PUBLIC ASSET MANAGEMENT: EMPIRICAL EVIDENCE FROM THE STATE

GOVERNMENTS IN THE UNITED STATES

by
Yaotai Lu

A Dissertation to the Faculty of

The College for Design and Social Inquiry
in Partial Fulfillment of the Requirements for the Degree of
Doctor of Philosophy

Florida Atlantic University

Boca Raton, Florida
May 2011
Copyright by Yaotai Lu 2011

ii
 PUBLIC ASSET MANAGEMENT: EMPIRICAL EVIDENCE FROM TIIE STATE
GOVERNMENTS IN THE UNITED STATES

by

YaotaiLu
This dissertation was prepared under the direction of the candidate's dissertation
advisor, Dr. Khi V. Thai, School of Public Administration, and has been approved by
the members of his supervisory committee. It was submitted to the faculty of the
College for Design and Social Inquiry and was accepted in partial fulfillment for the
requirement for the degree ofDoctor ofPhilosophy.

SUPERVISORY C?~E:

~ V·V"-tG(
Khi v. Thai, Ph.D.,
DiS~

Clifford P. McCue, Ph.D.

Donald~.
Khi V. Thai, Ph.D.
Director 001 of blic Administration -

Ro arter, Ph.D.
Dean, College ofDesign and Social Inquiry

~~r~~

iii
 ACKNOWLEDGEMENTS

I wish to express my sincere thanks to Dr. Khi V. Thai for his constant assistance

and encouragement during my doctoral program and dissertation research. With his

guidance, I selected my dissertation topic and developed the intellectual framework of a

public asset management system, which is a central part of my dissertation. With Dr.

Thai‘s assistance in contacting potential respondents, I obtained many responses to my

survey. I am grateful to Dr. Clifford P. McCue especially for his helping hand with my

survey questionnaire. His expertise and efforts ensured that I collected pertinent data

for my research through the survey. I must thank Dr. Donald R. Cooper who instructed

me in searching for appropriate research methods. He provided me with more than

helpful guidance and comments when I designed the survey questionnaire and analyzed

data. I am also thankful to Dr. Istvan Vanyolos who helped me identify research

questions and Steven Chapman who tested my survey questionnaire and provided

comments.

iv
 ABSTRACT

Author: Yaotai Lu

Title: Public Asset Management: Empirical Evidence from the State

Governments in the United States

Institution: Florida Atlantic University

Dissertation Advisor: Dr. Khi V. Thai

Degree: Doctor of Philosophy

Year: 2011

Public asset management is a critical component of the financial integrity of

government. However, in practice, problems exist in the field of public asset

management at different levels of government in the United States. This research

explores the management of public fixed assets owned, controlled and used by state

governments in America. It attempts to answer two major questions: (1) What are the

characteristics of a modern public asset management system based on the available

literature? and (2) How do public asset management practices at the U.S. state

government compare to the system standard described in the first question?

Based on systems theory and current research on public asset management and

public procurement systems, this research develops an intellectual framework of a

public fixed asset management system. This system is composed of six interdependent

cornerstones, including legal and regulatory requirements, organization structure,

v
management process throughout the life cycle of assets, human capital strategies,

information and technology resources, and monitoring, integrity, and transparency.

Each cornerstone consists of a number of components that reveal the underlying

working principles of the relevant cornerstone and together determine the standards of

fixed asset management in the relevant area. Survey results demonstrate that state

governments fundamentally satisfy the standards identified in the fixed asset

management system. However, certain problems obviously exist in the area of each

cornerstone. In addition, survey results reveal that the six cornerstones of fixed asset

management system are interrelated with one another. In most states, when a

management element in the area of one cornerstone is widely implemented, the relevant

management elements in areas of other cornerstones are employed and vice versa.

A major contribution of this research is the development of a fixed asset

management system. State and federal governments may compare their fixed asset

management to the standards identified in this system. Local governments may find

appropriate management components to adapt to their characteristics from this system.

vi
 DEDICATION

This manuscript is dedicated to my wife Wenzhi and my son George. Wenzhi has

shown her constant concern about the progress of my dissertation. Her concern and the

care she took of our family had been a loving push for me to exert every effort in my

dissertation. George has piously prayed that I could have wisdom and finish my

dissertation as expected. This manuscript is also dedicated to my late father whose great

desire was that his son would obtain a doctoral degree.

 PUBLIC ASSET MANAGEMENT: EMPIRICAL EVIDENCE FROM THE STATE
GOVERNMENTS IN THE UNITED STATES

LIST OF TABLES ........................................................................................................xi

LIST OF FIGURES .……………………………..………………………………….xiii
CHAPTER 1. INTRODUCTION .................................................................................. 1
The Current Situation of Public Asset Management in the United States ................. 3
Federal Government ............................................................................................... 4
Local Government .................................................................................................. 7
State Government ................................................................................................... 9
Purposes of Research ............................................................................................... 11
Research Methods .................................................................................................... 15
Organization of the Dissertation .............................................................................. 17

PART I. LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK ............... 20

CHAPTER 2. LITERATURE REVIEW...................................................................... 20
Definition and Classification of Public Assets ......................................................... 20
Public Assets Management ...................................................................................... 25
Objectives and Goals of Asset Management............................................................ 28
Driving Forces for Efficient and Effective Public Asset Management .................... 32
Issues Affecting Achievement of Public Asset Management Goals ........................ 37

CHAPTER 3. PUBLIC ASSET MANAGEMENT SYSTEM..................................... 42

CHAPTER 4. LEGAL AND REGULATORY REQUIREMENTS ............................. 54
Laws and Regulations .............................................................................................. 55
Policies Concerning Public Asset Management....................................................... 60
Norms and Guidance ................................................................................................ 63
Procedures of Fixed Asset Management .................................................................. 65

CHAPTER 5. ORGANIZATION STRUCTURE ........................................................ 68

Fixed Asset Management Organization Structure ................................................... 68

vii
 Fixed Asset Management Decision-Making Structure ............................................ 76
Capacity Building of Fixed Asset Management ...................................................... 83

CHAPTER 6. THE FIXED ASSET MANAGEMENT THROUGHOUT

THE LIFE CYCLE OF ASSETS .......................................................... 89
Fixed Asset Planning................................................................................................ 89
Fixed Asset Acquisition ........................................................................................... 96
Purchases .............................................................................................................. 97
Construction........................................................................................................ 102
Leasing................................................................................................................ 107
Donations ............................................................................................................ 110
Acquisition through Tax Foreclosure ................................................................. 111
Eminent Domain ................................................................................................. 111
Trades ................................................................................................................. 112
Transfer ............................................................................................................... 113
Fixed Asset Operation and Maintenance ............................................................... 114
Premises of Sound Fixed Asset Operation and Maintenance ............................. 114
Portfolio Management ........................................................................................ 115
Fixed Asset Disposition ......................................................................................... 120
Transfer ............................................................................................................... 124
Sale ..................................................................................................................... 124
Lease ................................................................................................................... 125
Changing Functions ............................................................................................ 126
Retirement .......................................................................................................... 126
Property Life Cycle Management .......................................................................... 128

CHAPTER 7. HUMAN CAPITAL STRATEGIES ................................................... 134

The Investment in Workforce for Public Fixed Asset Management ...................... 134
Strategic Human Capital Planning ......................................................................... 136
Human Capital Development for Property Management Talent ........................... 137
Creating Results-Oriented Organizational Culture ................................................ 139

viii
CHAPTER 8. INFORMATION AND TECHNOLOGY RESOURCES
MANAGEMENT ................................................................................ 142
Fixed Asset Information ......................................................................................... 144
Financial and Accounting Information .................................................................. 148
Accounting and Financial Reporting .................................................................. 148
Fixed Asset Valuation ........................................................................................ 150
Management Information Stewardship .................................................................. 154

CHAPTER 9. MONITORING, INTEGRITY, TRANSPARENCY OF

FIXED ASSET MANAGEMENT ...................................................... 159
Monitoring and Oversight ...................................................................................... 159
Monitoring of Compliance with Laws and Regulations ..................................... 160
Monitoring of Effectiveness of Policies & Procedures ...................................... 161
Contract Monitoring ........................................................................................... 161
Monitoring of Performance Measurement ......................................................... 162
Financial Accountability Monitoring/Auditing .................................................. 163
Integrity and Transparency of Fixed Asset Management ...................................... 167

PART II. RESEARCH METHODOLOGY ............................................................... 172

CHAPTER 10. RESEARCH METHODS ................................................................. 172
Website Survey ...................................................................................................... 172
Mail Survey ............................................................................................................ 174

PART III. RESEARCH FINDINGS AND ANALYSES ............................................ 178

CHAPTER 11. PUBLIC FIXED ASSET MANAGEMENT PRACTICES
AT THE STATE GOVERNMENTS ................................................. 178
Capital Budget and the Position of Fixed Assets in the State Governments.......... 178
Legal and Regulatory Framework .......................................................................... 183
Organization Structure ........................................................................................... 196
Location of Fixed Asset Management Authorities ............................................. 196
Fixed Asset Management Approaches ............................................................... 200
Capacity Building ............................................................................................... 204
The Management Process throughout the Life Cycle of Assets ............................ 206

ix
 Fixed Asset Planning .......................................................................................... 206
Privatization of Fixed Asset Services ................................................................. 209
Composition and Utilization of Fixed Assets ..................................................... 212
Expansion of Fixed Asset Management Functions ............................................ 214
Human Capital Strategies ....................................................................................... 214
Information and Technology Resource Utilization ................................................ 217
Fixed Asset Management Information ............................................................... 217
Assessment of Fixed Asset Management Performance ...................................... 221
Monitoring, Integrity, and Transparency ............................................................... 224
States‘ Comparison with Standards of the Public Asset Management System...... 228

CHAPTER 12. RELATIONSHIPS BETWEEN CORNERSTONES ....................... 231

Relationship of Legal and Regulatory Requirements with other Cornerstones ..... 231
Relationships of Organization Structure with Other Cornerstones ........................ 234
The Relationship of Management Process with Other Cornerstones ..................... 235
The Relationships of Human Capital Strategies with Other Cornerstones ............ 236
The Relationships of Information Resource with Other Cornerstones .................. 237
The Relationships of Monitoring and Transparency with Other Cornerstones ..... 237

CHAPTER 13. CONCLUSION AND SUGGESTIONS FOR FUTURE

RESEARCH ...................................................................................... 239
NOTES ....................................................................................................................... 244
APPENDICES ........................................................................................................... 246
REFERENCES .......................................................................................................... 253

x
 LIST OF TABLES

Table 1 Public Asset Management System Comparison ............................................. 48

Table 2 OECD and GAO Standards of Public Procurement System ........................... 51

Table 3 Functions of Laws and Regulations in Public Asset Management ................. 57
Table 4 Functions of Public Asset Management Policies ............................................ 62
Table 5 Functions of Norms and Guidance in Public Asset Management ................... 64
Table 6 Major Issues Public Asset Management Procedures Addresses ..................... 66
Table 7 Checklist of Cornerstone 1 Components ........................................................ 67
Table 8 Functions of Organization Structuring in Public Fixed Asset
Management .................................................................................................... 71
Table 9 Stakeholders and their Interest in Fixed Asset Management .......................... 78
Table 10 Issues That Decision Making Involves in Fixed Asset Management ........... 82
Table 11 Issues Addressed for Capacity Building of Fixed Asset Management.......... 88
Table 12 Checklist of Property Acquisition ............................................................... 113
Table 13 The Checklist of Property Disposition Methods ......................................... 127
Table 14 Factors Incurring Life-Cycle Property Management Costs ........................ 130
Table 15 Checklist of Key Factors of Human Capital Management ......................... 141
Table 16 Checklist of Major Fixed Asset Management Information ......................... 158
Table 17 U.S. State Government Capital Outlay in Total Expenditure .................... 180
Table 18 Statement of Net Assets, California and Arkansas ..................................... 182
Table 19 Legal and Regulatory Requirements for Fixed Asset Management ........... 190
Table 20 Legal and Regulatory Enforcement in Each Respondent State .................. 193
Table 21 Guidance of Legal and Regulatory Requirements ...................................... 195
Table 22 Fixed Asset Management Organization Forms in U.S. States .................... 203
Table 23 Capacity Building of Fixed Asset Management Organization .................... 205
Table 24 Fixed Asset Planning ................................................................................... 208
Table 25 Privatization Programs in Fixed Asset Management .................................. 210
xi
Table 26 Strategic Human Capital Planning .............................................................. 216
Table 27 Employee Development Training ............................................................... 217
Table 28 Inventory of Fixed Assets ........................................................................... 219
Table 29 Effect of Fixed Asset Management Information System ............................ 220
Table 30 Measurement of Fixed Asset Management Performance ........................... 222
Table 31 Monitoring and Oversight Programs at the U.S. State Government ........... 225
Table 32 Integrity and Transparency at the U.S. State Government .......................... 227
Table 33 Current Status of Fixed Asset Management by U.S. States ........................ 230

xii
 LIST OF FIGURES

Figure 1 Public Asset Classification ............................................................................ 22

Figure 2 Determination of Organization Structure of Asset Management .................. 76
Figure 3 Decision-Making Process of Fixed Asset Management ................................ 80
Figure 4 Risk Allocation and Property Management ................................................... 92
Figure 5 Fixed Asset Management Planning ............................................................... 95
Figure 6 Property Purchasing Structure: A Combination of Centralization and
Decentralization ........................................................................................... 100
Figure 7 Property Repair during Property Operation ................................................ 118
Figure 8 Life-Cycle Property Management ............................................................... 128
Figure 9 Effect of Adequate and Timely Maintenance and Repairs on the Real
Property Service Life ................................................................................... 131
Figure 10 Information Management Process ............................................................. 143
Figure 11 General Structure of Asset Management Monitoring and Oversight ...... 1656
Figure 12 Stages of Public Asset Management Monitoring and Oversight ............... 167
Figure 13 Regional Distribution of Respondents....................................................... 177
Figure 14 Legal and Regulatory Status along States ................................................. 191
Figure 15 The Status of Respondents along Legal and Regulatory Requirements.... 194
Figure 16 Distribution of Privatization Programs ...................................................... 211
Figure 17 Distribution of Fixed Asset Management Performance Measures ............ 223
Figure 18 Measures Taken to Maintain Integrity and Transparency ......................... 228

xiii
 CHAPTER 1. INTRODUCTION

In the past decades, a number of disastrous accidents have occurred to public

infrastructure in the United States. On August 1, 2007, the I-35W Mississippi River

Bridge in Minneapolis, Minnesota, collapsed during the evening rush hour, killing

thirteen and injuring one hundred forty-five people (National Transportation Safety

Board, 2008). As a result of the bridge failure, the engineering company in charge of

evaluating the bridge‘s structural integrity (URS Corporation), the construction

company (PCI Corporation) that built the bridge, and the state government of

Minnesota in 2008 paid the victims approximately $100 million (Bakst, 2010). Not

including the loss of people‘s lives and economic interest and damage of assets in the

local community, the cost of the replacement bridge reached $234 million.

Similarly in June 1983, the Mianus River Bridge in Greenwich, Connecticut,

collapsed after twenty-five years of use, killing three people and seriously injuring

three other people (Higashide, 2008). In July 2007, an 84-year-old steam pipe erupted

in New York city, killing one man, injuring thirty others, and causing millions of dollars

of economic losses to businesses (Goldman, 2007; Scherer, 2007). In May 2003, the

Silver Lake Dam failed in Michigan. It caused $100 million in damages (Upper

Peninsula Power Company, 2003).

An in-depth comprehensive investigation found that the disastrous infrastructure

incidents were caused by a number of factors. The collapse of the bridge in Minneapolis

1
mainly resulted from design error, substantial increase in the weight of the bridge

because of previous bridge modifications, and the traffic and concentrated construction

load of the bridge (National Transportation Safety Board, 2008). The National

Transportation Safety Board found that although the bridge had been inspected every

two years and had been rated deficient in structure for sixteen years before the accident,

the conditions responsible for such rating, like rust, corrosion, and section loss on

gusset plates did not contribute to the collapse of the bridge. The collapse of Mianus

River Bridge was caused by fatigue cracking and a lack of redundancy in the main truss

system (Scherer, 2007). In addition the bridge‘s inspection was obviously insufficient.

In the case of the steam pipe eruption in New York City, the site had been inspected the

day before the explosion, yet nothing was found. The eruption was mainly caused by a

pipe rupture that occurred due to deficient repair of a leak. Key factors causing the

failure of the Silver Lake Dam included highly erosive soils, erosive velocities at flows

lower than considered in the design, a permissible velocity higher than what was

recommended, and hydraulic jump in highly erodible soils. Erosion and subsequent

head cutting of the spillway discharge channel was partly attributable to design defect

of the dam and negligence of the erosion of the fuse plug foundation.

These core causes directly resulted in the infrastructure accidents. However, when

apprised of these causes, the public may ask ―What‘s wrong with the infrastructure

management?‖ and ―Can these accidents be avoided?‖ Actually, these questions point

to problems in the management of public assets. This dissertation addresses these

problems and the issue of effective and efficient management of public assets.

2
 During Hurricane Katrina, storm surge precipitated over 50 breaches in New

Orleans‘s levees and flood walls. These infrastructure failures resulted in wide flooding

that put the majority of New Orleans under water for days. The failure of pump stations

in New Orleans worsened the catastrophic flooding during the hurricane. These facts

remind people the importance of infrastructure and other public assets. The widespread

critical infrastructure collapse calls attention to the implications of vulnerabilities of

critical infrastructures (Miller, 2007).

In the United States, government owns, controls, and uses enormous amounts of

public assets. A major portion of these public assets are fixed assets, such as buildings,

land, equipment, construction in progress, and infrastructure (like roads, bridges, sewer

lines, and water plants). Owing to their special nature, such as long life, high costs,

depreciation, and life-cycle management, fixed assets are the focus of public asset

management. Generally, asset management bears responsibility for every aspect of

fixed assets, from planning and acquisition to disposition of the property. Government

should exert efforts to effectively and efficiently manage its fixed assets for public

service delivery. In addition, like private businesses, government should maximize the

value of fixed assets when providing property services (Goldhagen, 2007). However,

traditional public asset management is still far from meeting these requirements

(Kaganova McKellar, & Peterson, 2006). It is not effectively aligned with the changing

missions of government agencies (Ungar, 2003).

The Current Situation of Public Asset Management in the United States

Governments at different levels in the United States have been implementing

3
different systems of fixed asset management. The major differences lie in organization

formats, management priorities, capitalization standards, and methods of financial

reporting (Kaganova, 2008; Peterson, 2006; GAO, 2007). But in their respective

domains of fixed asset management, the federal, state, and local governments have

encountered a number of problems.

Federal Government

Currently, the U.S. federal government employs or utilizes a combination of

centralized/decentralized fixed asset management. According to Title 40 of the U.S.

Code, the General Services Administration (GSA) takes charge of acquiring,

managing, utilizing, and disposing of real property for most federal agencies.

Individual federal agencies are delegated authority to acquire real properties by

different means. About 93% of the federally owned and leased real property (in terms

of value of real property) is concentrated in nine federal departments (GAO, 2007).1

Each year, federal agencies lease great amounts of building space mainly for offices

(51% of total leased square footage), warehouses, family housing, schools, and service.

The total square footage of leased building space has been rapidly increasing while

owned square footage is slowly decreasing. The total federally-leased building space

reached approximately 398 million square feet in fiscal year 2006 (GAO, 2008a).

However, the Government Accountability Office‘s report demonstrated that ―building

ownership often costs less than operating leases, especially for long-term space needs‖

(GAO, 2008a, p. 1).

Since 2003, the GAO has reported that federal real property is a high-risk area

4
owing to a number of reasons (GAO, 2003a, 2003b, 2004). The major reasons include

long-standing reliance on costly leasing, excess and deteriorating property, unreliable

data, and security challenges. Federal Real Property Profile (FRPP) data demonstrated

that in FY 2006, GSA, which serves as a leasing agent for most federal agencies, held

6750 leases and provided about 169 million square feet of leased building space for

nearly every federal agency that is covered in the agent leasing authority of GSA

provided by Title 40 of the U.S. Code. However, dominant federal building space lease

holders and owners have enormous amounts of excess and underutilized real property.

For example, as of October 1, 2002, GSA, the Department of Veteran Affairs (VA) and

the U.S. Postal Service (USPS) had reported 600 vacant and 327 underutilized real

properties that ranged from facilities to land located throughout the country. The space

of vacant and underutilized facilities amounted to about 32.1 million square feet (GAO,

2003c). A GAO 2007 report demonstrates that the Department of Energy, the

Department of Homeland Security, and NASA had over 10% of their facilities either as

excess or underutilized (GAO, 2007). GSA‘s number of excess or underutilized

properties increased from 236 in 2002 to 258 in 2006 while its rentable space decreased

from 18.4 million square feet in 2002 to 13.8 million square feet in 2006 (GAO, 2003c,

2007). In 2002, the VA reported 29% of its total facilities as vacant or underutilized

(GAO, 2003c). In 2007, the Department of Veteran Affairs‘ vacant buildings decreased

in number, but the amount of total vacant and underutilized space has remained

relatively unchanged since 2002 (GAO, 2008b).

Each year, while bearing the opportunity cost of excess and underutilized real

5
properties, the federal government spends great amounts of its budget repairing and

maintaining excess and underutilized properties. For example, the Department of

Defense annually expended roughly $3-4 billion in the early 2000s for maintenance of

unneeded facilities (Ungar, 2003). In 2002, the DOE reported that it had spent over $70

billion each year on maintenance and security of its excess facilities (DOE Office of the

Inspector General, 2002). Other federal agencies that hold excess facilities also spend

annually a relatively large portion of their limited budget repairing and maintaining

their excess properties.

Besides, reliability of federal property data is problematic at some major real

property holding agencies. For one thing, there are no common definitions for some

real property elements and performance measurements. It is difficult for the Federal

Real Property Council (FRPC) to reach consensus on some elements when agencies

adopt many different definitions for some elements. For another, Federal Real Property

Profile (FRPP) does not encompass complete, accurate, and timely data of the total real

property assets that the federal government owns and controls, such as their value,

overall cost, and operation status (GAO, 2007). Without appropriate data, decision

makers may have challenges to make appropriate decisions regarding reducing

operating costs, improving asset utilization, recovering asset values, and improving

property asset conditions, among others.

In February, 2004, President George W. Bush issued Executive Order (EO)

13327 to ―promote the efficient and economical use of American‘s real property assets

and to assure management accountability for implementing federal real property

6
management reforms‖ (EO 13327, Section 1). This provides a good foundation for

strategically addressing long-standing problems with federal real property

management. However, because FRPC and real property-using agencies have not taken

significant, practical measures to improve real property management, the problems that

the GAO has addressed when identifying federal real property as a high-risk area have

remained unresolved (GAO, 2007; the Federal Real Property Council, 2010).

Local Government

For local government, fixed assets account for a very large portion of total assets

on balance sheet. They provide a physical basis on which local government provides

public services. In addition, fixed assets are an indispensable part of local financial

management. On the balance sheet, net assets are an important criterion of a local

government‘s financial soundness. The increase or decrease in net assets may be a

useful indicator of the financial performance of a local government (Peterson, 2006).

This is particularly true when rating firms evaluate a municipal bond issuer‘s credit

quality. Large net assets indicate high credit quality of a bond issuer. They help keep

bond pricing competitive and bond financing cost low. Conversely, small or minus net

assets indicate poor credit quality of a bond issuer and low investment grade. Poor

credit quality and low investment grade mean a higher price for the issuer to

compensate and higher bond financing costs (Leonard, 2004). This suggests that

municipal fixed asset management is essential for a municipality‘s financial condition

and capacity building for long-term debt issuance.

One problem in traditional fixed asset management at the local government level

7
is that real properties are perceived as ―free goods‖ because the using agencies rarely

care about life-cycle management of the real property they use (Kaganova, 2006). As a

result, local government pays inadequate attention to fixed asset management. From a

caretaker perspective, local government utilizes, preserves, and maintains fixed assets.

However, local government hardly assigns appropriation to maintenance and repair of

their real property assets because it is hard to measure program performance (Kaganova

et al., 2006). This partly contributes to inefficiency in public real property management.

One direct negative consequence is that the value of municipal real assets suffers from

high-rate depreciation. Actually, as most of their real properties are tax-free, local

governments barely track real property on an individual basis, thus obtaining little

market information of the assets they own (Simons, 1993a).

In traditional practices of public asset management, local governments pay much

attention to the flow of financial resources, but little attention to understanding the

value of fixed assets and their optimal use (Fernholz & Fernholz, 2006). Similarly, local

governments have more regulatory requirements on financial flows like revenue and

expenditure, but less scrutiny on fixed asset management. As a result, expenses related

to fixed assets, such as high administrative costs, are neither systematically managed

nor strictly monitored; the value of fixed assets has not been fully utilized; market value

of fixed assets owned by local government is not effectively maintained because of

deferred maintenance and repair (Kaganova, 2008; GFOA, 2010).

Currently, in the practice of fixed asset management, local government is

confronted with a variety of challenges. For one thing, local government has the

8
pressure to improve efficiency and effectiveness in managing its vast array of fixed

assets (Kaganova, 2000). This pressure is particularly large when budget is

tremendously cut during economic and financial crisis. For another, local government

can hardly afford to employ professional real property management personnel because

of their small revenue base and financial difficulties (Hentschel & Utter, 2006).

Actually, only a very small percentage of local governments have constituted a

dedicated team to manage local property assets. Without expertise to manage its fixed

assets, local government has to resort to private professionals for expertise in real estate

management. Therefore, local governments depend more on private services to manage

real properties than do federal and state governments.

State Government

The U. S. state governments own, use, and control a large variety of fixed assets.

The major part of a state government‘s fixed assets includes motor vehicle fleets,

buildings, improvements other than buildings, construction in progress, lands,

equipment, and infrastructure. Traditionally, state agencies, despite their size, take

charge of the fixed assets they use and control. This means that individual state

agencies are responsible for maintaining, preserving, and repairing the property assets

they use and control.

Since the 1980s, driven by the impetus of the new public management movement

and other factors (like budget cuts), a number of states have established a division of

asset management or reorganized their organization of government agencies by

merging closely related functions of government into a new agency. For example, in

9
1992, the state of Florida established the Department of Management Services (DMS)

by merging two former agencies: Department of Administration (DOA) and

Department of General Services (DGS). The law that merged the two agencies (Ch.

92-279, Laws of Florida) mandated that DMS reduce its personnel expenditures

respectively by 5% in fiscal year 1993-94 and 10% in fiscal year 1994-95 on the basis

of combined amounts expended by DOA and DGS for the same categories in fiscal year

1991-1992 (Turcotte, 1996). This requirement forced DMS to streamline work

processes and experiment with new operation formats like privatization and

public-private partnerships. Another example is the Connecticut Department of Public

Works. The department was created in 1987 by the authority of the Connecticut General

Statute Chapters 59 and 60 to be responsible for major state facility capital projects,

leasing and property acquisition for most state agencies, facility management, and

surplus property statewide. This measure may constitute economy of scale and place

state resources of fixed assets under systematic planning and control, thus improving

the efficiency of the state‘s fixed assets in terms of cost reduction and potential value

increase. These examples demonstrate a trend of centralized organization of fixed asset

management at state government.

There are a number of common problems with fixed asset management in state

government. One problem relates to overdependence on leasing properties from private

businesses. Similar to the federal government, some state governments have a rather

high percentage of leased building space. The sale-leaseback of state-owned office

buildings is a common practice at state government. But a long-term lease increases

10
costs of using properties (Taylor, 2010). Another problem is about the evaluation of

asset management performance. A survey of state government websites shows that state

agencies responsible for statewide real property management have barely evaluated

fixed asset performance. A third problem is that some states do not have a complete

inventory of fixed assets. This may negatively affect decision-making for fixed asset

management.

The federal, state, and local governments have been making efforts to effectively

and efficiently manage their fixed assets. However, their problems suggest that certain

management elements are either missing or inappropriately incorporated in their

current management system. Governments have not identified an effective system that

appropriately incorporates each fundamental management component in the practice of

fixed asset management. They do not have established standards to benchmark fixed

asset management in their respective jurisdiction.

Purposes of Research

Considering the current situation of public asset management, especially the

problems government faces, this dissertation attempts to answer two research

questions. One is ―What are the characteristics of a modern public asset management

system based on the available literature?‖ The other is ―How do public asset

management practices of state governments in the United States compare to the system

‗standard‘ described in the first research question?‖

To answer the first research question, this dissertation intends to propose a property

asset management system, that is, on the basis of available literature, to identify and
11
analyze the most indispensable cornerstones that support the public asset management

system as well as the principal components that comprise each cornerstone. To date,

most of research on public asset management focuses on municipal asset management,

and thus targets more specific aspects of public asset management such as inventory

component, registration, valuation methods, technology, strategic reviews, and

physical planning. However, owing to restrictions of municipal asset management,

such as lack of expertise and human capital, public asset management system at the

municipal level does not encompass certain key components of public asset

management, such as human capital strategies and organization development. Previous

research on public asset management has not explored the entire public asset

management system. Therefore, systematic, academic research to target on a

comprehensive public asset management system will be considerably significant. For

one thing, this research will present a whole picture of public asset management from

the system‘s perspective. For another, research on a public asset management system

may provide help and guidance for public asset managers to improve effectiveness and

efficiency in their management practice. With this said, addressing the first research

question is to identify, through analysis of the literature, the major components that

constitute the characteristics of a modern public fixed asset management system.

The second research question will examine the practices of public fixed asset

management by the state governments in the United States. It will explore the

implementation of the ―standard‖ of the fixed asset management described in the first

question. There are a number of reasons for this focus on the evidence of fixed asset

12
management by the state governments. First, although state governments have a variety

of differences in fixed asset management, there should be certain components that are

indispensable and applicable to most government entities in fixed asset management.

These components may constitute a fixed asset management system that contributes to

effective and efficient performance of fixed asset management. Second, state fixed

asset management may have considerable influence on local fixed asset management.

Local governments are subject to the federal and state laws that have authority over

them. Laws and regulations that a state government enacts regarding fixed asset

management may directly affect local government in specific aspects of fixed asset

management, like fixed asset acquisition, range of asset use, and methods of asset

disposition. Third, state government usually serves as an agent of the federal

government to dispose of federal fixed assets that are located in state jurisdiction. More

often than not, state government transfers some of state surplus properties and federal

properties at disposal of state government to local government or nonprofit

organizations. Therefore, state government is a vital link to public fixed asset

management nationwide. Research on state fixed asset management may provide

useful reference for research on local public asset management. Finally, as of today,

there has been little systematic academic research on fixed asset management by state

governments. It will be significant to explore an appropriate system or model of fixed

asset management by state government. This system may encompass essential

cornerstones that in turn consist of principal components of fixed asset management.

The system may indicate how well a state government organizes and operates its fixed

13
asset management in comparison with the ―standard‖ of modern public asset

management this dissertation proposes, thus determining the contribution of fixed

assets to the performance of government service delivery and production of public

goods.

Based on the research on and identification of the characteristics of public asset

management, this dissertation raises more specific questions to examine the current

status of fixed asset management at state governments. These questions include:

- How does the legal and regulatory framework affect organizational structure,

life-cycle management, human capital strategies, information and technology

resources, and monitoring and transparency?

- What forms of fixed asset management organization are applied to serve

different property needs of government agencies?

- What public asset management measures are used to build up the capability of

fixed asset management?

- What elements are included in fixed asset planning and to what extent does

public fixed asset planning depend on these elements?

- To what degree does government select to lease rather than purchase (or

self-construct) real properties to save money on a short-term basis?

- What services of real property operation and management are privatized?

Have privatization programs achieved expected consequences?

- Is life-cycle costing combined with property asset ownership in the practice of

fixed asset management?

14
 - To what extent does human capital planning contribute to the achievement of

goals and objectives of fixed asset management?

- Does employee development training improve employees‘ subsequent

performance in fixed asset management? If yes, what effect does employee

development training have on employees‘ performance?

- Is the fixed asset information system regularly updated?

- Does the fixed asset management information system affect acquisition,

disposition, financial input, and financial reporting of fixed assets?

- What major criteria are used to evaluate performance of fixed assets

management?

- Does monitoring or oversight produce any effect on performance of public

fixed asset management?

- Do measures for maintaining integrity and transparency contribute to effective

fixed asset management?

Research Methods

To address the research questions, this dissertation will first of all analyze current

literature on the fundamentals of public asset management. These fundamentals include

categories of assets, asset management goals and objectives, driving forces for

improvement of asset management, and the current issues that remain unresolved in

public asset management. The literature analysis lays out an intellectual foundation for

a public fixed asset management system that is proposed on the basis of the theoretical

analysis and practice discussion of major indispensable cornerstones. These

15
cornerstones of fixed asset management include (1) legal and regulatory requirements,

(2) organization structure, (3) the management process throughout life cycle of assets,

(4) human capital strategies, (5) information and technology resources, and (6)

monitoring, integrity, and transparency. The process in which these cornerstones are

identified and analyzed is actually an exploratory process in which the public asset

management system is proposed. Based on the intellectual analysis and management

practices, the public asset management system is supported by both the major

cornerstones and components related to these cornerstones.

This dissertation research applies qualitative and quantitative methods to examine

the practices of fixed asset management by state government across the United States in

comparison with the public asset management system. Data are collected first through a

survey of state government websites, especially the websites of the major state agencies

responsible for state-wide fixed asset management, and then through surveying fixed

asset managers of state governments. The survey of state government websites helps

examine and understand the functions of the major state government agencies that

manage major fixed assets statewide, such as buildings, land, fleet, and infrastructure

(like roads, water supply, and sewers). The survey also provides information for

analyzing the structure of asset management organization and the outcome of asset

management. In addition, a website may provide a state government‘s legal and

regulatory requirements concerning public fixed asset management, including laws,

regulations, policy, norms and guidance, and procedures. In a modern society, websites

of public asset management agencies demonstrate the extent of transparency in the area

16
of fixed asset management.

Through surveying public asset managers, this research obtains first-hand data to

understand the current status of public property asset management at state government.

The comprehensive data collected from fixed asset managers illustrate fixed asset

management at state government in the fields of the six identified cornerstones of the

public asset management system. In each field, specific elements are analyzed to

generalize the actual principles state asset managers abide by and the major

characteristics of fixed asset management at state government. After an analysis of the

components and specific elements of each cornerstone, the research will present a

comprehensive understanding and examination of the current status of fixed asset

management practice at state governments throughout the United States. The survey

results will help each state government compare their fixed asset management to both

the standards of the fixed asset management system this dissertation proposes and the

outstanding practices most state governments have in common. This may help state

governments appropriate manage their fixed asset.

Organization of the Dissertation

The introductory chapter-Chapter 1-discusses the major tasks of this dissertation

through a review of incidents in infrastructure operation and maintenance and a brief

discussion of the situation of fixed asset management at federal, state, and local

governments. This chapter also introduces the research methods to be employed in this

research. These methods help define characteristics of the public asset management

system and contribute to data analyses that generalize the practices of fixed asset

17
management at the state government level in the U.S.

The main body of this dissertation will be divided into three parts. The first part is

literature review and conceptual framework of a public asset management system. This

part consists of eight chapters. Chapter 2 reviews literature on fundamentals of public

asset management. The literature review mainly encompasses the definition and

objectives of public asset management as well as the major factors that may influence

public asset management. Chapter 3 elaborates the system of public asset management

based on systems theory, current research on municipal asset management, and systems

of public procurement. A new public asset management system is proposed that

consists of six cornerstones identified from current municipal asset management

systems and public procurement systems. Chapters 4 though Chapter 9 deal in detail

with each cornerstone of the public asset management system. These cornerstones

include legal and regulatory requirements, organization structure, management process

throughout life cycle of assets, human resource strategies, information and technology

resources, and monitoring, integrity, and transparency. Each of these chapters analyzes

the major components and elements of a cornerstone and summarizes the functions of

the relevant cornerstone. In combination, these chapters conceptually build up a fixed

asset management system that is composed of independent elements across six

boundary fields.

The second part is a description of the research methods. This part, which consists

of only Chapter 10, describes a survey of state governments‘ websites and a mail survey

of public asset managers at the state governments in the United States.

18
 The third part, which consists of Chapter 11 and Chapter 12, analyzes the findings

of the two approaches of survey. This part first examines financial resources of the state

governments and the position of fixed assets in state governments‘ annual financial

report. Then this part analyzes the data of fixed asset management collected through the

mail survey to fixed asset managers at state governments. The analyses compare fixed

asset management at the state government level against the conceptual system of fixed

asset management developed in the second section. In addition, this part summarizes

the outstanding components of fixed asset management through data analysis. It also

analyzes the variance between individual state governments and the relationship

between the six cornerstones of the fixed asset management system.

The concluding chapter—Chapter 13—summarizes the significance of this

research to the academic field of public asset management and fixed asset management

in practice. This chapter also advances indications of this research to the state

governments in the United States. In addition, this chapter briefly discusses the

limitations of this research and recommends research to be developed in the future.

19
 PART I. LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK

CHAPTER 2. LITERATURE REVIEW

Research on public asset management cannot omit fundamental concepts

concerning the key nature and functions of public assets. Each asset should be

conceptually and operationally defined so as to determine its characteristics and

classification. On this basis, contents, goals, and objectives of asset management are

clarified and determined within the range of organizational missions and

responsibilities. Going further, issues in public asset management may be explored with

a goal of improving asset performance, and the effectiveness and efficiency of public

asset management. This section examines these cardinal elements to understand public

assets and public asset management. The discussion provides a basis on which a

comprehensive system of modern public asset management is proposed and developed

in Chapters 4 through 9.

Definition and Classification of Public Assets

Asset can be defined from different perspectives. From an accounting perspective,

the International Accounting Standards Board defines an asset as ―a resource controlled

by the enterprise as a result of past events and from which future economic benefits are

expected to flow to the enterprise‖ (The IASB Framework for the Preparation and

Presentation of Financial Statements, paragraph 49). Similarly, the Financial

20
Accounting Standards Board defines assets as ―probable future economic benefits

obtained or controlled by a particular entity as a result of past transactions or events‖

(The FASB Concepts Statement No. 6, Elements of Financial Statements, paragraph

25). Based on these two definitions and several others, like the UK Statement of

Principles for Financial Reporting, the IASB proposed a working definition of an asset.

According to this definition, an asset is ―a present right, or other access, to an existing

economic resource with the ability to generate economic benefits to the entity‖ (IASB,

2005, p. 2). Broadly speaking, definitions of assets indicate that assets have the

following characteristics (1) a right or access, which means an aspect of control and

excludes other people‘s access; (2) an economic resource that has value and is scarce;

(3) the ability to generate future economic benefits, or the ability to produce favorable

cash flows; and (4) a completed transaction that leads to the entity‘s right to control of

the benefit (FASB, 1985; IASB, 2005).

It is important to note two common characteristics of assets on the balance sheet.

One characteristic is that assets are not necessarily associated with ownership because

assets equal liabilities plus equity, where equity is equivalent to net asset (Gauthier,

1997). This means that assets are not necessarily equal to net assets. The other

characteristic is that assets are measured in financial statements as of the date of the

balance sheet (Ruppel, 2005). In the public sector, governments report net assets as of

the end of a fiscal year.

Assets are generally categorized into tangible (like, cash, real estate, and

equipment) and intangible assets (such as patents, copyrights, franchise, trade names,
21
and trademark) in terms of physical substance. Tangible assets can be further

categorized into movable assets that are not affixed to real estate and can be moved and

used after removal (like equipment, furniture, and automobiles), and immovable assets

that cannot be moved or cannot be used if removed (Viljoen, 2009). From an

accounting perspective, assets are categorized into current assets (including cash and

cash equivalent, short-term investment, accounts receivable, tax receivable, inventory,

and prepaid expenses), and non-current assets, including long-term investments and

fixed assets (like land, buildings, equipment, furniture, tools, infrastructure, public

housing projects, and water distribution systems) (Viljoen, 2009). Figure 1 summarizes

the classification of assets.

