designated in statutes as CBC's administrative arm. As such, FMD is responsible for the maintenance of state-owned facilities in the capitol complex and it oversees CBC's leases on a statewide basis. FMD's administrator also serves as CBC's clerk. FMD's organizational structure for facility management includes two work groups, maintenance and administration. The maintenance section provides maintenance and custodial services for the buildings and grounds in the capitol complex. Administration provides administrative and planning support to the maintenance section and to the CBC. The administration section manages over 140 leases and operates information desks in the Herschler and Capitol buildings. FMD's operating budget includes a separate appropriation for statewide leases, utility costs, and emergency repairs. FMD AUTHORIZED STAFF AND OPERATING BUDGET FY95/96 Section Staff Budget Facilities Maintenance 89 FTE $4,861,103 Facilities Administration 9 FTE $738,411 Fixed Facilities Costs 0 FTE $9,200,780 Total 98 FTE $14,800,294 Source: Approved FMD budget requests for FY95/96. In addition, during the FY95/96 biennium, FMD is administering $18,491,520 for various capital construction projects around the state, including funds for ADA access requirements ($5,000,000), CBC contingencies ($200,000), various deferred maintenance needs ($2,891,520), a new state laboratory ($6,300,000), and renovations to the Barrett Building ($4,100,000). Commitment to Maintenance is Needed An ongoing commitment to maintenance is necessary to preserve taxpayers' investment in public buildings. According to a 1990 study from the National Academy of Sciences' Building Research Board, an appropriate level of maintenance and repair spending should range from 2 to 4 percent of the facilities' replacement value. According to the Board, in the absence of information about specific needs upon which to base a maintenance and repair budget, this 2 to 4 percent funding level should be an absolute minimum. The Board argues that if this level of funding persists, facilities should remain in a steady state condition - - facilities neither decline nor improve and a backlog of deferred maintenance does not develop. Other studies use building replacement cost as a benchmark for maintenance spending. In 1989, the U. S. Department of Defense reviewed the maintenance funding levels of 16 major private sector corporations and found that these corporations spent, on average, 3.5 percent of their facility replacement value on maintenance. Maintenance Spending Has Been Within Suggested Guidelines Our evaluation showed that Wyoming's overall financial commitment to building maintenance has fallen within industry-suggested guidelines. We reviewed expenditures for the upkeep of state-owned buildings during fiscal years 1990 through 1994 and compared them to the guidelines cited above. We found that yearly spending for building upkeep (excluding cleaning, alterations, and improvements) averaged $11.6 million, which is 2.5 percent of the estimated cost to replace state-owned buildings. Although this amount falls near the bottom of the suggested range, it is within those guidelines. Officials are Concerned About Facility Conditions Nevertheless, agency managers and policy makers we interviewed told us they are concerned about unmet facility maintenance needs. They expressed interest in developing cost-effective solutions to address such needs. We did not assess the condition of each state building ourselves. Rather, we relied on our observations within the capitol complex and examples other facility managers provided of deteriorating building conditions. Our evaluation identified several problem areas which contribute to ineffective facility management practices. Specifically, we found: System-wide accountability for the state's investment in facilities is lacking. The state does not conduct long-term strategic facility planning. Wyoming's capital budgeting process does not support effective decision making and facility management. Information on the effectiveness of building management practices is lacking. As a consequence, we believe agencies are not consistently acting as good stewards of the resources provided by prior taxpayers, and the state is not adequately protecting this legacy for future generations. The following sections of this report discuss the specific problems we found, including recommendations to address these matters. Findings and Recommendations Finding 1 System-wide accountability for the state's investment in facilities is lacking. Wyoming has not designated a single state agency or entity to be responsible for its many buildings, nor has it created a process for gathering data about them. The state's approach to facility management has been haphazard and has allowed deterioration of some fixed assets to take place. Furthermore, policy makers have not been able to turn to a single source to get answers for facility related questions. Responsibility For Facilities is Diffused Wyoming statutes fragment responsibility for care and maintenance of the state's buildings among many entities. These include the Capitol Building Commission (CBC), the Facilities Management Division (FMD) of the Department of Administration and Information (A&I), and individual agencies. CBC's original statutory charge in 1888 was to care for the capitol building. Over time, the Legislature expanded CBC's mission to include state-owned properties in the vicinity of the capitol building (capitol complex) and certain statewide lease and maintenance expenditures. Currently, it has a mix of statutory duties. Capitol Building Commission Duties Statewide Roles Approve all leases over $5,000 [W.S. 9-2-1023(a)(i)]. Approve all maintenance, repair and replacement expenditures over $10,000 [W.S. 9-2-1023(a)(ii)]. Semi-Statewide Role Authorized to adopt rules and regulations relative to the operation, management and use of any state leased or owned building, excluding buildings, the operations, management and use of which are assigned by statute to any other state agency [W.S. 9-5-106(a)]. Cheyenne-Specific Roles Control capitol building [W.S. 9-5-101(b)]. CBC may buy, take options to buy and lease property in the vicinity of the state