This article is in the news archives --- for current news go to the Third Branch News.
Rent Questions Raised, Millions Credited
If you're a business with revenue problems and your landlord hikes the
rent—again—you either find a less expensive location or re-negotiate the lease.
But if you're a federal court with funding problems and the General Services
Administration (GSA) increases your rent, you pay the increase. Chief Judge
Frederick J. Scullin, Jr. in the Northern District of New York looked at his
rent and asked why. Now, thanks to his efforts and those of his staff, their
rent bill is reduced, the Judiciary is looking at considerable savings, and
other courts are hoping to follow their lead. [See related cover story on rent
Rent payments to GSA from the courts' operating account have grown from $133
million in 1986 to an estimated $965 million in FY 2006. By FY 2009, the rent
bill to GSA will be about $1.1 billion, or nearly one-fifth of the courts'
projected operating budget. Under current law, the Judiciary must pay rent to
GSA in full as a mandatory charge against its budget. With increasingly tight
budgets, that means less money for discretionary expenses, such as staff
"When a quarter of our budget is spent on rent and we're looking at cutting
staff so we can pay the rent, then we have to ask, what are we paying for?" said
Scullin. GSA sets the rent for court facilities, but Scullin and his staff were
not quite sure how it arrived at the rates. He thought it was time to find out.
Northern District of New York Clerk of Court Larry Baerman with Chief Deputy
John Domurad were given the task.
"We had to ask why, for example, the Syracuse courthouse was paying $30.87
per usable square foot," said Baerman, "while the federal defender and probation
offices were paying $16.07 per usable square foot—for better space, especially
when other federal agencies in Syracuse in commercially-leased space were paying
approximately $15.73 per usable square foot. We wanted to get to the bottom of
such a disparity among rents."
By law, GSA is required to charge a rent rate that approximates commercial
charges for comparable space and services.
"Our first thought," said Domurad, "was that the numbers were wrong because
GSA had over-assessed the market rate. However, as we delved deeper into the
issue, we realized that a critical component to our over-assessment was GSA's
methodology for determining a tenant's pro rata share of the common area of a
Baerman and Domurad began looking at courthouse floor plans and physically
inspected areas within Northern District facilities they never knew existed.
This investigation led to some startling discoveries. For example, in their
Utica facility, a recent remeasurement of the building included over 15,000
square feet of "common space" that was actually an attic, which could only be
accessed by a ladder through the ceiling.
"While the figures from the remeasurement survey had not yet been billed to
the court, it is far from certain that this 'oversight' would have been
corrected without the review," said Domurad.
They reviewed commercial leases from other federal agencies within the
respective areas to determine how the commercially charged market rate differed
from what was being assessed within the federally owned facilities. With the
assistance of the Administrative Office, they hired an appraiser from a national
company to provide them with a professional assessment of the market rates for
areas in which their four facilities are located.
The Northern District of New York's efforts have paid off. Following an
informal presentation by Baerman and Domurad to central GSA personnel, GSA
reviewed the district's billing records and determined that an annualized rent
reduction of nearly $1 million was in order.
"To reinforce the fact that the rent disparity we were seeing within the
Northern District of New York wasn't an isolated event, our presentation briefly
discussed GSA's billing rates for several facilities within the Southern
District of New York," said Domurad. As a result of this inquiry, GSA
re-evaluated the billing information for two facilities in the Southern
District, which resulted in a savings or cost avoidance over three fiscal years
totaling $30 million.
While the money is significant, Domurad is looking at larger consequences.
"From the very inception of this project, our Chief Judge has been adamant that
the goal of this project was not to simply establish fair and reasonable rent
rates within the Northern District of New York. The true value of this success
is that it validates a methodology that can be employed nationwide to analyze
and identify potential areas where the courts may be charged rent above the
commercially accepted rates."
Said Scullin, "I hope a similar review of court-occupied space is conducted
on a national level to determine whether cost savings can be identified
Such a review is currently underway. "The Northern District of New York may
be a worst-case scenario," said Debra Worley, Chief of Space and Facilities,
Office of Facilities and Security at the Administrative Office, "and variations
may well reflect differences between GSA regions and how standards are applied.
But, we believe there may be problems with classifi cation of space at other
courts as well, which is why all courts have received customized binders of
their rent bills, and we've begun training in rent validation nationwide." (See
Box on National Rent Validation Program.)
Worley believes there may be potential cost savings for the Judiciary as
floor plans and classifications are reviewed, "but we won't know until we work
with the courts on a case-by-case basis," she said.