Figure 1 Public Asset Classification

Assets

Current Assets Non-Current Assets

Tangible assets Intangible

Assets
Movable Immovable

Government obtains assets in ways different from private businesses. Government

revenue is mainly obtained through statutory authority while private businesses receive

revenue from the sale of goods and services. On this basis, in the public sector, an asset

is a public economic resource that is obtained or controlled by government as a result of

past transactions and events, including legal obligations. Generally, public assets are

indispensable means by which government operates to provide public services and

22
produce public goods.

Governments at different levels or even governments at the same level may have

different arrays of assets under control. Assets in a government-wide financial

statement include current assets, restricted cash and cash equivalents, long-term

investment, and capital assets. In practice, various terms are used to denote the focus of

public asset management, such as real estate in ―real estate management,‖ real property

in ―real property management,‖ property asset as in ―Federal Real Property Asset

Management,‖ and fixed or capital asset as in financial statement. These terms

emphasize different classification of public assets and relationship of owners to assets.

The word ―property‖ highlights the relationships between a property and the owner(s)

and non-owners. It confirms the rights of the owner(s) to the property and negates the

rights of non-owners. In contrast, the word ―asset‖ emphasizes the economic value (or

resource) of a tangible or intangible item that may produce future economic benefit.

The term ―estate‖ consists of all property one owns or controls. From a legal

perspective, it has a larger coverage of financial interest. Based on different connotation

of these terms, ―real estate‖ and ―real property‖ may refer to the same tangible

entity—land and buildings or other objects permanently fixed to the land, but with

different preference. Generally, ―real estate‖ mainly encompasses land and all physical

property on, below, or attached to the land while ―real property‖ in the public sector

includes more physical entities than those of ―real estate,‖ such as waste distribution

systems, infrastructure, hydro electric projects, computer hardware and software, and

weapon systems. The term ―property asset‖ is to some extent not a clear expression of

23
preference in that it mainly refers to real property, like land and buildings (Kaganova et

al., 2006; Gibson, 1994); but it also emphasizes the nature of assets as a public

resource—value and benefits.

In practice, ―fixed asset,‖ sometimes referred to as property, plant, and equipment,

is often considered equivalent to ―capital asset.‖ In government financial reporting or

accounting, fixed assets or capital assets are non-current assets that cannot be easily

converted into cash. They consist of long-lived assets that are depreciable and

non-depreciable. According to Government Accounting Standards Board (GASB)

Statement 34 (Paragraph 19), ―all tangible or intangible assets that are used in

operations and that have initial useful lives extending beyond a single reporting period‖

are accounted as capital assets.

The most common classes of capital assets encompass land, improvements to land,

easements, buildings, building improvements, vehicles, machinery, equipment, and

works of art and historical treasures. Since 1999, GASB Statement 34 requires that

infrastructure assets be recorded as part of a government‘s capital assets. Some

examples of infrastructure assets include transportation and communication systems,

drainage systems, water supply and sewer systems, dams, road networks, and lighting

systems. Governments formulate and implement different capitalization policies that

set minimum dollar thresholds to determine what specific purchases are recorded as

capital assets. The thresholds vary according to governmental functions, organization

size, and standards of value and length of useful life (Ruppel, 2005).

However, in economics and accounting of businesses, fixed assets are not identical

24
to capital assets. In the production of a product, fixed asset is fixed capital which is a

portion of total capital and is not used up in contrast with circulating capital such as raw

material and operating expenses. Stickney & Weil (1997, p. 622) suggested that the

term ―capital assets‖ be avoided except in financial reporting and accounting because it

is used in many different senses that are not well defined. For example, it is often used

as a synonym for fixed asset in accounting or for investment in securities. Considering

the connotation of capital asset the feature of fixed asset, ―fixed asset‖ is an appropriate

term to discuss the focus of public asset management.

From a management perspective, all public fixed assets can be classified into three

categories in term of functions: fixed assets for governmental use (e.g., offices, police

stations, firehouses, warehouses), fixed assets for social use (school buildings, health

service facilities, public housing, parks and recreation facilities), and surplus fixed

assets (Utter, 1989). According to Hentschel and Utter (2006), government-use assets

and social-use assets are the core assets that government uses and controls to achieve its

goals of service delivery; surplus property assets are non-core assets that are

―supplementary or complementary to the government‘s service delivery mission‖ (p.

184). Government may adopt different policies and implement different strategies to

manage each category of fixed assets to achieve its goals and objectives.

Public Assets Management

Builta (1994, p.83) defined asset management as ―the process of maximizing value

to a property or portfolio of properties from acquisition to disposition within the

objectives defined by the owner.‖ This is a broad definition that describes the functions

25
of managing property assets either as investment assets or as operational assets. In

addition, the definition identifies the objective of fixed asset management, that is,

―maximizing value to a property or portfolio of properties‖ (Builta, 1994, p.83) in

either case of asset management.

Generally, assets held for investment are managed to earn a certain rate of return on

capital; they appreciate in capital value in the case of long-term ownership. Assets held

for operations are expected to support the business of the entity that occupies the

property (Edwards & Ellison, 2004). In the public sector, fixed assets are not purchased

or constructed for commercial investment except in government-owned enterprises.

Instead, fixed assets are usually considered as an economic resource and as a means by

which government fulfills its goals and objectives of service delivery. Ideal types of

fixed assets and appropriate management of fixed assets may determine the overall

organizational performance of fixed assets. Therefore, the major task of managing

public fixed assets is providing services for fulfilling government functions rather than

having cash flow or marketing fixed asset for profits (Builta, 1994).

Kaganova et al. (2006, p. 2) defined asset management as ―the process of

decision-making and implementation relating to the acquisition, use, and disposition of

real property.‖ This definition applies to both the private sector and the public sector.

Acquisition, utilization, and disposition are the major activities of both private and

public fixed asset management. Specifically, these activities may include inventorying,

valuation, portfolio review, financial auditing, and asset reporting (Fernholz &

Fernholz, 2007; Builta, 1994; Harris, 1994a). However, strategies to implement these

26
activities are different to some extent between the private and public asset management.

For example, in the private sector, real property management involves ―valuating the

financial performance of each property in the context of the whole portfolio‖

(Kaganova & Nayyar-Stone, 2000, p. 311). This may provide information for

acquisition, holding, or disposition of individual properties on the basis of both

financial characteristics and optimal portfolio composition. In contrast, fixed asset

management in the public sector barely evaluates the performance of their properties

overtime (Simone, 1993b). Very few government agencies measure the performance of

their fixed assets in monetary terms. There are at least two reasons that lead to these

inactive fixed asset management practices. One reason is that fixed assets are

traditionally considered as ―free goods‖ (Kaganova et al., 2006). It seems that a fixed

asset user is given the asset for free because it does not take a strategic approach to

managing its fixed assets and because it does not completely recognize the value of its

assets (Gibson, 1994). Generally, the value of fixed assets is depreciated until the assets

retire. Owing to this accounting rule regarding public fixed assets, few government

entities care about the market value or fair value of the fixed assets they own (Simon,

1993a). A second reason is that, unlike private enterprises, government entities do not

have a common standard (like financial requirement) to measure performance of

property asset services. Therefore, it is difficult to quantify the contribution of fixed

assets that government owns and controls (Gibson, 1994).

Public fixed asset management is affected by various factors, such as political

influence, legal framework, regulations, organizational arrangement, administrative

27
decisions, and composition of stakeholders (Fernholz & Fernholz, 2006, 2007). These

factors strongly affect acquisition (like purchasing, transfer, and decentralization),

ownership, leasing, sale, and use of public fixed assets, and responsibilities of

management. In addition, these factors also determine the specific modes in which

public fixed assets are managed, such as public-private partnerships, coordination and

cooperation between government agencies, participation of stakeholders, measures for

transparency, measures for maximizing the value of fixed assets and improving the

efficiency of using fixed assets.

Objectives and Goals of Asset Management

In the private sector, the objectives and goals of asset management are determined

by the objectives and goals of the asset‘s owner. As previously mentioned, fixed assets

are held and managed for two different purposes. One purpose is to consider fixed

assets as commercial investment. The other purpose is to consider fixed assets as an

assisting mechanism for the owner to fulfill the major objectives of manufacturing

products and/or delivering services. For either purpose, the major objective of fixed

asset management is to maximize the value of fixed assets. However, the value to be

maximized does not necessarily mean financial value. It also means social value,

cultural value, and ecological value (Fernholz & Fernholz, 2007). When a property is

held as an investment asset, asset management focuses on pecuniary returns on capital

(Edwards & Ellison, 2004). This can be fulfilled by maximizing the after-tax rate of

return on the basis of financial flows while minimizing operating and financial cost

(Simons, 1993b). However, in this case, there are situations where the asset owner is
28
less interested in economic return than in other objectives (Friedman, 1994).

Correspondingly, fixed asset management may shift focus to satisfying the needs of the

owner. In the case of operational assets, fixed assets are not usually used for financial

purpose, but as a part of the asset owner‘s investment to provide services for activities

of the business (Edwards & Ellison, 2004). Expenses of fixed asset management are a

part of the cost of investment. From this perspective, the objective of fixed asset

management is to maximize the value to the portfolio of the fixed assets so that

appropriate services are provided at low cost. However, when the asset owner is the

sole tenant, fixed asset management has to take into account the image of the owner in

the management process (Friedman, 1994). In this case, the principle of bottom line

profit may not be as important as in other cases of fixed asset management.

For either purpose of asset ownership discussed above, asset management needs to

follow the golden principle of obtaining the most at the least cost. Generally, the impact

of property taxes on real estate is an indispensable element asset managers have to take

into account when calculating the cost of property operation and management.

Additionally, efficiency and effectiveness are vital elements in the course of cutting

cost and improving services.

In the public sector, generally speaking, government agencies do not produce

goods and provide services for economic profits. Neither does government finance

fixed asset acquisition and provide services with fixed assets it owns mainly for

economic profits. In reality, public fixed asset management exerts very little effort to

produce cash revenue (Simons, 1993b, 1994). Fixed assets are owned and leased to

29
serve agencies in fulfilling governmental missions, to provide services for the public,

and to provide workplaces for the employees (National Research Council, 1998). The

objective of public fixed asset management is to promote efficient and economic use of

government-owned real properties (GAO, 2008; Executive Order 13327). Fixed asset

management serves as a mechanism to equitably distribute certain public resources.

The goals of public asset management can be generally classified into two

categories: traditional and non-traditional (Kaganova & Nayyar-Stone, 2000). The

traditional goal is to supply appropriate properties for providing public goods and

services at the least cost, based on market valuation (also see Fernholz & Fernholz,

2007, p.14; Dent & Bond, 2007). The U.S. Federal government and some state

governments that implement centralized asset management provide efficient and

effective asset services that are as competitive as in the private sector. Government

agencies are allowed to select private real property services if they find the services

provided by the centralized asset management agency inappropriate in quality and

expenses. Typical examples of the non-traditional goals include supporting economic

development, promoting social development, and developing governmental revenue

sources (Simons, 1994; Fernholz & Fernholz, 2006; National Research Council, 1998;

Dent & Bond, 2007; Kaganova & Nayyar-Stone, 2000). These non-traditional goals

can be implemented through land allocation, environmental projects, public housing

programs, and disposing of surplus assets, among other strategies. Actually, the

non-traditional goals of fixed asset management are closely related to government

strategic planning that focuses on productive use of public assets, or on the disposal of

30
surplus assets, or on capital investment in social development programs.

Government defines the goals and objectives of their asset management according

to the assets they have or the goals and objectives of government. The U.S. General

Services Administration (GSA), as the federal government‘s leader in asset

management, defines its goals of asset management as helping federal agencies on

federal fixed asset management issues. These issues include inventory management,

asset management planning, and performance measurement; developing programs and

methods to assess agency compliance; overseeing and improving the Federal Real

Property Profile (FRPP) and the government's database of federally owned and leased

assets; inventorying and evaluating real property performance; developing and

promoting safe, high performance workplaces; and directing and developing

regulations to ensure full effective utilization of assets, appropriate levels of investment

in assets, and disposal of surplus real properties (GSA, 2009a, 2009b). Besides, asset

management targets supporting agency missions and strategic goals through employing

life-cycle cost benefit analysis and using public and commercial benchmarks and best

practices (GAO, 2007). Florida Department of Management Services, which is in

charge of part of the state fixed assets, clarifies that its objective of asset management is

―to establish responsibility for public assets, provide for better utilization of property,

facilitate the physical inventory, and comply with the laws of the State of Florida‖

(Florida DMS, 2009, p.1).

Generally, few local governments have dedicated agencies to manage the assets

they own. Comparatively, local governments have a modest revenue and low

31
percentage of surplus assets (Hentschel & Utter, 2006; Kaganova & Nayyar-Stone,

2000). Considering these characteristics, local government focuses more on fulfilling

traditional goals and less on non-traditional goals of asset management. While

examining public asset management in U.S. cities, Hentschel and Utter (2006) asserted

that ―[t]he goal of municipal asset management is to achieve an efficient and balanced

deployment of the portfolio of municipal properties so that it will yield the most

benefits at the least cost‖ (p.172). Although this goal definition applies to asset

management at all levels of government, it clarifies the very focus of local public asset

management.

In a word, the goals and objectives of public asset management center around

providing services for government operation through maximizing the value of the fixed

assets that government owns and leases while minimizing the cost of asset utilization.

From this perspective, there is not much difference between public and private asset

management. Government agencies should emulate their private counterparts with

regard to strategies and approaches to success of management (Hentschel & Utter,

2006).

Driving Forces for Efficient and Effective Public Asset Management

As mentioned previously, the traditional practice of public asset management

considers properties as ―free goods.‖ This perception partly contributes to some

deficiencies of public asset management. A number of issues and requirements drive

public asset management to update its goals and objectives that aim to maximize the

value of properties at the least cost in the process of providing appropriate services for

32
government agencies. The major driving forces for efficient and effective public asset

management include (1) new public management movement, (2) demands of financial

payoff from real asset management, (3) accounting reforms, and (4) application of

private sector practices to government fixed asset management (Kaganova et al., 2006;

Dow, Gillies, Nichols, & Polen, 2006).

New Public Management is a movement that originated from governmental

response to the fiscal crisis of the 1970s. It aims to produce a government that works

better at less cost through improved performance, efficiency, and effectiveness

(Denhardt, 2004). To achieve high efficiency at low cost, government exerts efforts to

restructure bureaucratic functions and streamline governmental operation processes.

Osborne and Gaebler (1992) provided a number of principles for government

entrepreneurs to transform governmental functions and improve public services. Some

of these principles include doing more steering and less rowing, injecting a competitive

system into the public sector, creating mission-driven organizations, funding outcomes

rather than inputs, establishing customer-driven systems, decentralizing decision

making, and applying market-oriented thinking to public service delivery (also see

Hood, 1995; Kearns, 1996; Kettle & Milward, 1996; Kaboolian, 1998; Barzelay, 2000;

Pollitt & Bouchert, 2000). To implement these principles, government agencies employ

privatization, outsourcing, performance measurement, strategic planning,

public-private partnership (in disposing of surplus assets and acquiring assets through

construction), and new formats of budgeting (like performance budgeting and

results-oriented budgeting), among other approaches. The core principles of New

33
Public Management drive public asset managers to redefine the goals and objectives of

public asset management.

Public assets account for a large portion of total economic and financial assets

under the control of government. For the U.S. federal government, its receipts in fiscal

year 2006 were $2.178 trillion while the replacement value of its real property assets

under control is about $1.5 trillion the same year (GAO, 2008a). When government

experiences fiscal constraints because of various reasons (like reduced revenues, loss in

government investment, and devolution of service responsibilities from higher level of

government without commensurate transfer of revenues), public asset management is

pushed to reduce costs and explore approaches to raise revenues from real properties

(Kaganova et al, 2006). Frequently adopted approaches in the United States include

selling surplus or underutilized properties and building public-private partnerships with

surplus properties as part of an investment.

Besides, accounting reforms and requirements in the public sector exert strong

impact on the operation of fixed asset management (Kraus, 2004; Kaganova et al.,

2006). The requirement of accrual accounting and standards of generally accepted

accounting principles clearly specify how fixed assets are accounted for and how

values of fixed assets are measured and recognized during the life cycle. For example,

Government Accounting Standards Board (GASB) in the United States requires that

capital assets on the balance sheets need to be valued frequently for financial

statements. Before GASB issued Statement 34 —Basic Financial Statements for State

and Local Governments, values of fixed assets were accounted for and reflected in the

34
financial statements but without an entry for depreciation. With implementation of

GASB Statement 34, state and local governments are required to add infrastructure

(like roads, bridges, and rights-of-way) as fixed assets to their financial statements and

account for the value of all fixed assets based on depreciation in their annual and

interim financial report. GASB Statement No. 34 allows two methods for asset

valuation. One method is to take into account straight-line depreciation or the historical

cost of assets on the basis of assigned useful lives for different types of capital assets.

An exception is freehold land because it does not have depreciation except when it is

polluted or under erosion (Andrew & Pitt, 2006). The other method that GASB

recommends is the modified reporting approach that valuates capital assets based on

market value or replacement cost. According to the first method, spending large

amounts of funds on maintenance will decrease the ending value of capital assets being

maintained; spending the same amounts of money on new construction will increase

the ending value of capital assets (Kraus, 2004). The second method of valuating

capital assets provides data of capital assets, like book value, when asset dispositions

are considered. Considering these new requirements, property managers would like to

work with legislators and relevant officials to determine priorities of spending funds

well in advance because spending priorities would somewhat change the financial

position of government (Kraus, 2004).

Therefore, the requirements of asset valuation by GASB affect the practices of

public asset management by state and local government. These requirements have

produced tremendous impact on specific approaches to be implemented during the

35
asset management process. After implementation of Statement 34, infrastructure asset

managers know better ―the impact of various funding levels on the level of service the

infrastructure will provide over the long term‖ (Kraus, 2004, p. 18). They have

supporting information for obtaining funds or adjusting spending priorities well in

advance.

In addition, the practice of asset management in the private sector has considerable

influence on public asset management (Kaganova et al., 2006). Survey results

demonstrated that public real property management had fallen behind the private sector

in a number of areas (Simon, 1993a). The major areas included centralized property

inventory, property valuation, written standards, decision making, and property

development. As a matter of fact, real property management in the private sector

provides a prototype for public asset management (Simon, 1993b). When professional

real property managers enter the realm of public asset management, they initiate

programs to efficiently and effectively manage public assets so that government can

function better at lower cost.

These driving forces analyzed above have performed vital roles in determining

goals and objectives of property asset management. On the one hand, these same forces

foster policy making about how public fixed assets should be managed to serve

customers (McKellar, 2006; Dow et al., 2006; Bizet, 2006), contribute to restructuring

asset management organization (Conway, 2006; Dow, et al., 2006; Bizet, 2006), and

bring about rational financial accounting and reporting standards (Conway, 2006;

McKellar, 2006; Dow et al., 2006; Bizet, 2006). On the other hand, these driving forces

36
help public asset managers initiate new management activities like public-private

partnerships (PPPs) (Kaganova & Polen, 2006; Kaganova & McKellar, 2006),

construct the inventory of property assets, and combine accounting, valuation, and

property reporting (Dow et al., 2006; Bizet, 2006). These forces drive fixed asset

management to become more efficient in providing effective service for government

agencies to fulfill their missions.

Issues Affecting Achievement of Public Asset Management Goals

Currently, governments at different levels own a large array of assets and lease a

great number of parcels of private real properties for public uses (Kaganova &

Nayyar-Stone, 2000; Kaganova, 2008). These assets are used and managed to

contribute to the provision of public services and the fulfillment of government agency

missions. From management‘s perspective, public asset management needs to provide

appropriate services that agencies need to achieve their goals. On the other hand, public

property asset management should provide effective services at the least cost while

maximizing the value of the property portfolios under control. However, in the actual

process of public property assets management, a number of issues are hindrances to

achieving the goals and objectives of public asset management.

One typical issue that hinders property asset management in achieving its goals and

objectives is that the function of fixed assets to help government agencies fulfill their

missions has not been adequately recognized in the processes of strategic planning and

budgeting (National Research Council, 1998). Issues related to fixed assets are not

usually on the agenda of a government‘s strategic planning that focuses on the

37
long-term mission of the government. The only time when decision makers discuss

fixed assets‘ functions to support the fulfillment of governmental missions is when they

review budget requests for acquiring new fixed assets. In other times of an asset‘s life,

government decision makers rarely reconsider the relation of fixed assets to the

implementation of agency missions. As a result, the costs of ownership in the full life

cycle of new fixed assets are not regularly considered. Costs for operation, repair, and

maintenance of real properties, which account for 60 to 85 percent of total ownership

cost (Christian & Pandeya, 1997), do not usually receive considerable scrutiny in the

budget process. When faced with a shortage of funds for life-cycle maintenance or

renewal, especially during economic recession, real properties deteriorate quickly and

their life cycle grows shorter than expected. In addition, when maintenance is deferred,

government expends more funds on fixed assets in deteriorated condition (Jolicoeur &

Barrett, 2004). Deferred maintenance also implies that the fixed asset whose quality

and reliability are lower than expected will not adequately serve the public or the

agency to provide public services. Because of deferred maintenance, the value of public

fixed assets is reduced and the life shortened (Hatry & Liner, 1994; GFOA, 2010).

A second issue that hinders public asset management to fulfill its goals and

objectives is fragmented management. Fragmentation of asset management means a

lack of centralized property management authority. Public fixed asset management is

implemented by many government agencies, each of which uses and controls a small

portion of the total assets that government owns and leases (Kaganova et al., 2006).

Survey results demonstrate that compared with the private sector, public asset

38
management is inferior in centralization of organization (Simons, 1993a). Under

fragmented management, government loses the advantage of the economy of scale.

Meanwhile, when leasing real properties from private owners, an individual agency

may be placed at a disadvantaged position compared with an organization as agent for

many agencies. In addition, expertise in management is hardly guaranteed. When

government lacks unitary strategies, rules, and policies, fragmented management may

bring about deficiencies in serving agencies, thus making it hard to fulfill the goals and

objectives of public fixed asset management.

A third issue is more dependence on leasing property space from private

businesses. Under fiscal constrains, government turns to leasing real properties rather

than constructing or acquiring new fixed assets. GAO (2003c, 2008a, 2009) reports that

GSA had increased its leased space from 160 million square feet in FY 2003 to roughly

172 million square feet in FY 2006; and the leased space would continue to increase in

2008. However, according to GAO (2008a), leasing looks cheaper in any year, but over

a long term (more than 30 years) it is much more expensive to lease real property than

to own real property through construction. A 1999 statistic showed that for eight of nine

major operating lease programs GSA had proposed, construction rather than leasing

would have saved $126 million over 30 years (GAO, 2008a).

A fourth issue is lack of a well-established management information system (MIS)

associated with property portfolios. Currently, governments at different levels attempt

to establish an information system of fixed asset management. However, because of

fragmented management, unitary measurements and standards are lacking in the

39
management information system, and thus MIS data are not complete (GAO, 2007).

Because property valuation and depreciation are not reflected in financial accounting,

relevant information is not available in the MIS. In addition, as revenues and expenses

are not recorded within budgeting system, such financial information cannot be tracked

on a property-by-property basis through MIS (Kaganova et al., 2006). Compared with

private counterparts, government agencies barely conduct information analysis

(Simons, 1993a). They have achieved limited success in making effective use of the

information they have collected for the ongoing management of fixed assets under

control (National Research Council, 1998).

A fifth issue is lack of accountability for stewardship and transparency in

management process. Some components of real properties have shorter lives than the

life of the whole property. Therefore, they deteriorate more easily. But the deterioration

occurs over time and may not be found instantly. Managers are accountable for current

operation of the fixed assets in their charge. They have a duty to detect incipient

deterioration before a serious problem occurs. But senior executives seldom have

incentives to worry about potential deterioration of assets until obvious deterioration

takes place (National Research Council, 1998). Besides, management of public fixed

assets involves a large number of transactions and procedures. Abuses may occur if

relevant information is not shared among stakeholders. Without knowledge of

operation procedures and policies, cooperation and coordination is lacking in the asset

management process, thus producing inefficiency and hindering the implementation of

goals and objectives of fixed asset management.

40
 In order to fulfill the goals and objectives of asset management, public managers

need to incorporate into their business operation many of the desirable, effective

approaches of real property management practice in the private sector (Simons, 1993b;

Hentschel & Utter, 2006). These approaches include establishment of written standards

of management objectives and decision-making systems, a centralized comprehensive

property inventory, consideration of rates of return for different categories of real estate

in the accounting process, cost-efficient analysis, and using market rents and a

life-cycle approach in management (Pittman & Parker, 1989; Utter, 1989; Simons,

1994).

41
 CHAPTER 3. PUBLIC ASSET MANAGEMENT SYSTEM

A system is defined as an assemblage of interrelated, interdependent elements that

interact upon each other within an environment (von Bertalanffy, 1968; Katz & Kahn,

1966; Thompson, 1967; Scott, 1961; Buckley, 1967). A system has a variety of

characteristics such as wholeness and interdependence, correlation, hierarchy, chain of

influence, self-regulation and control, and goal-oriented operation. In addition, a

system can be either closed or open on the basis of its nature and operation. A closed

system is preoccupied with internal efficiency and does not interact with its external

environment. Because it does not import energy from an external environment, the

closed system is unable to adapt to external changes, thus unlikely to survive. A typical

open system interacts dynamically with the external environment and takes in energy.

With more energy than it can expend in the process of transformation, the open system

increases its likelihood to survive. On the one hand, external environment influences a

system‘s organizational structure, planning, and objective (Katz & Kahn, 1966; Hitt,

Middlemist, & Mathis, 1989). Therefore, a system has a concern and desire for

maintenance and survival by means of adapting to environmental needs. On the other

hand, a system influences its environment through outputs and outcomes (Thompson,

1967).

In the field of management, a system transforms input into output; and it controls

input, transformation process, and output through internal and external feedback

42
(Szilagyi & Wallace, 1983). For organizations, inputs include human resources,

machines and equipment, materials, information, financial resources, and instructional

resources. Transformations of input are a process of production and management.

Generally, transformations are performed on inputs in many different modes according

to the characteristics of the inputs (Szilagyi & Wallace, 1983; Hodge, Anthony, &

Gales, 2003).

Public asset management involves a variety of components that work together for

efficient service delivery and low cost. These components involve every internal

element of public asset management including response to relevant external

environmental factors. Conjointly, components of fixed asset management constitute a

public asset management system that determines consequences of asset management in

the public sector. Developing an appropriate system is an essential issue for effective

and efficient management of public assets. Ideally, the purpose of this strategy is to

establish mechanisms by which public asset managers provide appropriate asset

services to help government fulfill its mission, goal, and objectives. On this basis, the

goals and objectives of public asset management are dependent on the goals and

objectives of government departments and agencies. Therefore, designing an effective

public asset management system takes into account the relationship between

government service delivery and the needs of assets to implement government service

delivery.

Considering the principles of systems theory applied in public asset management,

public asset management is a complex process of making and implementing decisions

43
regarding acquisition, utilization, and disposition of public assets (Kaganova et al.,

2006). Decisions are made within a legal and regulatory framework. Decision making

involves not only information and models (Simons, 1957, 1965, 1997; Lindblom, 1959;

Cyert & March, 1963; Allison, 1971) but also levels, goals, and preferences

(Ivancevich et al., 1977; Hodge, Anthony, & Gales, 2003; Mintzberg, 1979; Hall,

1971). Decision making directly determines the whole process of management

throughout an asset‘s life cycle, including what assets are acquired, how they are

managed, and when they are disposed. In addition, asset management decisions may

produce an impact on the external environment. For example, government ownership

of fixed assets, such as land, public buildings, highways and rights of way, and military

bases significantly influences the growth of the real estate market (Downs, 1991). The

presence of government assets may influence the rise and fall of real estate values.

Decision implementation closely relates to the organization of human and economic

resources, efficiency and effectiveness and performance evaluation. Therefore, public

asset management is also a process by which various categories of human and

economic resources are appropriately collocated for maximum outputs and positive

outcomes. Moreover, in a democratic society, public asset management as a part of

government operation is under monitoring and oversight both from government

departments with monitoring functions and from social groups and citizens. Under the

guide from statutes, regulations, ordinances, and professional ethics, monitoring and

oversight may ensure integrity.

Researchers have attempted to establish a public asset management system (or

44
framework) through examining functions, practices, and experiences of public asset

management. Owing to differences in research purpose and in focus of public asset

categories, all the public asset management systems ever developed contain distinct

components. Therefore, they serve particular functions and contribute to various

consequences.

Simons (1993a, 1993b), after having analyzed the data obtained from a series of

surveys of corporate real estate managers (see Veal, 1989; Gale & Case, 1989; Pittman

& Parker, 1989; Redman & Tanner, 1989; Potter, 1992) and public real estate managers

in the Cleveland, Ohio, metro area, has explored the status of public real estate

management in the early 1990s in comparison with corporate real property

management. The significance of Simons‘ research (Simons, 1993b, 1994) is that the

research, although based on a survey in a relatively small region, has identified the

deficiencies of public real estate management in the organization of real estate,

information management, formalization of objectives and rules, and specific

approaches of real estate management. The comparison of corporate and public real

property management demonstrates that government falls behind private business in a

number of specific areas; and it is feasible to apply certain private real estate

decision-making and management practices in the public sector. The research

recommends approaches to organizing government real estate management. The major

steps encompass establishing a centralized real estate authority to direct control over

acquisition, management, and property disposition functions, devising policies and

decision rules appropriately, creating a property-by-property accounting system,

45
creating management information system (MIS), developing expertise to derive

maximum financial return, and evaluating asset holdings like a portfolio. These

measures are crucial components that help resolve the current issues in public asset

management, but they are far from constituting a comprehensive system of public asset

management. On the one hand, Simon‘s approaches to real estate management (Simon,

1993a, 1993b, 1994) constitute an operating mechanism at local government. Measures

like centralized control over acquisition may not apply to a government that owns huge

amounts of assets under the control of various departments and agencies. On the other

hand, Simon‘s approaches are far from constituting a public asset management system

because a public asset management system is rather complex and involves many

components and complicated processes.

Kaganova and Nayyar-Stone (2000), Kaganova (2008), and Kaganova,

Nayyar-Stone, and Peterson (2000), based on the Denver Model of real property

management, the corporate real estate asset management prototype, and their literature

review of approaches to public asset management, have established a framework of

municipal fixed asset management. The framework is composed of an inventory

component, a property management and an accounting component, a portfolio

management component, and a strategy implementation component. Each component

consists of specific items that can be implemented at different stages of asset

management. Overall, these items form a ―menu‖ that contains major activities to make

public asset management more effective (Kaganova & Undeland, 2006). According to

Kaganova (2008, p. 10), ―any local government can select items from this ‗menu‘ that

46
have the highest priority in local circumstances and are politically and administratively

feasible to start with.‖

Fernholz and Fernholz (2007) identified seven components and established an

asset management system for local governments. The seven components are a political,

legal, and regulatory framework; inventory and information system; registration of

municipal assets; the financial reporting system; administrative and organizational

considerations; technology and asset management; and strategic views of asset

management. This framework of public asset management encompasses essential

components connected with public asset management. In a narrow sense, it may serve

as a useful toolkit for asset managers at local government. However, the framework

fails to address the process of management from asset acquisition to asset disposition.

In addition, as local government hardly possesses appropriate expertise of asset

management in certain aspects, the problem remains unsolved in the management

framework.

Obviously, as indicated in Table 1, the systems of public asset management

discussed above have a number of components in common. These common

components include centralized authority, legal and regulatory framework, a

management information system, performance evaluation, portfolio management, and

financial accounting. Other major conceptual components are pinpointed by one or two

asset management systems. These individual components are in-house expertise,

organization of asset management, a cost and benefit review, maximization of financial

return, auditing and transparency, promotion of accountability, acquisition, rental, use,

47
and sales of assets, incentive for better management, and technology.

Table 1 Public Asset Management System Comparison

Simons (1993a,b) Kaganova & Nayyar-Stone Fernholz & Fernholz (2007)
(2000)
Centralization of Strategy implementation
acquisition, management, & component: centralized
disposition authority, policy & decision,
Policy & decision-making in-house expertise, incentive Political, legal, & regulatory
for better management framework
Property-by-property property management & Financial reporting system:
accounting system accounting component: accounting standards,
management & accounting methods of valuation and
system on property-by property appraisal
basis, value report, use private
sector management approaches
Maximum financial return
Evaluating asset holdings Asset management component: Administrative and
like a portfolio role of real estate based on organizational considerations
municipal goals, class-specific for property management:
financial tools and performance organization, audit
standards, portfolio mechanism, transparency,
management approach, policy efficiency, acquisition,
for rationing property demands rental& sale of assets,
and consumption contracting
Management information Inventory component Inventory and information
system system & registration:
classification & registration of
assets, organization of registry
Technology & asset
management
Strategic review & valuation:
review of costs vs. benefits,
mission, objective, and
performance of assets,
portfolio reviews for major
assets, promoting synergies &
accountability

Public procurement and public asset management have a number of characteristics

in common. The acquisition of public assets might be a particular process of public

procurement, which involves strategic planning, solicitation development, and contract

management. The process of public asset management is concerned about a series of

purchases of goods and services from the private sector. Thus, fundamentals of public
48
procurement are also indispensable characteristics of public asset management. Like

other governmental activities, both public procurement and public asset management

operate strictly under the guidance of laws, regulations, norms, and policies. Budgeting

for public purchase and public asset management is subject to executive and legislative

procedures. It results in financial resources for purchasing public goods and services

and effectively and efficiently providing properties for government to achieve its goals

and objectives. In addition, both public procurement and public asset management

involve hiring employees and seeking expertise. Therefore, human resource

management is of high value and supreme importance for both public procurement and

public asset management. Finally, both public procurement and asset management are

susceptible to market. Supply and demand of goods and services that government needs

have impact on government purchasing and management of assets. The job market

affects the recruitment of employees that government needs.

Considering the common characteristics public procurement and public asset

management share, this dissertation takes for reference both the methodology for

assessing the national public procurement system (OECD, 2006) and the framework for

assessing procurement functions at federal agencies (GAO, 2006) to identify the major

components of public asset management. The OECD methodology is to provide a

common tool for assessing the quality and effectiveness of national procurement

systems or procurement at a sub-national and agency level. According to OECD

(2006), a national public procurement system should consist of four pillars, including

(1) legislative and regulatory framework, (2) institutional framework and management

49
capacity, (3) procurement operations and market practices, and (4) integrity and

transparency. Each pillar is composed of two or three components. Each component, in

turn, consists of a number of factors. Table 2 presents the twelve components identified

by the OECD mechanism for assessing public procurement systems. Similarly, the

GAO framework identifies four cornerstones of a public procurement system: (1)

organizational alignment and leadership, (2) policies and processes, (3) human capital,

and (4) knowledge and information management. Each cornerstone consists of a

number of elements, each of which, in turn, is supported by a variety of critical success

factors. The cornerstones and supporting elements are listed in Table 2.

Table 2 demonstrates similarities and differences between the two public

procurement systems developed respectively by OECD (2006) and GAO (2006).

Obviously, OECD and GAO have different structures or different priorities for their

public procurement system owing to their different perspectives of procurement

functions. However, it is important to note that a major component in one system might

be identified as a sub-component in another system. For example, information

management identified as a major component in the GAO procurement system is

treated as an element of the major component ―institutional development capacity‖

under the pillar of Institutional Framework and Management Capacity. Generally, the

two systems conceptually generalize a number of major blocks of a public procurement

system, either termed ―pillar‖ in the OECD system or ―cornerstone‖ in the GAO

system.

50
 Table 2 OECD and GAO Standards of Public Procurement System
OECD Procurement System GAO Procurement System
Legislative & regulatory framework:
(a) achievement of the agreed standards and
compliance with applicable obligations; (b)
existence of implementing regulations &
documentation
Institutional framework and management Organizational alignment & leadership: (a)
capacity: (a) integration of procurement aligning acquisition with agency‘s
system into public governance system; (b) missions; (b) commitment from leadership
normative or regulatory body; (c) institutional
development capacity
Procurement operations and market Policies & processes: (a) strategic planning;
processes: (a) efficient procurement (b) effective management of the acquisition
operations; (b) functionality of the public process; (c) promoting successful outcomes
procurement market; (c) contract of major projects
administration & dispute resolution
Integrity & transparency: (a) control & audit
system; (b) appeals mechanism; (c) access to
information; (d) ethics & anti-corruption
mechanism
Human capital: (a) valuing & investing in
the acquisition workforce; (b) strategic
capital planning; (c) acquiring, developing
& retaining talent; (d) creating
results-oriented organizational culture
Knowledge & information management: (a)
acquisition data & technology; (b)
safeguarding the integrity of operations &
data

Except for the variance of specific elements between public procurement and

public asset management, the conceptual framework of public procurement discussed

above covers the general components identified in the public asset management

systems developed by Simons (1993a, 1993b), Kaganova and Nayyar-Stone (2000),

Kaganova (2008), Kaganova, Nayyar-Stone, and Peterson (2000), and Fernholz and

Fernholz (2007). This framework may apply to the establishment of a public asset

management system. Legal and regulatory framework and information management

identified in public asset management are actually two major blocks of the public

51
procurement system. Other common components in the public asset management

systems previously discussed, such as performance evaluation, portfolio management,

and financial accounting, can be integrated into blocks of information management,

operation process, and audit and transparency. Other individual components of a public

asset management system (e.g. in-house expertise, organization of asset management,

cost and benefit review, maximization of financial return, auditing and transparency,

promoting accountability, acquisition, rental, use, and sales of assets, incentive for

better management, and technology) can be components or sub-components in such

blocks of an asset management system as human resource strategies, organization

structure, operation process, and monitoring and transparency. Based on the conceptual

framework of public procurement systems developed by OECD (2006) and GAO

(2006) and the major components of public asset management systems previously

interpreted, this research identifies six areas of asset management as the cornerstones of

the public asset management system. These cornerstones (for which Chapters 4 through

9 are named) are Legal and Regulatory Requirements, Organization Structure,

Management Process throughout the Life Cycle of Assets, Human Capital Strategy,

Information and Technology Resources, and Monitoring, Integrity, and Transparency.

Each cornerstone encompasses a number of interdependent components. Each

component is supported with a number of elements that are interrelated and

interdependent.

The following chapters, Chapter 4 through Chapter 9, are dedicated to each of

these cornerstones, analyzing the functions of every indispensable component in the

52
area of each cornerstone and elaborating the value of all possible elements supporting

each component. The component analysis and element elaboration are based on

available literature. Altogether, the following six chapters intend to describe the

characteristics of modern public asset management and provide ―ideal‖ standards of a

public fixed asset management system.

53
 CHAPTER 4. LEGAL AND REGULATORY REQUIREMENTS

Governments at different levels need a framework of laws and regulations that

clearly state what to do, when and how to do it. Government works according to the

requirements of laws and regulations in the process of public governance. Generally,

the legal framework of public administration is based on such common principles as

legality, equality before law and prohibition of discrimination, proportionality, legal

security and reliance on legitimate expectations, administrative procedure based on the

rule of law (United Nations Secretariat, 1995). Government must adhere to these

general principles when implementing governance. On the one hand, laws and

regulations grant government authority over the issues under its administration. For

example, government has legitimate power to levy taxes and redistribute social

resources. On the other hand, laws and regulations limit government‘s activities in the

legal framework. For example, the Administrative Procedures Act governs the way in

which U.S. federal government agencies propose and establish regulations. It also

establishes a process for federal courts to directly review the decisions made by federal

administrative agencies.

With respect to public asset management, laws and regulations are the fundamental

cornerstone on which government authority is established over public fixed assets. This

cornerstone consists of such components as policies, laws and regulations, procedures,

and norms and guidance. These components respectively or intersectantly designate

54
responsibilities and obligations of public fixed asset managers, ways and approaches of

management, specific strategies for fixed asset acquisition, utilization, and disposition.