capitol [W.S. 9-5-102(a)]. Control Governor's residence [W.S. 9-5-103]. Maintain, operate, lease, manage and equip a state office building in Cheyenne [W.S. 9-5-104(a)]. FMD's statutory charge is to: 1) lease all property for the state 2) maintain, repair, and replace all state property 3) support CBC by implementing its decisions 4) plan for all agency office and other space needs and construction projects required for those space needs [W.S. 9-2-1023(a)] FMD's practices differ somewhat from its statutory charges. With the exception of handling leasing statewide, FMD's activities focus primarily on the capitol complex. FMD does not take a statewide leadership role in planning for all agency space needs, and does not maintain, repair, and replace all state facilities. Historically, individual agencies and institutions have carried out those responsibilities, without coordination by FMD. Some agencies are not covered by CBC and FMD. Examples include such major asset holders as the Department of Transportation and the Game and Fish Department. Other agencies have headquarters in Cheyenne housed in facilities maintained by FMD. At the same time, several of these departments, such as Family Services and Corrections, are responsible for the state institutions located outside of Cheyenne. The institutions are not served by FMD. Another entity with a key role in facilities management is the Budget Division of A&I: Budget Division prepares an annual budget request for capital outlay projects. This request consolidates many agencies' funding requests for major repairs and replacements in state-owned facilities, as well as construction requests. The Budget Division forwards the capital outlay request to the Governor, CBC, and the Legislature. Thus, the statutes disperse facility-related responsibilities among many agencies. Further, they establish a structure under which FMD has dual allegiances: it is a Division of A&I but at the same time serves as staff to the CBC, and is accountable to the state's five elected officials. This diffuse authority and decentralized structure result in a fragmented management and funding approach to state-owned buildings. No Single Agency Is Accountable For Facility Management No single entity consolidates facility condition and budget information, or identifies priorities among competing projects. The Budget Division may come closest to fulfilling the latter role, insofar as it compiles an annual capital outlay budget request. However, this is merely a list of those capital construction projects requested by state agencies. The Budget Division does prioritize among agencies' requests, but not according to a strategic plan for statewide facility needs. The statutes do not require CBC, FMD, the Budget Division, and the agencies to work together to address the state's overall facility management and budget issues. Without statutory direction to that effect, none of these entities, individually, can be held accountable for the condition of more than a portion of the state's buildings. The process generates insufficient information for decision makers about the condition and needs of the state's owned facilities. Without central responsibility and management, there is no logical, orderly, and consistent flow of information to managers, who need to make day-to-day decisions, and to policy makers, who must make long-term policy decisions about facilities. As a result, the Legislature and the Governor find themselves making facility funding decisions for repairs, renovations, and space acquisition on a case-by-case basis. Furthermore, the Legislature and the Governor do not have assurance they are making cost-effective decisions consistent with the state's overall priorities and long-term needs. While the statutes may have been sufficient 100 years ago, they have been modified over time in a patchwork manner and the modifications were not directed towards establishing a management system. By 1995, the resulting structure is no longer adequate to serve and support the current size and complexity of state government, or protect the value of its facilities. Centralization Is Beginning In recent years, it appears practices have been evolving towards concentrating more authority in FMD and CBC and requiring more central information from them. The Legislature has given FMD statewide responsibility for managing $5 million in ADA projects. A new state laboratory is to be constructed in Laramie, and FMD will have construction oversight responsibilities. In May 1995, CBC directed FMD to conduct a statewide survey of long-term facility needs. These examples are consistent with FMD's statutory charge to provide statewide planning, leasing, and maintenance services. However, they are not consistent with FMD's organization and staffing, or with its traditional focus on the capitol complex. A statutory change is needed to more clearly define CBC's mission and statewide responsibilities, as well as FMD's role as CBC's administrative arm. Recommendation: The Legislature should consider clarifying CBC's authority, establishing it as the lead policy maker for state-owned facilities. The Governor, the Cabinet, and legislators need comprehensive information about what the state's space needs are and are projected to be, and about what it will cost to properly maintain the facilities it owns. They also need to understand the likely long-term consequences of under-funding facility maintenance. The statutes do not charge CBC and FMD with systematically providing that information. CBC's current statewide responsibilities (for certain leases and repairs) could be expanded. With clear statutory direction and staff support from FMD, CBC could become the state's lead entity for facilities. This change would bring more of a statewide perspective to the long-term management of many of the state's capital assets. CBC would create policy, gather information, and take a leadership role in protecting the state's investment in buildings. At the same time, this would be a limited central role for CBC. Day-to-day management and operating decisions would remain with individual agencies; these responsibilities would not be shifted to CBC or FMD. Furthermore, agencies such as Department of Transportation and Game and Fish Department would continue to manage their own facilities. To signify the importance of enhancing CBC's role, the Legislature may wish to consider changing the CBC's name from "capitol" to "capital." This change would reflect CBC's new emphasis on matters beyond the capitol complex. Since FMD's role and responsibilities would also be enhanced, its staffing should be reviewed and adjustments made, if appropriate. Finding 2 Ineffective maintenance planning has contributed to the deterioration of some state facilities. Wyoming's approach to facilities maintenance has been largely short-term and reactive. Consequently, maintenance crews spend a large amount of time reacting to emergencies and responding to equipment breakdowns; preventive maintenance is neglected, resulting in more costly repairs; and the health and safety of some state employees and citizens is jeopardized. Wyoming's Approach to Facilities Management Has Been Reactive Interviews with facility managers revealed that they frequently lack complete, accurate, and reliable building condition information. Because maintenance needs are not routinely identified and addressed at an early stage, i.e. before extensive deterioration occurs, repair costs are higher than necessary. According to facility managers, the mechanical systems of many state buildings have been extended beyond their expected life. As a result, maintenance needs are extensive and breakdowns are commonplace. These conditions have resulted in maintenance programs that are largely reactive in nature. Maintenance managers assign workload priorities based on the urgency of daily crises, preventive work is deferred, and a backlog of maintenance needs has accumulated. As one manager put it, projects are prioritized "based on what blows up first." Our evaluation found that no one has clearly established the total amount of funding necessary to bring all state-owned buildings up to a steady state condition. Various estimates we reviewed placed the statewide deferred maintenance need at between $19.7 million and $65.9 million. Results of Maintenance Programs are Inconsistent Facility managers at some state agencies and institutions told us their facilities have been successfully maintained in like new condition. However, others believe that facility conditions are deteriorating. We observed some problems first hand. During a tour of capitol complex facilities, we saw damage from leaking water in the basement of the Herschler Building. This problem resulted in several examples of damage to the building, including an electrical system failure which closed the building for a day. A&I estimated the cost of this closure, which occurred on May 31, 1995, was nearly $88,000 in salaries and benefits due to lost time. Additionally, FMD reported that most of the office buildings in the capitol complex leaked during the heavy spring rains of 1995, including offices in the Capitol Building. The leaking roofs are an example of an ongoing maintenance problem, not just a one-time occurrence. Appendix B includes photographs of some of the deferred maintenance needs we observed. Deferred Needs Pose a Risk to Health and Safety Unaddressed facility needs pose risks to the health and safety of state employees and citizens. We reviewed documentation from a 1989 Cheyenne Fire Department inspection of the Barrett Building. Inspectors noted a number of safety violations, the most serious of which was a lack of adequate fire exits. In another instance, city fire inspectors warned state officials as early as 1985 that the location of the state health lab in the Hathaway Building was unsafe. Although FMD made minor repairs to the Barrett Building and the Legislature provided $10.4 million in 1995 to address both matters, the city's basic safety concerns have not yet been resolved. Cost Savings Can be Achieved Through Planned Maintenance We reviewed a large body of literature written by knowledgeable facility management professionals regarding facility maintenance. These experts contend that effective planned maintenance programs can reduce costs by cutting down on incidents of expensive breakdowns. One noted facility management professional has estimated that for every dollar spent on planning, five dollars can be saved in cost avoidance. An American Management Association publication reported that some facility management departments have saved or avoided up to 30 to 35 percent of facility costs through planning. Based on this assumption, we estimate the potential cost-savings to the state of Wyoming could be between $3.5 million and $4.1 million annually, if a planned maintenance program were adhered to. Officials are Responsible for Effective Maintenance Public officials are responsible for safeguarding resources against waste, loss, and misuse. State buildings, which are assets acquired through the investment of tax dollars over the years, are critical to the state's quality of life and contribute to a productive environment. As stewards of these assets, public officials bear the responsibility for their effective maintenance. A lack of effective facility management can affect public health and safety, reduce productivity of public employees, and cause long-term financial losses when buildings must be prematurely refurbished or replaced. Formal Facility Assessment and Better Planning are Needed The facility management literature we reviewed advises that periodic reassessment of facility conditions is an essential step for effective facilities management. The literature suggests that agencies responsible for maintenance and repair budgets should implement formal condition assessment programs. Such programs require trained technicians and managers and should be standardized to control their cost and to ensure consistency of the results. To accomplish these objectives, facility managers must first establish written guidelines. Because these kinds of programs do not exist in the state of Wyoming, it has been difficult to establish appropriate funding to reduce and eliminate maintenance backlogs which have accumulated over the years. To move beyond reactive facility management, planning must be strengthened. Simply identifying maintenance needs would have no