Laws and Regulations

Laws and regulations are the fundamental basis on which public affairs are

managed. Legal framework serves as a creative instrument of public management

(Moe, 1997) According to Stanton (1995), legal framework is the fundamental element

that determines the quality of public institutions. Stanton (1995, p. 55) also posits that

legal framework largely determines ―the external environment, capacity and incentives,

nature of service to public purposes, and life cycle of each type of institutions.‖ Laws

and regulations, especially general management laws, provide working principles and

directions for the executive branch. About one hundred general management laws

promulgated by the U.S. federal government2 specify ―crosscutting provisions that

regulate the activities, procedures, and administration of all agencies of government‖

(Moe, 1997, p. 46). Special laws specify detailed approaches and strategies that

relevant agencies employ to implement daily operation.

Like any other areas of public management, public fixed asset management has

authorities, responsibilities, and obligations in accordance with laws and regulations.

At the federal government level, these laws and regulations include the following:

 the U.S. Constitution;

 relevant general management laws like those listed in Note 2;

 special laws like the Federal Property and Administrative Services Act of

1949, the Public Buildings Act of 19593 and its amendments respectively in

55
 1972, 1976, and 1988, the Federal Land Policy and Management Act of

1976, the Occupational Safety and Health Act, and the National

Environmental Policy Act;

 Presidential Executive Orders, like Executive Order (EO) 13327-Federal

Real Property Asset Management;

 Federal Property Management Regulations (Code of Federal Regulations,

Title 41, Chapter 101); and

 Other regulations promulgated by the executive departments and agencies of

the U.S. federal government, especially the Office of Management and

Budgeting, the Office of Personnel Management, the Office of Federal

Procurement Policy, the Office of Information and Regulatory Analysis, and

the Office of Federal Ethics.

State governments, while complying with particular federal laws that apply to the

whole country, promulgate and enact laws that may regulate fixed asset management at

state government. These laws may consist of

 state constitution;

 state statute pertaining to both general management of state agencies and

particular management of the fixed assets owned, used and controlled by state

government;

 state administrative code regarding state property assets;

 gubernatorial executive orders; and

 regulations promulgated by state agencies to regulate fixed assets the state

56
 owns and leases.

Local governments comply with both federal and state laws that apply to the whole

country or the whole state. Besides, local governments promulgate laws and regulations

regarding various aspects of local fixed asset management.

Table 3 Functions of Laws and Regulations in Public Asset Management

 Provide authority over fixed assets, including rights to ownership, use, and
disposition
 Establish management entities
 Determine the structure of management organization
 Provide general principles for the management, acquisition, use, and disposition
of property assets
 Prescribe rights and liabilities in contracting issues
 Designate the uses of budgetary funds and financial returns
 Provide general principles for environmental protection
 Prescribe specifications of fixed assets to be acquired and used
 Prescribe due processes and employee rights
 Specify distributions and rationings of property assets

Laws and regulations as a component in the fixed asset management system are

expected to resolve the issues listed in Table 3.

Public fixed asset management is based on laws and regulations for authority,

structure construction, responsibility definition, and management strategies. Public

fixed asset management structure is established in accordance with relevant laws. For

example, the Property and Administrative Services Act of 1949 established the General

Services Administration (GSA). Executive Order 13327 established the Federal Real

Property Council within the Office of Management and Budget for administrative

purposes to develop guidance for each federal agency‘s asset management plan. Laws

57
that regulate public asset management grant government agencies authority over public

fixed assets. The authority includes the rights to fixed assets and determining the

functions of a fixed asset in delivering public service. According to Barzel (1989), asset

rights that an individual has over assets consist of the rights ―to consume, obtain income

from, and alienate these assets‖ (p. 2). These rights can be categorized into legal rights

and economic rights. Government is no different from individuals in terms of rights

over fixed assets. Fernholz & Fernholz (2006) deem that the normally accepted rights

that government has over its real properties encompass ―the right to use, transfer and

sell the property, the right to benefit from the property, and in many cases the right to

exclude others from the property‖ (p.2). The United States Code authorizes GSA to

acquire, manage, utilize, and dispose of real property for most federal agencies. GSA

can lease building space for many federal agencies in accordance with authorities

designated in Title 40. Laws and regulations provide guidelines for the management,

acquisition, use, disposition, and agency-to-agency transfer of public assets. For

example, the Public Building Cooperative Use Act of 1976 authorizes the administrator

of GSA to acquire and utilize space in suitable buildings of historical, cultural, and

architectural significance; and encourages the public use of public buildings for

cultural, educational, and recreational activities. In addition, laws and regulations

provide specific criteria for taxes levied on government properties that serve different

purposes. Public fixed asset management must consider tax factors when determining

the functions of properties government owns and controls.

Laws and regulations also directly or indirectly designate the beneficiary of the

58
services and financial returns that public fixed assets provide (Fernholz & Fernholz,

2007). They may establish the right and obligation of chief fixed asset managers to

register assets, apply appropriate methods of asset valuation for various purposes,

establish management data bank, and initiate processes in which eminent domain is

implemented. EO 13327 requires that the administrator of GSA establish and maintain

a comprehensive database of all real properties that all executive branch agencies use

and control. This database is named Federal Real Property Profile (FRPP).

Laws and regulations determine the formats of fixed asset management by

establishing a central management agency or authorizing asset-using agencies to

acquire and manage fixed assets, dispose of surplus fixed assets, and lease real

properties from private businesses. The authority of fixed asset management may be

centralized at a dedicated agency that takes charge of policy oversight and specific

management activities, or the authority of fixed asset management may be

decentralized to asset-using agencies that are delegated authority to acquire and

manage fixed assets. In addition, as privatization yields benefits, like reducing costs,

improving service quality, and reducing the growth and dominance of the public sector

(DeHoog, 1997), it is further implemented in the public management practice of

federal, state, and local governments (Savas, 1987). Accordingly, laws and regulations

that regulate public asset management provide particular mandates concerning

contracting-out programs and leasing projects (DeHoog, 1997). These mandates

include a prescription of the rights and responsibilities of both contractors and

government agencies that purchase services in different phases of contracting-out

59
programs.

Policies Concerning Public Asset Management

Besides laws and regulations, public policy is also an important component of the

public fixed asset management system that designates what government chooses to do

with public properties. Gerston (2004) defined public policy as ―the combination of

basic decisions, commitments, and actions made by those who hold or affect

government positions or authority‖ (p. 7). This definition clearly points out the content

of public policy and who makes public policy. Public policy is not only what

government is going to do but also what government does to convert its commitments

into practice. When it makes decision, government intends to resolve issues in response

to demands and achieve particular goals to make differences (Anderson, 2003; Dye,

2002; Johnson, 1996). Those who participate in making public policies include not only

government position holders or authority, like legislators, the executive, administrative

agencies, and the courts, but also nongovernment participants, like interest groups,

political parties, research organizations, communication media, and individual citizens.

Generally, the components in the public policy process encompass

 issues that appear on the public agenda;

 the actors who present, interpret, and respond to those issues;

 resources that are affected by those issues;

 institutions that deal with issues; and

 the level of government that address issues (Gerston, 2004, p. 8).

60
 As discussed in Chapter 1, public fixed asset management demonstrates some

problems at different levels of government. In the federal government, since 2000,

successive Congresses have endeavored to address the problems that challenge federal

real property management. Initiatives have been developed to implement effective

measures on federal property management that are not encompassed in the Federal

Property and Administrative Service Act of 1949.4 However, none of these initiatives

was actually enacted due to Congressional Budget Office (CBO) scoring rules (GAO,

2008). Consequently, there have been no comprehensive legal policy tools directly for

real asset management in recent years except EO 13327 that President George W. Bush

signed in 2004. However, some other policies have been implemented in such areas as

federal high-performance green buildings (GAO, 2008c) and public land (U.S.

Department of Interior, 2001).

Public policy tools include legal tools and non-legal tools (Cooper, 1996). Legal

tools encompass statutes, executive orders, treaties, and regulations; non-legal tools are

usually principles implemented pursuant to laws and regulations. Policies discussed in

this part focus on non-legal policy tools. Non-legal policies regarding fixed asset

management are usually issued and implemented by central asset management agencies,

like GSA, or agencies that own and control an enormous amount of fixed assets, like

DOD. Environmental protection agencies may issue policies regarding new standards

of emission. This may lead local government to update waste disposal facilities. The

planning department may formulate and implement new zoning policies. As a result,

the location and cost of public fixed assets will probably be affected. In this sense,

61
policies concerning fixed asset management are expected to serve the functions listed

in Table 4.

Table 4 Functions of Public Asset Management Policies

 establish professional ethics for those involved in property asset management
 establish performance evaluation criteria
 identify priorities in purchasing, leasing, using, and disposing of real properties
 clarify zoning and real property locations
 establish property rationing criteria
 regulate regular real property reporting
 specify specific requirement for real property insurance
 determine the criteria of public real property user fees
 determine goals and objectives to improve performance of real properties

The functions of non-legal asset management policies listed in the above box are

usually not specified for every detail to deal with particular elements in fixed asset

management. The issues asset policies intend to address are actually the major issues

real property administrators need to carefully handle in the course of public asset

management. Professional ethics supplement laws when behaviors of asset managing

staff are not specifically and explicitly regulated by laws, such as the Ethics in

Government Act of 1978. Under the guiding principles of the Government

Performance Results Act of 1993, asset management agencies may evaluate

performance by designing particular criteria according to the status of the fixed asset

they manage and services they provide. To comply with GASB requirements, state and

local governments formulate capital asset policies about reporting, depreciation of

buildings, infrastructure, and leasehood improvement (see Florida Department of

Financial Services, 2001). These policies require that central asset management

62
agencies or individual asset users report annually the properties they use and control. In

addition, governments at different levels may have policies to determine priorities

when making decisions concerning fixed asset acquisition, use, and disposition to

support nonprofit organizations. For local government, zoning policies affect the

location and specification of the fixed assets government attempts to purchase or lease.

Characteristics of residential, commercial, and recreational zones will immensely affect

the consequences of public fixed asset management in these zones. Similarly,

government formulates policies regarding user fees, property insurance, and incentive

devices to improve fixed asset management.

Norms and Guidance

Norms and guidance are usually management strategies or tools central asset

management agencies or individual asset users implement to regulate either

comprehensive management or a particular element of management. For example,

Federal Real Property Council (FRPC) issued Guidance for Improved Asset

Management in 2004 to address required components for agency asset management

plans, property inventory data elements, and governmentwide performance evaluation

measures (GAO, 2007). OMB has issued asset management guidance that directs

agencies to develop capital programming processes. The Capital Programming Guide,

as one of these issuances, intends to provide agencies with a basic reference for

effective investment decision-making. The Massachusetts Executive Office for

Administration and Finance has published a facility maintenance manual to assist

maintenance and operation staff in performing their duties. Facility staff is expected to

63
meet relevant technical, legal, and regulatory requirements associated with operating

and maintaining facilities (Massachusetts Division of Capital Asset Management,

2008). Another example is that the Kentucky Department for Facilities and Support

Services issued guidance for agencies to dispose of surplus properties. Agencies with or

without delegated authority to dispose of surplus personal properties follow the

guidance when implementing surplus property disposition (Kentucky Department for

Facilities and Support Services, 2008).

Table 5 Functions of Norms and Guidance in Public Asset Management

 Operation of property purchase
 Operation of property disposal
 Property repair, maintenance, and preservation
 Contracting-out programs
 Inventory construction
 Property reporting
 Capital investment
 Land management guidance
 Responsibilities of property managers and staff
 Performance assessment

Like policies, norms and guidance are usually authoritative except when stated

otherwise. They provide public managers with management mechanisms that direct

operation of various activities in different sub-areas of fixed asset management like

building construction, repair, and maintenance, contracting, acquisition, and disposal.

On the other hand, norm and guidance standardize the operation of property asset

management activities. As an indispensable component in public fixed asset

management, appropriate guidance may help improve the quality of management

operation. Norms and guidance can be issued for various sub-areas of fixed asset

64
management, but they generally intend to address the major issues listed in Table 5.

Central fixed asset management agencies and individual property users may

publish and implement any kind of guidance for quality asset management. However, it

is important and necessary to note that the major function of public fixed asset

management is to provide support for agencies to achieve their missions and strategic

goals. Thus, the major sub-areas of fixed asset management that norms and guidance

usually address are those associated with fixed asset management processes, i.e.,

property planning, acquisition, use, and disposition.

Procedures of Fixed Asset Management

Both federal and state governments have promulgated administrative procedure

laws that define the obligations of government agencies and the procedures government

agencies must follow when formulating and enforcing rules and regulations.

Administrative procedure laws require that government agencies keep the public

informed of their rulemaking procedures and provide for public participation in the

rule-making process. From this perspective, public asset management agencies are

expected to follow the requirements of administrative procedures either in internal

operation of fixed asset management or in external connection with the public. With

regard to internal operation, which is concerned with the management attribute of

procedures, fixed asset management as a whole follows a particular procedure of

governing fixed assets for expected outputs and outcomes. This procedure basically

follows in such successive phases as asset planning, inventory of assets, assessment of

asset condition, resource allocation, asset service delivery, and asset reporting. Each
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phase of fixed asset management is composed of specific details that involve laws and

regulations, policies, and norms and guidance. With respect to external obligations,

which involve the legal attribute of procedures, public fixed asset management is

required to keep the public informed of the rulemaking procedures and call for public

participation. In addition, agency decisions regarding asset management are subject to

judicial review. Generally, procedures of public fixed asset management are associated

with the major issues listed in Table 6.

Table 6 Major Issues Public Asset Management Procedures Addresses

 Property planning
 Property purchase
 Self-construction
 Disposition
 Personnel recruiting
 Property assessment
 Property reporting
 Contracting out services or expertise
 Employee performance evaluation
 Management performance evaluation
 Public hearing

There are more issues that procedures of asset management address than are listed

in Table 6. Considering both legal and management attributes of procedures, public

asset management agencies are obliged to follow the requirements of administrative

procedures to make available the information concerning rules, opinions, orders,

records, and proceedings in every aspect of public fixed asset management. On the

other hand, government asset management agencies need to formulate procedures

regarding business operation of the major issues listed in Table 6.

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 Table 7 demonstrates the checklist of the components in the management area of

Cornerstone 1.

Table 7 Checklist of Cornerstone 1 Components

 What specific areas of fixed asset management do the existing laws, regulations,
policies, procedures, and guidance regulate?
 The functions of property assets in attaining goals of state government
 Planning for property acquisition (like cost-benefit analysis, budgeting, zoning,
and risk analysis)
 Centralized inventory and registration
 Professional ethics
 Property repair, maintenance, and preservation
 Property asset acquisition
 Property asset leasing
 Property asset use
 Property asset disposal
 Regular property reporting (like value, occupancy, and expenses)
 Property asset rationing for employees & agencies
 Responsibilities of property asset managers

In summary, public asset management depends on laws and regulations, policies,

guidance, and procedures for authorities, resources, organization, management

approaches, transparency, and determination of goals and objectives. A systematic

quality legal and regulatory framework largely determines the effectiveness of public

asset management in attaining its goals and objectives.

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 CHAPTER 5. ORGANIZATION STRUCTURE

According to institutional theory, an institution contains structure, process, and

values as the key properties (Farazmand, 2002; Powell & DiMaggio, 1983).

Organization structure provides organizational elements or institutions, determines

organizational mechanism and values, and affects the structure and functioning of

institutions. Considered as an institution and influenced by social, political, and

economic factors, public fixed asset management establishes its structure, process, and

values on the basis of laws, regulations, policies, procedures, norms and guidance as

well as other internal factors. Governments at different levels establish the organization

structure and decision making mechanism of public fixed asset management by means

of institutionalization through laws and regulations. The organization structure and

decision-making structure thus established gains legitimacy and capacity to survive and

prosper. In addition, from the perspective of systems theory, as an output of laws and

other components, organization of public asset management develops a mechanism of

sustainability building as a result of internal interaction and external exchange with

environment. This section of the dissertation focuses on the organization structure of

public fixed asset management in terms of three components: organization structure,

decision-making structure, and sustainability building of fixed asset management

Fixed Asset Management Organization Structure

An appropriate organization structure is an indispensable premise of high

68
organization performance. However, it is impossible to design an ideal structure that

satisfies the needs of all organizations (Hitt el al., 1989; Ivancevich et al., 1977; Hodge

et al., 2003). This does not negate the importance of effective structuring in achieving

high organization performance. Designing an appropriate organization structure

involves a number of key factors. One key factor is environment. Environmental

elements like market, economics, customers, suppliers, rules and regulation have

tremendous effects on the establishment of organization structure (Hitt el al., 1989;

Slocum & Helriegel, 2007). Burns and Stalker (1961) suggested two types of

organizational structures: mechanistic organization and organic organization. The

former is characterized with precisely defined activities, numerous rules and

procedures, tight hierarchical control from top management, and emphasis on formal

vertical communication, while the latter has such major characteristics as loosely

defined task activities, few well-defined rules and procedures, more emphasis on

self-control, and emphasis on horizontal communication. According to Burns and

Stalker (1961), mechanistic organizational structures are more successful in a stable

environment because little change is needed and most problems can be predicted in a

stable environment. In contrast, organic organization structures are more adaptive in a

dynamic, quickly changing environment. Research has found that organizations of high

performance take either mechanistic or organic structure according to environmental

stability or dynamicity (Lawrence & Lorsch, 1967), or they develop different structures

if they have particular internal and external circumstances (Duncan, 1972; Tung, 1979).

Besides environment, other major factors like workflow, technology, size of

69
organization, strategy, and organizational culture also have immense effects on the

designing of organizational structures. Centralization, tight control, formalization, and

specialization are more effective in the case of routine (simple and repetitive)

technology while decentralization, flexibility, and informalization are more adaptive to

nonroutine (complex and nonrepetitive) technology (Hitt el al., 1989; Daft, 2004).

Small organizations usually adopt structural forms different from that of big

organizations (Byrne, 1989). Structures of large organizations are usually hierarchical,

complex, and mechanistic while small organizations tend to use simple, responsive, and

flexible structure. An organization‘s strategies require particular organization structures

(Porter, 1980, 1988; Lewin & Stephens, 1994). Finally, an organization whose culture

values teamwork, collaboration, and open communication usually functions well with

decentralized, horizontal, flexible organization structure while an organization whose

culture emphasizes formalization, control, and specialization may work well with

centralized, vertical organization structure (Daft, 2004).

Taking into account both the factors that affect organization structure and the

features of major organization structures, organization structuring needs to resolve the

following issues in public fixed asset management (see Table 8).

Governments at different levels possess numerous categories of fixed assets.

Management of these fixed assets encompasses a variety of tracks, such as purchasing

properties, construction, leasing, property disposal, and outsourcing services. However,

fixed asset management is a section of the whole public sector governance system. It

must be integrated into the comprehensive governance system of a government in

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accordance with appropriate statutes and administrative structures. In addition,

considering the characteristics of public fixed asset management, government is faced

up with different kinds of environments. Meanwhile, governments may have different

sizes of their fixed asset portfolio, use different technologies, and adopt different

strategies when implementing fixed asset management. This suggests that government

can establish a particular organization structure or several particular structures for fixed

asset management. The key features of these structures include centralization,

decentralization, or a mixture of both.

Table 8 Functions of Organization Structuring in Public Fixed Asset

Management
 Satisfying the requirements and needs of the public sector governance
system
 Adapting to environmental characteristics: including changeability of
private real property market, construction industry, and private property
management practice
 Meeting the needs of workflow in asset management
 Satisfying the requirements of technology employed in fixed asset
management
 Combining organization structuring with organization strategies
 Adapting to an organizational culture of fixed asset management
 Meeting the needs of the size of the property portfolio
 Enabling effective, timely communication in fixed asset management
 Achieving expected fixed asset performance

Centralized management of public fixed assets is a system in which authority,

responsibility, and control of activities are concentrated in one dedicated administrative

agency. Under centralized property management, the dedicated agency is authorized

power to manage fixed assets used by all agencies of the relevant government. With
71
total centralization, the dedicated asset management agency takes charge of all property

management activities while property users have no discretion regarding particular

management operation. With low level centralization, a dedicated fixed asset

management agency is responsible only for policy oversight, monitoring, and

evaluation (see Thai, 2007). In contrast, decentralized management of fixed assets is a

system of management in which asset users are delegated authority to implement

certain activities regarding asset management, like acquisition, use, and disposition of

fixed assets under control. Total decentralization of fixed asset management is a system

in which there is no central authority or a dedicated management agency other than

statutes, policies, and regulations promulgated by either the legislature or chief

executives. It is at the opposite continuum from total centralization of fixed asset

management.

Governments may vary in levels of centralization or decentralization of fixed asset

management.5 Centralized asset management performs an essential role in attaining

goals and objectives of governmentwide fixed asset management. When implemented

appropriately, centralization of fixed asset management may demonstrate a number of

benefits, including

 establishing comprehensive information of inventory and registry of fixed

assets to improve decision making about asset management;

 allocating fixed asset among users to increase use rate and reduce surplus fixed

assets;

 providing expertise in service delivery, property maintenance, repair, and

72
 preservation;

 improving competitive capacity in acquiring property by sale and

construction;

 producing sizeable efficiencies by taking advantage of economies of scale;

 minimizing duplication of efforts that may otherwise be implemented by

individual users;

 assuring accountability and consistency in implementing property

management policies;

 freeing individual property users from getting involved in management

activities; and

 improving management efficiency by employing new technology and

management approaches (see Thai, 2007, pp. 32-33).

High-level centralization of fixed asset management applies to government (or a group

of government agencies) that does not have a vast array of fixed assets, or whose

agencies have appropriately similar amounts of properties. Meanwhile, centralized

inventory construction helps improve governmentwide decision making regarding

asset acquisition and disposal. Centralized policymaking, monitoring, and auditing may

provide a mechanism by which government evaluates financial performance and

service delivery. For example, the establishment of the Federal Real Property Council

and the required governmentwide database of Federal Real Property Profile (FRPP)

demonstrate that federal asset management is centralized from an administrative

viewpoint even though the centralization is of low level. However, centralized property

73
management also has some disadvantages. From the perspective of economies of scale,

when the quantity of output reaches a certain level, the unit cost stops decreasing. Thus,

for governments with large quantities of fixed assets, high-level centralization may not

contribute to expected reduction of cost paid for properties and services. In addition,

centralization of fixed asset management involves hierarchical decision making, which

may be more control-oriented and less efficient. When confronted with complex and

sometimes quickly changing environment, organizations need flexibility and discretion

to make prompt decisions in response to environmental changes (McCue & Pitzer,

2000; Osborne & Gaebler, 1992). However, centralization can hardly provide these

privileges because it seeks to suppress discretional and flexible operation. This

accordingly incurs conflicts between central property management authority and

property-using agencies. Actually, under a centralized management system, property

users may find their required needs unsatisfactory owing to the standardization and

formalization that the central property management authority implements.

Conversely, decentralization of fixed asset management has a number of potential

benefits. Some of these benefits include

 easier adjustment of management priority allocation,

 easier coordination within property using agency,

 prompt decision making, especially in response to changing environment,

 promptness in service delivery, and

 sensitivity to unique requirement of services.

When appropriately implemented, decentralization can offer these advantages in fixed

74
asset management. For example, as an agent of most federal government departments

and agencies, GSA is authorized to lease office space and maintain facilities for these

agencies. GSA can delegate leasing authority to the heads of all federal departments

and agencies. GSA allows these agencies to lease office space and maintain facilities by

themselves if they are not satisfied with the services GSA provides. In countries like

Canada, France, Australia, and New Zealand, many property management authorities

have been delegated to individual agencies. To ensure that individual property users

effectively implement central policies and principles, decentralization is paired with

appropriate incentives and performance benchmarks (Conway et al., 2006). However,

decentralization of fixed asset management obviously has substantial disadvantages

and risks. Some of these disadvantages and risks encompass lack of efficient inventory

control, increased cost of asset or service purchase owing to reduced volume, higher

management cost because of a separate request for services, and lack of expertise.

It is of great importance to note that in order to establish an efficient and effective

organization structure of fixed asset management, government needs to analyze the

characteristics of relevant internal and external factors previously discussed. A

balanced connection must be identified between the organization forms of fixed asset

management and achievement of missions and objectives of public asset management.

Figure 2 summarizes the relationship between the analysis of internal and external

factors and determination of fixed asset management organization structures.

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 Figure 2 Determination of Organization Structure of Asset Management

Overall governance system Centralization

Environment
Workflow Combination of
Technology centralization and
Size of organization decentralization
Strategy
Organizational culture Decentralization

Fixed Asset Management Decision-Making Structure

Decision-making is a process by which decision makers identify and solve

problems (Daft, 2004). The approach to a rational decision is based on the assumption

that decision makers are capable of clearly defining a problem, have a full range of

alternatives to consider and full information to predict the consequences of each

alternative with certainty; that decision makers have fully adequate time, skill, and

resources; and that decision makers are able to choose the alternative to maximize their

goals, values, and objectives (Edward, 1967; Forester, 1984; Zey, 1992).

Decision-making starts with defining the problem, and then proceeds through

specifying decision objectives, developing alternative solutions, evaluating

alternatives, ranking them according to their chances for success and selecting the best

one, and implementing the selected objective.

However, in the practice of decision-making, individual decision makers‘

rationality is actually bounded because, for one thing, individual decision makers have

incomplete information, inadequate time, scarce resources, and limited skills (Forester,

1984; Morçöl, 2007); for another, decision makers are frequently faced up with

76
ambiguous, poorly defined problems (Simon, 1997). Therefore, it is almost impossible

to sort out and rank all alternatives pertaining to a particular problem; and an individual

decision maker conducts limited search for alternatives and selects the most

satisfactory one (Simon, 1957; Lindblom, 1959; Perrow, 1986). The uncertainties in

decision making imply that decision makers are ―intendedly and boundedly‖ rational

(Simon, 1947). However, ―bounded rationality‖ does not imply that decision makers

give up rational, efficient efforts to maximize value and objectives to whatever possible

degree based on resources they have (Denhardt, 2004). Owing to constraints in the

course of decision making, decision makers circumvent a thorough examination of all

alternative solutions and restrict their focus to a limited number of options (Braybrooke

& Lindblom, 1963).

Organization-level decision-making involves many individuals. Different from

individual decision making where an individual alone makes decisions,

organization-level decision making determines a final choice based on a coalition

among a group of decision makers (Cyert & March, 1963; March & Simon, 1958).

Coalition during organization-level decision making brings about two benefits. One is

that coalition helps determine problem priorities when decision makers cannot agree

with each other on which problems to solve in the case of ambiguous and inconsistent

organizational or operative goals. The other is that coalitions can help eliminate some

of the constraints individual decision makers have, such as incomplete information,

insufficient time, and limited skills. Through coalition building, a group of decision

makers exchange the information they have individually collected and share the skills

77
they have individually grasped. In addition, coalition building saves time and reduces

ambiguity, thus contributing to satisfactory solutions that most decision makers will

accept. These benefits suggest that building agreement through coalition is an essential

part of organizational decision making (Daft, 2004).

Table 9 Stakeholders and their Interest in Fixed Asset Management

Stakeholders in Fixed Asset Interest Participation
Management Stages
Reelection and constituents‘
Legislature P1, P4
interest
Operation of government, good
Chief Executives P1 – P4
performance, reelection
Courts Legal framework P1 – P4
Central fixed asset management Authority over fixed assets, large
P1 – P4
agency asset portfolio
Property-using agencies Good services, control over assets P1 – P4*
Planning department Security of fixed assets, relation of
asset with government function P1, P4

Other departments relevant to Efficient and effective use of

P1 – P4**
fixed asset management public resources
Service of public facilities,
Citizenry/Electorate P1 – P4
functioning of government
Good infrastructure, good service
Private Sector, Contractors,
from government, business P1 – P4
Suppliers, Developers
opportunities
Standard practice, participation in
Professional Associations functioning of government, access P1 – P4
to resources
Participation in local
Neighborhood Associations development, benefits of public P1, P3, P4
facilities in neighborhood
Access to fixed assets & services,
Nonprofit Organizations P1, P3, P4
cooperation with government
Use of resource base for election,
Political Parties P1 – P4
access to resources
Functioning of governments in
jurisdiction, control of & access to
Higher Level Government(s) P1 – P4
resources, priority to special
programs & projects
Phase 1 = Planning Phase 2 = Acquisition
Phase 3 = Management Phase 4 = Disposition
* In the case of decentralized management, property users participate in all phases of property
78
 management. In the case of high-level centralized management, property users may participate
only in P1, and P3.
** Other departments like the budgeting division and central procurement division may
participate in certain phases of fixed asset management.
Reference: Fernholz & Fernholz, 2006

In the domain of public fixed asset management, decision-making is determined by

organization structures. As previously discussed, a government may have different

organization structures that satisfy various internal and external needs. To attain

organizational and operative goals and objectives of fixed asset management, decision

making involves a number of stakeholders. Generally, these stakeholders who have

different degrees of power participate in the process of decision-making regarding

fixed asset management for different interests. Table 9 shows stakeholders and their

interest in fixed asset management.

With all relevant factors taken into account, decision making for public asset

management is a complex process. Since this process addresses the major issues of

fixed asset management, there are possibly conflicting interests between stakeholders.

The conflicts and priority issues need to be resolved through bargaining and negotiation

(Fernholz & Fernholz, 2006).

Decisions are made throughout the four phases of a property‘s life cycle. Planning

decisions may be associated with the interests of a number of stakeholders as indicated

in Table 9. The major decision makers include the planning department, property using

agencies, central fixed asset management agencies, chief executives, and legislature.

But the decision-making process is immensely influenced by other stakeholders. The

decision-making mechanism is illustrated by Figure 3. Making decisions is concerned

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with goals and objectives of fixed asset ownership, mission and objectives of fixed

asset operation, architectural specifications of fixed asset, location or geographic

position of fixed asset, and budget.

Figure 3 Decision-making Process of Fixed Asset Management

Influence from Courts, higher

government, political parties,
electorate

Planning
Administrative Legislative
-Planning department
review review
-Central management
-Chief executives -Legislators
-Property users

Influence from private sector,

nonprofits, professional
association, & neighborhood
association

After property programs or projects are determined in the planning process, central

property management agencies and property using agencies are authorized to

implement the decisions regarding the property programs or projects. In the phases of

property acquisition and management, the central government procurement division,

finance department, contractors, developers, suppliers, professional associations,

non-profits, and courts are involved in various sessions of property acquisition and

management. These sessions include but are not limited to bidding, property rights

transfer, contracting, construction, portfolio management, facility service, repair and

maintenance, area management, architectural services, and information management.

80
Simultaneously, political parties, neighborhood, and citizenry may exert influence on

certain issues of property acquisition and management, such as program priorities,

externalities that public facilities produce, and equity of services. Generally speaking,

decisions during property acquisition and management are made by central property

management agencies or individual property users according to legitimate authority

they are granted.

In the phase of property disposition, central property management agencies in the

case of total centralization or individual property users in the case of decentralization

are authorized to sell, transfer, change the functions of property, invest in public-private

partnership, and place to retirement the fixed asset under control. These issues involve

various stakeholders as listed in Table 10. Decisions concerning property disposition,

especially in the case of major public facilities, are proposed by central fixed asset

management agencies or individual property users, and examined and approved by

chief executives and/or legislature.

General issues that decision-making involves throughout different phases of fixed

asset management are summarized in Table 10. Specific issues will be further

elaborated in the discussion of Management Process throughout Life Cycle of Assets in

Chapter 6. To make effective decisions, decision makers must consider all possible

elements that may directly or indirectly affect final decisions regarding fixed asset

management.

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 Table 10 Issues That Decision Making Involves in Fixed Asset Management
 Setting goals and objectives of property ownership or leasehood
 Analyzing property characteristics and property users‘ characteristics
 Determining missions and objectives of property operation and maintenance
 Location and geographic position of the fixed assets
 Zoning of real properties
 Budgeting for property ownership, operation, and management
 Determining the level of decision making regarding each fixed asset management
section
 Acquisition of fixed assets
 Property rights transfer
 Portfolio management
 Fixed asset repair and maintenance
 Area management
 Architectural services
 Staffing for fixed asset management
 Employee and customer training
 Fixed asset and financial information management
 Disposition of fixed assets

It seems that decision making is a process of complexity and even disorder owing

to the participation of numerous stakeholders. However, it is vital to note that it is major

decision makers (like legislators, chief executives, courts, central fixed asset

management agencies, property using or managing agencies, and planning

departments) who initiate fixed asset programs and make various categories of

decisions in accordance with authorities and responsibilities specified in legal and

regulatory framework. Decision-making is a process of governance that involves not

only decisions but also normative or regulative functions. Therefore, an effective

decision-making structure is expected to follow a number of key principles. These

principles may include:

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  Functions assigned to decision-making entities by laws and regulations are

unambiguously specified without gaps and overlaps;

 Hierarchical and/or horizontal decision-making entities‘ authorities and

responsibilities are specified in the legal and regulatory framework but do not

create gaps and overlaps;

 The normative or regulatory function of decision-making agencies is equipped

with sufficient stuffing, funding, and level of independence to exercise its

duties, and is consistent with responsibilities;

 Responsibilities of decision-making entities provide separation and clarity so

as to avoid interest conflict interference during fixed asset management; and

 Lower level decision-making entities are authorized discretion in particular

management strategies, but receive oversight from higher level

decision-making entities.

Capacity Building of Fixed Asset Management

Organization structure of public asset management must take into account

organization capacity building for the strategic operation of property management and

a high level of property performance. According to Farazmand (2009), the modern

world is experiencing dramatic changes in the movement of globalization. Public

administration has been facing a turbulent environment and has started to adapt to

social changes with the features of sweeping privatization, marketization,

commercialization, and shrinkage of the public sector in favor of the private corporate

sector. Farazmand (2009) argued that management capacity to provide quality service

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in the emerging environment of rapid changes and uncertainties is badly needed. To

build management capacity, government needs to construct responsive strategies and

proactive, future-oriented strategies by two means: (1) adapting to external changes; (2)

working creatively to create changes and prepare for the future. The first means

requires that public asset managers understand current practices of property

management in the private sector, especially in the areas of property acquisition,

construction, maintenance and repair, value maximization, and disposition.

Collaboration between public asset management and private businesses is needed. This

helps public asset managers find an appropriate alternative of property acquisition,

reduce costs of property operation, maintenance and repair, and obtain best value when

disposing of properties, thus making best use of public assets to provide services for

government agencies to fulfill planned goals and objectives. The second means

requires that public asset managers establish a system for future unexpected negative

happenings. This system intends to keep public asset management sustainable in

emergency and risk situations. To develop this capacity, government must learn to

deliver quality services that can be measured by efficiency, cost-effectiveness,

timeliness, and attaining goals and objectives (Farazmand, 2009). Capacity building in

this aspect can be enhanced through strategic employee training programs, which is

elaborated in detail in Chapter 7.

Organization development and advancement is also a strategy through which an

organization builds capacity and improves social functioning. Through organization

development, organizations can increase health and effectiveness (French & Bell,

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1995), improve communication between managers and workers and among workers,

and enhance collaboration and consensus, thus contributing to organization growth and

advancement (Varney, 1997). To promote organization development and advancement,

organizations need to eliminate resistance to change (Cummings & Worley, 2009;

DeVito, 1996). In addition, sustainable development is a goal of organization operation,

growth and advancement. Organizations achieve sustainable development mainly

through organizational learning (Lassey, 1998; Fulmer et al., 1998), establishment of

partnership (Kaganova & Polen, 2006; Yescombe, 2007), and incentive for

improvement.

Among these strategies for building sustainable capacity, organization learning is

of supreme importance and covers a wide range of capacity building. Organization

learning is a collective activity for the purpose of implementing organizational

objectives and goals (Yeung et al., 1999). To implement organization learning, an

organization must develop a systematic approach to solving problems, build shared

vision, develop expertise and proficiency, build and sustain effective team learning,

construct visible leadership, encourage creation and exploration of new knowledge

(Senge, 1990; Kofman & Senge, 2003; Tobin, 1993; Marquardt, 1996; Argyris &

Schön, 1978; Boyett & Boyett, 1995). Considering these characteristics, organization

learning is an investment in an organization‘s future, not an expense to avoid (Tobin,

1993; Frydman et al., 2000).

Public fixed asset management is externally influenced by socioeconomic factors,

political factors, building and construction industries, financial market, material

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market, labor market, and government‘s and citizens‘ requests for services. These

independent variables may change turbulently and exert totally different influence on

the development of public fixed asset management. Confronted with property market

changes and socioeconomic changes, fixed asset management needs to collect

information about the development trend of influential factors, like the construction

industry, property needs and supplies, and government revenue. Fixed asset

management agencies should prepare early for future facility leasing, purchasing,

construction, and disposal by analyzing the information collected; they may also make

adjustments to the properties currently in use. Besides, fixed asset management

agencies need to establish a mechanism for service delivery during emergency and

crisis. The mechanism may include, but not be limited to, property protection, people

evacuation, emergency repair and reconstruction, emergency insurance, accelerated

depreciation, emergency appropriation by legislature, reserve fund, and facility

financing. In addition, risk management issues (like hazard insurance that covers only

the replacement value, not market value, of a property), co-insurance issues, and

various types of liability coverage are usually encountered in the practice of asset

management. Self-insurance is a case in which ―the owner assumes risks that are not

covered by an insurance product purchased from an insurance company,‖ and ―rather

than purchasing insurance, the owner set aside money which will be used to pay for any

loss that may occur‖ (Builta, 1994, p. 97). To prevent some emergencies and risks from

occurring, quality property services, such as regular security and safety inspection, are

indispensable.

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 To promote organization development and advancement of fixed asset

management, public asset managers need to improve communication inside

organizations between management and workers, between sections of management

functions. In addition, managers need to enhance collaboration and cooperation

between the entities of the management system, such as planning, accounting, risk

management, construction, repair and maintenance, leasing, surplus asset disposal,

cleaning, and personnel. Fixed asset management needs to eliminate resistance to

changes, like property as ―free goods,‖ and create new ideas, like property as

investment. Moreover, fixed asset management must implement organization learning

to build management capacity. Specific means may include consensus of quality

service, introducing or inventing new skills or knowledge to reduce costs and improve

response from property users, improving the utilization rate to reduce underutilized and

surplus facilities, reducing energy consumption, analyzing optimal alternatives of

property acquisition, and combining management goals and objectives with those of

customer agencies and the whole government, among other techniques.

The issues involved in capacity building of fixed asset management can be

summarized as in Table 11.

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Table 11 Issues Addressed for Capacity Building of Fixed Asset Management
 Collect and disseminate information about property market and other
socioeconomic factors to adapt to environmental changes
 Establish information system of all properties owned and controlled to meet
agency needs for properties
 Take proactive measures to prevent emergencies
 Establish property emergency and crisis management mechanisms
 Improve communication and enhance cooperation between different entities of
fixed asset management
 Eliminate resistance to changes
 Establish sustainable strategy to provide training, team learning, and assistance
for both employees and customers
 Establish collaborative partnership with nongovernmental organizations
 Establish and use quality control standards to evaluate employee performance
 Provide incentive for efficiency and effectiveness

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 CHAPTER 6. THE FIXED ASSET MANAGEMENT THROUGHOUT THE LIFE
CYCLE OF ASSETS

In a public asset management system, while the Law and Regulation Cornerstone

provides legal authorities, liability, and working principles for public fixed asset

management, the Organization Structure Cornerstone establishes organizational

framework and decision-making structure. The Cornerstone of Management Process

throughout Life Cycle of Assets, on the other hand, elaborates the dimensions of most

part of property life cycle, including planning, acquisition, management, and

disposition of fixed assets. Generally, this section deals with the expected schemes and

activities for the property managers to execute government policies regarding fixed

assets. Specifically, this section analyzes the prototype mechanisms of fixed asset

planning, acquisition, operation and maintenance, disposition, and life-cycle

management. In addition, this chapter also develops a number of devices to test the

mechanisms government currently implements in the practice of fixed asset

management.