effect unless managers develop an action plan to address these needs. Moreover, given proper attention, planning will help ensure that the state receives the maximum return on its investment in labor and material resources. CBC has recognized the need for long-range facilities management planning. In May 1995, CBC adopted a policy requiring an annual poll of agencies to identify their facility needs. While this is an admirable first step, we believe a more structured and systematic approach than polling is called for to ensure that the information is consistent statewide. Recommendation: FMD should coordinate an annual statewide assessment of building repair and maintenance needs. FMD should develop standards and procedures which will provide the basis for a formal condition assessment of state-owned facilities. These standards should be developed in consultation with other state agencies that have large portfolios of state-owned buildings, to address their specific building requirements. Using these standards, agencies should complete assessments of the buildings under their control. FMD should coordinate this annual statewide assessment of building repair needs and compile the results. The purpose of these efforts is to provide comprehensive, accurate, and reliable information on building conditions to facility managers, policy makers, and interested citizens. Condition assessment should be an integral part of maintenance planning. Information gathered from condition assessments can be used as a benchmark, as a tool to plan work, and as a basis for action to preserve state-owned facilities. Recommendation: FMD should work with agencies to develop a statewide facilities maintenance plan. Once an assessment of statewide facility maintenance needs has been completed, FMD should develop a strategic plan to eliminate maintenance backlogs and to establish proactive maintenance practices. FMD should consult with state agencies when identifying specific goals and incremental steps to achieve those goals. Authorities in facility management recognize that a maintenance program will be ineffective unless backlogged maintenance is identified and eliminated. Thereafter, planned maintenance programs should ensure that facility needs are identified and addressed at an early stage. Finding 3 State government does not adequately plan for its space needs. State government does not have a systematic process to manage its use of space. As a result, policy makers have little assurance that space is managed efficiently and effectively. No System to Assess Current Space Use The state does not have a system to assess or control current space use. No entity in the state gathers comprehensive space information or determines how much space is allocated by agency or per employee. The statutes charge FMD with planning for all agency space needs, but FMD has not established standards for state-owned facilities. CBC has a space allocation policy for statewide leased space, but FMD does not apply the policy consistently when it negotiates for leased space. Because FMD and facility managers do not have standards to guide them, there are substantial differences in how space is distributed among agencies. For example, space allocations vary greatly among agencies housed in the state's largest office building, the Herschler Building. Average allocations range from 154 square feet per employee in one department to 460 square feet per employee in another. The nature of work activities in these two agencies is not appreciably different. Space Has Increased, While Number of Employees has Decreased The amount and cost of leased space to house state employees in Cheyenne has increased, even though the number of employees has remained stable, as shown in the exhibit below. We limited our space analysis to Cheyenne because it has the most leased space, although the conclusions may have statewide applicability. Currently, the state is leasing 84,680 square feet of office space in Cheyenne at an annual cost of $885,494. This is up from fiscal year 1987, when the state was leasing 17,500 square feet of office space at an annual cost of $142,500. The amount of leased space was not substantial at the time because the Herschler Building was built in 1985, and by 1987, many employees who had been housed in leased space were moved into the facility. We were unable to determine the appropriateness of this increase. There may be several reasons why additional space was acquired in Cheyenne during recent years. However, without a system to assess and manage space, the state, too, is unable to determine whether space increases were justified. FMD's administrator has suggested that the state may not be using its space effectively and that FMD will look into the issue. STATE EMPLOYEES AND LEASED OFFICE SPACE IN CHEYENNE 1987 through 1995 Source: LSO analysis of A&I data The System Lacks Controls to Manage Growth The current system lacks controls to manage and restrain growth. The process of obtaining additional space is described below. Process for Requesting Leased Space Agency requests space through FMD. Agency must demonstrate that it has sufficient funds to cover lease costs for the current biennium. FMD or the agency may locate appropriate space. FMD finalizes the lease on behalf of the agency. Agency pays lease costs until the end of the current biennium; thereafter, FMD's standard budget request is adjusted to include the ongoing cost of the lease. After the initial biennium, lease costs should be deducted from the agency's budget and transferred to FMD's budget. However, according to a Budget Division analyst, the deduction from the agency's budget does not always take place because the Budget Division does not have a standard procedure for making such adjustments. Thus, an agency may only need to produce money for a lease during the first biennium of that lease. This arrangement provides little incentive for agencies to restrict "space creep." In addition, CBC and FMD do not systematically exert control over agency space growth. There are no written criteria for determining the merits of agencies' requests for new space. FMD's administrator told us the division rarely rejects requests for leased space. Statutes require