Fixed Asset Planning

Fixed asset planning is a process in which government identifies its fixed asset

needs and develops strategies and projects to address these needs so as to meet service

delivery needs of government agencies (Province of British Columbia, 2002). Fixed

asset planning is usually initiated by an asset using agency. It starts with establishment

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of a service plan that specifies services to be delivered and links service delivery to

fixed asset plans. Accordingly, fixed asset using agencies set goals and objectives of

property acquisition and operation management on the basis of the missions and

objectives of the agencies‘ service delivery requirements (Edwards & Ellison, 2004).

To determine the goals and objectives of property acquisition and operation, fixed asset

using agencies must analyze fixed asset needs. Fixed asset needs are usually driven by

demographic factors, program changes, technological changes, economic and business

changes, environmental factors, social changes, and legislation requirements (Province

of British Columbia, 2002). They are also based on inventory information of current

fixed assets that an agency owns and controls

Fixed asset using agencies quantify asset needs as financial or budget estimate, and

then analyze strategic options to find the most efficient ways to satisfy their fixed asset

needs. They take into account service delivery and characteristics of fixed assets when

determining a fixed asset option. Characteristics of a fixed asset may encompass the

physical aspects, acquisition cost and life-cycle costs, the legal obligations and rights,

the value a fixed asset contributes to the asset base of operation, and the role a fixed

asset performs in the operation of asset using agencies. Strategic options for fixed asset

needs are numerous, including changing the way of service delivery to avoid or limit

fixed asset spending, traditional procurement, alternative capital procurement, asset

leveraging, and integrated strategies (the Province of British Columbia, 2002). By

traditional procurement, government agencies procure a fixed asset and take

responsibilities for design, construction, operation, and risks throughout the fixed

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asset‘s life cycle. Alternative capital procurement involves acquisition of a property

without direct purchase by government agencies, or by transferring part or all of a

property‘s life-cycle risks to outside parties, or by financing with limited or no

recourses to the fixed asset using agency (the Province of British Columbia, 2002, p.

33). Common methods of alternative capital procurement may include operating leases,

self-supporting projects, and public-private partnerships. Public-private partnership

may be determined by different indicators, such as financial criterion, technical

criterion, operational standard setting, and public policy standard. Typical forms of

public-private partnership projects include DBO (public financing, private designing,

building, and operating), BLOT (private financing, private building on public land,

public leasing, private operating, and transferring property to public sector), and BOO

(public sector setting objective and constraint, private sector building, owning, and

operating a property). These approaches of public-private partnerships are usually

employed when acquiring fixed assets through construction. They will be further

interpreted in the following section of asset acquisition. According to agency theory

(Arrow, 1985; Perrow, 1986), public-private partnerships (PPPs) based on contracts

may apply the principle of economy of scale and specialization to lower costs,

maximize certainty, and avoid risks in public-private relationships. In the field of public

fixed asset management, a public-private partnership as ―a risk-sharing contractual

relationship between the public and private sectors‖ is intended to ―use the private

sector to provide a property-associated public outcome (for example, to build or

renovate and operate property for public use)‖ (Kanganova & Polen, 2006, p. 366).

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 Overall, the main purposes of alternative capital procurement are to maximize the

value of public funds and transfer risks to private partners (see Figure 4). Asset

leveraging intends to capture (for example, to commercially exploit) the value of public

assets to offset service costs and the costs of owning capital assets (Province of British

Columbia, 2002). Typical examples of capital asset leveraging may include selling or

leasing part of a real property, exploiting excess capacity of a real property to generate

revenue, and taking advantage of other public real properties to generate revenue for a

capital project.

Figure 4 Risk Allocation and Property Management

Least Risk Transfer Most Risk Transfer

(Total Public Ownership) (Total Private Ownership)

Traditional Outsourcing Public-Private Privatization
Procurement Partnership

Reference: Province of British Columbia. (2002). Capital Asset Management

Framework, p. 34

Fixed asset using agencies systematically analyze each strategic option to

determine the most effective and efficient way to meet service delivery needs. Strategic

option analyses are based on the length of each capital asset‘s life, preliminary cost and

benefit estimates over the whole life cycle of the capital asset, qualitative risk

assessment, the function of capital assets (operational or investment assets), protection

of public interest, and government policy requirements. Life-cycle costs include the

cost of architectural design, construction or purchase, maintenance, repair,

perseverance, energy, and service. Benefits are the expected return on investment.

Since some fixed assets deteriorate over time, strategic option analyses must take into

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account the discount rate when making an estimate of costs and benefits. When total

benefits in terms of value exceed total costs, property acquisition programs or projects

are considered potentially worthwhile if other requirements are satisfied. Comparative

unit costs can be calculated to predict how cost-effective a capital program or project is

for different property-using agencies to deliver services. Risk analysis helps predict the

level of negative consequences and prevent the occurrence of negative effects. Risk

analysis may also assure that the results of cost-benefit analysis are more accurate.

Policy requirements, like zoning, may determine the functions and physical

characteristics of a real property.

A property-using agency, or government, must establish criteria for an acquisition

program or project ranking. Some of the ranking criteria may include the appropriate fit

between the agency‘s fixed asset needs and physical characteristics of the property to be

acquired, procurement costs and life cycle costs, legal or contract requirements,

protection of people, protection of existing properties, service plan targets, and benefit

return. Fixed asset agencies make a ranked list of options that specify the most

promising options and recommend to senior decision makers the preferred options for

their review and consideration. The list of options describes the major advantages and

disadvantages of each preferred option and explains by comparison why the options are

prioritized that way.

While prioritizing real property acquisition programs, fixed asset using agencies

establish asset management performance measures. These performance measures may

include fixed asset management within a fiscal target, implementation of proposed

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strategies, achievement of asset management goals, effective asset support of service

delivery, and quality of program/project completion (Province of British Columbia,

2002). In addition, fixed asset using agencies formulate a multi-year fixed asset

management plan throughout a property‘s life cycle in the process of agency service

plans.

Finally, fixed asset using agencies submit budget request to senior decision makers

for review and approval according to government fixed asset management organization

structure. With high-level centralized asset management, the central asset management

agency may first review the asset-using agency‘s fixed asset budget request and

allocate asset resources to asset-using agencies if appropriate, or submit a fixed asset

budget request to the budget office or higher levels of decision makers. With low-level

centralization or total decentralization, individual asset-using agencies submit a fixed

asset budget request directly to the budget office of the same level of government or

higher levels of decision makers. Currently, in both state and local governments, the

budget for capital assets is separated from other categories of budget (Mikesell, 2007).

When making capital budget decisions, high-level decision makers like governments‘

chief executives and legislators examine the funding sources and financing sources of

the fixed asset program. They also consider the impacts of the capital budget on the

operating budget. Capital investment may increase the operating budget in terms of

increased need for operating costs, increased debt service requirement, and

maintenance, repair, and replacement cost (State of Illinois, 2008). Conversely, capital

expenditure may reduce fixed asset maintenance expenditure by investing in more

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durable assets, lower utility costs by installing efficient energy equipment, and

improving staffing patterns by changing a building‘s layout. These effects help

decrease the operating budget. (See Appendix B for differences between capital budget

and operating budget.)

Actually, budget decisions for any category of fixed assets are not only financial

decisions for capital projects and programs; the decisions can affect the whole package

of capital planning for asset management throughout the life cycle of the concerned

property. Capital planning sets principles for asset acquisition, operation, use,

maintenance, contracting, and other elements of fixed asset management. The general

fixed asset planning is summarized in Figure 5.

Figure 5 Fixed Asset Management Planning

Service Plan

Fixed Asset Needs Analysis

Strategic Option Analysis

Ranked Property Project List

Management Performance Measures

Capital Asset Management Plans

Capital budget Request

Legislative Approval

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Fixed Asset Acquisition

Decision-making in the planning process examines the need of fixed assets and

determines the most appropriate option for the needed property according to missions

and objectives of the agency services. Therefore, property acquisition targets the

process and mechanisms by which property managers effectively acquire appropriate

properties in the most effective, efficient, and economical fashion. Acquisition

addresses the initial control when property is acquired and available for service (JFMIP,

2000). Generally, fixed assets can be acquired by using different methods according to

laws and regulations formulated by the government at different levels. The methods of

property acquisition usually employed are as follows:

1. purchase of a property which is ready to use in the market place;

2. trade of properties of equitable value with other governments or individuals or

private businesses;

3. construction;

4. donation from other governments or individuals;

5. transfer from other government agencies or higher level government;

6. tax foreclosure sale by bidding up to the amount of taxes due and other required

cost;

7. rights of eminent domain; or

8. lease of property from private business.

From a legal perspective, there are laws and regulations concerning each method of

fixed asset acquisition. Government fixed asset management needs to examine these

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legal requirements as well as the specific circumstance of each parcel to be acquired

before employing a property acquisition method. From the management perspective,

despite differences between these acquisition methods, fixed asset managers must

adhere to the principles of fairness, openness, and transparency. In the case of fixed

asset procurement, fixed asset managers must implement the principles of competition,

value for money, protection of public interest, and allocation and management of risks

(Province of British Columbia, 2002).

Purchases

Considering all categories of fixed assets, purchase is usually the method most

frequently employed by government at all levels to acquire properties (Cowart, 1990).

Properties can be purchased either through a central procurement office or by a

property using department. Whether a central procurement office is the agent for a

property purchase is determined by a number of factors such as size of the government

entity, enabling legislation, political environment, size of the procurement program,

resources available, spectrum of procurement activities, and delegation of procurement

authority (Thai, 2007). Hence, government purchase is generally decentralized at the

federal government and centralized at state and local governments. The major benefits

of centralized public property purchase include the following:

 Reducing property prices through volume discount by taking advantage of

economics of scale;

 Reducing administrative cost by minimizing the duplication of procurement

activities;

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  Assuring property and service quality by means of competition;

 Coordinating interagency needs through effective inventory control;

 Consolidating property requirements at government level;

 Purchasing with greater specialization;

 Providing expertise to assure effective and efficient contract administration;

 Enhancing accountability and consistency in executing procurement policy

(Thai, 2007; Dobler, Burt, & Lee, 1990).

The central property purchase agency has legal authorities and delegation from the

chief executive. Its major responsibilities for property acquisition include the

following:

 Strategic planning,

 Budgeting,

 Selection of purchasing methods,

 Solicitation,

 Determination of source of supply,

 Contract administration,

 Quality assurance,

 Dispute resolution,

 Relationship management with vendors, and

 Data management (Thai, 2007; Greenburg, 2004; Page, 1980).

Compared with the requirement for the creation of a central procurement agency,

the requirement of centralized purchase of properties depends on a legal or regulatory

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mandate regarding acquisition, procurement policy, and procedures of the central

procurement office (Page, 1980). Considering the characteristics of a centralized

property purchase, the dollar value and category of the property to be purchased are the

major requirements of the centralized purchase of real properties.

A centralized purchase of fixed assets does not necessarily imply that a central

procurement agency does everything related to the property‘s purchase. Small

governments usually make smaller purchases. Therefore, a ―do-it-all‖ structure of

central purchasing usually functions efficiently. Under this structure, a central

purchasing office is delegated the responsibilities for implementing all purchase

activities including providing all the properties and services during the full life cycle

that are required by the relevant government entity (Thai, 2007). Conversely, large

governments make sizable purchases. In order to improve efficiency and effectiveness,

a central property purchasing division or agency tends to delegate some responsibilities

to property-using departments (Thai, 2007; p. 1980). An interdependent relationship

can be established between the central purchasing agency and the property-using

department. This partnership is quite usual in construction purchase and purchase of

particular facilities.

When the total value of a property or property service is below a certain level, the

purchase is delegated to the using departments. This is because small purchases cannot

produce most of the major benefits through central procurement. When small purchases

are directly handled by property users, high efficiency can be achieved. Both state and

local governments promulgate policies and regulations regarding small purchases

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(Page, 1980). For example, the Kentucky Model Procurement Code requires that a

purchase that does not exceed an aggregate amount of $5,000 for construction services

or $1,000 for all other categories of purchases may be implemented by all agencies

without prior approval by the authority delegating agency — the Department of

Finance.

For governments at all levels, maintaining the necessary balance between

centralization and decentralization in property purchasing structure is essential for

achieving the efficiency and effectiveness of fixed asset management (see Figure 6).

Research demonstrates that although there has been a broad call for decentralization of

procurement at state and local governments, the traditional practice has not been

significantly changed (McCue & Pitzer, 2000; Coggburn, 2003). In addition, for the

sake of equity, government may formulate policies that may benefit business of women

and minority groups and nonprofit organizations.

Figure 6 Property Purchasing Structure: A Combination of Centralization and

Decentralization

Agency A

Property Purchasing
Policy Delegation
Agency B

Agency C
Central Property
Purchasing Agency

Agency D

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 Government agencies purchase real properties either through agreement or through

compulsory acquisition. A real property purchase through agreement can be

implemented by means of negotiation and entering into a commercial contract of sale.

A real property purchase through compulsory acquisition mainly applies to the

purchase of land or land with improvements. Government is empowered to purchase

target real property under legislation. This category of property purchase is further

elaborated later in the section of eminent domain. To purchase real properties to meet

the needs of public service delivery, property managers should be careful to fulfill their

responsibilities during due diligence. During this phase and before the acquisition is

completed, fixed asset managers must thoroughly check and inspect all aspect of the

property. For example, property managers must confirm the original assumptions they

have made before price negotiation (Builta, 1994).

To sum up, a government entity must have an appropriate answer to the following

four major questions to test property purchase management:

 What are the authorities and responsibilities of the central property purchasing

agency?

 What are the authorities and responsibilities of property using agencies in the

cases of centralization and decentralization?

 Are centralization and decentralization appropriately combined to handle real

property purchases?

 Is there any equity policy that helps businesses managed by minority groups

and nonprofit organizations?

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 Construction

Construction is another frequently used way by which government owns real

properties. GAO (2008a) has found that owning a property by construction is less

costly than leasing a property from private businesses for over thirty years. In recent

years, the federal government has increased its total square footage of leased building

space while gradually reducing the total areas of federally owned building space (GAO,

2008a). The trend is to meet the requirements of generic office space without many

special features (Winstead, 2007). However, Public Buildings Service of GSA also

admitted that GSA has leased some real estate facilities that should be federally owned,

where there is a large, long-term real property requirement in major metropolitan areas

(Winstead, 2007). Compared with other means of owning federal real properties,

construction has its advantages. One of its major advantages is that construction

provides the appropriate facility structure that best satisfies the requirements of service

delivery by government agencies. This advantage helps save relevant costs that may be

claimed for property-user improvements, such as altering space structure of the real

property facility bought or released. A second major advantage is that construction

satisfies special requirement of property users on a long-term basis. A good case in

point is a security consideration for certain government agencies. A third advantage

over property leasing is that construction saves unexpected costs that lessees have to

pay, such as a penalty cost and high implicit interest cost. Finally, owning real

properties by construction avoids long-term exposure to market risks.

Purchasing real properties through construction, or in other words, the purchase of

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construction service, is a very complicated process because construction as a whole

may involve a great variety of factors. These factors include, but are not limited to,

funding, timing, policy requirements, project risks and complexities, type of work,

construction site, selection of construction service provider, selection of an appropriate

contracting option, risk allocation through contracts, contract management, and

documentation and reporting, among other issues. These characteristics of construction

projects and risks suggest that government should employ appropriate purchasing

methods according to their own circumstances. Some traditional methods of purchasing

construction service are briefly discussed as follows:

 Design-bid-build: This is the most frequently used method of purchasing

construction service in the United States (Dobler, Burt, & Lee, 1990). Design

of the construction project is completed before bidding for building starts.

Designing and building are in the charge of two different organizations. Since

architects may not be cost-conscious, the construction purchasing agency

needs to adopt alternative methods of cost control.

 Design-build, firm agreed price method: The purchasing agency specifies the

basic facility requirements to carefully pre-qualified builders, who prepare a

bid package that consists of a design and price proposal. The construction

purchasing agency awards a firm agreed-price contract to the builder whose

bid is the most competitive (Dobler et al., 1990).

 Design-build, cost reimbursable: With this approach, only one contract is

awarded for design and construction under responsibility of one general

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 contractor. Design is accomplished by both architects and construction

engineers. Since the construction engineers may influence and well understand

the design, preliminary construction proceeds when the design of certain

elements of the project has been finished. This purchasing method is more

effective when construction has to be completed within a short period of time

(Dobler et al., 1990).

 Building team: With this method, while an architect works on the design of a

construction project, the purchasing agency simultaneously retains a builder to

provide relevant information regarding cost, procedures, and time

requirements (Dobler et al., 1990). The builder may either accomplish the

construction with his own crews or award it to the most competitive

subcontractor.

Each of these methods of construction purchase has its own features. With regard

to cost savings and time requirement, research has found that design-build (firm agreed

price) method is the most effective. Compared with the design-bid-build method, the

design-build (firm agreed price) method results in a 25% cost savings and average

saved time of four and half months (Dobler et al., 1990). In addition, the involvement of

contractors in the design of a construction project contributes to reducing operation

and/or maintenance efforts and costs (New South Wales Government, 2008). However,

a construction-purchasing agency needs to take into account all relevant requirements

when selecting an appropriate purchasing method.

In recent years, as is mentioned previously in the phase of fixed asset planning,

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new methods of construction purchase have been employed by governments that are

either faced with financial and budget constraints or are driven to achieve various

purposes. Property-related public-private partnerships (PPPs) have been created to

address two types of assets: (1) new public fixed assets under construction, and (2)

existing public real properties where asset managers seek more efficient use and

operation (Kaganova & Polen, 2006). Some frequently employed new construction

purchasing methods are as follows:

 Design-build-operate: With this method, government finances a construction

project and sets asset performance objectives. The private sector partner

designs, constructs, and operates the construction facility for a specified period

of time. Government owns the facility, and pays the private partner cost of

design, construction service, and maintenance (Province of British Columbia,

2002).

 Design-build-finance-operating (DBFO): The private partner designs, builds,

finances, and operates a fixed asset, and the public partner repays the cost of

the construction project and an appropriate profit from its budget during the

project‘s lifetime. As is specified in the contract, either party may own the

asset when the partnership comes to its end (Kaganova & Polen, 2006).

 Build-operate-transfer (BOT): The public partner establishes asset

performance objectives and authorizes the private partner to design, finance,

and construct a facility on public land. The private partner receives

concession-type rights to operate the facility and receives returns on

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 investment from the government or through user fees from citizens or firms.

At the end of the partnership, the ownership, together with operating right, is

transferred to the government (Province of British Columbia, 2002; Savas,

2000; Williams, 2003).

 Build-own-operate (BOO): Government establishes construction project

objectives through a contract with a private partner and has regulatory

authority on pricing and operations. The private partnership finances, builds,

owns, and operates the construction facility during its life cycle. On a

long-term basis of contractual obligations, the private sector provides the

government with building space; government pays leasing fees to the private

partner (Province of British Columbia, 2002; Savas, 2000).

From a management perspective, property-related PPPs provide some potential

benefits for government. Financially, government has additional revenues through

franchise in some cases; new construction facilities may be operated without public

budget expenses; public funding can be restructured from capital to current

expenditures (Kaganova & Polen, 2006). Risks could be allocated appropriately to the

private partner who is best able to manage risks of cost and management. While the

private partner takes responsibilities for construction management, government focuses

more on core activities in planning and regulating (Osborne & Gaebler, 1992). The

private partner applies its specialized expertise in all phases of a fixed asset‘s life cycle,

thus improving efficiency and property performance.

To ensure that a PPP gains success, government must establish an effective legal

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framework that specifies responsibilities and liabilities of each party. PPPs should

engage in a viable construction project where private service and finance are accessible.

Besides, government has the ability to define a PPP project based on open competition.

It must have the ability to manage the partnership within legal and policy framework.

Overall, public buyers of construction services have different resources and

contingencies as well. It is important to note that purchasing fixed assets through

construction intends to meet service needs of government agencies. Besides, like any

other business transactions, the construction purchase must conform to the principle of

value for money and protection of public interests.

Leasing

Leasing properties from the private sector does not involve ownership of the

property to be leased. For state and federal governments, properties leased from

individuals or private businesses account for a large portion of total real fixed assets

under control by these two levels of government. Generally, leases include financial

leases and operating leases (Nourse, 1990). A financial lease is an alternative to

purchasing. The leasing purpose is to obtain using rights over the life of the fixed asset.

An operating lease is usually a short-term lease which shifts the holding for the

effective life of the fixed asset from the lessor (the owner) to the leasee (the tenant).

One important purpose of an operating lease is to restructure the financing status when

a government or corporation entity faces financial constraint. According to Dunahue

(1989), when citizens own the assets, there is a potential for producing chronic

inefficiency. Unlike a private ownership right that can be concentrated in the hands of a

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small group of people who benefit greatly from efficiency improvement, public

ownership comes with a citizenry that is associated with dispersed accountability, thus

there is no impetus for greater efficiency from management (Dunahue, 1989).

One case of operating lease is a sale-leaseback transaction where government sells

a real property and then leases it back for continued operational use. Selling a public

real property and leasing it back may revitalize the fixed asset so that government may

have flexible use of public financial resources. The sale of a fixed asset may bring a

large sum of one-time revenue. This may temporarily relieve government‘s fiscal

pressure. However, this approach is a double-bladed sword since it may hurt

government if it is not used appropriately.

There is a trend that governments at different levels tend to lease rather than own

real properties because, on a short-term basis, leasing is more economical than owning

properties (Kaganova & Nayyar-Stone, 2000; GAO, 2003c, 2008a, 2009). However,

research has found that on a long-term basis (such as thirty years), leasing is more

costly than owning a property through construction (Taylor, 2010; GAO, 2008a). GAO

(2008a) examined seven GSA leases and found that four long-term leases had cost

approximately 83.3 million dollars more than did construction over thirty years. The

California Legislative Analyst‘s Office found similar results when it examined

sale-leaseback transactions of 11 state-owned office properties (Taylor, 2010). There

are a number of reasons why GSA relies more on leasing than construction. One major

reason is the lack of up-front capital for construction. A second major reason is that

over 70 percent of real property requirements in GSA are less than 10 thousand square

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feet for a short term of five to ten years (Winstead, 2007). In addition, federal budget

scorekeeping rules objectively discourage construction that needs a large initial

investment because the rules require that ―the full cost of government‘s commitment be

recorded in the budget in the first year‖ (GAO, 2008a, p. 5). From these perspectives,

government needs to make a strategic plan for both long-term and short-term real

property needs and determine whether to lease real properties or purchase real

properties by appropriate means.

Central fixed asset management agencies or fixed asset using agencies must

understand specific items concerning the real property to be leased and leasing contract

to sign. They must also seek rights to use the property in specific ways when they enter

into negotiation to lease a property. The key issues to which they should pay attention

include

 Rent and definition of usable space;

 The term of the lease;

 Escalation clauses to increase rents owing to inflation, increases in property

taxes, insurance, and utility expenses, among other factors;

 Range of uses that includes the lessee‘s right to assign or sublease the

premises;

 Responsibility for maintenance and repair;

 Destruction of premises by fire, storm, or other casualty; and

 Default (Nourse, 1990).

Besides, as lessees, central fixed asset management agencies or fixed asset using

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agencies need to take into account the requirement of leasing purposes and the location

and surroundings of a real property when they lease a property. In some cases, they also

need to consider cash flow of leases so that benefits and costs can be predicted more

accurately. These deliberations help central fixed asset management agencies and fixed

asset using agencies make appropriate decisions for property leasing.

Another important issue lessees need to consider before they make a leasing

decision is to analyze the option of acquiring using rights of a real property by lease or

acquiring ownership of a real property by purchase or construction. This analysis

involves not only costs and benefits but also the needs of government agencies to fulfill

their goals and objectives.

Donations

Donation or gifts of real properties account for a small portion of public fixed

assets. Government is allowed to receive or refuse donated properties in accordance

with federal, state, and local laws that have relevant mandates (Cowart, 1990). On the

one hand, government must compensate a property donor if there is such a legal

requirement. For example, North Carolina requires a compensation of tax credit by 25

percent of the fair market value of the donated property interest (North Carolina

General Statutes § 105-130.34). On the other hand, it is important to note that

government needs to analyze the features of a property prior to accepting it.

Government may refuse a property donation if the property is not needed for any

current or future governmental uses, or if government must invest a great amount of

limited capital budget before putting the donated property to use. Donated properties

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need to have their ownership changed and be registered according to legal

requirements.

Acquisition through Tax Foreclosure

Tax foreclosure is a rather common means by which local and state governments

acquire fixed assets as a result of the failure of the owner to pay property taxes and the

failure of private bidders to purchase the tax liens at the tax sale. When foreclosed

properties remain unsold at a public auction, they can be deeded to land banks that are

actually governmental or nonprofit entities, enabled by state legislation, and enacted by

local ordinances (Sage Computing, 2009).

Eminent Domain

Eminent domain is the sovereign power of a government to seize a private property

and devote it to public use through condemnation and compensation without the

property owner‘s consent. Under the authority of the Fifth Amendment and later the

Fourteenth Amendment of the U.S. Constitution, federal, state, and local governments

all have the power of eminent domain. This means that governments at all levels are

able to acquire properties through eminent domain in accordance with laws. Private

property owners may lose the ownership of the whole or a part of their property if the

property is needed for public benefits. Public benefits can be broadly defined along the

lines of public safety, health, interest, and convenience. Typical benefits brought by

public use of private properties include building or expanding a public highway or road,

building a public park or a public school by using private land, and redeveloping

blighted neighbor (Larson, 2004).

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 Two points are worth noting with regard to governmental acquisition of real

properties through eminent domain. One is that property acquisition through eminent

domain is possibly a long process that involves negotiation with the property owner,

organizing public hearing and filing petition if negotiation fails, and determining the

fair market value of the property. The other point is that just compensation includes not

only the price of the condemned property, but also other factors such as loss of business.

Trades

Acquiring real property through trading is a mechanism that is frequently

employed by government at all levels. Laws and regulations may have specific

requirements for property trading. Two major methods are usually employed in the

practice of real property trading. One method is based on equal value. That is to say, the

two parties have the equal value of real property regardless of the number of properties.

The other method is bases on equal square feet. The real property each party has for

exchange has equal usable area. This method also ignores the number of properties two

parties exchange.

It should be noted that property acquisition through trades occurs between a

government and a private property owner, or between two governments. Property

trading between agencies of the same government does not result in a larger number of

real properties. A government needs to establish a system, such as a central property

management division, or division with similar function under the control of the chief

executive, to adjust or coordinate property needs of agencies by resorting first to

inventory resources. Property trading between agencies of the same government shall

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be handled under this system. Another point worth noting is that property trading

occurs simultaneously with property title exchange, especially between government

and the private sector or between one government and another. Finally, since real

property trades are based on laws and regulations, an inflexible ordinance protects

public properties from loss but concurrently discourages real property swaps. Flexible

trading criteria based on fair property value and government needs will make real

property trades easier and satisfy mutual benefits.

Transfer

Transfer is actually a means by which a government disposes of surplus real

properties. Real property transfer is discussed in detail in the section of fixed asset

disposition in this chapter.

Table 12 Checklist of Property Acquisition

Acquisition Methods Feature Analysis
Property market analysis, property characteristics analysis,
Purchase financial analysis, cost-benefit analysis, procurement
centralization & decentralization
Construction contracting, cost-benefit or cost-effective
Construction analysis, architectural service, market analysis, financial
analysis
Financial lease or operating lease, long-term lease or
Leasing short-term lease, sale-leaseback transaction, lessors‘ and
lessees‘ rights and responsibilities, defaults
Property appraisal, ownership, property transferring and
Transfer
receiving analysis,
Legal requirement, compensation for donation, property
Donation
user analysis
Legal process, property valuation, property management if
Foreclosure
not sold out through bidding
Property analysis, trading bases, legal requirements, trading
Trading
entities, property users‘ needs
Legal constraint, legal procedure, definition of public
Eminent domain
interests, property valuation and just compensation

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 In a word, property acquisition involves a number of factors. Except for part of

decision making implemented in the planning phase discussed in Chapter 5, property

managers have a full range of responsibilities to fulfill so as to help provide appropriate

services at the lowest cost for government agencies to achieve their goals and

objectives. Therefore, public fixed asset managers need to analyze the features of each

property acquisition method and acquire fixed assets cost-effectively within the legal

framework. Table 12 presents a checklist of asset acquisition strategies.

Fixed Asset Operation and Maintenance

Premises of Sound Fixed Asset Operation and Maintenance

As an indispensable component of public asset management, fixed asset operation

and maintenance is a complex job that engages a variety of issues. First of all, fixed

asset operation must comply with laws, regulations, policies, procedures, and guidance

formulated by government at different levels. Secondly, fixed asset managers are

granted responsibility and accountability for property operation and maintenance.

While operation responsibilities are specified in statutes, management guidance, and

job description, fixed asset managers are delegated accountability from executive

chiefs. Asset managers must ensure that fixed assets are utilized effectively, efficiently,

economically, and transparently. Thirdly, fixed asset operation and maintenance are

implemented according to maintenance strategies and policies based on legal and

regulatory framework. They are expected to achieve a certain level to satisfy the needs

of agency service delivery. Operation strategies and plans specify resources for the

operation and maintenance of real properties, level and standard of operation

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performance, responsibility for, control, access to, and security of real properties, staff

training, and collecting and reporting performance data. Similarly, maintenance

strategies and policies define maintenance standard, specify type of maintenance,

determine maintenance priorities, estimate the projected cost of routine maintenance,

and forecast major replacements and repairs. It is important to note that appropriate

utilization of fixed assets is beneficial to maximizing a property‘s value.

Under-utilization increases cost of program delivery while over-utilization deteriorates

asset performance, shortens asset productive life, and increase operating and

maintaining cost. Fourthly, fixed asset operation and maintenance involve mechanics

and technology. Therefore, expertise is absolutely needed to ensure quality asset

operation and maintenance. This requires competence of asset managers and asset

custodians. Finally, because some sections of fixed asset operation and maintenance

cannot be efficiently performed by in-house personnel, private businesses participate in

public fixed asset operation management. Thus, contracting-out is a trend in the

operation management of public fixed assets. Integral execution of these issues

contributes to cost-effective and efficient property operation and maintenance.

Portfolio Management

The portfolio approach to public real property management considers individual

properties as constituting entities of the whole group of properties a government owns

and controls. The portfolio approach also monitors the performance of all properties

over time, takes into account not only returns from management but also risks in the

process of seeking returns, and analyzes the potential benefits based on the overall

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risk-adjusted rate of return from diversifying portfolio (Simons, 1993b). Public real

property management on a property-by-property basis provides a number of features.

First of all, based on cost-benefit analysis, property-by-property management is able to

avoid inefficient and negative portfolios, thus ensuring positive portfolios. Secondly,

cost-effectiveness analysis provides a criterion for owning a property based on the cost

input and the effectiveness the property produces. Thirdly, while public property is split

into several portfolios that are managed independently, the cost of managing individual

properties can be offset through efficient use of properties and strategic asset

management (Kaganova & Nayyar-Stone, 2000). Specifically, property operation

management involves the following components:

 custodial cleaning,

 mechanical and technical maintenance and repairs,

 utility management,

 security,

 parking,

 roof repair,

 disposal of trash and hazardous wastes,

 pest control,

 property user improvements, and

 supply provisions (Harris, 1994).

In practice, a large percentage of these real property operation tasks have been

implemented by outside contractors. Outsourcing is a trend of public fixed asset

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management.

Cleaning can be implemented by both in-house crews and outside contractors.

Specifications for the cleaning of each facility will be unique according to particular

needs. Sound maintenance not only benefits regular service delivery of fixed asset

using agencies, but also ensures that fixed asset resources are utilized cost-effectively

and that real properties‘ values are preserved. Based on policies and norms, property

facility maintenance is either preventive, which is planned, like routine inspection and

servicing, or corrective, which is usually unplanned, like repair. Mechanical and

technical maintenance and repairs usually secure the safety and daily operation of

facility equipment and mechanisms, such as elevators, computers used for controlling

building management systems, heating, ventilating, and air-conditioning systems, fire

alarms, electrical items, and the water supply system. Routine maintenance includes all

tasks that are regularly scheduled on a daily or weekly basis. In this sense, it is largely

preventive. Repairs are usually the tasks that property users report when problems

occur. Regular and sound maintenance leads to satisfaction of property users (Shenkel,

1980). Simultaneously it results in less frequent occurrence of problems and repairs and

more effective and efficient property operation as is illustrated by Figure 7. To reduce

loss and improve quality of property operation, property managers need to establish an

effective system to provide response to repair requests from property users.

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 Figure 7 Property Repair during Property Operation

Property user
satisfaction
Efficient & Effective
Sound
property operation
Maintenance
Fewer repairs

Utility fees generally account for about twenty-two percent of a building‘s

operation expense (Harris, 1994). In an office building, major utility users include

lighting, heating, ventilating, air-conditioning systems; the building envelop —

windows, doors, and roof and wall insulation; and electrical equipment. In recent years,

federal and state governments have enacted laws to encourage energy conservation and

reduce impact on environment. The federal government has enacted the Energy

Independence and Security Act of 2007. GSA has established the Office of Federal

High Performance Green Buildings to help federal agencies improve energy efficiency

in the facilities they use. Executive Order 13514 — Federal Leadership in

Environmental, Energy, and Economic Performance — outlines the goals of

greenhouse gas reduction as well as management strategies to reduce energy, water, and

material consumption. It is important that state and local governments follow the steps

of the federal government.

Security is an essential part of public fixed asset operation. Security programs vary

according to requirements of government agency missions. Some agencies need

high-level security while some other agencies do not. Therefore, expenses of security

are dependent on specific security programs. In practice, security personnel may get

involved in fire and life safety programs during property operation (Harris, 1994).

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 Disposal of hazardous wastes and substance must be implemented according to

laws and regulations. The Solid Waste Disposal Act and the Resource Conservation and

Recovery Act require that hazardous waste be handled in a manner that protects human

health and the environment. Fixed asset managers must provide training for employees

who initially use hazardous substances at work or physically encounter hazardous

waste or substance at work (Panzer, 1994). Besides disposal of hazardous wastes and

substances, indoor air quality is a major internal environmental issue in real property

operation management. Getting rid of internally and externally generated pollutants is

under the supervision of property managers.

When property structures do not meet the needs of government agencies, property

managers need to negotiate with property users to verify the needs and take

responsibility for redesigning the space to satisfy their needs if it is highly necessary.

Relevant construction definitely increases costs. In the case of leasing properties from

individuals and private businesses, any addition construction cost must conform to the

negotiated terms in the lease document (Harris, 1979; Wrieden, 1994).

It is worth noting that with e-government‘s being popular with customers to

provide services, internet and information technology have been widely used in the

practice of public fixed asset management. the computer system integrates various

dimensions of management operation, thus enormously improving fixed asset portfolio

management. Satellite-based mapping technologies contribute to effective decision

making, especially for a government with large amounts of assets over a large

geographic area. Such technologies also enhance intergovernmental cooperation in

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public asset management.

Fixed Asset Disposition

Properties need to be disposed of if they are surplus or excess, or if they have aged

to retirement. The Federal Management Regulation differentiates an excess property

from surplus property (Subchapter C, Part 102-75). Excess property is any property

under control of an executive agency that is not required by the agency‘s needs or

discharged of responsibilities as determined by the head of the agency; surplus property

is excess real property that is not required by a federal landholding agency for its needs

or discharged of its responsibilities as determined by the Administrator of GSA. But for

this dissertation, both excess and surplus properties are unutilized and need to be

disposed of, and thus are defined as the same.

As discussed in Chapter 1, fixed asset underutilization and surplus are serious

problems that exist in governments of all levels (GAO, 2003c; GAO, 2007; Kaganova

et al, 2006). Surplus properties incur a large amount of repair and conservation

expenses as well as opportunity costs (GAO, 2003c; GAO, 2007; GAO, 2008b; Ungar,

2003; Kaganova el al., 2006). They are a financial burden to government. A survey of

federal and state government websites found that currently, the federal government and

a large number of state governments have established a dedicated administrative

division to manage surplus fixed assets. Simultaneously, some federal agencies and

state agencies have delegation from either the chief executive or administrators of

property management department to dispose of fixed assets under their control. Local

governments do no usually have a central property disposal agency. Individual agencies

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or financial departments dispose of local properties in accord with federal, state, and

local statutes and ordinances.

Governments at all levels have enacted laws and regulations concerning disposal

of fixed assets that are not needed any more. Laws and regulations define fixed assets

that shall be disposed of, designate and authorize disposal agencies, and prescribe

approaches and procedures for general and particular property disposal. For the federal

government, disposal of surplus real property must be implemented under the authority

of Chapter 5 of Subtitle 1 of the United States Code Title 40 except when disposal is

otherwise authorized by special legislation. The Federal Management Regulation

defines the general policy that disposal agencies must follow when disposing of federal

surplus proper. The policy has two major points: (1) ―in the most economical manner

consistent with the best interests of the Government,‖ and (2) ―ordinarily for cash,

consistent with the best interests of the Government‖ (Subchapter C, Part 102-75.250).

The Federal Property and Administrative Services Act of 1949 (as amended in

December, 2000) designates the methods in which federal surplus real properties are

disposed of. These methods include sale, exchange, lease, permit, or transfer for cash,

credit, or other property that the GSA Administrator considers appropriate. In addition,

no matter what method of disposal is employed, property disposal agencies must follow

particular procedures when disposing of surplus fixed assets.

State governments have promulgated statutes and regulations to dispose of

property assets they own. What they may have in common is that state laws and

ordinances prescribe what property assets shall be divested and how these property

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assets may be disposed of. Although they all have established a legal framework for

property disposal, the U.S. state governments may prescribe different methods and

procedures for disposal of surplus fixed assets. For example, the state of New York

mandates that the commissioner of general services shall dispose of state buildings by

sale or demolition that will best promote public interest (Laws of New York,

PBB-Article 2-§ 10). In the state of Illinois, surplus property can be disposed of by sale

or transfer. In addition, the Director of the Department of Central Management Services

is authorized to grant easement on state lands to public utilities (Illinois Statute, Section

7.2). Meanwhile, state laws have authority over local fixed asset disposal concerning

both the types of properties to be disposed of and methods of disposal. For example, the

Georgia statute mandates that municipal government shall sell the property to the

―highest responsible bidder‖ (Georgia Code Title 36-37-6) when they dispose of real or

personal property. In addition, municipal governments in Georgia are permitted to trade

properties with other property owners if it is in the interest of the municipality. The

State of Illinois prescribes that no local government agency receiving property from

state government may dispose of the property except to another government agency, or

―as a trade-in on like property,‖ or with the written approval of the director of the

Department of Central Management Services (Illinois Statute§ 8, Section 8). Besides,

local government also promulgates its own statutes and ordinances for local property

disposal.

In the process of property disposition, government must endeavor to enhance

transparency while fulfilling goals and objectives of fixed asset management.

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Transparency and secrecy are two ends of a continuum (Florini, 1998). Where

transparency is a choice, the government decides where it should be on that continuum,

which means they choose a degree of transparency. With respect to government

operation, transparency involves both the openness of a government‘s decision-making

procedures to external observers (Mitchell, 1998) and a structure that makes

information available to both inside and outside actors (Finel & Lord, 1999). This

means transparency can be increased by information disclosure, such as free press and

open government hearings. Thus, outsiders can make decisions on the basis of the

information they have obtained (Mitchell, 1998). High-degree transparency ensures

that government respects the rights of citizens and promotes accountability to gain

good governance (Stirton & Lodge, 2001, p.476). Transparent disposal of public fixed

assets helps improve the quality of decision making, integrity of government operation,

and equity of government business, no matter what disposal methods are employed.

Transparency in property disposal may also reduce the occurrence of corruption. This

will be further collaborated in Chapter 9—Monitoring, Integrity and Transparency.

Government needs to establish a mechanism for macroscopic adjustment and

control of the fixed assets it owns and leases. This requires formulation of specific

procedures of asset disposal within the legal domain. According to these procedures,

government agencies as property users need to report the fixed asset they plan to

dispose of, especially the fixed assets whose value exceeds a certain level, to an agency

that has authority over the macroscopic adjustment and control mechanism. The

relevant authority determines how the property shall be disposed: by transfer, by sale,

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or by other means.