CBC to approve leases over $5,000, but our review of CBC minutes indicates CBC approves leases, but does not scrutinize the need for additional space. Costs and Benefits of Space Acquisition are Not Evaluated CBC and FMD have not routinely compared the costs and benefits of leasing to other methods of acquiring space. In the past, FMD has made space acquisition decisions without criteria which would help evaluate the costs and benefits of various options. As a result, policy makers could not be assured that space was obtained in the most cost-effective manner. Recently, however, the Budget Division did a cost-benefit analysis of Cheyenne leased space. This came about due to the need to temporarily relocate employees during the Barrett Building renovation. The analysis showed that if the state were to relocate all agencies currently in leased space in Cheyenne to the U.S. West Building, the combined funds currently allocated to rent could purchase the building in eight years. As of this writing, CBC has not taken formal action to pursue purchase of the building. Nevertheless, it did consider this analysis in a recent meeting and went on to request FMD to develop a cost-benefit analysis policy. This policy requires FMD annually to analyze the state's need to build, buy, or lease facilities. Long-term Costs of Ownership are Not Routinely Considered The state does not consistently consider the total costs of ownership when obtaining space. According to facility management experts, the actual construction of a facility can be a minor expense when compared to the lifetime costs of maintaining a facility. W.S. 16-6-403 requires agencies to consider life-cycle costs prior to the construction or renovation of any major facility. Life cycle costs include the initial cost of a facility, energy consumed, and projected operation and maintenance costs over the life of the facility. FMD staff told us life-cycle cost analyses were not prepared for any of the upcoming construction or renovation projects. The System Lacks Structure and Controls The state has not developed an overall structure or a comprehensive planning process to assist in managing and controlling its space needs. No entity has taken the lead to determine current space needs or plan for future needs. The system has not established guidelines to allocate space, has few controls to manage growth, and lacks criteria for determining the best method of space acquisition. Recommendation: CBC should develop a master plan to address current and future space needs. The state's space allocation and acquisition practices can be improved by developing an ongoing master planning process. A master plan, periodically updated, would include assessments of current and future space needs, plans for growth or downsizing in government, and methods for acquiring and disposing of facilities. Before CBC can develop a space plan, it will need to determine how space is currently allocated. FMD can gather baseline data from the capitol complex and as suggested by W.S. 9-2-1023(a)(viii), should also develop space standards. The space planning process should be refined within the capitol complex, after which CBC could expand it statewide. CBC should use this plan as a basis for developing formal criteria for agencies requesting additional space. The criteria should require them to provide more justification for space requests than their current ability to pay. If requests meet the criteria, CBC can then analyze the costs and benefits of alternatives, including the long-term costs of ownership, in order to select the best option. Finding 4 Wyoming's capital budgeting practices are weak. Wyoming's capital budgeting process does not provide policy makers with information essential to prioritizing facility needs and allocating capital outlay funds. Without this information, it is difficult for CBC and the Legislature to effectively target the most critical projects, set priorities among agencies, and make appropriate funding decisions. Overview of the Capital Outlay Process There is little documentation guiding the capital outlay process; over time, it has been a flexible and changing process. However, the process generally proceeds as follows: Annually, agencies wanting capital outlay funds submit their requests to A&I's Budget Division. Each agency prioritizes its own requests. The Budget Division reviews requests and informally prepares funding recommendations for the Governor. The Budget Division transmits its funding recommendations to the Governor and CBC. The extent and scope of the CBC's review has varied over the years. The Governor includes funding recommendations in the Capital Outlay Budget Request, which goes to the Legislature. After review, the Joint Appropriations Committee recommends to the Legislature which projects to fund by incorporating those recommendations into the budget bill. Legislature Lacks Information About Statewide Priorities The Legislature does not receive a comprehensive list of proposed capital outlay projects, ranked according to statewide criteria from most critical to least critical. Instead, the Legislature receives capital outlay requests that reflect the priorities of individual agencies and the Governor. Because capital outlay requests are not prioritized according to agreed upon criteria, the Legislature makes case-by-case funding decisions. According to a CBC member and two former JAC members, the Legislature funds capital projects based on how persuasive individual agencies' requests are, rather than on how the projects fit in with the state's overall facility needs. Legislature Lacks Information About the Consequences of Not Funding Requests Policy makers lack quantifiable information about the long-term consequences of not funding capital outlay requests. Information about this aspect of capital budgeting (e.g. the costs of delaying or denying funding) could help the Legislature prioritize requests and make deliberate funding decisions. Generally, agencies briefly describe the consequences for not funding requests in their budget narratives. For example, in the 1995/1996 Biennium Capital Outlay Budget, agencies made the following assertions: "Additional cost and damage will accrue the longer these jobs are deferred." "Deterioration of these roofs is to the point that valuable state assets are going to be destroyed if we continue to ignore the problem." "The present situation presents a serious health hazard for employees working under these conditions." However, agencies usually do not quantify the projected additional costs of delaying or denying funding. Often the costs of not funding a request can be significant, due to increases stemming from additional damage which occurs and from inflation. In 1990, the Adjutant General requested $78,000 for a new roof for the Laramie armory. The consequence identified for not funding the new roof was that "it is time to replace it before extensive water damage occurs to the interior of the building." The agency did not estimate the additional cost of delaying funding. When the project was finally funded in 1994, the Legislature appropriated $115,000, or nearly 50 percent more than the original request. According to an official at the Adjutant General's Office, the increase was due primarily to inflation, but also to additional damage. In 1989, FMD requested $5 million to renovate the Barrett Building. Although the Legislature denied the request, it was resubmitted each biennium until 1995, when the $4.1 million was appropriated to start renovations. However, FMD estimates it could cost a total of $10 million to complete the renovation work that was requested in 1990 at half the cost. Good Capital Budget Practices From our review of relevant literature and interviews with facility management officials, we determined that effective capital budget processes have certain characteristics. The following list contains some of the most significant attributes: Preparation of multi-year capital plans covering at least five years. Clear definitions of the criteria used to select capital projects. Establishment of priorities for long-range capital improvements during the planning and budgeting process. Selection of projects in a logical sequence from multi-year plans. Review on a continuous basis the status of ongoing capital projects to ensure that previously established targets of time, money, and scope are being met. Other states which have a more formalized process for capital outlay budgeting, such as Colorado and Idaho, have found the process aids legislators in making informed budget decisions. Not only are legislators made aware of the state's most critical current facility needs, but they also have a framework for anticipating long-term needs. Recommendation: The Legislature should consider requiring CBC and the Budget Division to strengthen capital budgeting procedures. The Legislature should consider requiring CBC and the Budget Division to adopt a more formal capital outlay budget process. Specifically, they should take steps to: Develop five year capital outlay plans. Establish clear written standards for setting priorities. Select projects based on priorities. Monitor capital outlay appropriations. It is unclear why Wyoming has not adopted effective capital outlay budgeting practices. Managers and officials we interviewed provided some possible explanations. First, some said that adopting a more formalized process would be too time consuming. Second, some managers believe that given Wyoming's small size, there is no need for such a process since "everyone knows what the problems are." We believe a stronger capital budgeting process does not have to be burdensome to the agencies involved, and would strengthen the state's ability to manage its assets. Capital projects tend to require relatively large appropriations in the short run, but they also have long-term benefits. A strong capital budgeting process would help policy makers adopt the long- term perspective required to sustain the value of the state's capital assets. Finding 5 Facility managers have not established systems for measuring, reporting, and monitoring performance. State facility managers have not established quantifiable goals and performance measures which are necessary to ensure accountability. Consequently, it is difficult to gauge the effectiveness and economy of agencies' current facility management programs. Moreover, managers lack information to make improvements and citizens have few assurances that their tax dollars have been spent wisely. The basic goal of performance measurement is government that works better and costs less. This requires managing with an eye on results. Performance measurement promotes effectiveness through ongoing feedback to managers and staff. This process also provides data to help allocate increasingly limited public resources among competing priorities. Wyoming statutes require agencies to measure program results. Work to Develop Performance Measures is in Preliminary Stages As part of our evaluation, we reviewed agency efforts to implement performance measures in the area of facilities management. We spoke with responsible officials at FMD as well as several other agencies with significant building portfolios. We found that agency officials have not developed performance measures that are relevant to their facilities management programs. The managers cited various reasons for the lack of performance measures. Although some were aware of the requirement, they said they had not received clear direction from their agencies to develop measures. Additionally, they did not consider their development a work priority. Some managers were unfamiliar with the concept and the potential benefits. We believe that this lack of direction and expertise, as well as the pressures of daily work priorities, were the main reasons facility-related performance measures have not been developed. Facilities Management Division has Completed Preliminary Steps As the state's primary facility management agency, FMD has taken some preliminary steps to develop performance measures. As part of A&I's five- year strategic plan, which was completed in November 1994, FMD identified its mission, goals, and objectives. FMD identified additional goals in its biennial budget request. Excerpts of the pertinent sections of these documents are included in Appendix C. Our review showed that these documents were constructive first steps for the development of performance