Transfer

Fixed asset transfer can be considered first among government agencies. Before

disposing of a fixed asset, fixed asset managers should rationally determine whether or

not other government agencies could use the property (Allison, 1996). Government

agencies of the same government or of a lower level government can request

transferable properties. In the case of low-level centralized property management, once

a surplus property is determined appropriate for transfer, the property is valuated and

transferred for cash or credit to a government agency that has made a request for

transferable properties. Surplus properties can also be transferred to nonprofit agencies

that have public purposes. Before the property is actually transferred, the transferee

must submit a plan that explains how the transferred property will be operated. Personal

properties can be donated to agencies of lower level governments or nonprofit

organizations in accordance with government policies.

Sale

Surplus property disposal by sale is a method most frequently employed by

governments at all levels. Sales of surplus property can be performed through bidding,

negotiation, or contract broker. Sale of surplus property through bidding is a

commercial process. Government agencies that dispose of surplus property must

advertise the property for bids. Time, method, and terms and conditions of the

advertisement must permit full and free competition taking into account the value and

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nature of the property advertised (see U.S. Code Title 40, Chapter 5, Subchapter 3,

§ 545). All sealed bids must be disclosed publicly as advertised. The award must be

declared with reasonable promptness. The winner shall be the one who bids highest

above the fair market value. A sale through a contract broker employed by a

government agency is implemented in the same way as are similar commercial

transactions. To make the sale transparent, the contract broker must give the public

notice of the availability of the property for disposal.

The sale of surplus property through negotiation is performed in particular

circumstances. These circumstances may include, but are not limited to, great impact of

the properties to be disposed of, inappropriateness of public advertisement of the

property disposal, special characteristics of the property for disposal, bid failure to meet

the fair market value, and low value of the property for disposal. In these particular

cases, negotiation will be appropriately in the public interest.

Lease

Federal laws allow federal government agencies to lease the surplus properties

they own. Leasing surplus fixed assets means that the federal agency changes the

function of the asset from serving the agency in achieving goals and objectives to

obtaining revenue for government. However, compared with private businesses,

government is not good at running businesses (Osborne & Gaebler, 1992). Government

falls far behind in the real property leasing business (Simons, 1993b). In reality,

governments, especially state and federal governments, have leased great amounts of

real properties from private businesses and no doubt will lease more and more
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properties in the future. Therefore, disposal of surplus property through lease is not

actually a popular practice. Comparatively, government would like to sell fixed assets

to have one-lump revenue (Mikesell, 2007).

Changing Functions

Public fixed assets are originally acquired for particular purposes. These purposes

determine such elements as the functions of public properties, the budget fund,

financial and accounting requirements, the tax category, and zoning regulations.

Therefore, once a property is disposed of by changing its function, relevant elements of

the property in question must be correspondingly changed. For example, capital assets

recorded under different categories of funds are reported according to different

financial and accounting requirements (GFOA, 1994). Under the governmental fund,

they are reported as expenses; but under the proprietary fund they are reported as

capital assets. Surplus properties may have their functions appropriately changed to

fulfill different purposes. Accordingly, they can be invested in public-private

partnerships (PPPs) if possible to provide property-associated public outcome

(Kaganova & Polen, 2006).

Retirement

Property retirement is a significant phase of property management. Fixed assets

have a life of more than one year. When fixed assets are no longer functional or are

irreparable, they are retired. Retired real property may be sold or demolished depending

on which method is in the best interest of the government. According to Allison (1996),

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property at the time of retirement may have residual value or be of some use to other

government entities. For a real property, the land on which the property stands may still

be valuable when the property is retired. It is important to note that except for residual

value, a retired fixed asset involves expenses when demolished. Therefore, fixed asset

management should make appropriate decisions concerning asset disposal so as to

obtain maximum public interest.

No matter what methods are employed for property disposal, proceeds obtained

from different categories of property must be deposited into the treasury and accounted

according to rules and regulations. Nowadays, government at all levels is experiencing

rapid internal and external changes. Public fixed asset management needs to regularly

dispose of surplus properties under their control according to government agencies‘

needs and conditions of assets. Sales of surplus fixed asset by auction or by bids should

be held at least once a year (Allison, 1996). This may be dictated by laws or ordinances.

The methods of property disposition are summarized in Table 13.

Table 13 The Checklist of Property Disposition Methods

Methods of Disposition Features of Disposition Methods

Legal requirements, property valuation,
Transfer
transfer request, property ownership changing
Bidding, negotiation, contract broker
Sale
advertisement, transparency, fair market value
Legal requirements, leasing goals, market
Lease
analysis, lease agreement
Objectives of changing property functions,
Changing functions taxation policy, financial & accounting
requirements
Residual value, demolishing expenses,
Retirement
maximum public interest

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Property Life Cycle Management

Property life cycle is a time span during which a property is conceived, designed,

manufactured/constructed, utilized, maintained, and retired. In the case of real property,

life cycle consists of four major phases, including planning, acquisition, operation and

maintenance, and disposal (see Figure 8).

Figure 8 Life-Cycle Property Management

Phase 1
Planning

Phase 4 Phase 2
Disposal Acquisition

Phase 3
Operation &
Maintenance

Both the preceding discussion of decision-making process in Chapter 5 and

operation management discussed in the previous section of this chapter demonstrate

that each phase of a property‘s life cycle consists of various aspects of fixed asset

management. Life-cycle management of fixed assets is a structured approach to

analyzing costs of asset management and the factors that determine these costs during

the life of property. The purposes of life-cycle property management are concerned

with two dimensions of fixed asset management. One dimension is that life-cycle

property management is a strategic plan for long-term financing of property ownership,

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operation, and maintenance. The other dimension is that life-cycle property

management puts each property under systematic custody and seeks maximum

functionality at minimum life-cycle cost. Life-cycle management ensures that facilities

are sustainable, that is, healthy and comfortable for their occupants and economical to

operate and maintain. This life-cycle management is also intended to conserve

resources of any categories (like energy, water, and raw materials and land) and

minimize the generation and use of toxic materials and waste in design, construction,

landscaping, and operation (Section 255.253, Chapter 255, Title XVIII, Florida

Statutes, the State of Florida, 2010).

Generally, life-cycle costing of a property is an efficient and effective way to

manage the costs of fixed asset ownership and use. This technique takes into account all

phases of ownership of a fixed asset, including acquisition, ownership, and disposal;

and it encompasses all expenditures a property owner makes during the property‘s

service lifetime, not only acquisition costs but also operation and maintenance costs

(National Research Council, 1990; Kaganova, 2008). The evaluation of life-cycle

costing is based on four components:

1) Capital investment,

2) Annual operating and maintenance costs,

3) Annual repairs and replacement costs, and

4) Salvage value (Shenkel, 1980, p. 72).

The costs of various categories are summarized in Table 14. The list in the table is by no

means inclusive. Life costs of asset operation, maintenance, repairs, and replacement

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largely depend on a sustainable asset rating that conforms to certain rating criteria. For

example, the Leadership in Energy and Environmental Design (LEED) rating system

established by the United States Green Building Council (USGBC) assesses a

building‘s sustainability and building performance on the basis of standards in six

categories, including sustainable sites, water efficiency, energy and atmosphere,

materials and resources, indoor environmental quality, and innovation and design

process (USGBC, 2010).

Table 14 Factors Incurring Life-Cycle Property Management Costs

Life-cycle Cost Incurring Factors Affecting Factors
phases
benefit-cost analysis, risk
analysis, architectural needs,
Planning
public hearings, and possible
lawsuit
land, construction, variability of land
administration, interest, building location, construction
Acquisition permits, utility connection, and materials, structure, labor,
legal needs and contingencies
cleaning, utilities, repairs, regular property location, type
maintenance, parking, user and purpose, size, design,
services, user improvements, quality of construction
waste and dangerous material materials, price indices
Operation &
disposal, pest control, inspection for utility and services,
Maintenance
services, property valuation, and wages, interest and
data management, among other inflation rates, and
factors organization budget
conditions
evaluation and assessment,
Disposal public hearing, demolition cost,
and sales
References: Gish, 1994; Harris, 1994; Christian & Pandeya, 1997

It is highly necessary that a government designate a range of life-cycle cost in

accordance with a set of standards that apply to use and maintenance of the fixed assets

owned, leased, or controlled (such as Florida Statute Title XVIII, Chapter 255-255). It

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is also worth noting that these costs throughout the property‘s life cycle are not clearly

incurred solely during one phase. With respect to government real properties, it is

impossible to distinguish expenditures for renovation and replacement projects from

annual operation and maintenance (OM) costs (Christian & Pandeya, 1997).

Consequently, OM costs may fluctuate over a range. Life-cycle property management

needs to take this into account while planning and analyzing life-cycle costs.

Figure 9 Effect of Adequate and Timely Maintenance and Repairs on the Real
Property Service Life

Performance Optimum Performance

Likely aging with normal maintenance

Likely aging without
normal maintenance Minimum acceptable performance

Property service life

Lost to poor maintenance

Time
Reference: National Research Council, 1993

Property maintenance is an essential independent variable that determines the span

of a property‘s life cycle (National Research Council, 1998). As previously discussed in

Chapter 2, OM costs account for 46% to 85% of a real property‘s total ownership cost

(Christian & Pandeya, 1997). This mean that cost of acquisition of a fixed asset, which

is the initial investment cost, occupies a small portion of the total expenditure during

the life cycle of a fixed asset. A case in point is highway capital expenditure. In 1996,

the combined state and local highway capital expenditures were $43 billion, but the

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total expenditures, including capital plus operating and maintenance costs, reached

$127 billion (U.S Bureau of the Census, 2000). With other conditions equal, proper

management and maintenance keep a property under optimal working condition to

provide adequate performance and thus significantly prolong the life of the property.

Figure 9 illustrates the effects of appropriate maintenance on the service life of a real

property. When a property is appropriately maintained, its aging process is slow and its

life span with minimum acceptable performance is prolonged. Conversely, when a

property is not normally maintained, its life span with minimum acceptable

performance is rapidly shortened.

Obviously, inadequate and/or deferred maintenance and repair may result in a

series of deficiencies. Deferred maintenance negatively affects service delivery of

property using agencies, enormously increases maintenance cost in later property

service, and worsens the working condition of property components (National

Research Council, 1998; GFOA, 2010). These defects will eventually cause

mechanical breakdown, damage to real property, disruptions in property service and the

routine operation of the property using agency, and other serious negative

consequences (National Research Council, 1998; GFOA, 2010). Generally, inadequate

and deferred maintenance and repair are caused by a number of factors. First,

―underfunding is a persistent, widespread problem that undermines maintenance and

repair of public buildings‖ (National Research Council, 1990, p. xi). The attitude of ―if

it ain‘t broke, don‘t fix it‖ is the major source of underfunding (Barco, 1994). Second,

current government budgeting focuses on design and construction cost, which accounts

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for only five to ten percent of the total cost of real property ownership, and ignores the

full-life cycle costs of a new facility (National Research Council, 1990, 1998). Third,

lack of accountability for stewardship contributes to deterioration of some facility

components. The deteriorating components may further cause disruptions of property

service. Fourth, formal regular property assessment is neglected. As a result, funding is

somewhat reduced and backlogs pile up.

Besides inadequate maintenance and repair, other factors that contribute to loss of

property service life include aging of fixed assets, lack of information to justify

inspection and repair, and lack of appropriate rules and regulations. These factor may

work individually or jointly to produce negative consequences in life-cycle property

management.

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 CHAPTER 7. HUMAN CAPITAL STRATEGIES

Traditional public personnel management generally focuses on two functions: (1)

routine processing of administrative tasks concerning payroll and retirement and (2)

enforcement of laws, rules, and regulations governing the civil service system (Ban,

2002; Nigro & Nigro, 2000). These fundamental functions cannot meet the increasing

needs of organizational management. While prioritizing efforts to improve

organizational performance, line managers were constrained by excessive

centralization of personnel authority (Nigro & Nigro, 2000). New public management

requires that government provide efficient and effective services and be highly

responsive to public needs. This requirement urges public personnel management to

change its traditional functions to meet the increasing needs of line managers. Public

personnel management should consider human resources as capital that may produce

value. It should also expand from recruiting, selection, and pay and benefits to

additional strategies to address an organization‘s increasing need of human resources to

achieve organizational goals and objectives. Thus, human resource management (HRM)

is an appropriate term that describes the functions of employee management in a public

organization.

The Investment in Workforce for Public Fixed Asset Management

Human resource management integrates the planning and management of the

workforce with an organization‘s mission and future direction. It fosters collaboration

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between management and employees and encourages employee involvement (GAO,

1987). In the domain of public property management, as in other domains of public

management, employees should be considered as human capital in which government

invests. The investment in human capital of public fixed asset management can be

reflected in a number of dimensions. First of all, a government agency‘s senior

leadership should be committed to developing effective ways to invest in human capital

(GAO, 2006). Secondly, agency property managers should participate in developing

the agency‘s overall human capital strategy that demonstrates the requirements and

goals of the agency‘s fixed asset management. Thirdly, property managers are

responsible for developing, implementing, and evaluating human capital approaches

that are designed to meet the needs of the customers of property management and

improve the overall property management operation. And finally, the human resource

department handles payroll and retirement tasks and enforces laws, rules, regulations,

and procedures. Generally, salaries and benefits account for 70 percent or more of

operating cost (Sylvia & Meyer, 2002). In the domain of public real property

management, operation and maintenance costs take up 60 to 85 percent of a facility‘s

total ownership cost (Christian & Pandeya, 1997). Costs of human resources occupy

more than 60 percent of total ownership cost. Thus, investment in human resources is

an enormous portion of property management cost.

Human resource management performs fundamental roles in public fixed asset

management. Human capital staff partner with fixed asset managers to develop

workforce plans that conform to the goals of asset management and the agency‘s

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mission accomplishment (GAO, 2006; Proctor & Curie, 1999). Human capital

management serves as an internal consultant for fixed asset management in such areas

as organizational design, program development, employee motivation, and

productivity improvement (Ban, 2002). In addition, human capital provides not only

expertise tailored for public fixed asset management but also employee involvement

decision making and problem solving.

Strategic Human Capital Planning

Besides operational functions, human capital management should take on strategic

roles. Strategic human capital planning should include needs of fixed asset

management functions; it aligns decisions concerning human capital with decisions

about the missions of fixed asset management and the goals of an organization (GAO,

2006; U.S. Office of Personnel Management, 1999). Therefore, an agency‘s strategic

human capital planning should take into account the workforce requirement of fixed

asset management (Brinkerhoff, 1987; McMahon & Kerman, 1996). Management of

the fixed asset workforce needs to address critical skills, development needs, and

human capital challenges such as diversity, retention, and leadership capacity (GAO,

2006; Rummler, 1987; Hayles, 1996; Conover, 1996). In addition, strategic human

resource management is responsible for succession planning, such as development of

the talent of fixed asset management staff. This will be further discussed in the

following section of this chapter. Moreover, strategic human capital planning should

include planning for change and planning for cutback (Sylvia & Meyer, 2002). And it is

necessary to consider all stakeholders in team development, whose involvement may

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contribute to the success of fixed asset management (GAO, 2006).

Strategic human capital planning is based on the data of the current workforce

involved in fixed asset management. Specifically, the data consist of the match between

the size of workforce and the assignment of fixed asset management, the shape of the

workforce, attrition rates, skill inventory, projected retirement rates, performance

appraisal ratings, the average period to fill vacancies, acceptance rates of selected job

candidates, and feedback of customer survey, employee survey, and exit interview

(GAO, 2006). Moreover, strategic human capital planning is also based on other

categories of data, such as agency budget, training programs being initiated, the number

of employees receiving training, percentage of female employees, demand of services

the agency provides, and union environment. It is important to note that these data may

affect strategic human capital planning in different manners and in various degrees. For

example, when an agency is forced to slash budgets owning to an economic downturn

or a slowdown in demand for property services, strategic human capital plans have to

be restructured to preserve the mission of the agency. Possibly, some training programs

may be cancelled and employees laid off when necessary.

Human Capital Development for Property Management Talent

Human capital development is a kind of sustainable investment in human

resources. It is related to employee training. On the other hand, as previously

mentioned, human capital development is an essential dimension of strategic human

capital planning. However, it consists not only of strategic planning but also of

operational planning in the domain of public fixed asset management. From a

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perspective of strategic planning, workforce management in public fixed asset

management must take care of sustainable development of employees‘ professional

talent and expansion of employees‘ professional vision. Meanwhile, from a perspective

of operational planning, workforce management that handles public fixed asset

management should provide new employee training or specific task-oriented training.

With respect to planning for sustainable human capital development, human

resource management needs up-to-date information to make decisions concerning

development of property management employees. Human resource management, with

top-level commitment and help from fixed asset managers, needs to establish a

systematic framework for attracting, developing, retaining, and deploying high

performing property management employees to achieve property management goals

and accomplish organizational missions. To implement sustainability planning, human

resource staff must identify ―positions that are likely to experience retirements in the

near term, determine critical skills necessary to the positions, establish in-house

training programs to develop the needed skills, and develop mentoring programs in

which high-level managers work with particular subordinates and impart managerial

skills‖ (Sylvia & Meyer, 2002, pp. 123-4).

To enhance sustainable human capital development, human resource management

has responsibility to provide all employees with training regarding new practices in the

domain of fixed asset management. Human resource management needs to establish

cooperative relationships with local higher education institutions to provide seminars

tailored for various groups of asset management employees. Simultaneously, the

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agency should consistently provide resources to support training and human capital

development priorities for fixed asset management.

With respect to operational training, human resource management, together with

the asset management division, should provide training for new asset management

employees regarding compliance to laws, regulation, procedures and specific operation

as well. Public fixed asset managers need to provide opportunities for property

management employees to learn best practices, in-house property asset management

expertise, and technical problem-solving skills. To enhance operation of fixed asset

management, asset managers with cooperation from human resource management need

to establish training programs in team building and conflict management.

To ensure that human capital development for property management talent is

implemented effectively and achieves expected results, it is of great importance that

human resource management establish specific plans for human capital development

based on up-to-date information regarding fixed asset management employees and

particular needs to achieve asset management goals. On the other hand, human resource

management and asset management division need to establish a transparent

performance appraisal mechanism and performance incentive system (see Rosenberg,

1996). These measures may help property human resource management and asset

managers attain goals of human capital development and fulfill mission of fixed asset

management.

Creating Results-Oriented Organizational Culture

A healthy organizational culture promotes organizational learning. A learning

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organization is more capable of adapting to environmental changes because it

encourages creation and exploration of new knowledge (Senge, 1990; Kofman &

Senge, 2003; Tobin, 1993; Argyris & Schön, 1978). In addition, organization may

create a culture for performance improvement and sustainability building. Creating

results-oriented organizational culture is a fundamental mission of human resource

management because human resource management performs a role of leadership in

building up an organizational atmosphere that encourages high performance,

cooperation, and accountability. A results-oriented organizational culture helps

mobilize the working enthusiasm of fixed asset management employees and motivate

them to improve performance. An effective performance management mechanism is

actually a tool that drives employees‘ internal impetus to produce external results

beyond management expectation (GAO, 2003b).

GAO recommended that government agencies need to provide cost-effective and

flexible environment and develop results-oriented workforce (GAO, 2003b). To create

a results-oriented organizational culture, an agency involves fixed asset management

employees in making decisions, including individual and team goal setting to achieve

organizational missions (GAO, 2006; also see Earley, Wojnaroski, & Prest, 1987;

Locke, Shaw, Saari, Latham, 1981; Locke & Latham, 1990, 2002; Tubbs, 1986). Fixed

asset managers need to understand their subordinates so as to adopt appropriate

approaches to motivating to provide high performance. The agency needs to establish

effective communication between managers and subordinates so that human capital

potential can be fully exploited in the work place. In the case of strong employee

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unions, the agency should involve union leaders in decision making regarding major

workplace changes (Sylvia & Meyer, 2002).

Table 15 demonstrates a checklist of the key factors in human capital management.

Working together, these key factors provide a strong, indispensable support to fixed

asset management. In addition, these factors build up a dynamic, constructive system

that effectively organizes fixed asset management activities to achieve organization

goals and objectives.

Table 15 Checklist of Key Factors of Human Capital Management

 Senior leadership commitment to human capital investment
 Property managers participating in overall human capital strategy
 Property managers implementing human capital approaches
 Human capital department enforcing laws and regulations
 Human capital staff partnering with property managers to develop
workforce plans
 Human capital department serving as property managers‘ consultant in
organizational design, employee motivation, & productivity improvement
 Employee job description based on overall property management goals &
objectives
 Consideration of the workforce requirement of property management
 Planning for change
 Employee involvement in decision making
 Team development
 Improvement in operation proficiency
 Attainment of new work requirements
 Satisfaction of long-term need for qualified employees
 Meeting customer satisfaction
 Aligning with agency goals & objectives
 Build up atmosphere for organization learning
 Encourage high performance
 Encourage cooperation
 Enhance employee accountability
 Understanding subordinates
 Establish effective communication between managers and subordinates

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 CHAPTER 8. INFORMATION AND TECHNOLOGY RESOURCES
MANAGEMENT

Information management has been growing in importance in modern public

administration. Public managers have to gather data and process the data into usable

information (Hitt et al., 1989). They make decisions by using the information obtained

or provide the information to top-level decision makers to make significant decisions at

critical times. There are two reasons that may explain why information management

has become more important in both the private and public factor. One is that

management as a job has become more complex and involves a variety of factors in a

rapidly changing environment. The other factor is that decision making tools have been

improved to help managers solve more complex problems. Therefore, decision making

is more challenging nowadays because much more information has to be obtained and

because complicated decision making tools must be employed for solution of difficult

problems.

Similarly, public fixed asset management today is enormously affected by many

factors. Public property administrators or managers must obtain up-to-date information

concerning these factors to make decisions about property acquisition, use and

maintenance, and disposition. In the public asset management system, the cornerstone

of Information and Technology Resources occupies a special position. On the one hand,

information acquisition is a dynamic process in which asset management categorizes

property assets, collects raw data of properties, describes and records the state of
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properties, valuates fixed assets, and records and reports financial and accounting

contents of fixed assets. In this sense, information obtained is an output of fixed asset

management in the property life cycle. On the other hand, information acquired has an

indispensable function in the decision process of asset management. Public asset

managers depend on asset information obtained to make decisions concerning how to

handle the relevant properties in question. From a decision-making perspective,

information has become input while the decisions that asset managers formulate are

output.

Figure 10 Information Management Process

Control-Maintenance-Coordination Control-Maintenance-Coordination

Internal Feedback Internal Feedback

Input Processing Output/Input Processing Output

Raw Data Information: Decision Decisions:

data: collection, property, human, Process planning,
current storage, & finance, market, acquisition,
property filing etc use, disposal

Property Management
performance

Information is considered as an organizational resource in the public asset

management system. Managing information resources is to combine raw data, people

and processes to produce information and use information to aid fixed asset managers

in attaining goals and objectives of asset management. In the process of information

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management, asset management employees gather, store, and file data; then they

produce and provide information to those who use it for property management. The

process is illustrated in Figure 10. Obviously, information management is a continuous

process in which raw data produces information after a processing phase. Then the

newly produced information is considered as input for decision making and produces

new information. In fixed asset management, the products of information management

are decisions that contribute to planning outcomes, assets acquired, services provided,

and disposition of assets.

The cornerstone of Information and Technology Resources should encompass

legal and regulatory information, human resource information, fixed asset information,

financial and accounting information, and information stewardship. Since the public

asset management system embraces particular cornerstones of legal and regulatory

requirements and human resource management, the cornerstone of Information and

Technology Resources focuses on property-related information, that is, traits of fixed

assets and financial accounting attributes.

Fixed Asset Information

Building an inventory of fixed assets and registering fixed assets are two

fundamental ways in which information managers gather and produce fixed asset

information (Conway, Kanganova, & Mckellar, 2006; Kaganova & Nayyar-Stone,

2000). The activities of building a fixed asset inventory and registering fixed assets are

based on laws and regulations, policies, guidance, and practices. At the U.S. federal

government, Executive Order 13327 mandated that a comprehensive and descriptive

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database (called Federal Real Property Profile or FRPP) of all real properties under the

custody and control of all executive branch agencies, except when otherwise exempted

for reasons of national security, be established at the U.S. General Services

Administration. Federal executive agencies are required to submit an annual data report

to the FRPP. With the consolidated data of government real property in the FRPP

system, the federal government is poised to improve real property decision-making and

benchmark federal real property management against federal requirements (the Federal

Real Property Council, 2010). The FRPP system holds a wealth of real property

information that can be used to oversee federal government efforts towards the goal of

reducing real properties‘ operation cost.

GFOA recommends that governments develop a policy to require a complete

inventory and periodical assessment measures of physical conditions of all existing

capital assets (GFOA, 2010). Governments need to determine the categories fixed

assets are classified into. Different governments may have various criteria (such as

laws, regulations, practices, and traditions) for fixed asset classification. Generally, real

properties assets are classified into three categories: buildings, infrastructure assets, and

land (Fernholz & Fernholz, 2007). All public fixed assets can be for governmental use

(like office buildings), service provision (like schools and public hospitals), and social

use (such as public housing, parks) (Kaganova & Nayyar-Stone, 2000; Fernholz &

Fernholz, 2007). Property assets that are not put to use are surplus properties. Different

governments may have various fixed assets for each category.

Besides criteria for fixed asset classification, asset management needs to define

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and use data elements and standards for building fixed asset inventory. Consistent data

elements make it easy for all stakeholders to understand the status of public assets. On

the other hand, this consistency improves property information quality and avoids the

dilemma of using different standards for various asset-using agencies.

Inventorying of fixed assets starts by gathering basic data on a

property-by-property basis. It covers all properties that government owns and controls.

The contents of data may be somewhat different for different categories of fixed assets.

Inventory of various categories of fixed assets, whether owned or leased, may include

such information as existing use, age, date of occupancy, zoning, location and address,

site, percent utilized, historical operating statements, book value, original useful life,

remaining useful life, and legal owner (Mahlmann, 1987; GFOA, 2010). For assets

owned by government, more information would be added, such as acquisition cost,

current value (or replace value), annual cost for ownership, and planned capital

improvements. For assets leased from private businesses, the following information

needs to be added: lease rent, option to renew or to purchase, cost of leasehold

improvements, planned leasehold improvement, and estimates of current market rents

and value, among other elements (Nourse, 1990). Comparatively, the inventory of land

properties may have a number of particular elements and standards, such as soil

conditions, flooding conditions, and environmental services and hazards.

Property registration, according to Fernholz & Fernholz (2007), is a process by

which government identifies a property‘s ownership, use, details of location, size, and

features. From a legal perspective, property registration authorizes legal ownership and

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tenure right of a property, especially land and buildings. This enables efficient and

secure property transfer and transaction. From economic and financial viewpoints,

property registration gathers information concerning property financing, taxation,

security of credit, and improvement and management. With information obtained from

property registration, government may use the properties registered more efficiently

and effectively. For example, clearly registered properties can be used by banks as

collateral, and registration of debt can be linked to certification of property for any

potential transactions (Fernholz & Fernholz, 2007).

An effective and well functioning registration system depends on a number of

factors. Some key factors include appropriately selected property elements, efficient

organization, security, easy access, reliability, and cost-effective retrieval (Fernholz &

Fernholz, 2007). A registry system that registers appropriately selected property

elements may provide expected functions and serve appropriate purposes. Besides,

government needs to determine which agency at which level of government has the

authority for property registration. Property registration is not actually separated from

the main body of asset management. It is recommended that the authority of public

property registration go with the authority of public asset management so that property

registration can best provide services. In addition, the data of property registry should

be kept in a secure way and within easy access. An information database of all

properties should be updated regularly and retrievable at lowest cost.

Besides the basic information of fixed assets, the performance of pools of fixed

assets is fundamental information for effective and efficient public asset management.

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Therefore, public asset managers have accountability to evaluate the performance of

not only individual properties but also pools of properties so as to analyze the output of

property management against investment input. Corporate real estate management uses

return on investment and budget standard as major indicators of property performance

evaluation (Gale & Case, 1989). But public asset management at state government

rarely evaluates property performance. In recent years, public asset managers use

specific monetary rates or user comments as major indicators for evaluating the

performance of real properties and management, such as operating cost per square foot,

dollars savings from audits, average cost per employee in leased space, favorable

customer satisfaction in percentage, and utility trouble calls (New York Office of

General Services, 2005).

Financial and Accounting Information

Currently in the United States, fixed assets account for a very large portion of the

public financial resources at each level of government. In an annual financial report of

state and local governments, capital assets occupy an important position. As discussed

in Chapter 2, one major objective of public asset management is to maximize the value

of fixed assets that government owns and controls. In the process of public fixed asset

management, asset managers regularly report, track, and valuate fixed assets (Larson,

2004). Therefore, financial and accounting information management occupies a

significant position in the fixed asset management system.

Accounting and Financial Reporting

State and local governments are subject to GASB guidance while the federal
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government is subject to the standards promulgated by the Federal Accounting

Standards Advisory Board (FASAB). Both GASB and FASAB have requirements that

costs and revenues concerning capital assets be reported by categories. For state and

local governments, fixed assets are categorized as land, buildings, equipments,

improvements other than buildings, construction in progress, and intangibles. In

addition, GASB Statement 34 requires that infrastructure assets also be recorded as part

of a state or local government‘s capital assets. Infrastructure assets usually include

roads, bridges, tunnels, water and sewer systems, dams, drainage systems, and lighting

systems. Capital assets used for governmental activities and those for business-type

activities are recorded in the government-wide financial statements while capital assets

used for fiduciary activities should be excluded from the government-wide statements.

A state or local government‘s capitalization policy determines what assets are recorded

as capital assets and what assets are recorded as expenses. For example, a capital asset

purchased or constructed with a governmental fund is recorded as an expenditure rather

than as an asset. In addition, a state or local government may determine what assets are

recorded as capital assets by setting particular capitalization thresholds (in terms of

monetary value and useful life) according to that government‘s capital asset structure.

The federal government uses property, plant, and equipment (PP&E) to take the

place of capital assets. FASAB states that PP&E falls into four categories: general

PP&E (all PP&E that is used to provide general governmental services), federal

mission PP&E (used as an integral part of the output of certain unique federal

government missions), heritage assets (those assets possessing significant educational,

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cultural, or national characteristics), and stewardship land (land other than that included

in general PP&E (SFAS 6, Federal Accounting Standards Advisory Board, 2009).

FASAB specifies what cost and expenses are to be recorded in financial accounting

reports. Federal agencies may determine their own capitalization thresholds according

to their property characteristics.

GASB, in GAS No. 34, states that government-wide information should be

provided for users of financial statements so that they may adequately understand a

government‘s overall financial circumstances. Therefore, state and local governments

should prepare a balance sheet in the government-wide financial report. The balance

sheet equation can be expressed as:

Net Asset = Assets – Liabilities

This formula suggests that when fixed assets account for a large portion of total assets

in dollar value, the fixed assets determine how good or poor the financial condition of a

state or local government is.

Fixed Asset Valuation

Valuation of fixed assets is a methodological challenge and a controversially

debated topic in the domain of public fixed asset management (Kaganova &

Nayyar-Stone, 2000; Fernholz & Fernholz, 2006). Discrepancies on public asset

valuation arise from a number of viewpoints (Kaganova & Nayyar-Stone, 2000). The

first one is that property valuation is unnecessary because not all public properties have

a potential to go on the market. Secondly, the social value of many public assets is hard

to quantify. Thirdly, the value of some public properties are particularly specified with
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public features and thus restricted. Fourthly, valuation standards are difficult to justify;

thus it may cause confusion. Finally, public property valuation is an expensive issue

that may incur unnecessary expenses and dissent from taxpayers.

However, in the practice of public asset management, there are a number of issues

that need asset valuation and appraisal. Some of these issues may include the following:

 To estimate asset value for regular asset reporting,

 To estimate current value for using asset as collateral,

 To estimate market value for asset sale, transfer, trade, joint venture,

 To estimate sunk or residual value for retirement of an asset,

 To estimate market rent for internal transfer pricing, and

 To estimate current value for government agency merger or rescission

(Nourse, 1990).

In addition, fixed asset valuation and appraisal involves a variety of factors, such as

initial cost, age, physical and environmental characteristics, location, life span,

depreciation, appreciation, and replacement value. Various valuation methods are

actually employed to serve different objectives. For bookkeeping purposes, the

following valuation criteria might be used:

 Book values: Fixed assets are valuated based on their acquisition value. Book

values can be used for the properties that ―do not represent a true commercial

opportunity cost, unless there is a pending sale/disposal of the assets of change

in land use‖ (Fernholz & Fernholz, 2006, p. 8). Book values of fixed assets can

be reduced by depreciation, amortization, and depletion while fixed assets are

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 used to provide services or obtain revenue. However, book values may not

represent the true value of the fixed asset unless valuation is conducted at the

time of acquisition, construction, or another particular time.

 Replacement value: Cost to be paid to replace a fixed property at the present

time or at its pre-loss condition.

 Comparative market value: The value of a comparative asset is a good

approximation to the value of the fixed asset to be recorded.

 Social and cultural value: These values may not be equal to financial values,

but they are significant from a perspective of different segment of government

(Fernholz & Fernholz, 2006).

For the purpose of a financial accounting report, GASB No. 34 allows two methods

of property valuation. One method is a traditional method based on historical cost. By

using this method, government records the original cost at purchase or construction and

reduces the cost by straight-line depreciation according to assigned useful life of the

reported property. However, historical cost accounting is criticized for a number of

reasons: (1) the acquisition value on the balance sheet may be old; (2) historical cost

accounting focuses on allocating cost not on the value of assets; (3) it is based on a

assumption that purchasing power remains the same during the life time of a property;

(4) historical cost prices reflect an old interest rate and out-of-date assessment of

amount, timing, and uncertainty of future cash flows (Ahad, 2009). When historical

cost is not available, it can be estimated by calculating the current replacement cost of a

similar tangible property and deflating the replacement cost by using price indexes to

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the year of property acquisition. If this traditional depreciation method is employed,

maintenance and depreciation expenses are recorded as expenses. The other method

GASB Statement 34 allows, termed ―modified reporting approach,‖ assigns a current

value to a fixed asset based on its market value or replacement cost. It recognizes that

capital assets are maintained and preserved at their current condition through

investment in repairs and replacement so as to extend their useful life. Under the

―modified reporting approach,‖ the original cost and improvements and additions to

capital assets are not depreciated; and maintenance and renew/preservation expenses

are recorded as expenses. If electing to employ the modified reporting approach, state

and local governments must have a qualifying management system that includes an

up-to-date inventory of capital assets, consistent and complete condition assessment

using a measurement scale, and an annual estimate of maintenance and preservation

costs at the disclosed conditional level.

For the purpose of proactive asset management, which keeps close track of fixed

assets and finds effective ways to ensure that fixed assets under control perform at their

best, market value criterion is adopted (see Harris, 1994b, p. 56). Likewise, for the

purposes of asset sale, transfer, and trade, a capital asset must be valuated and appraised

to estimate its current fair market price. Generally, there are three approaches to

valuation: sales comparison, income capitalization, and cost or summation (Nourse,

1990; Mikesell, 2007). The sales comparison approach starts with finding comparable

properties that have been recently sold, and then adjusting the market values of these

properties to estimate the value for the subject asset. Meaningful adjustments are made

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by taking into consideration differences in sales time, differences in location, and

differences in size, environmental conditions, and amenities that may cause a difference

in value. However, this approach does not apply to unique properties because of a lack

of comparable properties. The income capitalization approach converts future returns

from owning a property into a present value equivalent to estimate the property value a

willing investor would pay considering future income flow. This approach involves a

capitalization rate that reflects a prevailing relationship between annual net operating

income and total property value (Mikesell, 2007). In the case of buildings, the cost

approach estimates land value and adds the depreciated cost of improvements on the

land. This approach determines the cost of constructing a standard building, and adjusts

the cost to account for any nonstandard building construction.

It is important to note that land value is calculated at original cost without using

depreciation except when that land has pollution, erosion, or mineral extraction issues.

Land for government use, commercial land (with the potential to be converted to

commercial use), land for utilities, and potential areas of conversion from vacant land

to buildings can be valued similarly. Various factors, like zones and impact of zoning

changes on the valuation, are taken into account when considering land value.

Management Information Stewardship

How effectively a management information system works depends on a number of

factors. Generally, a management information system consists of four components:

planning, design, use, and control (see Ceriello, 1980). Planning determines what

information is included in the management information subsystem. Only when a

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management information system embraces correct information can the system function

appropriately to serve expected purposes. In addition, information resources should be

accurate, timely, complete and concise, accessible, and usable (GAO, 2006; Hitt et al,

1989; Fernholz & Ferholz, 2007). Outdated and inaccurate information may lead to

incorrect decisions. Without sufficient information, managers are not able to arrive at

rational decisions. However, large amounts of competitive information may cause

confusion and contribute to irrational decisions (Scott & Podsakoff, 1985).

Design mainly determines the form in which information is stored and filed. In

modern times, management information of government agencies is mostly

computerized and available to not only managers and other internal stakeholders, but

also to external holders. Actually, information computerization is usually considered a

vital indicator of an effective management system. Moreover, software programs are

created to develop a prototype of information storage and provide devices for public

managers to make decisions.

The use of a management information system determines how information is used,

who has access to the information, and who is in charge of and maintains the

information. In the private sector, a growing number of organizations have established

a chief information officer (CIO) to ensure that information resources are effectively

managed (Synnott, 1987). The major responsibility of a CIO is professional strategic

information planning. A CIO must ensure that an organization‘s investment in its

information system is aligned with its strategic business objectives (Beatty et al, 2005).

Control indicates how management information is adjusted and updated. Particular

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categories of information can be complemented or deleted to satisfy the needs of

management‘s and decision making.

A fixed asset information management system must encompass essential fixed

asset information that consists of fundamental elements of each fixed asset a

government owns and controls. The property information needs to cover core features

of each and every asset, especially ownership and leasehold, physical asset condition,

utilization state, services provided, and functional position in the government‘s

operation. The major information included in an asset management information system

is presented in Table 16. Such major information is a pillar that supports strategic asset

decision making. Besides, financial and accounting information not only presents a

structure of financial resources, but this information also affects the manner in which

government disposes of assets. The information resource must be processed and

updated in a timely manner when any element of a property asset is changed. This

keeps property-related information accurate and consistent.

How fixed asset management information is stored is determined by the amounts

of fixed assets and the technology available, and it in return affects cost-effectiveness of

the information system. Generally, computerization of property-related information

means more effective use of information. For large amounts of fixed assets, software

programs should be developed to categorize and synthesize information concerning

every property asset. Simultaneously, a satellite-based mapping system can be

employed for certain categories of fixed assets such as buildings and land (Fernholz &

Fernholz, 2007). Information technology can be used to combine information records

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with internet portals to improve fixed asset management‘s efficiency and effectiveness

while increasing management‘s transparency. However, asset managers must ensure

that the cost of retrieving and using management information is limited to a particular

level.

From a macro management perspective, a government needs to put custody of its

property management information system under the jurisdiction of a dedicated property

management agency or financial service department if there is no such a dedicated

agency. An example is that the federal government has placed its Federal Real Property

Profile under the jurisdiction of the General Services Administration. The official in

charge of the fixed asset management information system plays the role of a CIO who

attends top strategic asset planning meetings. In addition, the electronic asset reporting

system can be accessible to stakeholders. It must be securely stored and cautiously

maintained.

Table 16 presents a checklist of major fixed asset management information. It is

expected that a government at any level establish a fixed asset information system that

records these characteristics of major fixed assets that the government owns, leases,

and controls. This helps government decision-makers and fixed asset managers

understand the constituents, condition, and value of fixed assets so as to make

appropriate decisions concerning acquiring new assets, disposing of current assets, or

restructuring the assets in use.