measures. However, we believe additional work is required before meaningful performance measures can be established. We noted the following issues in our review of FMD's mission, goals, and objectives: The goals identified in FMD's five-year strategic plan do not identify areas of potential cost savings. FMD identified two facility management goals in its plan: prepare a comprehensive long-range plan; and continue an ongoing facilities maintenance process. Although these are beneficial goals, they could be improved by acknowledging a need for continuous improvements in program economy and efficiency. A lack of specificity and time frames may prevent FMD from stretching and challenging itself. For example, FMD has an objective to move from a work schedule dominated by unscheduled repairs and emergencies to one of planned preventive and predictive maintenance. While this appears to be an appropriate objective, it could be improved by including specific measurable benchmarks and time frames for future performance. Similar specificity problems exist with other FMD objectives. Some of FMD's objectives do not provide clear targets (how and when) for specific actions. For example, FMD has objectives to complete a perpetual facilities maintenance plan and complete a long-range plan. FMD should rewrite these and other objectives to be clear about who is responsible and when actions are expected. Recommendation: Facility managers should develop systems for measuring, reporting, and monitoring performance. Our evaluation showed that additional work on performance measures is needed in the area of facilities management. First, we believe FMD should expedite its efforts to develop an effective performance measurement system for its own programs. Additionally, we believe FMD should assume a leadership role, working with other agencies which have extensive facilities, to help ensure appropriate measures are in place statewide. Key facility management issues could be addressed through performance measures, including: the size of the state's deferred maintenance problem and whether it is increasing or decreasing; the cost per unit of space for maintenance and differences among agencies; the timeliness of repairs; and the portion of efforts devoted to emergency repairs and whether this is increasing or decreasing. These are only a few of the many possibilities for helpful performance measures in this area. Conclusion The state of Wyoming does not act like the major facility owner and manager it is. The state owns buildings with a replacement cost of nearly half a billion dollars and spends almost $7 million dollars per year on leased space. It spends another $11.6 million dollars per year to maintain its facilities. Despite annually investing millions of dollars on facilities, the state has made no central authority accountable for their overall condition. No entity has developed a statewide facility plan or required that individual agencies in charge of state facilities plan for maintenance or space needs. As a result, the state's facilities are not consistently maintained and in fact, some are deteriorating. Most state-owned buildings are not new at present, and as they continue to age, will require further investment to repair or replace major mechanical and electrical systems. In addition, many of the older buildings lack the capability to accommodate data and word processing technologies on which state government now depends. To meet these challenges, Wyoming must focus on being a good steward of the taxpayers' investment in buildings. Equally important is the need to continue to provide safe, adequate work space for state employees as well as living space at the correctional and charitable institutions. Creating a proactive management strategy for the state's capital facilities calls for forward thinking, determination, and concerted effort from many levels of government. That effort should be grounded by significant attention to facility planning: at individual sites, within agencies, and statewide. The findings and recommendations in this report appear to be consistent with the Governor's emphasis on strategic planning. Some reallocation of resources may be necessary, but nevertheless, we believe the long-term benefits will more than pay for any immediate costs. Agency Response Appendices APPENDIX A 9-2-1023. Duties of department performed through facilities management division. (a) The department through the facilities management division shall: (i) Lease all property for the state. Leasing expenditures in excess of five thousand dollars ($5,000.00) shall be approved by the capitol building commission. Leasing of property by the state shall be conducted on a bid and proposal basis with advertising of space needs and square footage in community or local newspapers. Leasing contracts may be entered into by noncompetitive negotiation only if: (A) The central services administrator determines in writing that competitive bidding is not feasible and the determination is approved by the capitol building commission; or (B) The lessor is a governmental agency. (ii) Maintain, repair and replace all state property. Maintenance, repair and replacement expenditures in excess of ten thousand dollars ($10,000.00) shall be approved by the capitol building commission; (iii) and (iv) Repealed by Laws 1991, ch. 29, 6. (v) Designate the administrator of the facilities management division to function as secretary to the capitol building commission who will administratively implement the commission's decisions; (vi) Repealed by Laws 1989, ch. 178, 3. (vii) Repealed by Laws 1991, ch. 29, 6. (viii) Plan for all agency office and other space needs and construction projects required for those space needs, if any. (b) and (c) Repealed by Laws 1989, ch. 178, 3. (d) The facilities management division shall: (i) Manage and control all state motor vehicles and equipment including their identification, purchase, lease, replacement, repair and permanent assignment, except for state owned or leased vehicles personally used by or assigned to the governor, secretary of state, state auditor, state treasurer or superintendent of public instruction; (ii) Establish, update and comply with uniform standards and criteria promoting the economic and effective maintenance and use of motor vehicles consistent with the needs and locations of agencies. (e) Any state or county employee or officer using a state vehicle without authorization or for purposes other than official business is guilty of a misdemeanor punishable by a fine of not less than fifty dollars ($50.00) or more than two hundred dollars ($200.00). 9-5-101. Capitol building commission; composition; general powers and duties; conflicts of interest. (a) The five (5) elected state officers constitute the capitol building commission. (b) The capitol building commission has charge and control of the capitol building, may furnish and equip the building and may arrange and contract for its occupancy by federal officers and appointees as it deems advisable. The commission shall designate the rooms in the capitol building to be occupied by the various state and other officers, shall keep the building in repair, maintain the building in a suitable condition for occupancy, employ and appoint competent janitors and firemen and shall collect all rents arising from the occupancy of the capitol building. All money collected by the commission under this section shall be paid into the general fund. (c) No member of the capitol building commission shall be interested in any contract entered into or made by the commission, nor be a surety on any bond conditioned for the performance of any contract, nor be an agent of any contractor with the commission. 9-5-102. Capitol building commission; authority to buy and lease property; acceptance of donations, grants and devises. (a) In order to obtain building sites for additional office space and state uses and to insure the proper keeping of valuable state records and provide for the expansion of functions of the state, the capitol building commission may buy, take options to buy and lease property in the vicinity of the state capitol building to be used for building sites for future state office buildings. The commission may lease acquired property until it is needed. The state capitol building commission, in cooperation with the department of employment, may acquire lands and buildings in the name of the state of Wyoming by purchase, lease agreement, gift or devise to provide suitable quarters for the administration of the Wyoming Employment Security Law and to develop improvements, maintain and repair the lands and buildings. (b) To accomplish the purposes of subsection (a) of this section the state capitol building commission may accept donations, grants-in-aid and devises. 9-5-103. Capitol building commission; supervision and control of governor's residence. The governor's residence and the buildings, grounds and property thereto attached belonging to the state of Wyoming are under the supervision and control of the capitol building commission. 9-5-104. Capitol building commission; state office building; authority to maintain; rental; use of proceeds. (a) The capitol building commission may maintain, operate, lease, manage and equip a state office building in Cheyenne, Wyoming. (b) Every department occupying space in the building authorized under subsection (a) of this section shall, if required by the capitol building commission to do so, pay to the state treasurer an annual rental of not less than three dollars ($3.00) per square foot of space occupied plus a pro rata share of maintenance, janitorial services, utilities and other overhead costs necessary to maintain the building in as good a condition as reasonable and proper use will permit. Payments shall be kept by the state treasurer in the debt service fund and shall be used to make the payments of principal and interest on the bonds when the bonds fall due according to the terms thereof and for no other purpose. The bonds shall be payable only from and secured by an irrevocable pledge of revenues provided by this subsection, and the bonds shall so provide. If in any year the pledged income exceeds the amount necessary to retire the bonds and interest due during the year, the excess shall be used to retire bonds with the largest numbers then outstanding on any interest-paying date, and the bonds shall so provide. 9-5-105. Purchase or lease of state lands. Before purchasing any land for any state purpose, the state agency or board shall determine if any land owned by the state is available and could be used for the state purpose. The agency or board shall negotiate with the agency or board owning or controlling the land for purchase or lease of the lands. 9-5-106. Capitol building commission; powers relative to use of state buildings in Cheyenne; other state buildings; rules authorized; exceptions. (a) The capitol building commission is authorized to adopt rules and regulations relative to the operation, management and use of any state leased or owned building, excluding any buildings, the operation, management and use of which are assigned by statute to any other state agency. (b) The secretary to the commission under W.S. 9-2-1023(a)(v) shall administratively implement any rules of the capitol building commission adopted under this section. The director of the department of administration and information may adopt rules and regulations which make violation of rules adopted by the commission under subsection (a) of this section grounds for disciplinary action for any state employee violating the rules of the capitol building commission regarding operation, management or use of state buildings. (c) Any state agency, board or commission having authority for the supervision, control or management of state leased or owned buildings located anywhere in the state of Wyoming which are not within the provisions of subsection (a) of this section, is authorized to adopt rules and regulations for the operation, management and use of state leased or owned buildings to the same extent as provided by subsections (a) and (b) of this section. (d) No rule promulgated under this act [this section] shall apply to facilities occupied by: (i) The legislature or the members thereof unless the legislative management council has specifically concurred therein; or (ii) The judiciary or the members thereof unless the judicial council has specifically concurred therein.