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Table 16 Checklist of Major Fixed Asset Management Information
 Property asset category
 Location
 Age
 Current status
 Percent utilized
 Date of occupancy
 Size
 Estimated value
 Zoning
 Legal owner
 Property title
 Original useful life
 Remaining useful life
 Transfer history
 Acquisition (Construction) cost
 Total value of operational assets
 Total value of investment assets
 Total value of fixed assets
 Annual cost of ownership
 Annual operating expenses
 Insurance
 Taxes
 Rent of leased property
 Cost of leasehold improvement
 Soil mechanical condition (land)
 Flooding condition (land)
 Environmental services (land)
 Hazards (land)

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CHAPTER 9. MONITORING, INTEGRITY, TRANSPARENCY OF FIXED ASSET
MANAGEMENT

Considering the variety of the functions of public asset management, government

should try to ensure that public assets function appropriately. Public asset management

is significant for government to implement its missions and achieve its goals and

objectives. For one thing, efficient and effective public asset services guarantee a

physical foundation on which government delivers services and produces public goods.

On the other hand, some categories of public fixed assets are public goods and provide

service directly for constituents within the jurisdiction. In addition, public fixed asset

management involves a wide range of business activities that need tremendous amounts

of public funds. The efficiency and equity of spending each tax dollar usually attracts

attention from the public. Accountable government needs to establish a mechanism to

monitor and oversee the whole process of public asset management and improve

transparency within legal constraints.

Monitoring and Oversight

Public fixed asset management has been producing considerable effects in the

domain of public management. In order to ensure that public asset management

achieves its goals and objectives in serving government agencies, the processes of asset

management need to be effectively monitored in different dimensions. In

addition, oversight over fixed asset management helps produce accountable and

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transparent government by assuring constituents that tax money is spent reasonably and

that publicly owned properties are utilized efficiently (Hentschel & Utter, 2006).

Considering the structure of public asset management, monitoring and oversight covers

the following aspects of fixed asset management:

 monitoring of compliance of laws and regulations,

 monitoring of effectiveness of policies & procedures,

 contract monitoring (cost, schedule, performance, quality),

 performance measurement, and

 financial accountability monitoring (purpose, time, amount).

Monitoring and oversight is a kind of managerial control and a process by which

management at different levels evaluates and audits the fixed asset management

process and performance against previously determined standards and takes corrective

measures if necessary (Hitt et al., 1989). The standards on which monitoring and

oversight are based include legal and regulatory requirements, policies and procedures,

performance standards, contracting requirements, goals and objectives, job

descriptions, and financial and accounting requirements. In the domain of fixed asset

management, monitoring and oversight are intended to determine in what degree each

component of fixed asset management is appropriately implemented to achieve its

planned objectives.

Monitoring of Compliance with Laws and Regulations

As discussed in Chapter 4, laws and regulations authorize fixed asset managers to

―make a choice among possible course of action or inaction‖ regarding asset

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management (Davis, 1980, p. 4). Fixed asset management at all levels needs to examine

the duties they have performed against requirements of laws and regulations to make

sure they have not deviated from those requirements.

Monitoring of Effectiveness of Policies & Procedures

Policy, procedure, and guidance provide either broad or specific working

principles as well as instructions regarding how fixed assets should be managed.

Managerial control of job tasks to be performed within the policy and guidance

framework may ensure that property asset management achieves its goals and

objectives.

Contract Monitoring

A contract is an important business document that prescribes rights and liabilities

of the involved parties. Public fixed asset management must examine the contracts

signed for business with either a private party or another government entity so as to

ensure that contracted goods and services are delivered according to time and quality

requirements. Simultaneously, managers in charge of purchases must be cautious of

every contract term so as to protect public interest while fulfilling responsibilities

(Thai, 2007). Asset managers and higher level management must make sure that a

contracted program has met its performance targets in terms of quality and quantity of

purchased construction and service, timeliness, and payment within budget (Thai,

2007; Province of British Columbia, 2002). Besides, contingent factors frequently exist

when complex construction programs—like buildings, bridges, and highways—are

implemented. When disputes concerning contract clauses and terms arise, monitoring

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entities need to ensure that relevant disputes are resolved fairly and promptly, and that

the interests of either party have been protected and guaranteed. When a general

contractor awards a portion of a contracted construction or service project to

subcontractors, a monitoring entity (either the purchasing party or the supervisor of the

purchasing party) must make sure that the general contractor has paid its subcontractors

(Dobler et al, 1990).

It must be noted that contract monitoring is not implemented only after a contract is

closed or a program/project is completely finished. Like financial auditing that starts

after the budget is executed, monitoring of fixed asset management starts when

property users initiate the asset planning process. Risks can thus be avoided, breach

mostly prevented, contracts appropriately implemented, and target performance largely

achieved.

Monitoring of Performance Measurement

Performance measurement is a part of monitoring and oversight on public fixed

asset management. It intends to determine if the management processes are appropriate,

whether intended asset performance and service delivery outcomes are achieved, and

whether all of the accountable parties have fully met their responsibilities and roles

(Province of British Columbia, 2002). Based on service plans of a government agency,

asset managers set their departmental standards of fixed asset services. Supervisors, in

turn, stipulate their sectional standards as well as individual job standards (Hitt et al.,

1989). Performance standards established by managers of different levels must be

results-oriented, comparative, diverse and balanced, stable, realistic, and able to

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withstand scrutiny. Fixed asset management performance is monitored and measured

against all established standards and specific indicators. Generally, appropriate

feedback is also simultaneously provided regarding variances between actual results

and expected standards, underlying causes, and corrections and improvements to make

(London, 2003; Province of British Columbia, 2003).

As discussed in Chapter 2, the goals and objectives of fixed asset management are

to efficiently and effectively provide asset service for government agencies to satisfy

the needs of public service delivery. Therefore, performance standards focus on

measuring and monitoring asset performance. Frequently-used performance measures

include cost per square foot (owned), cost per square foot (leased), vacancy rate

(adopted by Building Owners and Managers Association and New York City); average

cost per person, customer satisfaction (adopted by the GSA and New York City);

employees housed, total square feet of real property, alternative workplace

arrangements, real property disposal time, reimbursable property disposal time

(adopted by the GSA), percent of leases on handover, number of days to process lease,

usable square feet per employee in spaces planned, savings from audits, facility

condition rating, number of utility trouble calls, percent of tenant renovations on time

and on budget, operating cost per square foot, and number of emergency contracts

(adopted by New York City) (New York Office of General Services, 2006; GSA,

2009b).

Financial Accountability Monitoring/Auditing

Financial accountability monitoring/auditing is an indispensable part of

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organizational monitoring and oversight. The most important principle of financial

accountability is that budget dollars for public asset management must be spent wisely,

within budget limits, in the budget period (Mikesell, 2007). In addition, proceeds from

property leases or disposals must be deposited into the treasury pursuant to legal

requirements.

Public fixed asset managers, especially those at top levels, have a responsibility to

ensure that effective and efficient fixed asset management of their jurisdiction operates

towards designated goals and objectives of the jurisdiction. To assure that fixed asset

management is exactly on the right track, top asset managers need to collect relevant

information and analyze the information against particular indexes defining goals and

objectives. Middle- and low-level asset managers need to measure their divisional

operation against organizational or jurisdictional asset management goals and

objectives. Fixed asset managers at all levels should take corrective measures if the

information they have collected demonstrates that their asset management operation

deviates even slightly from planned goals and objectives. From a financial perspective,

GFOA recommends that finance officials should regularly monitor the capital projects.

Specifically and at a minimum, such monitoring includes the following aspects:

 Confirmation that a project plan exists that identifies all required resources and

milestone work products and assurance that the project plan is being followed;

 Confirmation that a project‘s scope has been clearly identified upon

completion of final design and that the project stays within scope or that

changes to scope have been made consistent with an established process;

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  A review of project-related financial transactions to support a budget review,

auditing and asset management;

 A review of expenditures, both in relation to the current budget, and over the

entire project life;

 Review of circumstances and estimates of planning expenditure activity;

 Confirmation of continued availability and appropriateness of revenue sources

identified in the capital budget;

 Confirmation of adequacy of cash flow in relation to planned project

requirements;

 Review of the timing of investment maturities compared to planned project

disbursement;

 Review of sources and project uses of bond proceeds and grants;

 Results compared to established performance measures (GFOA, 2007, p.2).

This GFOA recommendation is a guide for monitoring capital project‘s financial

information and project activities. In addition, in order to ensure that capital project

monitoring is effective, government should establish measures for quality assurance

and control in each phase of every capital project, solicit feedback from stakeholders on

business needs, and assess the adequacy of communication between various

government agencies (GFOA, 2007).

Generally speaking, monitoring and oversight of public asset management must be

a multi-dimensional process. This mechanism involves not only every aspect of asset

management but also internal and external stakeholders. Figure 11 illustrates the

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general structure of organizational monitoring and oversight of public fixed asset

management at different levels.

Figure 11 General Structure of Asset Management Monitoring and Oversight

Top Management  Monitoring of compliance of laws and regulations

 Monitoring of policies & procedures
Upper Middle  Contract monitoring
 Performance monitoring
Lower Middle  Financial accountability monitoring
 Transparency monitoring
Individual Level  Goal and objective implementation monitoring

External Stakeholders

At each level of management, monitoring and oversight over public asset

management should be implemented on the basis of obligatory requirements and

organizational standards. Corrective actions can be taken once deviations are identified.

However, the ultimate purpose of monitoring and oversight is to achieve the goals and

objectives of public fixed asset management. Figure 12 shows the monitoring and

oversight process.

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 Figure 12 Stages of Public Asset Management Monitoring and Oversight

Set organizational and Measure actual

individual standards performance

Public fixed asset Compare actual and

No deviation
management goals expected performance
identified
and objectives for deviations

Implement corrective Evaluate deviation

actions if there is any

Integrity and Transparency of Fixed Asset Management

Integrity and transparency are correlated in that integrity requires a transparent

context and transparency helps improve integrity. In the domain of professional ethics,

honesty and impartiality are two fundamental principles. Besides, employees also need

to be loyal to the work entity (Thai, 2007). These principles of ethical codes require that

public asset managers be consistently honest and impartial in fulfilling their

responsibilities. They must be faithful and keep their dealings free from any conflict of

interest. Transparency International, a global organization dedicated to curbing

corruption, defines transparency as ―a principle that allows those affected by

administrative decisions, business transactions or charitable work to know not only the

basic facts and figures but also the mechanisms and processes‖ (Transparency

International, 2010). In a democratic society, civil servants have a duty to act visibly,

predictably and understandably; and an accountable government must be responsible to

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the electorate for its actions (Piotrowski, 2007). Government must ensure that citizens

and/or stakeholders are accessible to ―reliable, comprehensive, timely, understandable,

and internationally comparable information on government activities‖ (Kopits & Craig,

1998, p. 1). Public fixed asset managers have responsibility to ensure that major fixed

asset management decisions are conducted in an open forum and communicated to all

inside and outside stakeholders (Hentschel & Utter, 2006).

To establish a mechanism of integrity and transparency in the public asset

management system, government needs to take a number of measures in various

respects. These measures may work together to control certain behaviors of public asset

management professionals at work or the ways in which some issues in the domain of

public asset management are handled. First of all, government must ensure that

information about the major areas of fixed asset management, except when otherwise

required by laws, is accessible through available media. Information release is an initial

measure for transparency. In a highly technological society, constructing an

e-government is a key to improving government integrity and transparency. The

Internet provides a platform where stakeholders of public asset management are able to

obtain the information they need. For citizens, the use of e-government provides

alternative ways to have services related to public facilities. E-government helps

increase citizens‘ trust in government in the process of interacting with government and

perceiving government responsiveness (Tolbert & Mossberger, 2006; Welch &

Hinnant, 2009; West, 2004). For contractors and suppliers, e-government provides new

models of doing business with government, and these models may cover a wide range

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of strategies in such areas as seeking business opportunities and managing contracts

(Moon, 2002). For government employees, e-government makes the operation of fixed

asset management more transparent and understandable.

Secondly, government needs to have an effective control and audit mechanism

(OECE, 2007). This mechanism is backed up by a legal framework, policy, procedures,

and organization of fixed asset management operations. A number of components exist

to contribute to compliance to integrity and transparency codes. One is sufficient and

timely information on compliance provided by the internal control system. Another is

auditors who are sufficiently informed about both fixed asset management operation

and the control system. Still another is enforcement of control and audit requirements

and follow-up on findings and recommendations of control and audit.

Thirdly, government needs to establish an efficient appeals mechanism. There are

procedures through which appeals concerning contract fulfillment and other elements

of fixed asset management are filed and resolved at different levels of organization.

Appeal resolutions can be reviewed by a body that has enforcement capacity under law

and full authority and independence to enforce the remedy. The appeals mechanism

must operate fairly and efficiently. All relevant parties are informed of complaint

review decisions.

Finally, government has legal and ethical measures against corruption. Fixed asset

management ethics provide basic tenets, business conduct, and measures against

violation. Laws and regulations stipulate provisions regarding corruption, fraud, and

other illegal behavior in the domain of asset acquisition, use, operation and

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maintenance, repair, and disposition. The legal framework defines penalty provisions

for illegal practices that arise in the course of fixed asset management. To ensure

corruption and other illegal and unethical practices are detected, government must have

a secure and effective reporting mechanism.

In summary, Chapters 4 through Chapter 9 elaborate key components of the six

cornerstones of the public asset management system: legal and regulatory

requirements, organization structure, management process throughout life cycle of

assets, human capital strategies, information and technology resources, and monitoring,

integrity, and transparency in fixed asset management. These key components are

interdependent and interact upon each other in the fixed asset management system.

Specifically, legal and regulatory requirements provide legitimacy and authority for

public asset management. Based on the legal framework, government agencies are

authorized to establish fixed asset management organization, make management

decisions, and endeavor to build fixed asset management sustainability. In addition,

central fixed asset management agencies or individual fixed asset using agencies recruit

management personnel and conduct human resource development for talents according

to property management needs. With specific legal requirements, policy priorities,

operation guidance, and appropriate human resources, fixed asset management

agencies implement decisions with regard to property acquisition, efficient and

effective operation and maintenance, and disposition. Simultaneously, strategic human

resource development and management, together with fixed asset administration,

generate information concerning property elements and financial and accounting data.

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Thus a management information subsystem is created and, in return, serves as an

amendment to legal framework, management organization and decision making,

investment in human capital, and asset operation management. Moreover, monitoring,

integrity, and transparency serve as a control and audit to ensure that fixed asset

management is on the right track, operates effectively and efficiently, and is

accountable to the public in a transparent environment.

The key components of the fixed asset management system illustrate various

aspects of public asset management. Though under different cornerstones, these

components work together to constitute a management system that helps public asset

management achieve its goals and objectives. In addition, as discussed in Chapter 2, the

functions of these key components may be upgraded through a mechanism of control,

maintenance, and coordination to produce internal effects in the fixed asset

management system while they are affected by external environment.

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 PART II. RESEARCH METHODOLOGY

CHAPTER 10. RESEARCH METHODS

As stated in Chapter 2, public asset management is a process of making and

implementing decisions concerning asset planning, acquisition, use, and disposal. The

conceptual framework elaborated in Chapters 4 through 9 demonstrates that

decision-making for public asset management is a complicated process that involves

every aspect of asset management ranging from asset planning to asset disposal, from

statutes concerning use and operation to information management, from financial

accounting to auditing and integrity. For the state governments, fundamental decisions

related to public assets go through both executive and legislative procedures. In various

dimensions, each state government enacts statutes to regulate management of the fixed

assets it owns, leases, and controls. State agencies prepare budgets for acquiring

additional fixed assets and maintaining current fixed assets in use. Every state

legislative body examines and approves these budget requests so that financial

resources are allocated to provide asset services for state agencies. Therefore, major

decisions concerning fixed asset outlays at state government, like purchasing assets and

repairs, are made through a budgetary process in which financial resources are

allocated to fixed asset programs.

Website Survey

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 Website survey is an approach to understanding the practices of fixed asset

management by state governments in the United States against the management system

standard elaborated in Chapters 4 through 9. The author of this research surveyed the

official websites of fifty state governments, especially the websites of state departments

that are responsible for managing state fixed assets, including building, land, fleet

vehicles, equipment, and infrastructure. Website survey may locate authorities of public

asset management. The authorities might include legal and regulatory sources that

authorize the power of management of fixed assets, allocation of authorities over public

resources for fixed assets among government departments and agencies, and

organization of governmental activities to manage fixed assets. These are the core

cornerstones of the fixed asset management system elaborated in Chapters 4 through 9

of this dissertation. Surveying official websites of state governments may help

understand the fixed asset management structures state governments have established

in practice. The structures actually disclose in part how each category of fixed assets is

managed to directly or indirectly provide public services. Missions, goals, and

objectives can be found to help understand the functions of fixed asset management in

service delivery and goods production within a state‘s jurisdiction. In addition,

surveying official websites of state governments finds contact information of state

government agencies in charge of various categories of fixed assets.

Website survey also provides documents state governments have issued with

regard to state asset management. These documents may encompass laws, regulations,

management guidelines, financial reports, budgetary documents, performance reports,

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and government policy reports, among other documents. These materials provide

information regarding different aspects of state asset management. The documents

posted on Internet help understand the operation of fixed asset management by the state

governments.

Mail Survey

The other approach of the fixed asset survey is surveying administrators whose

major responsibilities include fixed asset management at state government, or asset

managers who take charge of the whole process of fixed asset management, including

planning, acquisition, utilization, and disposition. Both high-level administrators and

asset managers have information regarding major dimensions of fixed asset

management although they have different priorities for asset management. However,

chances are that respondents of the survey need to gather information to appropriately

complete the questionnaire.

The survey questionnaire was constructed on the basis of the conceptual

framework of a public asset management system as elaborated in Chapters 4 through 9.

It covers the six cornerstones of the public asset management system: legal and

regulatory requirements, organization structure, management process throughout life

cycle of assets, human capital strategies, information and technology resource

utilization, and monitoring, integrity, and transparency. Because state governments

have a variety of fixed assets, and no one dedicated government department takes

charge of all categories of fixed assets the state government owns, a survey can hardly

gather from one respondent in a state the information that presents the status of
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management of every category of fixed assets. Considering these factors, the mail

survey contained a pre-survey question, asking the respondents to report the major

categories of fixed asset under their authority of management. Thus, the fixed asset

categories surveyed and management practices related to certain categories of fixed

assets became more visible.

However, since a survey questionnaire cannot encompass too many questions and

the questions of necessity had to be respondent-friendly, the survey questions could not

tackle every component of each cornerstone. Therefore, only the major components of

each cornerstone were explored through the questionnaire for this dissertation. In

addition, the survey questions also involved prevailing issues in the practice of modern

public fixed asset management, such as overdependence on long-term leasing of fixed

properties from the private sector, fragmented management of information resources

and technology utilized, life-cycle management and ownership, percentage of surplus

assets, performance evaluation of fixed asset management, and oversight and

transparency of fixed asset management. These issues are usually the major elements of

strategic asset management. Finally, the survey questions are consistent with the

research questions that delve into the empirical practice of fixed asset management at

the U.S. state governments.

Currently at state government, there is no dedicated department that is authorized

to manage all categories of fixed assets the state government owns, controls, and uses.

Together with a cover letter, the survey questionnaire was sent through both regular

mail and email to chief executives of state departments responsible for management of

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major categories of fixed assets, including buildings, land, fleets and vehicles, office

equipment, and infrastructure. Responsibilities for these fixed assets are mostly located

in state departments (or bureau, agency, division) of general services, or other names

like department of administration (or administrative services), department of

management services, department of treasury, facility commission, and office of

management and budget. When it was found that some chief executives were no longer

in office, the questionnaire was sent through regular mail and email to the new chief

executives. ―Thank You‖ cards and email messages were sent to potential respondents

to remind them of the deadline of response to the questionnaire. Finally, thirty-seven

responses have been received, with a response rate of 74 percent. Even though this

response rate is not high enough when compared with a small population, according to

Gill (2001), this does not affect the validity of the research on the state level of fixed

asset management. By the regions the U.S. Census Bureau uses, six respondent states

are in the Northeast region (6 of 9), eight in the Midwest region (8 of 12), twelve in the

South region (12 of 16), and eleven in the West region (11 of 13) (see Figure 13 with

respondent states highlighted). By the size in terms of population in 2010,

comparatively fewer respondent states are large states (with populations over 10

million). Too, fewer responses came from small states (those with a population under

one million). Only 4 of 7 large states and 4 of 7 small states answered the survey

questionnaire. Comparatively, 29 of 36 other states having populations between one

million and ten million responded to the survey questionnaire.

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 Figure 13 Regional Distribution of Respondents
 Region 1 (Northeast) 9 states/6 respondents
o Division 1 (New England) Maine, New Hampshire, Vermont, Massachusetts,
Rhode Island, Connecticut
o Division 2 (Mid-Atlantic) New York, Pennsylvania, New Jersey
 Region 2 (Midwest) 12 states/8 respondents
o Division 3 (East North Central) Wisconsin, Michigan, Illinois, Indiana, Ohio
o Division 4 (West North Central) Missouri, North Dakota, South Dakota, Nebraska,
Kansas, Minnesota, Iowa
 Region 3 (South) 16 states/12 respondents
o Division 5 (South Atlantic) Delaware, Maryland, Virginia, West Virginia, North
Carolina, South Carolina, Georgia, Florida
o Division 6 (East South Central) Kentucky, Tennessee, Mississippi, Alabama
o Division 7 (West South Central) Oklahoma, Texas, Arkansas, Louisiana
 Region 4 (West) 13 states/11 respondents
o Division 8 (Mountain) Idaho, Montana, Wyoming, Nevada, Utah, Colorado,
Arizona, New Mexico
o Division 9 (Pacific) Alaska, Washington, Oregon, California, Hawaii

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 PART III. RESEARCH FINDINGS AND ANALYSES

CHAPTER 11. PUBLIC FIXED ASSET MANAGEMENT PRACTICES AT THE

STATE GOVERNMENTS

This chapter presents the results of both the survey of state governments‘ websites

and the survey of public asset managers at the state governments in the United States.

The website survey results are mainly those of documents published by the state

governments. These results also include structures of public asset management and

major tasks of various divisions of public fixed asset management. The mail survey

results are the responses of state fixed asset managers to the questionnaire sent to them.

Capital Budget and the Position of Fixed Assets in the State Governments

In the United States, the state government budget process is mostly similar to that

of the federal government, especially in budget procedures and interaction among the

executive branch, the legislature, and interest groups (Morehouse & Jewell, 2004).

Compared with the federal government, state governments are under a number of

different constraints on both revenues and expenditures. On the revenue side, state

governments depend on the strength of the economy and the tax structure. But the

economy is largely shaped by federal government policies and world economic trends.

State governments have no control over it. Therefore, revenue of state governments is

relatively limited. On the expenditure side, almost all states have constitutional or

statutory requirements for a balanced budget. The budget submitted by the governor,

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passed by the state legislature, or signed by the governor is required to be balanced. One

consequence of these constraints on state budget is that budget decision makers, both

governors and legislatures, have limited opportunities to make tremendous changes in

state spending (Morehouse & Jewell, 2004). In this sense, every state budget for fixed

assets has attracted more concern.

There are a number of reasons why fixed assets are given special attention by state

government (Matson, 1976). One is that fixed assets have a long life. Fixed assets are

generally long-lasting assets as capital investment. Although they do not have the

generation of future revenue as a primary function, fixed assets represent governmental

investment to provide continuing public services through many future years of asset

use, often thirty to fifty years if the facility asset is properly maintained (Lee, Johnson,

& Joyce, 2004). A second reason is that fixed assets have a high price tag relative to the

resources of state government. Each year America‘s state governments spend huge

amount of dollars as capital outlays. Generally, direct state capital outlay accounts for

roughly seven percent (7%) of total state expenditure. (See Table 17.) But direct capital

outlays do not tell the whole story since most of the capital assets are financed by

borrowing and thus have interest costs. With interest on debt included in total capital

outlay, the combined capital outlay of a state‘s total direct expenditure jumps to a higher

figure, roughly ten percent (10%). A third reason why fixed assets are given much

scrutiny is that fixed assets are nonrecurrent. Once a capital project is completed, there

is not much to be done if mistakes are found (Mikesell, 2007). In addition, fixed assets

are susceptible to rapid depreciation in their values if are not well maintained during

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their life cycles. And operation and maintenance of a fixed asset throughout its life

cycle expends a much greater amount of revenue dollars than was spend as an initial

expenditure for fixed asset ownership.

Table 17 U.S. State Government Capital Outlay in Total Expenditure ($ billion)

Year 1990 2000 2002 2004 2005 2006 2007
Total
572 1084 1280 1406 1472 1551 1636
Expenditure
Capital Outlay 45.5 76.2 89.9 91.0 94.2 101.4 110
Capital as % of
8.0% 7.0% 7.0% 6.5% 6.4% 6.5% 6.7%
Total
Interest on debt 22.4 30.1 33.2 34.6 36.0 39.7 43.6
Combined
67.9 106.3 113.1 125.6 130.2 141.2 153.6
capital outlay
Combined
capital as % of 11.9% 9.8% 9.5% 8.9% 8.9% 9.1% 9.4%
total
Adapted from U.S. Census Bureau. (December 15, 2010). The 2010 Statistical
Abstract: State and Local Government Finances and Employment—State Government
Finances at http://www.census.gov/compendia/statab/2011/tables/11s0449.xl

Owing to these reasons, a capital budget is usually separate from an operating

budget of a state and local government. Benefits can be obtained from separate

consideration of capital budget (Mikesell, 2007; Lee et al., 2004). One benefit is that

since most capital projects are financed by borrowing, the separate consideration of

capital budget helps improve both the efficiency and equity of providing and financing

public facilities for service delivery. Bond issuance efficiently provides financial

resources for capital programs. Bond issuance also concurrently achieves equity

between generations of constituents who directly or indirectly pay for and benefit from

the services the capital project provides. A second benefit is that a separate capital

budget can stabilize tax rates when capital projects need big money while the host

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government‘s tax base is relatively small. In this case, long-term financing by

borrowing can reasonably prevent the occurrence of a dramatic tax rate fluctuation

during a project‘s construction. A third benefit of a separate capital budget is that capital

investing planning and special review of capital projects can reduce costly investment

errors and achieve expected outcomes. In addition, a capital budget provides a

mechanism for managing limited public financial resources. It helps ensure that capital

project construction continues smoothly over the years of construction without peaks

and valleys. Appropriate financial planning for capital projects contributes to life-cycle

management and portfolio management during the capital facility operation that can

maximize property value and improve fiscal choices.

Fixed assets have a special position in public finance. For state government, a

comprehensive annual financial report presents the structure of the assets a state

government owns as well as the liabilities the state bears. A government-wide

Statement of Net Assets demonstrates the specific components of net assets. A

comprehensive annual financial report also shows asset components in governmental

activities and business-like activities. Generally, capital assets are the major

components of financial resources for governmental activities while current and other

assets account for a small portion of the total assets a state government owns. For

example, in FY 2009, Florida‘s current and other assets for governmental activities

were about $20.9 billion while its net capital assets were valued roughly at $58 billion.

Conversely, for business-like activities, current and other assets usually account for a

larger portion of the total assets whereas net capital assets were a smaller part. Florida‘s

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comprehensive annual financial report FY 2009 shows that current and other assets for

business-like activities were about $22.3 billion while its net capital assets were valued

at $7.5 billion. Florida‘s total assets were $108.6 billion in FY 2009, with total

liabilities at $53.7 billion, resulting in total net assets of $54.8 billion (Florida

Department of Financial Services, 2010). Two other examples are California and

Arkansas (see Table 18). They have a financial structure similar to that of Florida.

Table 18 Statement of Net Assets, California and Arkansas ($million)

Governmental Activities Business-like Activities Total
California Arkansas California Arkansas California Arkansas

Assets
Current & other 48369 4618 28752 2935 77121 7553
Capital assets 96593 9369 6859 3001 103452 12371
Total 144962 13988 35611 5936 180573 19924
Liabilities
Non-current 98287 1387 27286 2648 125,573 4034
Other 41300 1144 3883 552 45183 1695
Total 139,587 2530 31169 3199 170756 5730
Net Assets 5375 11458 4442 2736 9817 14194
Source: Arkansas Department of Finance and Administration. (2009). Comprehensive Annual
Financial Report, Fiscal Year Ended June 30, 2009. California State Controller‘s Office.
(March 10, 2010). Comprehensive Annual financial Report for the Fiscal Year Ended June 30,
2009.

Judging from the comprehensive annual financial reports of U.S. states, capital or

fixed assets occupy a fundamental position in state finance. As most fixed asset

programs are financed through issuing bonds sold to investors through the underwriting

process, the financial credit quality of state governments (as bond issuers) is one of the

most important factors that determines the interest rate of the debt (Leonard, 2004).

Higher credit quality means stronger ability to pay the principal and interest in full and

on time, thus lowering interest cost the state governments must pay. Credit quality is

evaluated on the basis of debt burden, budget soundness, tax burden, and the overall
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condition of the economy (Feldstein, 1997). A state government can improve its credit

quality by strategically planning the components of its fixed assets, especially buildings

and infrastructure, and appropriate capital budgeting. Acquisition of fixed assets may

help reduce overall net debt of a state government. Effective fixed asset management

can maximize the value of fixed asset a state government owns. Capital budgeting

based on a long-term plan contributes to a continuing tax structure and stable tax rates.

Legal and Regulatory Framework

Legal and regulatory framework consists of laws, regulations, policies, norms and

guidance, and procedures. These components are mandatory or non-mandatory, each

regulating or guiding public asset management from a different angle. Generally, the

constitutions of state government, i.e., the supreme law of state governments, do not

have specific requirements for management of public assets or properties.

Comparatively, state statutes have more detailed requirements of fixed asset

management. States have discrepancies in specific mandates regarding fixed asset

management within jurisdiction. For example, the Code of Alabama has mandates for

highways, roads, bridges, and ferries (Title 23); state-owned fleets (Title 41); and

public works (Title 39). These laws have detailed requirements for public fixed assets.

Title 23—Highways, Roads, Bridges and Ferries—addresses construction,

maintenance, and repair of state highways, tunnels, and bridges, and purchase of

properties under the control of Department of Transportation. Title 41—State

Government—stipulates purchase, maintenance and repair, operation, and use of

state-owned motor vehicles (Chapter 17). This title also requires that state agencies
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develop an inventory and analysis of fleet vehicles as a baseline of data for a state‘s

green fleets policy (Chapter 17A). The inventory shall include such specific

information as the following:

(1) Number of vehicles classified by the model year, make, model, engine size,

vehicle identification number (VIN), drive train type of 2-wheel drive or 4-wheel

drive, and the rated vehicle weight and classification as either light-duty,

medium-duty, or heavy-duty;

(2) Miles per gallon or gallon equivalent, per vehicle;

(3) Average fuel economy of all light-duty vehicles in the fleet;

(4) Average fuel economy of all medium-duty vehicles in the fleet;

(5) Average fuel economy of all heavy-duty vehicles in the fleet;

(6) Type of fuel or power source including, but not limited to, electricity used;

(7) Average cost per gallon, or gallon equivalent of fuel;

(8) Average fuel cost per mile;

(9) Annual miles driven per vehicle;

(10) Total fuel or power consumption per vehicle;

(11) Vehicle function, such as the tasks associated with the vehicle's use (Section

41-17A-3, Title 41, Chapter 17A, the Code of Alabama, State of Alabama, 2011).

In order to effectively manage its state-owned vehicles, Title 41 mandates different

categories of motor vehicles must comply with the requirement of average fleet fuel

economy improvement. The State of Alabama has created a Green Fleets Review

Committee to ensure compliance with the goals of cost effectiveness. Official policies

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are implements to review the purchase of new motor vehicles and improve the use of

current vehicles. Specifically, these policies include the following directives:

(1) To purchase, lease, or otherwise obtain or procure the most energy efficient

vehicles possible that meet the operational needs of the department or agency for

which the vehicles are intended by using life cycle costing as a method of

determining the most cost efficient vehicles for the departments or agencies;

(2) To manage and operate its fleets in a manner that is energy efficient, that

minimizes emissions, and that reduces petroleum dependency by utilizing

specified proven technology identified by the Green Fleets Review Committee;

(3) To review every new vehicle purchase request and modify as necessary to

ensure that the vehicle class to which the requesting vehicle belongs is appropriate

for the duty requirements that the vehicle will be called upon to perform;

(4) To review the fleet inventory data required by Section 41-17A-3 to identify

older vehicles that are not used or used infrequently, as well as those vehicles that

are disproportionately inefficient, and schedule their elimination or replacement by

determining the most cost-effective methodology of establishing surplus inventory

within all departments and agencies;

(5) To implement an anti-idling policy prohibiting state employees from idling all

state-owned or operated vehicles for an excessive period of time;

(6) To implement educational programs for state employees to drive efficiently and

utilize efficient vehicle operating techniques;

(7) To maintain vehicles at optimal efficiency by reviewing current maintenance

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 schedules for all fleet vehicles and increasing or decreasing maintenance wherever

cost-effective benefits will accrue as a result;

(8) To encourage carpooling and vanpooling by state employees by allowing

commuter fees to be paid out of pretax income withholding as allowed by federal

tax laws to help reduce fuel consumption, pollution, traffic, and parking congestion

(Section 41-17A-5, Title 41, Chapter 17A, the Code of Alabama, State of Alabama,

2011).

Compared with these detailed criteria for management of state-owned motor

vehicles, Alabama does not have particular requirements dedicated for state owned

buildings and land in the Code of Alabama. In contrast, Florida Statutes have specific

laws intended for various highway-related assets, including, but not limited to, the

intrastate highway system and toll facilities; transportation financing and planning;

highway contracting, acquisition, disposal, and use of property; and ferries, toll

bridges, dams, and log ditches (Title XXVI); Florida also has a special constitutional

title for management of public land and property (Title XVIII). This title includes laws

that address regulation and administration of major state-owned assets, including state

lands, buildings, libraries and state archives, state parks and preserves, memorials and

museums, historical resources, and state-owned tangible personal property. With

respect to management of state-owned buildings, the State of Florida has a number of

specific legal stipulations. For example, besides mandates of contracts for public

construction works, insurance programs for public construction projects, timely

payment for purchases of construction services, and lease of space, Chapter 255 of Title

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XVIII requires that preference be given to material suppliers, contractors, builders,

architects, and laborers who reside in the state in the purchase of material and in

awarding contracts for constructing any public administrative or institutional building

whenever such material or the services of these material suppliers, contractors,

builders, architects, and laborers are employed at no greater expenses than that to be

obtained from a non-Floridian (Section 255-04). Similarly, when construction

programs are financed by the state, preference shall be given to minority business

enterprises in letting the contracts for public works, public bridges, buildings, and other

structures with all other conditions being equal.

Apart from the preferences in selecting material suppliers, contractors, builders,

and architects, Title XVIII of Florida Statutes has particular requirements for life-cycle

costs and energy conservation. Florida has a strategic management approach to

financing fixed asset ownership and leasehood. Florida Statutes mandate that all

facility construction and leasing by any state agency should be performed with an

evaluation of life-cycle costs implemented by the Department of Management Services

on the basis of sustainable building ratings; that construction shall not proceed until the

life-cycle cost, the facility‘s sustainable building rating goal, and the capitalization of

the initial construction costs of the building are disclosed to the Department of

Management Services (Section 255.254, Chapter 255, Title XVIII, Florida Statutes, the

State of Florida, 2010). The life-cycle costs are analyzed according to rules and

procedures, including energy conservation guidelines. The sum of the costs consists of

two parts:

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 (a) the reasonably expected fuel costs over the life of the building, as determined

by the department (the Department of Management Services, noted by the author),

that are required to maintain illumination, power, temperature, humidity, and

ventilation and all other energy-consuming equipment in a facility, and (b) the

reasonable costs of probable maintenance, including labor and materials, and

operation of the building (Section 255.255, Chapter 255, Title XVIII, Florida

Statutes).

The second part of the life-cycle costs is determined on the basis of certain rules

promulgated by the Department of Management Services that include, but are not

limited to the following:

(a) The orientation and integration of the facility with respect to its physical site;

(b) The amount and type of glass employed in the facility and the directions of

exposure;

(c) The effect of insulation incorporated into the facility design and the effect on

solar utilization of the properties of external surfaces;

(d) The variable occupancy and operating conditions of the facility and subportions

of the facility;

(e) An energy consumption analysis of the major equipment of the facility‘s

heating, ventilating, and cooling system, lighting system, hot water system, and all

other major energy-consuming equipment and systems as appropriate (Section

255.255, Chapter 255, Title XVIII, Florida Statutes).

As discussed in Chapter 2 and Chapter 6, operation and maintenance cost may

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account for more than eighty percent of the total expenditure throughout the life cycle

of a fixed asset. This fact is not given sufficient attention in traditional fixed asset

management. However, the State of Florida has addressed this issue of financing fixed

assets throughout a life cycle by means of promulgating and implementing detailed

laws and regulations. Comparatively, Florida statutes do not particularly address

state-owned fleets and vehicles, which are an important part of fixed assets the state

owns.

From a legal perspective, a government has responsibility to promulgate mandates

and regulate each aspect of the management of major categories of fixed asset it owns,

leases, and controls. However, the examples of Alabama and Florida illustrate the

discrepancies between states in their legal and regulatory requirements for fixed asset

management. An online survey also demonstrates that requirements for fixed assets

may be enacted in different forms. One category of the requirements may be mandatory

in a form of special laws in some states, and become less obligatory in a form of

guideline or policy. This means that requirements for fixed asset management have

various authoritative forces as laws and regulations, policies, guidance and norms, and

procedures. However, the requirements are enforced in different ways and at different

levels of management.

The mail survey questionnaire addressed legal and regulatory requirements from

eighteen major dimensions of public fixed asset management (see Table 19). These

eighteen components addressed major issues in the other five cornerstones of fixed

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asset management: organization structure, management process throughout life cycle

of assets, human capital strategies, information resources, and monitoring, integrity and

transparency.

Table 19 Legal and Regulatory Requirements for Fixed Asset Management

Legal and regulatory requirements covering Valid
major elements of fixed asset management Yes2 % No3 %
Cases1
1 Fixed asset acquisition 36 34 94% 2 6%
2 Fixed asset use 36 27 75% 9 25%
3 Fixed asset operation & maintenance 36 23 64% 13 36%
4 Fixed asset disposal 36 36 100% 0 0%
5 Fixed asset insurance 35 24 69% 11 31%
6 Fixed asset valuation 36 29 81% 7 19%
7 Regular reporting of fixed assets 35 33 94% 2 6%
8 Fixed asset planning, e.g. asset need
36 22 61% 14 39%
analysis & budgeting
9 Centralized registration (legal title) of
35 16 46% 19 54%
fixed assets
10 Centralized record management system
35 26 74% 9 26%
of fixed assets
11 Leasing real property from the private
36 35 97% 1 3%
Sector
12 Capitalization policies including
35 26 74% 9 26%
thresholds
13 Fixed asset supply 34 11 32% 23 68%
14 Anti-corruption 34 20 59% 14 41%
15 Professional ethics 34 22 65% 12 35%
16 Audit and control 35 30 86% 5 14%
17 Responsibilities of fixed asset managers 35 24 69% 11 31%
18 Fixed asset performance evaluation 35 12 34% 23 66%
Note:
1. Valid cases= the number of respondents that answered the question;
2. Yes=the number of respondents that have legal and regulatory requirements for the area
of fixed asset management;
3. No=the number of respondents that do not have legal and regulatory requirements for
the area of fixed asset management.

Table 19 demonstrates the schema of legal and regulatory framework of the states

in the U.S. on the basis of responses to the survey questionnaire. As can be seen from
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the table, some legal and regulatory requirements are enacted and enforced in a higher

percentage of respondent states to regulate fixed asset management within state

jurisdiction while some other legal and regulatory requirements are implemented in a

lower percentage of respondent states. The tendency of legal and regulation

enforcement for fixed asset management at state government is reflected in Figure 14

which shares the same data as Table 19.

Figure 14 Legal and Regulatory Status of the States

100%
90%
80%
70%
60%
Percentage of
50%
Respondents Yes
40% No
30%
20%
10%
0%
4 11 1 7 16 6 2 10 12 5 17 15 3 8 14 9 18 13
Laws and Regulations

Note: Yes = Percentage of respondents that have legal and regulatory requirements in an area
of asset management; No = Percentage of respondents that have no legal and regulatory
requirements in an area of asset management

Figure 14 illustrates the difference between all eighteen categories of legal and

regulatory requirements enacted in the surveyed states to regulate fixed asset

management. It demonstrates that in more than eighty percent (80%) of the surveyed

states, there are legal and regulatory requirements to regulate six areas of fixed asset

management. In other words, legal and regulatory requirements are most preferred for

these six areas, including

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  Fixed asset disposal,

 Fixed asset acquisition,

 Leasing real properties from the private sector,

 Regular reporting of fixed assets,

 Audit and control, and

 Fixed asset valuation.

These six areas of fixed asset management relate to spending (acquisition and leasing)

and macro management of fixed assets (valuation, financial report, and property

control).

In contrast, data from the mail survey shows that three categories of legal and

regulatory requirements regarding fixed asset management are enforced in a very small

number of respondent states, that is, in less than fifty percent of the surveyed states (see

Table 19 and Figure 14). In other words, legal and regulatory requirements are least

significant for the surveyed states in three areas of fixed asset management, including

 Central registration of all fixed assets

 Fixed asset supply (or allocation), and

 Fixed asset performance evaluation.

These categories of legal and regulatory requirements focus on the management

process and evaluation of the management process (management performance).

The surveyed states have sharp differences in enacting and enforcing laws,

regulation, policies, norms and guidance, and procedures with regard to fixed asset

management. Data from the survey show that 4 of 36 (about 11%) valid respondent

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states have enacted all of the designated legal and regulatory requirements that regulate

management of fixed assets the state government owns, controls, and uses (see Table

20). Ten more of the surveyed states, i.e., 28% of the total respondents, have laws and

regulations on fourteen or more of the eighteen identified major areas of fixed asset

management at state government. In contrast to these respondent states that have a

more appropriate legal and regulatory framework for fixed asset management, five

surveyed states do not have particular laws and regulations for nine or more of the

eighteen identified major areas of fixed asset management at state government.

Table 20 Legal and Regulatory Enforcement in Each Respondent State

Cases1 Yes2 No3 Yes % No % Cases Yes No Yes % No %
4 18 0 100% 0% 24 13 5 72% 28%
17 18 0 100% 0% 22 12 6 67% 33%
18 18 0 100% 0% 1 11 7 61% 39%
23 18 0 100% 0% 7 11 7 61% 39%
4
25 10 1 91% 9% 10 11 7 61% 39%
20 16 2 89% 11% 12 11 7 61% 39%
2 13 2 87% 13% 28 11 7 61% 39%
3 15 3 83% 17% 29 11 7 61% 39%
5 15 3 83% 17% 34 11 7 61% 39%
19 15 3 83% 17% 13 10 8 56% 44%
31 15 3 83% 17% 36 10 8 56% 44%
35 15 3 83% 17% 9 9 9 50% 50%
26 14 3 82% 18% 27 9 9 50% 50%
6 14 4 78% 22% 32 7 8 47% 53%
8 14 4 78% 22% 15 8 10 44% 56%
21 14 4 78% 22% 37 8 10 44% 56%
11 13 5 72% 28% 33 6 12 33% 67%
14 13 5 72% 28% 30 0 0 0 0
16 13 5 72% 28%
Note:
1. Cases are respondent states which are coded by numbers. See Appendix A for code of
respondent states.
2. Yes=the number of the identified major areas of fixed asset management that the
respondent state has legal and regulatory requirements to regulate.
3. No=number of the identified major areas of fixed asset management that the respondent
193
 state does not have legal and regulatory requirements to regulate.
4. The highlighted case numbers stand for the surveyed states that did not report legal and
regulatory requirements for all major eighteen areas of fixed asset management.

Figure 15 presents a clear picture of the legal and regulatory status of each

surveyed state with regard to fixed asset management. Discrepancies between surveyed

states are obvious in the number of legal and requirements the surveyed states have

enacted to regulate fixed asset management in each phase of an asset‘s life cycle.

Figure 15 The Respondents’ Status of Legal and Regulatory Requirements

18
16
14
12
Laws & 10
Regulations 8 Yes
6 No
4
2
0
4 23 2 19 26 21 16 1 12 34 9 15
Repondent States

Note: Yes = the number of legal and regulatory requirements this respondent has for asset
management; No = the number of legal and regulatory requirements this respondent do not
have for asset management

Assessing the effects of laws and regulations, policies, norms and guidance, and

procedures concerning fixed asset management is not an easy job. In the mail survey,

respondents were requested to make an estimate, on the basis of their perception, of

how much guidance legal and regulatory requirements provide in the major areas of

fixed asset management. Table 21 shows that over ten percent (10%) of respondents

that enforce a legal and regulatory requirement did not provide an answer to the

194
question of how much guidance legal and regulatory requirements provide for fixed

asset management. Overall, legal and regulatory requirements provide considerable

guidance, where over eighty percent (80%) of valid cases have moderate guidance and

much guidance from laws and regulations in 11 of 18 major areas of fixed asset

management. These areas are highlighted in Table 21. Among these areas, the area of

No. 9 ―centralized registration of all fixed assets‖ is special because only 16 of 36

(44%) surveyed states have laws and regulations for this area of fixed asset

management. Therefore, the strength of laws and regulations over ―centralized

registration of all fixed assets‖ is not as convincing as the strengths of laws and

regulations over other highlighted areas of fixed asset management.

Table 21 Guidance of Legal and Regulatory Requirements

Legal and regulatory requirements covering major How much guidance?
elements of fixed asset management Yes1 A Moderate Much
little
1 Fixed asset acquisition 34 2 10 19
2 Fixed asset use 27 9 8 7
3 Fixed asset operation & maintenance 23 9 11 1
4 Fixed asset disposal 36 1 12 18
5 Fixed asset insurance 24 6 8 7
6 Fixed asset valuation 29 6 15 4
7 Regular reporting of fixed assets 33 3 11 13
8 Fixed asset planning, e.g. asset need analysis
22 4 10 6
& budgeting
9 Centralized registration of all fixed assets 16 3 7 6
10 Centralized record management system of all
26 6 8 9
fixed assets
11 Leasing real property from the private sector 35 4 8 18
12 Capitalization policies including thresholds 26 2 11 10
13 Fixed asset supply 11 2 5 1
14 Anti-corruption 20 7 10
15 Professional ethics 22 1 10 9
16 Audit and control 30 4 16 7

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 17 Responsibilities of fixed asset managers 24 3 13 6
18 Fixed asset performance evaluation 12 5 6 1
Note: 1. Yes = the number of respondents that enforce laws and regulations for this area of
fixed asset management.

Apart from the highlighted areas in Table 21, legal and regulatory requirements

have limited guidance in the other major areas of fixed asset management. This

phenomenon is especially obvious in three areas of fixed asset management, including

 Fixed asset use

 Fixed asset operation and maintenance, and

 Fixed asset performance evaluation.

In these areas, a higher percentage of respondents reported that legal and regulatory

requirements have a little guidance.

In sum, results from both the survey of state government websites and the mail

survey answer the questions of ―How does legal and regulatory framework affect the

other areas of fixed asset management?‖ Obviously, laws and regulatory requirements

have high- or low-level guidance in different areas of fixed asset management.

Organization Structure

Location of Fixed Asset Management Authorities

Fixed asset management at the state government level in America is not a

governmental activity that works on its own. It is closely related to a number of other

functions of government agencies, such as purchasing, personnel management,

budgeting and financial management, risk management, and planning. Actually, in the

practice of fixed asset management, state governments have been restructuring their

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management system so that their fixed asset management will provide more

appropriate services more efficiently and effectively. The survey of state government

websites shows that fixed asset/property management, where ―property‖ is more

commonly used at state government in such terms as ―real property,‖ ―surplus

property,‖ ―property management,‖ and ―state property,‖ keeps restructuring

organizations and adding new functions. One example is that fixed asset management

functions are enhanced from policy perspectives. Special agencies like the building

commission (Alabama and North Carolina), the facility commission (Taxes), the

properties commission (Georgia) are founded to take charge of a category of state

assets for promulgating and enforcing rules and policies and supervising management

practices. Another example is green management of fixed assets. To take charge of

green management, a particular management division or program is established in a

number of state governments, such as in California, Indiana, Kentucky, New York, and

New Mexico. The survey of state government websites also revealed that state

governments have paid close attention to fixed asset disposal. In order to effectively

and efficiently dispose of excess fixed assets, a division of surplus property has been

established in more than twenty states. These states include Arizona, Georgia, Illinois,

Iowa, Kansas, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Minnesota,

Mississippi, Nebraska, North Carolina, North Dakota, South Carolina, Tennessee,

Virginia, Washington, and Wyoming. In addition, with increasing needs for leased

building space, space leasing service and space management are strengthened in fixed

asset management. A leasing division is established to address the need of these

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services, for example, in Alabama, Alaska, Connecticut, Indiana, Iowa, Maine,

Massachusetts, Minnesota, South Dakota, and Texas.

A survey of state government websites has found that there is no state agency

responsible for the management of all the fixed assets a state owns, leases, and controls.

In each state, in addition to assets affiliated with highways, bridges, and tunnels and

other assets the department of transportation uses and controls, the responsibilities for

fixed asset management by the department of transportation mainly focus on

construction, maintenance, and repair of highways, bridges, and tunnels, which account

for the majority of state-owned fixed assets. Other fixed assets, such as buildings,

equipment, improvements other than buildings, and infrastructure, are managed either

in a centralized manner by a state department or in a decentralized manner by

individual department users of the assets. In most states, when certain functions of fixed

asset management (such as fleet services, disposition of surplus properties, and real

estate leasing) are centralized and authorized in a department, such as a department of

general services and a department of administrative services (see Appendix C for the

location of centralized functions of fixed asset management), these functions are

usually parallel to other fundamental relevant functions located in the same state

department or agency. Across the fifty states, the departments or agencies where certain

functions of centralized fixed asset management are located have similar or distinct

components or functions. Generally, the functions that are parallel to fixed asset

management functions in the same department or agency may include, but are not

limited to, state procurement, human resources, retirement services, financial

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management, budgeting, accounting, information management, and mail services. The

website survey shows that major functions of fixed asset management, such as fleet

management, construction and design, infrastructure, building services, property

disposition, space management, property leasing, and portfolio management, whether

highly centralized or partially centralized, are located in an administrative (or general)

service department (35 states), or in the department of administration (or management)

and finance (5 states including Arkansas, Kentucky, Maine, Massachusetts, and

Mississippi), the department of administration and budget (4 states including Delaware,

Michigan, North Dakota, and South Carolina), the department of administration and

personnel (1 state: Colorado), the department of administration and information (1

states: Wyoming), the department of finance (2 states: Alabama and New Jersey), the

department of general services and accounting (1 state: Hawaii), and the department of

facilities (1 state: Texas). In addition, major functions of fixed asset management may

be divided among more than two state departments or agencies. Examples are

Alabama, Arkansas, Connecticut, Georgia, and Texas. Special agencies have

authorized responsibilities to take charge of buildings, properties, land, and public

works of the whole state. The location of major fixed asset functions in state

departments suggests at least two points regarding the position of public fixed asset

management. One point is that public fixed asset management is implemented to

directly or indirectly serve public service delivery and public goods production. The

other point is that public fixed asset management at the U.S. state government level is

considered as a government function closely related to financial management. Public

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fixed assets are highly valued in practice as non-current public assets.

Fixed Asset Management Approaches

As previously discussed, across the U.S. states, fixed asset management is subject

to legal and regulatory requirements. From this perspective, a number of functions of

fixed asset management may be centralized and authorized to a state department or

agency. For example, the Alabama Building Commission is authorized to promulgate

and enforce the State Building Code through plan reviews and inspections, and

administrate contracts of state-funded construction. The State Building Code applies to

state buildings and construction, public and private schools, hotels and motels, and

motion picture theaters. The Arkansas Building Authority (ABA) is authorized to

maintain oversight of state agency capital improvements regarding architectural design,

floodplain reviews, and construction bidding. It performs a review of public school

(K-12) new construction projects related to ADA design. In addition, ABA is the

leasing agent for state agencies and implements oversight of property transfers for most

state agencies. The State Properties Commission of Georgia (SPC) defines its mission

as ―To advise, guide, and maximize Georgia‘s real estate portfolio by applying industry

best practices in asset, space, and transaction management‖ (Georgia State Properties

Commission, 2011). It provides services in acquisition and disposition of all

state-owned real properties and real property interests. The portfolio management in

the charge of SPC consists of three coordinated programs: asset management, space

management, and transaction management. The Texas General Land Office is another

example of centralized fixed asset management. This agency manages state lands and

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mineral rights. Its primary responsibility is to lease state lands for the benefit of the

Permanent School Fund, an endowment fund for the benefit of Texas‘s public schools.

Overall, these special state departments or agencies have central responsibilities for

certain fixed asset management functions—either in policy making and enforcement or

in specific fixed asset management practice. Generally, the chief executives of these

special departments or agencies report directly to governors, thus enjoying greater

authority.

Divisions of fixed asset management affiliated with a state department, such as the

Indiana Department of Administration, the Mississippi Department of Finance and

Administration, and the New Mexico General Services Department, may have central

authority to manage certain categories of fixed assets the state owns, leases, or controls.

However, the chief executives of these divisions, called managers, directors,

commissioners, or administrators, have limited authority under the leadership of the

department chief executive, who report directly to the governor. In addition, in most

states, real estate, which is a major portion of fixed assets, is under the control of state

comptrollers or controllers. The asset managers‘ authorities are comparatively limited

when asset management functions are parallel to other functions in a state department

or agency. Currently, few states have a chief property officer who takes charge of state

properties and reports directly to the governor.

Centralization of fixed asset management is defined in the mail survey as an

approach by which one central management agency takes charge of all properties (or a

property category) a government owns, controls, and leases, or by which a central

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agency is responsible for policy oversight, monitoring, and evaluation of state

properties while other agencies are delegated authority to own, lease, and manage the

properties. Decentralization of fixed asset management is an approach by which

individual government agencies have the delegated authority from the chief executive

to own and manage properties for service delivery. A mixed approach is a combination

of centralization and decentralization. The mail survey results show that these three

approaches are applied across the U.S. states. In a particular state, different categories

of fixed assets may be managed in various manners. The same category of assets may

be managed in different manners in different states. For example, in the State of Alaska,

some state buildings are managed in a manner of centralization while some other

buildings are taken care of by individual state departments and agencies. Fleets and

vehicles the state owns are managed in a centralized approach by the Alaska

Department of Transportation and Public Facilities while the authority of office

equipment management is delegated to individual state departments and agencies. Like

state buildings, state land and infrastructure are managed in a manner of mixture of

centralization and decentralization. The mail survey also demonstrates that a state may

implement the same approach to manage every category of fixed assets it owns and

controls. Of 37 respondents, two respondents (Indiana and Idaho) employ a centralized

approach to manage all major categories of fixed assets. On the contrary, two other

respondents (Florida and North Dakota) reported a decentralized approach to

management of all five major categories of fixed assets the states own and control. An

additional six respondents have adopted a mixed approach of centralization and

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decentralization to manage all the five major categories of fixed assets surveyed.

Apart from these discrepancies of approaches in fixed asset management between

states, the mail survey demonstrates that the survey respondents have a number of

features in common with regard to management approaches. These features are

demonstrated in Table 22.

Table 22 Fixed Asset Management Organization Forms in U.S. States

Major categories Fixed Asset Management Approaches

of fixed assets Valid Cases Centralized Mixture Decentralized
Buildings 36 5 24 7
Fleets & Vehicles 35 12 19 4
Office equipment 35 5 12 18
Land 34 6 23 5
Infrastructure 33 6 21 6

The majority of survey respondents manage their fixed assets in a mixed approach

of centralization and decentralization. This tendency is obvious in the management of

state buildings, land, and infrastructure. In more than two thirds of respondent states, a

portion of state buildings, land, and infrastructure are managed in a centralized

approach while the remaining of these fixed assets are managed by individual users.

This means that in the majority of respondent states, the divisions of fixed asset

management located in a department of administrative services or departments with

similar functions are responsible for a portion of state buildings, land, and

infrastructure. Some individual departments take charge of these categories of fixed

assets in such areas as acquisition, maintenance, repair, and disposition, among other

management issues.

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 On the other hand, management of fleets and vehicles and office equipment

presents a different situation. Although about half of respondents implement a mixed

approach to fleets and vehicles management, more than one-third of the surveyed states

centralize management of these fixed assets. Compared with management of buildings,

land and infrastructure, fleets and vehicles management shows a much stronger

tendency of centralization. In contrast, office equipment management is just opposite to

fleets and vehicles management. Compared with thirty-four percent (34%) of

respondents that employ the mixed approach, fifty-one percent (51%) of the

respondents elect to use a decentralized approach to manage their office equipment.

This is the only inclination of decentralization in the management of surveyed

categories of fixed assets. These survey results have answered the question ―What

forms of fixed asset management organization are applied to serve different property

needs of government agencies?‖

Capacity Building

In the survey questionnaire, capacity building is defined as an ongoing process by

which an organization enhances its ability to identify and meet internal and external

challenges. Internal challenges an organization meets are related to how to improve an

organization‘s performance and achievement of the organization‘s goals and objectives

while external challenges involve environmental changes that may impact organization

operation and organization improvement. Based on a discussion of capacity building in

Chapter 5, the mail survey sought information on five major aspects to understand

capacity building in fixed asset management. These five aspects are shown in Table 23.

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 Table 23 Capacity Building of Fixed Asset Management Organization
Is the measure included in your
Measures for building capacity of fixed asset capacity building plan?
management
Valid Cases Yes No
Risk management 33 25 8
Emergency management 33 27 6
Partnership with private business 32 14 18
Organization improvement 30 16 14
Encouraging high efficiency and effectiveness 32 26 6

The component of risk management regarding fixed assets means planning,

organizing, directing, and controlling resources to identify, assess, and minimize the

probability of negative, unexpected events and managing the events at their occurrence

to achieve planned organizational goals and objectives (see Head, 2009). Risk

management is an integral part of any operation of fixed asset management that is

intended to avoid impact and losses from risks or potential risks. Emergency

management is an organizational effort to deal with hazards, either natural or

man-made, that can cause disasters or catastrophes to public fixed assets. Partnership

with private businesses refers to collaborative relations between public fixed asset

management and private contractors and suppliers in fixed asset acquisition, operation,

maintenance and repair, and disposition. Organizational improvement means strategies

and mechanisms that help improve fixed asset performance while maximizing asset

value. Encouraging high efficiency and effectiveness refers to incentives for more

efficient and effective use of public fixed assets.

The mail survey shows that more than seventy-six percent (76%) of respondent

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states have particular measures for building their capacity of fixed asset management in

three of the five major aspects: risk management (76%), emergency (82%), and

encouraging high efficiency and effectiveness (81%). On the other hand, relatively

fewer respondents have strategies to enhance their capacity in partnership with private

businesses and in promoting organizational progress. Fourteen of thirty-two (44%)

surveyed states have established a collaborative relationship with private businesses in

asset acquisition and asset management throughout the life cycle. This reflects an

insufficient connection between the public sector and the private sector in fixed asset

management. Privatization of fixed asset management programs, which is an essential

part of the management process throughout the life cycle of fixed assets, may provide

more evidence about the public-private connection. With regard to organizational

progress in fixed asset management, sixteen of thirty (53%) states have organizational

measures to achieve effectiveness of fixed asset management and maximize property

value. This element of fixed asset management is closely connected with employee

development training programs which will be discussed later. The question ―What

public asset management measures are used to build up the capability of asset

management?‖ is answered in this analysis.

The Management Process throughout the Life Cycle of Assets

Fixed Asset Planning

As discussed in Chapter 6, fixed asset planning is the initial phase of fixed asset

management throughout the life cycle. At state government, the organization of fixed

asset management demonstrates that fixed asset planning involves various state
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government agencies: fixed asset using agencies, fixed asset management agencies,

central budget office, controller‘s office, financial department, and the state legislative

body. For example, in the State of Illinois, capital budgeting, which is an indispensable

part of fixed asset planning, involves the Governor‘s Office of Management and

Budget and agencies that request capital budget. Other state agencies, authorities, and

commissions, like the Illinois Department of Transportation, Department of Commerce

and Economic Opportunity, Department of Natural Resources, Illinois Environmental

Protection Agency, Capital Development Board, and Illinois Board of Higher

Education, participate in reviewing potential capital investments that state agencies

request.

Fixed asset planning is prospective. It takes into consideration the factors that may

affect acquisition and management of the planned fixed assets. Because a capital

budget request is an indispensable element of fixed asset planning, it is not particularly

included in the survey. Except for budget, the survey questionnaire addressed six major

elements that may be employed in fixed asset planning. These elements consist of fixed

asset needs analysis, a mission statement of fixed asset acquisition, an analysis of

acquisition methods, ranking priorities of acquisition, fixed asset performance

measures, and life-cycle costing (see Table 24). Based on the characteristics of fixed

assets, the survey question regarding fixed asset planning mainly asked about

preparation by respondent states for acquisition and life-cycle utilization. Sufficient,

overall, and reasonable preparation may prevent potential losses, obtain expected

effectiveness of asset use, and maximize the value of public resources.

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 Table 24 Fixed Asset Planning
Is it included in Has the element helped to
Elements included in fixed asset your asset improve performance?
planning planning?
Yes No No Yes, a little Yes, much
Fixed asset needs analysis 27 5 0 13 11
Mission statement for fixed asset
15 16 0 9 2
acquisition
Analysis of acquisition methods 22 9 1 9 7
Ranking of priorities of acquiring
23 8 10 10
fixed assets
Asset performance measures 15 17 1 5 7
Life-cycle costing 22 9 1 9 9

Data from survey demonstrate that most of the respondent states have implemented

needs analysis, analysis of acquisition methods, priority ranking to acquire fixed assets,

and life-cycle costing. Twenty-seven of thirty-two (84%) respondents analyze fixed

asset needs before acquiring the fixed assets. More than seventy-one percent (71%) of

surveyed states claim that they analyze acquisition methods and rank priorities on the

basis of acquisition method analysis and asset needs analysis. In addition, twenty-two

of thirty-one (71%) respondents take into account life-cycle costs when acquiring fixed

assets. However, survey responses also show that state governments have not exerted

tremendous efforts to determine the mission of fixed asset acquisition and measures to

assess fixed asset management performance. Only fifteen of thirty-one (48.4%)

respondents reported that they had a mission statement for fixed asset acquisition.

Similarly, only fifteen of thirty-two (46.9%) surveyed states have created measures for

assessing the performance of fixed asset management. This fact is consistent with the

insufficient legal and regulatory requirements across the surveyed states, which is

shown in Table 19 and discussed previously.

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 Considering both the percentage of respondents that use the identified elements

and the effect of these elements (see Table 24), needs analysis, acquisition method

analysis, priority ranking, and life-cycle cost are four major elements for fixed asset

planning and they have greater impacts on the achievement of improved fixed asset

planning. The other two elements—mission statement and performance

measures—have much smaller impact on improvement of fixed asset planning. These

results provide an accurate answer to the question ―What elements are included in fixed

asset planning and to what extent does public fixed asset planning depend on these

elements of fixed asset planning?‖

Privatization of Fixed Asset Services

As is discussed in Chapter 6, the management process utilized throughout the life

cycle of assets involves a wide range of activities from architectural design to pest

control under the responsibilities of state governments. Because government does not

have managerial expertise in every area of fixed asset management, certain programs

are privatized to improve efficiency of government operation, or to provide better

services, or to reduce the size of government (Lee et al., 2004; Mikesell, 2007; Osborne

& Gaebler, 1992). Although it is criticized for various reasons, privatization is still

implemented in different forms like contracting-out in public asset management. The

mail survey questionnaire addresses privatization mainly in the operation and

management of real properties because real properties account for the major portion of

public fixed assets. The programs that are likely to be privatized are listed in Table 25.

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 Table 25 Privatization Programs in Fixed Asset Management
Expected goals
Service privatized?
Major real property services achieved?
Yes % No % Yes No
1. Custodial cleaning 24 71 10 29 19 1
2. Concierge services 3 19 13 81 2 0
3. Repair and Maintenance 13 41 19 59 11 2
4. Security services 19 58 14 42 15 1
5. Utility management 4 13 27 87 2 1
6. Restructuring real property for customers 4 14 24 86 3 0
7. Disposal of trash 26 81 6 19 24 0
8. Disposal of hazardous waste 27 84 5 16 25 0
9. Pest control 27 84 5 16 25 0
10. Green property management (in
11 44 14 56 9 0
cleaning, construction, energy, etc)
Yes=the number of respondents that have privatized the service program
No-the number of respondents that have not privatized the service program

The mail survey found that state governments are cautious in implementing

privatization programs in fixed asset management. Privatization programs are

concentrated in a very small number of management areas. Specifically, in most

surveyed states, custodial cleaning, disposal of trash, disposal of hazardous waste, and

pest control are largely outsourced to private businesses. Twenty-seven of thirty-two

(84%) respondents reported that they have outsourced disposal of hazardous waste and

pest control programs. Twenty-six of thirty-two (81%) respondent states have

privatized trash disposal programs. Twenty-four of thirty-four (71%) surveyed states

have outsourced their custodial cleaning programs. In addition, more than half of the

respondents have outsourced security services. In contrast, concierge services, utility

management, and restructuring real property for customers are seldom privatized. The

percentages of valid respondents (those that answered relevant questions) that have

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privatized these categories of fixed asset service programs are less than twenty percent

(20%). Figure 16 demonstrates the tendency of real property service programs across

the surveyed states in the U.S. It clearly presents the current situation of privatization in

the operation of public real properties.

Respondents also reported that some categories of fixed asset services are not all

privatized. This means that privatization may depend on a number of factors, such as

the entrepreneurial capacity of asset managers, the services fixed asset users provide,

security requirements, and the size of services to be privatized, among other factors.

With regard to the effects of privatization programs, respondents reported an extremely

positive estimate of the consequences of privatization outcomes. This is illustrated in

Table 25. Except for two areas, ―repair and maintenance‖ and ―utility management,‖ to

which the response rate is quite low, almost every respondent state that has privatized

certain programs recognized that it had achieved expected outcomes.

Figure 16 Distribution of Privatization Programs

90%
80%
70%
60%
Privatization 50%
Rate 40% Yes
30% No
20%
10%
0%
8 9 7 1 4 10 3 2 6 5
Privatization Programs

Yes = percentage of respondents that have privatized the program

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 No = percentage of respondents that have not privatized the program

Composition and Utilization of Fixed Assets

State governments own tremendous amounts of fixed assets for their operation to

provide public services and public goods. In addition, state governments lease a large

portion of fixed assets from private businesses and control some real properties owned

by other governments. As discussed previously, governments tend to lease more and

own fewer real properties so as to reduce the cost of property ownership and

expenditure of property utilization. Responses to the survey questionnaire came from

general services departments or state departments with similar functions. Since no

single department is in charge of all fixed assets a state owns, controls, and leases,

information concerning a state‘s total fixed assets, even total assets of one category, is

hardly available. However, the respondent department of each surveyed state has

certain responsibility that helps provide information regarding leased real properties,

utilization of leased real properties, and surplus real properties. For example, a general

service department usually acts as a leasing agent for most state agencies. It may have

information about leased properties and surplus properties. Therefore, although such

information is hardly accurate for the whole state, it can be considered as a worthwhile

reference.

Data from respondent states demonstrate that generally about fifty-nine percent

(59%) of total building space that the state governments use and control is currently

leased from private businesses. With regard to individual states, this percentage of

leased building space is either extremely high or extremely low. Of 31 respondent

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states, 15 states have seventy percent (70%) or more of their total building space leased

from the private sector while 9 states have thirty percent (30%) or less of their total

building space leased from private businesses. The leased building space is utilized for

various purposes. But generally speaking, of the leased building space, fifty-three

percent (53%) is utilized for short-term purposes (less than five years) whereas

forty-seven percent (47%) is devoted to long-term purposes (more than five years).

Eight outlier respondents have eighty percent (80%) or more of their leased building

space for long-term use.

Twenty-six of thirty-seven respondents reported their data of excess assets. The

highest rate of excess assets is twelve percent (12%) while three respondents reported

zero percent of excess assets. Ten respondent states have an excess asset rate of three

percent or below. The average rate of excess assets is five percent (5%).

Life-cycle management is another factor that assesses fixed asset management. It is

a comprehensive management plan that is implemented throughout the life cycle of an

asset. The mail survey found that although seventy-one percent (71%) of respondents

include life-cycle costing in their fixed asset planning process (see Table 24), only

fifty-five percent (55%) of respondents combine life-cycle costing with fixed asset

ownership in the practice of fixed asset management. The discrepancy shows that the

life-cycle costing approach is not compulsively implemented in the management

process. Possible reasons may include insufficient budget, negligence of fixed asset

maintenance and repair, and lack of expertise in asset management.

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 Expansion of Fixed Asset Management Functions

The functions of fixed asset management have been undergoing adjustments at

state government. The survey of state government websites found that fixed asset

management, while readjusting management functions, broadens the range of

responsibilities by establishing new management programs. For example, greening

programs are established as an innovative approach to reserving energy, protecting the

environment, improving service quality and efficiency, and reducing greenhouse gas.

States like California, Florida, Indiana, Kentucky, and Michigan, New Mexico, and

New York have initiated green management programs like green cleaning and green

construction. The state of New York passed the Green Building Construction Act on

August 26, 2009, mandating that the construction and substantial renovation of

state-owned buildings comply with green building standards. The New York State

Office of General Services is obliged to establish requirements and procedures to

implement the Green Building Construction Act.

Human Capital Strategies

As discussed in Chapter 8, human resources management should provide human

capital services for efficient and effective fixed asset management. Based on this

perception, human capital strategies focus on (1) financial investment and leadership

commitment; (2) human capital planning based on organizational goals, mission, and

objectives; (3) employee development training for high performance, and (4) creation

of a dynamic organization culture. Considering the tight relations between these

focuses of human capital strategies and fundamental missions of fixed asset

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management, the mail survey addressed human capital planning and employee

development training.

Human capital planning is determined by legal and regulatory requirements for

human recruitment and personnel needs in fixed asset management. From the

perspective of personnel services, the mail survey addresses five fundamental elements

of human capital planning (see Table 26). The first element emphasizes the relationship

between employee recruitment and the goals and objectives of overall property

management. The second element addresses preparation for employee talent

development for high employee and organization performance and attainment of

long-term organization goals. The third element asks about the motive of human

resource management to initiate organization development and change. Specific

strategies for organization development and change may include, but are not limited to,

new approaches of fixed asset performance evaluation, new approaches of employee

performance evaluation, alternative organization of tasks, establishment of new service

programs, and outsourcing asset services. The fourth element involves employee

participation in decision-making and continuous improvement activities that affect

employees‘ jobs. The fifth element addresses training stakeholders to understand the

services that fixed asset management provides and business operations that state

government implements with regard to fixed asset management. These elements are

interrelated to provide human capital strategies for fixed asset management. Responses

to these elements help understand how well human capital planning is implemented by

state government.

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 Table 26 Strategic Human Capital Planning
Implemented or Not?
Issues addressed in strategic human capital planning
Yes % No %
1. Position description based on overall property
28 90% 3 10%
management goals & objectives
2. Employee talent development connected with
25 81% 6 19%
long-term goals of asset management
3. Planning for innovative work practices 25 81% 6 19%
4. Employee involvement in goal setting and planning 23 74% 8 26%
5. Team development engaging all stakeholders 25 81% 6 19%

Yes = the number of respondents that have the element in their human capital planning
No = the number of respondents that do not have the element in their human capital
planning

Thirty-one of thirty-seven (84%) surveyed states provided responses to the five

elements of human capital planning (see Table 26). More than eighty-one percent

(81%) of valid respondents reported that they covered the first, second, third, and fifth

identified element in their human capital planning. Seven-four percent (74%) of valid

respondents have the fourth element in their human capital planning. With regard to the

effect of overall human capital planning, ninety-three percent (93%) of valid

respondents estimated that their human capital planning had either moderate or much

effect on the achievement of goals and objectives of fixed asset management.

The mail survey also covers five elements to investigate employee development

training, which is another focus of human capital strategies (see Table 27). These

elements are summaries of sustainable employee training programs that address

different objectives of fixed asset management at state government. The survey results

demonstrate that twenty-eight of thirty-seven (76%) respondents answered the

questions concerning employee development training. Eighty-one percent (81%) to

ninety-three percent (93%) of valid respondents have implemented the identified

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categories of programs to achieve their objectives of fixed asset management. The mail

survey also revealed that ninety-six percent (96%) of valid respondents perceive the

overall employee development training as moderately effective or even better. This

survey result answers the question if employee development training improves

employees‘ subsequent performance and what effect employee development training

has on employees‘ performance.

Table 27 Employee Development Training

Categories of sustainable employee development Do you have the programs?
training programs Yes % No %
Programs to increase employee performance 26 93% 2 7%
Programs to meet new work requirements 25 90% 3 10%
Programs to satisfy long-term need for qualified
22 81% 5 19%
employees
Programs to meet customer satisfaction 26 93% 2 7%
Programs to align with agency goals & objectives 24 86% 4 14%

Yes = the number of respondents that have implemented this category of training programs
No = the number of respondents that have not implemented this category of training
programs

Information and Technology Resource Utilization

Fixed Asset Management Information

The cornerstone of information and technology resource utilization consists of

fixed asset information and the means by which information is obtained and managed.

As is discussed in Chapter 8, by consolidating fixed asset data into a fixed asset

information system, such as FRPP at the federal government, government could

improve decision-making with respect to fixed asset management with accurate and

reliable governmentwide data. On this basis, the mail survey investigated the

establishment of a fixed asset database system and its effects on asset acquisition,
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disposition, financial input, and financial reporting. Specifically, the mail survey

intended to reveal what kind of data is consolidated into the fixed asset management

information system, and if the consolidated data serves expected roles in fixed asset

decision-making. Twenty-six elements are identified as the major categories of

management information (see Table 28). As shown in Table 28, surveyed states have

considerable difference between their fixed asset management information systems.

Only two of the twenty-six identified elements are found in the information system of

every surveyed state. These two elements are ―fixed asset category‖ and ―location of

real properties.‖ Besides these two elements, eight elements are used by more than

seventy percent (70%) of the valid respondents (see Table 28). These first ten elements

in Table 28 are the fundamental categories of the fixed asset management information

in the system.

In contrast, twelve elements are used by fewer than fifty percent (50%) of the valid

respondents in their management information system (see Table 28). Among these

elements, special land elements are not given sufficient attention. The element of ―tax‖

suggests that the fixed assets registered in the information system are mostly for

governmental purposes rather than for business purposes from the perspective of a

financial report. In addition, zoning is the responsibility of local governments. State

government does not consider zoning issues when managing their real properties. The

low frequency of the use of ―annual cost of ownership,‖ ―percent utilized,‖ and ―annual

operating expenses‖ suggests that a state financial report does not need these categories

of property information; and that life-cycle management is not considered when

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building a fixed asset management information system.

Table 28 Inventory of Fixed Assets1

Is this component contained in your
Major components of real properties information system?
contained in an information system
Yes2 % No3 %
1. Fixed asset category 36 100% 0 0%
2. Location of real properties 36 100% 0 0%
3. Age 33 92% 3 8%
4. Acquisition cost 33 92% 3 8%
5. Size 32 89% 4 11%
6. Current status 31 86% 5 14%
7. Date of occupancy 30 83% 6 17%
8. Legal ownership 29 81% 7 19%
9. Estimated current value 27 75% 9 24%
10. Rent of leased property 26 72% 10 28%
11. Transfer history 25 69% 11 31%
12. Cost of leasehold improvement 24 67% 12 33%
13. Total value of fixed assets 23 66% 12 34%
14. Original useful life 22 61% 14 39%
15. Remaining useful life 18 50% 18 50%
16. Insurance 17 49% 18 51%
17. Annual operating expenses 15 44% 19 56%
18. Total value of investment assets 13 37% 22 63%
19. Percent utilized 13 36% 23 64%
20. Annual cost of ownership 12 34% 23 66%
21. Hazards (land) 12 34% 23 66%
22. Flooding condition (land) 11 31% 24 69%
23. Environmental services (land) 11 31% 24 69%
24. Taxes 9 27% 24 73%
25. Zoning 9 25% 27 75%
26. Soil mechanical condition (land) 8 24% 27 77%
Note: 1. This table contains the same elements as the survey question, but in different
order. 2. Yes: the number of respondents that use these elements in their information
system. 3. No: the number of respondents that do not include these elements in their
information system

The mail survey revealed that the fixed asset management information system does

not have strong positive effects on fixed asset acquisition, disposition, financial input,
219
and financial reporting (see Table 29). Twenty-eight percent (28%) of valid respondents

reported that their fixed asset information system did not produce an effect on the fixed

asset acquisition in their states. The case of disposition is similar to that of acquisition.

In addition, thirty-two percent (32%) of valid respondents said that their information

system did not have an effect on financial input in fixed asset management. The

possible cause of this phenomenon is that fixed asset managers cannot obtain any

information to determine how much money is needed for maintenance, repair, and

replacement. Comparatively, only twenty-one percent (21%) of the valid respondents

claimed that their information system did not have an effect on financial reporting. The

cause for this fact is similar to that of financial input. In a word, the low frequency of

about half of the identified elements in the fixed asset management information system

has reduced the positive effect of the fixed asset data on fundamental functions of fixed

asset management, such as acquisition, disposition, final input, and financial reporting.

Table 29 Effect of Fixed Asset Management Information System

Acquisition Disposition Financial Input Financial Reporting
1
Yes 72% 74% 68% 79%
2
No 28% 26% 32% 21%
Notes: 1. Yes: percentage of respondents perceiving information system as effective
2. No: percentage of respondents perceiving information system as ineffective

Timely data updating ensures that data are accurate and reliable and that the

information system functions appropriately. The mail survey showed that forty-three

percent (43%) of the survey participants update their data of fixed asset management

information system every six or fewer months, forty percent (40%) of respondents

every twelve or fewer months, the remaining seventeen percent (17%) every

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twenty-four or more months. Considering the fact that U.S. state governments have

annual or biennial budgeting cycle, reliable and accurate information should be

available for financial reporting and fixed asset management if state governments

update their fixed asset data every twelve or fewer months.

Assessment of Fixed Asset Management Performance

When fixed asset management is assessed appropriately against expected

standards, fixed asset management can be promoted to meet executive and legal

requirements. The survey of state government websites found that a number of states

have established standards and criteria for fixed asset management. They regularly

assess their fixed asset management and provide a performance results summary

online. Detailed real estate annual reports were found on the state government websites

of New York, Florida, California, Maryland, Connecticut, and New Mexico, among

other states. The mail survey was intended to present measures the survey participants

have employed to assess their fixed asset management performance. Of thirty-seven

mail survey participants, only twenty-six (70%) selected certain measures from a list of

commonly-used fixed asset management performance measures (see Table 30). This is

a low rate compared with the response rate for other questions.

The mail survey results show that among the eighteen identified measures, only ten

are used by more than fifty percent (50%) of respondent states. These measures include

(in order of percentage of respondents using the measure from high to low) cost per

square foot (owned), cost per square foot (leased), operating cost per square foot,

deferred maintenance, vacancy rate, current replace value, customer satisfaction,

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usable square feet per employee, facility condition index, and number of days to

proceed leases. These measures are highlighted in Table 30. They are the measures

mostly related to costs, fixed asset service delivery, and physical condition of fixed

assets.

Table 30 Measurement of Fixed Asset Management Performance

Measures for Real Property Performance Do you use this measure?

Evaluation Yes1 % No2 %
1. Cost per square foot (owned) 24 92% 2 8%
2. Cost per square foot (leased) 24 92% 2 8%
3. Vacancy rate 19 76% 6 24%
4. Utilization rate 6 24% 19 76%
5. Average cost per employee 8 31% 18 69%
6. Customer satisfaction 15 58% 11 42%
7. Real property disposal time 6 23% 20 77%
8. Percent of leases not to be renewed 6 24% 19 76%
9. Number of days to process lease 14 54% 12 46%
10. Usable square feet per employee 15 58% 11 42%
11. Savings from audits 7 28% 18 72%
12. Number of utility trouble calls 9 35% 17 65%
13. Facility condition index 15 58% 11 42%
14. Percent of tenant renovations on time and
11 44% 14 56%
on budget
15. Operating cost per square foot 20 77% 6 23%
16. Number of emergency contracts 8 32% 17 68%
17. Current replace value 18 69% 8 31%
18. Deferred maintenance 20 77% 6 23%

Notes: 1. Yes: the number of respondents that use this measure;

2. No: the number of respondents that do not use this measure

In contrast, the mail survey results show that the majority of the other measures are

employed by fewer than forty percent (40%) of the respondent states (see Figure 17).

These measures include (in order of percentage of respondents that use the measure

from low to high) real property disposal time, percent of leases not to be renewed,
222
utilization rate, savings from audits, average cost per employee, number of emergency

contracts, and number of utility trouble calls. These identified measures are rarely used

either because the relevant fixed asset management elements are not given sufficient

attention or because the relevant fixed asset management programs are not commonly

initiated throughout state governments.

Figure 17 Distribution of Fixed Asset Management Performance Measures

100%
90%
80%
70%
60%
Yes
50%
No
40%
30%
20%
10%
0%
1 2 15 18 3 17 6 10 13 9 14 12 16 5 11 4 8 7

Note: The numbers on X-axis represent the measures listed in Table 30. Percentage of Y-axis
refers to percentage of respondents that use the measure (Yes) or do not use the measure (No).

With regard to how much effect the assessment of fixed asset management

performance has on the improvement of fixed asset management performance,

respondents have different perceptions toward whether or not the assessment of fixed

asset management performance has any effects. Even two of the surveyed states that did

not select any assessment measures commented that assessment of fixed asset

management performance had no effect on the improvement of fixed asset management

performance. Three respondents selected a number of assessment measures but

provided no response to the effect of assessment of fixed asset management

223
performance. Another three valid respondents commented that assessment of fixed

asset management performance did not produce any effect on management

performance improvement. However, about eighty-seven percent (87%) of valid

respondents perceived the assessment of fixed asset management performance as of

moderate effect or much effect.

Monitoring, Integrity, and Transparency

As discussed in Chapter 9, the whole process of public fixed asset management

needs to be monitored to ensure that public fixed assets function efficiently and

effectively. The major areas that are usually put under monitoring and oversight include

compliance of laws and regulations, effectiveness of policies and processes, contract

implementation, performance measurement, and financial accountability. The survey

of state government websites found that legal and regulatory requirements, professional

manuals, guidelines, policies, and standards were enacted and enforced by state

governments or agencies. Some examples include Alabama Building Commission

Administrative Code, Alaska State Property Handbook, Alaska Building Authority

Manual, Alaska State Space Standards, State of Florida Statewide Financial Statement

Capital Asset Policy, Florida Public Asset Management Policy, Florida Code of Ethics,

Massachusetts Facilities Operation and Management Manual for Beginners, Missouri

Aircraft Policy, Missouri Leasing Policy, Maryland Lease Compliance and

Enforcement Guidelines, Maryland Procedure Manual for Professional Services,

Maryland Office Area Standard, Ohio Fleet Manager‘s Guide, Ohio General Services

Policies, and Virginia Code of Ethics. These documents provide part of monitoring and
224
oversight at different levels.

Table 31 Monitoring and Oversight Programs at the U.S. State Government

Do you have it in your
Monitoring and Oversight Programs monitoring programs?
Yes No
Contract Monitoring (cost, schedule, performance,
27 7
quality)
Financial accountability monitoring (purpose, time,
20 12
amount)
Performance measurement monitoring 15 17
Monitoring of effectiveness of policies & processes 16 17
Monitoring of compliance of laws and regulations 25 8
Note: Yes: the number of respondents that have the monitoring and oversight program;
No: the number of respondents that do not have the monitoring and oversight program

The mail survey asked survey participants to identify the monitoring and oversight

programs they have established from a list (see Table 31). The mail survey results

showed that seventy-nine percent (79%) of respondent states have initiated and

implemented monitoring programs in contract management. Seventy-five percent

(76%) of the valid respondents have monitoring and oversight programs in compliance

with laws and regulations. Sixty-nine percent (63%) of the valid respondents have

monitoring and oversight programs in financial accountability. Comparatively, fewer

respondent states monitor their performance measurement and effectiveness of policies

and processes. Generally, performance is assessed at the agency level. Policies and

processes are mostly implemented at lower levels of management. The mail survey

results revealed that lower levels of management have not paid sufficient attention to

monitoring performance assessment and the implementation of policies and processes.

Even though very few survey participants reported that their monitoring and oversight

programs had not produced sufficient effect on the improvement of fixed asset

225
management performance, a very small number of respondents (19%) perceived that

monitoring and oversight programs are of high effect. Seventy-eighty percent (78%) of

survey participants considered their monitoring programs as moderately effective.

In the twenty-first century, constructing a transparent government that abides

by the principles of integrity, efficiency, and effectiveness is the goal of each

government. The survey of state government websites did not provide much

information about integrity in public fixed asset management except the professional

code of ethics. Integrity is seldom discussed in fixed asset management reports.

Websites of major departments responsible for real properties or capital assets at each

government are mostly descriptive rather than interactive. Although more than eighty

percent (80%) of websites provide information for private businesses, fewer websites

of state departments responsible for major categories of fixed assets present

information for the general public. In addition, fixed asset services for government

agencies are not interactive from the perspective of service users. A few websites of

state general service departments or departments in charge of major categories of fixed

assets do not provide detailed information regarding the operation and outcomes of

fixed asset management. These facts suggest that state governments have not explored

the potential of the Internet to improve government transparency.

The mail survey results show that in the process of maintaining integrity and

transparency of fixed asset management, ninety-seven percent (97%) of the respondent

states have paid close attention to internal control and audit system. Anti-corruption is

also considered as a frequently-used measure (see Table 32). Ninety percent (90%) of

226
the respondent states have adopted this measure to maintain government integrity and

transparency in the process of fixed asset management. In addition, professional code

of ethics is employed in eighty-four percent (84%) of the survey participants. In

comparison to the high percentage of respondents that adopted internal audit and

control, the percentage of respondents that used external audit and oversight system is

rather low (71%). As Figure 18 shows, in contrast with these four measures, publication

and distribution of information and efficient appeals system are not employed as

measures to maintain integrity and transparency in a high percentage of respondent

states.

Table 32 Integrity and Transparency at the U.S. State Government

Measures taken to maintain integrity and Do you take this measure?

transparency of fixed asset management Yes % No %
1 Effective internal control & audit system 31 97% 1 3%
2 Effective external audit & oversight system 22 71% 9 29%
3 Efficient appeals mechanism 10 34% 19 66%
4 Publication & distribution of information
18 56% 14 44%
through available media
5 Professional code of ethics 26 84% 5 16%
6 Anti-corruption measures based on legal &
28 90% 3 10%
regulatory guidelines
Note: Yes = the number of respondents that take this measure; No = the number of
respondents that do not take this measure

Twenty-two percent (22%) of survey participants did not answer the question

regarding the effect of integrity and transparency measures; the remaining participants

provided a positive answer to the question. Sixty percent (60%) of the survey

participants perceived that integrity and transparency measures have moderate effects

on the achievement of effective and efficient public fixed asset management;

thirty-seven percent (37%) of the survey participants estimated that the effect is more
227
than moderate.

Figure 18 Measures Taken to Maintain Integrity and Transparency

120%
Percentage of Respondents

100%

80%
Yes
60%
No
40%

20%

0%
1 6 5 2 4 3
Measures

Note: Yes = the number of respondents that take this measure; No = the number of
respondents that do not take this measure

In summary, the results from both the survey of state government websites and the

mail survey have answered the questions raised in Chapter 1 with regard to fixed asset

management at state government level. The questions investigate different areas of

fixed asset management. The survey results showed that each cornerstone of the public

asset management system is correlated with each other cornerstone.

States’ Comparison with Standards of the Public Asset Management System

The mail survey results show that the state governments in the United States

demonstrated variance in each area of public fixed asset management. The variance

suggests that an individual state government may be extremely strong in one area or in

a few areas of public fixed asset management with every identified element applied in

practice. Meanwhile the variance also indicates that an individual state government

228
may be quite weak in an area or in certain areas of fixed asset management. For

example, Connecticut is strong in regulating each area of fixed asset management and

in monitoring and auditing relevant fixed asset management programs. However, it is

weak in the management process throughout the life cycle of assets and information

resources management (see Table 33). In comparison with the standards established by

the public asset management system elaborated in Chapter 3 of this dissertation, a

number of states are at a leading position in fixed asset management. These states, such

as Oklahoma, Indiana, Michigan, and Florida, have more than seventy-five (75%) of

the elements identified in the fixed asset management system.

Besides, survey results also demonstrate that generally speaking, the state

governments in the United States performed well in human resources management and

fixed asset management regulations. Comparatively, the state governments need to

improve efficiency and effectiveness in the management process throughout the life

cycle of assets and construction of a comprehensive reliable database of fixed asset

management information.

229
 Table 33 Current Status of Fixed Asset Management by U.S. States
1
Case C1 (18)2 C 2 (5) C3 (17) C4 (10) C5 (48) C6 (11) Total (109)
Y3 N4 Y N Y N Y N Y N Y N Y N
OK 18 0 4 1 12 4 10 0 43 5 11 0 98 10
IN 14 4 5 0 12 2 10 0 44 3 7 1 92 10
MI 11 7 3 2 11 4 10 0 48 0 9 2 92 15
FL 15 3 5 0 12 4 10 0 30 18 9 2 81 27
NV 13 5 5 0 11 6 9 1 32 16 9 2 79 30
CA 15 3 5 0 10 7 10 0 30 17 9 2 79 29
SC 14 4 1 4 4 13 10 0 39 9 9 2 77 32
VT 11 7 5 0 9 8 9 1 32 16 11 0 77 32
TX 12 6 3 2 12 5 6 4 34 13 8 3 75 33
IA 11 7 5 0 9 7 10 0 32 16 8 3 75 33
CT 18 0 4 1 11 6 7 3 24 24 10 1 74 35
OR 15 3 4 1 5 12 10 0 31 17 8 3 73 36
UT 7 8 5 0 14 2 10 0 31 3 5 0 72 13
WV 18 0 4 1 13 3 7 3 24 24 5 6 71 37
GA 15 3 4 1 6 5 10 0 27 15 8 3 70 27
MN 10 1 5 0 7 5 10 0 27 21 9 2 68 29
AZ 13 2 0 5 13 2 10 0 29 19 2 1 67 29
RI 16 2 3 2 13 1 5 0 18 11 9 2 64 18
WA 14 3 4 0 3 14 4 1 32 12 7 3 64 33
WY 11 7 5 0 9 6 5 0 26 4 8 3 64 20
AR 15 3 3 2 12 4 9 1 16 32 5 6 60 48
NC 13 5 3 2 7 7 9 1 22 7 6 5 60 27
LA 9 9 4 1 9 7 9 1 20 19 6 5 57 42
NM 9 9 0 0 6 11 2 3 29 19 7 4 53 46
MS 13 5 3 2 7 10 6 4 18 30 5 5 52 56
MA 13 5 3 2 5 2 8 2 20 28 3 8 52 47
MO 11 7 4 1 6 10 8 2 13 17 9 2 51 39
ID 11 7 0 0 7 8 5 0 22 6 1 0 46 21
NH 8 10 3 2 7 7 10 0 14 33 3 8 45 60
ND 18 0 3 2 2 9 1 4 13 18 7 3 44 36
AK 11 7 0 5 6 10 2 3 17 13 7 4 43 42
NE 10 8 0 5 9 8 3 2 16 14 5 6 43 43
HI 13 4 1 4 9 8 0 10 12 18 6 5 41 49
VA 10 8 0 0 7 1 5 0 12 36 1 10 35 55
OH 8 10 0 5 1 9 0 0 19 11 4 7 32 42
TN 6 12 2 3 5 1 0 0 4 14 0 0 17 30
ME 0 0 0 0 0 0 0 0 6 22 0 0 6 22
Total 449 186 108 56 301 228 249 46 906 600 236 119 2249 1235
% 71 29 66 34 57 43 84 16 60 40 66 34 65 35

Notes: 1. In this column are the respondent states. 2. This row includes six cornerstones identified
and used in this research. The number in each bracket refers to the number of the total identified
elements in the area of the cornerstone. C1 = legal and regulatory requirements, C2 = organization
structure, C3 = the management process throughout the life cycle of assets, C4 = human resource
strategies, C = information and technology resources, C6 = monitoring, integrity, and transparency.
3. Y stands for yes. The numbers in the column represent the numbers of elements the state has in its
fixed asset management practice. 4. N stands for no. The numbers in the column represent the
number of elements the state does not have in its fixed asset management practice.

230
 CHAPTER 12. RELATIONSHIPS BETWEEN CORNERSTONES

This chapter provides an overall analysis of the mail survey results with regard to

the six cornerstones of the public asset management system and includes a number of

implications from the mail survey‘s results.

Relationship of Legal and Regulatory Requirements with other Cornerstones

Generally speaking, both the survey of the state government websites and the mail

survey show that legal and regulatory requirements have covered each cornerstone of

the public fixed asset management system. Table 19 and Table 21 show that legal and

regulatory requirements regulate major areas of fixed asset management and have

moderate or much guidance in a high percentage of respondent states. Among the

eighteen surveyed areas, there are only four areas where legal and regulatory

requirements have a low level of guidance and are used by a low percentage of

respondents. In a fewer respondent states these four areas of fixed asset management

are regulated by laws and regulations. The low level of guidance in fixed asset

performance evaluation, at least in part, contributes to low percentage of surveyed

states that have asset performance measures (see Table 24) and low performance in

management assessment (see Table 30) throughout the surveyed states. The low level

of guidance of laws and regulations in centralized registration leads to insufficient

attention to construction of the fixed asset management information system (see Table

231
28).

Conversely, there are four other areas of fixed asset management where laws and

regulations have extremely high-level guidance. In more than ninety percent (90%) of

respondent states, these areas are regulated by laws and regulations. The high-level

guidance in ―fixed asset disposal‖ leads to establishment of a separate division of

surplus property in about fifty percent (50%) of all state governments. Generally

speaking, state governments have a very low percentage of surplus properties.

However, ―real property disposal time‖ is not used as a major measure to assess fixed

asset management in most of the respondent states. This indirectly shows that in

practice real property disposal is not effectively managed by state government.

The high-level guidance of laws and regulations in ―regular reporting of fixed

assets‖ determines that a number of frequently used financial elements are employed in

the fixed asset management information system (e.g. estimated current value, total

value of fixed assets, and acquisition cost as listed in Table 28) and in the management

assessment mechanism (e.g. current replacement value in Table 30). As a result, about

eighty percent (80%) of respondents deemed that the fixed asset management

information system has a positive effect on financial reporting.

The high-level guidance of laws and regulations in ―leasing real property from the

private sector‖ contributes to a centralized leasing division or program in almost every

state government. Also closely related to the positive guidance is the total area of leased

building space which is considered as a measure to assess fixed asset management in

the cornerstone of information and technology resource utilization. In addition, the fact
232
that an average of fifty-nine percent (59%) of total building space the state government

uses and controls is leased from the private sector reveals a trend of depending more on

leasing real properties. This trend is similar to the general trend of leasing properties at

the federal government. Federal budgeting scorekeeping rules require that for

ownership and capital leases, the full cost of government commitment be recorded in

the first year‘s budget; in contrast, for operating property leases, only the yearly lease

payment and cancellation costs are registered in the annual budget (GAO,

2008).Chances are that like the federal government, state governments have budget

policies that encourage operating leasing rather than acquiring properties through

construction. From a budgeting perspective, reliance more on leasing, rather than

acquiring real properties, temporarily relieves financial pressure on state government.

But on a long-term basis, it costs more money. Therefore, those states that have a very

high percentage of leased building space for long-term purposes need to consider the

long-term cost of leasing properties from the private sector. Meanwhile, state

government needs to amend legal and regulatory requirements if these requirements

encourage over-reliance on long-term costly leasing. Overall, compared with federal

government, state government has a much lower percentage of excess properties. An

average of five percent of surplus properties suggests that state government has more

efficiently utilized its real properties.

The high-level guidance of laws and regulations in the area of ―fixed asset

acquisition‖ has a positive impact on fixed asset planning. Fixed asset planning focuses

more on acquisition strategies rather than fixed asset operation planning (see Table 24).

233
In addition, a fixed asset inventory records the original data of fixed assets at

acquisition. Current status, acquisition cost, and original useful life are frequently-used

elements in fixed asset management information system.

Relationships of Organization Structure with Other Cornerstones

Organization forms of fixed asset management are closely related to how fixed

assets are managed. High percentages of centralization approach and mixture of

centralization and decentralization (see Table 22) contribute to privatization of certain

fixed asset management programs. The most frequently privatized programs, as shown

in Table 25, are those that may have a scale large enough for privatization under the

centralized and mixed management structure. In addition, the mixture characteristics of

land, building, and infrastructure management suggest that a comprehensive complete

management information system is difficult to construct. Table 22 shows that more than

ten elements of the fixed asset management information system are rarely used at state

government.

Capacity building of fixed asset management focuses on three of five identified

areas (see Table 23). Risk management and emergency management may increase

short-term leasing of building space. Generally, risk management and emergency

management may also encourage partnership between the public sector and the private

sector because in some cases public resources are not sufficient for handling

overwhelming emergencies. But the mail survey does not support this supposition. The

low-level effect of public-private partnership is consistent with the unwillingness of

234
government to privatize some categories of public asset management programs (see

Table 25). ―Encouraging high efficiency and effectiveness‖ as an element of capacity

building has a close relationship with employee training. As can be seen from Table 27,

most valid respondents use the identified programs for employee development training.

These programs have achieved expected effects on improvement of employee

performance.

Capacity building measures do not prioritize promoting organization progress (see

Table 23). This suggests that state government lacks long-term strategic planning and

measures for monitoring the achievement of long-terms goals. The lack of strong

performance measurement monitoring and monitoring of effectiveness of policies and

processes (see Table 31) indirectly reflects a problem in capacity building of fixed asset

management.

The Relationship of Management Process with Other Cornerstones

The management process throughout the life cycle of assets is a process of

enforcing laws and regulations of fixed asset management. The major components of a

management process throughout the life cycle of assets, such as planning, acquisition,

asset use, operation and maintenance, planning, and disposal, are under legal and

regulatory constraints. Among these components, fixed asset acquisition, use, and

disposal are highly regulated while fixed asset operation and maintenance and fixed

asset planning are comparatively not (see Table 19). During the planning phase,

mission statement and asset performance measures are not given sufficient attention.

235
This suggests that the measure of ―encouraging high efficiency and effectiveness‖ is

not effectively implemented; and ―promotion of organization progress‖ is not

prospectively coordinated from various respects. In addition, some measurements of

management process are not properly recorded. In the management information

system, remaining useful life, insurance, and annual operating costs are not used by a

high percentage of respondents. Moreover, the fixed asset management process is not

sufficiently audited and overseen.

The Relationships of Human Capital Strategies with Other Cornerstones

Generally, human capital management is regulated by laws and regulations, and it

is correlated with capacity building, management process, and monitoring and

integrity. The mail survey results demonstrate that state governments have addressed

the major issues of human capital planning (see Table 26) and human capital needs (see

Table 27). Overall, strategic human capital planning enhances and supplements

organizational goal setting and fulfillment of management objectives. But the low

response rate to ―employee involvement in goal setting and planning‖ suggests that

state governments have not exerted sufficient efforts to motivate their employees

during their tenure. In addition, the states that have implemented sustainable employee

development training found significant effects of training programs on the achievement

of goals and objectives of fixed asset management. However, more than 20% of

surveyed states do not have sustainable employee development programs. This is

consistent with insufficient efforts of state government in building management

capacity.
236
The Relationships of Information Resource with Other Cornerstones

The mail survey results show that constructing an effective fixed asset

management information system is dependent on legal and regulatory requirements and

organization forms of fixed asset management. Seventy-four percent (74%) of

respondents have legal and regulatory requirements for a centralized record

management system of all fixed assets (see Table 19). The major categories of fixed

assets are managed in a mixed approach of centralization and decentralization. These

characteristics determine that the fixed asset management information system of state

government may not collect sufficient reliable data. Table 28 shows that only eight of

twenty-six elements of the information system are used by more than eighty percent

(80%) of the respondent states. It turns out that the information system has moderate

effects on fixed asset management acquisition, disposition, and financial input.

The Relationships of Monitoring and Transparency with Other Cornerstones

The mail survey results show that monitoring, integrity, and auditing depend on

legal and regulatory requirements and, in return, oversee compliance with laws and

regulations. They are correlated with the management process, information collection,

and human resources management. Currently, monitoring at state governments focuses

on contract monitoring, financial accountability monitoring, and compliance with laws

and regulations (see Table 31). These areas are related to different cornerstones of the

public asset management system: management process, information resources, and

legal and regulatory framework.

237
 Integrity and transparency are concerned with the fixed asset management process,

human development training, and organization structure. The mail survey results

demonstrate that current measures for maintaining integrity and transparency focus on

internal control and audit system, professional ethics, and anti-corruption measures.

The measures may encourage agency-level auditing. They may also enhance human

development training to abide by professional ethics and anti-corruption mandates.

Overall, the surveys illustrate close relationships between the six cornerstones of

the public fixed asset management system. The relationships prove that the

cornerstones are appropriate to constitute a system of public asset management. The

survey results also show that the components of each cornerstone in the fixed asset

management system are not all appropriately used and effectively implemented in the

practice of fixed asset management at the U.S. state government level.

238
CHAPTER 13. CONCLUSION AND SUGGESTIONS FOR FUTURE RESEARCH

Public asset management has been undergoing a transitional period in the United

States. With a variety of driving forces, governments at different levels are exerting

efforts to effectively and efficiently manage fixed assets by implementing strategic

approaches. The U.S. federal government has enacted and enforced laws and

regulations to reform its property asset management through establishing a new

organization system, creating an information system, and devolving authorities.

Similarly, state and local governments are urged to reexamine their fixed asset

management practices. These efforts are intended to make efficient and effective use of

limited public financial resources to provide fixed asset needs for public service

delivery and public goods production. Of course, it is also expected that disasters such

as the collapse of the Mississippi Bridge in Minneapolis and eruption of New York

steam pipe will never happen again due to management neglect. For these above

purposes, this dissertation has tried to propose a public fixed asset management system

based on available literature. It also has intended to explore the fixed asset management

practice at the U.S. state government level compared to the standard of public fixed

asset management system.

Current literature analysis reveals that like private businesses, public asset

management intends to maximize the value to a property or portfolio of properties

within the objectives defined by the owner where the property or portfolio of

239
properties are either considered as a commercial investment or as an assisting

mechanism for the owner to fulfill major objectives. On this basis, public fixed asset

management is first of all susceptible to mandatory requirements which may include

laws, regulations, norms and guidance, policies, and procedures. These mandatory

requirements are implemented at different levels of government or different levels of

management. Decisions are made at different levels of management to organize

activities concerning public fixed assets in different approaches, centralization,

decentralization, or a mixture of both. To ensure that fixed asset management is

sustainable, government develops its capacity in a variety of dimensions. Then

specifically, fixed assets are acquired, utilized, maintained, repaired, and disposed of

throughout the life cycle of assets. Fixed asset services are provided for government

departments and agencies to fulfill their goals and objectives.

Human resources are needed to implement decisions concerning fixed asset

management. Financial and leadership investment is made to obtain a workforce for

various tasks. Employee development training is provided to improve performance of

fixed asset management. In addition, a fixed asset management information system is

constructed as a database of fixed assets to provide information for relevant

decision-making. Asset information and financial information is obtained in different

approaches and managed with up-to-date technologies. Finally, to ensure that every

dimension of fixed asset management works appropriately on the right track,

monitoring and oversight are implemented. Measures must be taken to maintain

integrity and transparency throughout the process of public fixed asset management.

240
 These interrelated and interdependent cornerstones constitute the framework of the

public fixed asset management system. This management system provides standards

for all levels of government to effectively, efficiently, and fairly manage various

categories of fixed assets for public service delivery. Surveys of the U.S. state

governments show that state fixed asset management fundamentally operates on the

basis of the standards of the public asset management system proposed in accordance

with current literature on asset/property management in both the pubic sector and the

private sector. However, the surveys also reveal a number of issues that need

improvement in fixed asset management by state governments. These are listed in order

of importance as follows:

 Certain areas of fixed asset management are not intensely regulated. Such areas

include fixed asset management performance evaluation, fixed asset allocation,

centralized registration, and anti-corruption. In addition, in some areas laws and

regulations do not have much guidance, such as fixed asset use and fixed asset

operation and maintenance.

 Capacity building of fixed asset management does not pay sufficient attention

to organization improvement and establishing partnerships with private

business.

 Fix asset planning does not pay sufficient attention to a mission statement and

asset performance measures. Privatization programs are implemented in only a

few areas of fixed asset management.

 Human resource strategies, like human capital planning and employee

241
 development training, are not initiated in more than twenty percent (20%) of

surveyed states.

 The fixed asset management information system at state government is not

comprehensive. A variety of key elements are not covered in the information

system. In addition, the assessment of a fixed asset management performance

did not cover a number of frequently used measures.

 State monitoring and oversight programs have not served expected roles in

performance measurement and effectiveness of policies and processes. State

fixed asset management is not transparent in the appeals mechanism and

publication and distribution of relevant information.

A major contribution of this research is the development of a fixed asset

management system model that is composed of interdependent elements across six

boundary components. Analyses of original data collected from state governments

demonstrate that fixed asset management at the state government level supports various

dimensions of the public fixed asset management model. Each state government may

compare its asset management programs to the findings of this research. However,

since the population of this research is comparatively small and some variables are

missing in certain cases, the number of the valid cases is not big enough to conduct

advanced quantitative analysis. This research is not able to arrive at conclusions based

on statistical significance. In addition, only one survey response was collected and

analyzed from each state. The respondents relied on personal estimates when

answering certain survey questions. This may affect the validity of the research results.

242
Further research can be conducted to analyze fixed asset management at individual

state governments by using the system model this research has proposed. Data can be

collected from various departments and agencies through interviews. In addition, the

system model can be applied to examine fixed asset management at local governments.

Because local government has particular characteristics in public asset management, an

adaptable model may be proposed for local fixed asset management.

243
 NOTES

1. These agencies include the Department of Defense (DOD), the U.S. Post Office

(USPS), General Services Administration （GSA）, the Department of Veterans

Affairs (VA), the Department of Energy (DOE), the Department of Homeland

Security (DHS), the Department of State, National Aeronautics and Space

Administration (NASA), and Department of the Interior (DOI).

2. Some examples of general management laws enacted by the federal government

include Administrative Procedures Act, the Federal Managers Financial Integrity

Act, the Prompt Payment Act, the Government Performance and Results Act, the

Chief Financial Officers Act, the ―Budget and Accounting Act, the Government

Corporation Control Act, the Paperwork Reduction Act, the Freedom of

Information Act, and the Inspector General Act.

3. Since originally enacted in 1959, the Public Buildings Act of 1959 has been

significantly amended by three statutes: Public Buildings Amendments of 1972

(P.L. 92-313; 86 Stat. 216), Public Buildings Cooperative Use Act of 1976 (P.L.

94-541, 90 Stat 2505), and the Public Buildings Amendments of 1988

(P.L.100-678, 102 Stat 4049).

4. The major initiatives for the federal property asset management include S. 2805 –

the Federal Property Asset Management Reform Act of 2000–106th Congress; S.

1612 - Freedom to Manage Act of 2001 - 107th Congress; H.R. 3947 – the Federal

244
 Real Property Asset Management Reform Act of 2002- 107th Congress; H.R. 2548

-Federal Real Property Asset Management Reform Act of 2003 -108th Congress;

H.R. 2573 - Public Private Partnership Act of 2003 - 108th Congress; H.R. 3134 -

Federal Real Property Disposal Pilot Program and Management Improvement Act

of 2005 - 109th Congress (GSA, 2009).

5. In a unitary state, centralized property management is a system in which central

government is granted authority, responsibility, and control of activities concerning

property asset management throughout the country while decentralized property

management is a system in which local government is delegated authority to

manage properties it uses and controls.

245
 APPENDICES

Appendix A. Code of Respondent States

1. Alaska 14. Nevada 27. New Mexico

2. Arizona 15. New Hampshire 28. Wyoming

3. Arkansas 16. North Carolina 29. Vermont

4. Connecticut 17. North Dakota 30. Maine

5. Georgia 18. Oklahoma 31. Florida

6. Hawaii 19. Oregon 32. Utah

7. Idaho 20. Rhode Island 33. Tennessee

8. Indiana 21. South Carolina 34. Iowa

9. Louisiana 22. Texas 35. California

10. Michigan 23. West Virginia 36. Virginia

11. Mississippi 24. Massachusetts 37. Ohio

12. Missouri 25. Minnesota

13. Nebraska 26. Washington

246
 Appendix B. Differences between Capital Budget and Operating Budget
Capital budget Operating Budget
Appropriations are for assets that have a long-term life and provide benefits Appropriations are for consumable goods and services that are
in future years. purchased and used during any one fiscal year.
Spending occurs over one to several years: a typical road construction Spending occurs over the course of one given fiscal year with
project might take four years. Re-appropriations for projects originally occasional, usually minor, amounts re-appropriated into the next
appropriated in prior years, but still under construction, will make up the fiscal year.
majority of capital dollars appropriated in any given budget year.
Funding sources can include general revenues but are more likely to Funding resources usually include general revenues (e.g., taxes, fees,
including bond transfers or federal grants because of the one-time, large, and etc.) because of the usually current, ongoing and regular nature of
occasional nature of capital expenditures, and dedicated revenue sources. operating expenditures.
Financing is more likely to be from long-term bond proceeds that are paid Financing is from current revenue streams – the time frame of
back in increments over the life of the bonds, or other long-term means. revenue received usually matches the time frame of the services or
Financing can be spread anywhere from 5 to 30 years which generally is less commodities purchased -i.e., within a single fiscal year. The
than the useful lifespan of the assets they finance. operating budget balances spending with revenues annually
247

Impact on the operating budget: increase in the operating budget by capital Impacting on the capital budget: Increases in the capital budget
investment can include, e.g., increased need for operating spending, caused by operating spending can include need for expanded
increased debt service requirements, or creating eventual future facilities to accommodate expanded services; increased wear and tear
maintenance and replacement needs. Decrease in the operating budget on assets by increased use; different facilities needed to match
caused by capital expenditures can include, e.g., reduction in future changes in how services are delivered, etc. Decreases in the capital
maintenance by investing in more durable assets, lowering utility costs by budget caused by changes in operating spending can occur, e.g., due
installing efficient lighting or windows, or allowing more efficient staffing to implementation of more efficient staffing patterns, service
patterns by changing a building layout. reductions, outsourcing of functions, and by regular and
conscientious maintenance which can prevent larger an more
expensive structural repairs from being needed.
Source: The State of Illinois. The FY 2009 Capital Budget, p. 5.
 Appendix C. State Fixed Asset (Property) Management Agencies and
Responsibilities (Transportation Department not Included)
Major Department Responsible Major Responsibilities Related to Asset
State
for Asset (Property) Management (Property) Management
Alabama Building Commission lease of space & a variety of building
http://www.bc.alabama.gov/index. projects, fleet management, management
Alabama htm of capitol complex, promulgating and
Department of Finance, enforcing the State Building Code,
specifically administering contracts of state-funded
construction
http://www.finance.alabama.gov/
Department of Administration leasing, purchasing, facility, and property,
Alaska http://doa.alaska.gov/ risk management

Department of Administration, fleet management, building & planning,

Arizona http://www.azdoa.gov/ construction services, facility operation &
maintenance, surplus property, risk
management, state procurement
Department of Finance and purchasing, asset management, state fleet
Administration management
Arkansas
http://www.dfa.arkansas.gov
Arkansas Building Authority
http://aba.arkansas.gov/
Department of General Services real estate services, fleet and asset
California
http://www.dgs.ca.gov/default.ht management, procurement, risk &
m insurance management, state architect
Department of Personnel & buildings and facilities management,
Colorado
Administration grounds maintenance, fleet management,
http://www.colorado.gov/dpa centralized procurement
Department of Administrative fleet operation, procurement, surplus
Services property distribution, contractor
Connecticut http://www.das.state.ct.us/ prequalification, planning, design,
construction, facilities management,
leasing, real property disposition and
Department of Public Works
security
http://www.ct.gov/dpw
Delaware Office of Management and Budget Land management, facilities
http://omb.delaware.gov/ management, insurance coverage

Florida Department of Management state purchasing, real estate development

Services and management, state-owned air fleet,
http://dms.myflorida.com/ vehicles
Department of Administrative fleet management, surplus property
Services (equipment), state purchasing, risk
Georgia http://doas.ga.gov/Pages/Home.as management, real property division
px leasing division
State Properties Commission
http://gspc.georgia.gov
Department of Accounting and public works, automobile management,
Hawaii
General Services land survey, risk management,
http://hawaii.gov/dags

248
Idaho Department of Administration facilities and construction, risk
http://adm.idaho.gov/ management, purchasing services
Department of Central state-owned buildings management,
Management Services space leasing or purchasing, disposition
Illinois http://www.cms.il.gov/ of surplus real property, physical
inventory management of state property,
strategic sourcing & procurement (fleet &
purchasing)
Department of Administration facility management, public works, real
Indiana http://www.in.gov/idoa/ estate leasing, state land, fleet services,
procurement, surplus property
management, greening the government
program
Department of Administrative architectural & engineering, building &
Services monuments, fleet and mail services, lease
Iowa http://das.iowa.gov/index.html & space management, maintenance
services, procurement services, state
surplus property)
Department of Administration building management, facilities planning,
http://www.da.ks.gov/ real estate & leasing, state agency vehicle
Kansas usage, statehouse ground use,
procurement, surplus property (state &
federal)
Kentucky Finance and fleet management, surplus properties, real
Administration Cabinet properties management, historical
http://finance.ky.gov properties, facility development &
Kentucky
efficiency, building & mechanical
services, green bank program (to promote
energy efficiency)
Division of Administration, facility planning & control, state
http://doa.louisiana.gov/doa/ buildings, state land, risk management,
Louisiana
state purchasing, fleet management,
surplus property
Department of Administrative and central fleet management, surplus
Financial Services property, central warehouse, planning,
http://www.maine.gov/dafs/ design, & construction, leased space
Maine
management, property management
(state-owned property), purchases, and
risk management
Department of General Services facilities operations & maintenance,
http://www.dgs.maryland.gov facilities planning, design & construction,
Maryland procurement and logistics, real estate,
inventory management, and fleet
management
Executive Office for procurement, state vehicle management,
Massachusetts Administration & finance surplus property, property management &
http://www.mass.gov/?pageID=af construction, facilities maintenance and
No. 21
homepage&L=1&L0=Home&sid management, leasing & office planning,
=Eoaf planning, design, & construction, real
estate management

249
 Department of Technology, real estate services, state & federal
Michigan Management & Budget surplus property management, risk
http://www.michigan.gov/dtmb management, facility management
Department of Administration construction services for state agencies,
http://www.admin.state.mn.us facility & grounds services, insurance and
risk management, real estate leasing,
Minnesota space management, real property
acquisition/disposition, state purchasing,
surplus properties, state vehicles
management
Department of Finance & buildings, grounds, and real property
Administration management, purchasing, fleet
Mississippi management, surplus property, capitol
http://www.dfa.state.ms.us/index.
htm facilities, airport transport
Office of Administration facilities management, design &
http://oa.mo.gov/ construction, state fleet management, risk
Missouri
management, purchasing, material
management
Department of Administration state procurement, facility management,
Montana doa.mt.gov property and supply, architecture &
engineering, risk management
Department of Administrative Buildings management, state-owned
Services motor vehicles, building renewal
http://www.das.state.ne.us/ (deferred repair, energy conservation),
Nebraska
material management (office supply,
purchasing, surplus property), risk
management
Department of Administration, state public works projects, building &
http://dadmin.state.nv.us/ Grounds management, purchasing,
Nevada
property management program, motor
pool, risk management
Department of Administrative public works, design, construction,
New Services internal space planning, management of
Hampshire http://admin.state.nh.us/index.asp operating leases, purchase and property
plant & property management
Department of Treasury property management & construction,
New Jersey http://www.state.nj.us/treasury/ind fleet management
ex.shtml
General Services Department, building service, property control
New Mexico http://www.generalservices.state.n division, motor pool & aircraft transport
m.us/ services

New York Office of General Services building administration, real property

http://www.ogs.state.ny.us management & development, design &
construction, fleet management
North Department of Administration facility management, surplus property,
Carolina http://www.doa.nc.gov/ motor fleet management, state
construction, state property
North Dakota Office of Management and Budget facility management, state surplus
http://www.nd.gov/omb/ property & purchasing
Ohio Department of Administrative procurement service, fleet management,

250
 Services properties & facilities, risk management,
http://das.ohio.gov/Divisions/Gen real estate & planning
eralServices/tabid/77/Default.aspx
Department of Central Services facilities management, constructions and
Oklahoma http://www.ok.gov/DCS/ properties management, fleet
management, property reutilization
Department of Administrative Facilities management, fleet
Oregon Services management, surplus properties
http://www.oregon.gov/DAS/
Department of General Services property & asset management,
Pennsylvania http://www.dgs.state.pa.us/ construction and public works, real estate
management
Department of Administration motor vehicles, capital project
Rhode Island http://www.admin.ri.gov/divisions management, facilities management, risk
/index.php management, purchases,
Division of General Services in surplus property, vehicles management,
South Budget and Control Board real property services, parking services,
Carolina http://www.gs.sc.gov/GS/GS-inde facilities management
x.phtm
Bureau of Administration fleet management, property management,
http://www.state.sd.us/boa/ lease management, buildings & grounds
South Dakota management, risk management, energy
management, procurement management,
surplus property management
Department of General Services motor vehicle management, property
http://www.tennessee.gov/general services management, property utilization
Tennessee
serv/ (surplus), purchasing, records
management, warehouse administration
Texas Facilities Commission, facilities & energy management, facility
http://www.tfc.state.tx.us/ design and construction, surplus property,
Texas state leasing service, space management,
Texas General Land Office
Texas parks
http://www.glo.state.tx.us/
Department of Administrative facilities construction and management,
Utah Services fleet operations, purchasing, risk
http://das.utah.gov/index.html management
Agency of administration facilities and services for all state
http://aoa.vermont.gov/ agencies and departments, building
construction & renovation, building and
Vermont
grounds maintenance, custodial services,
fleet vehicle inventory, state purchasing,
contracting, and surplus property
Department of General Services engineering and buildings, real estate
http://www.dgs.virginia.gov/ services, fleet management, surplus
Virginia
property management, purchase and
supply
Department of General Facility planning and management,
Administration building commissioning (planning,
Washington http://www.ga.wa.gov/ design, construction, startup, acceptance,
and operation training), energy
conservation, greening building (LEED),
campus and grounds maintenance,
251
 property management, real estate
services, surplus property management,
state motor pool management, parking,
purchasing, sustainable design and
construction
Department of Administration real estate management
West Virginia
http://www.administration.wv.gov
Department of Administration state facilities management
Wisconsin
http://doa.wi.gov/
Department of Administration & Construction Management, building
Information maintenance , repair of facilities, facility
Wyoming
http://ai.state.wy.us/ operation, surplus property, motor
management system, & procurement

252
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