HD11 - Interim Report: Review of Deferred Maintenance in the Commonwealth

Executive Summary:
The Commonwealth of Virginia owns over $8.6 billion in buildings and surrounding infrastructure valued at historical cost. When considering the current replacement value of those same buildings, they are worth over $12.6 billion. The Commonwealth currently owns 187 buildings constructed before 1900. During the past 50 years, the Commonwealth has tripled the number of buildings it owns over the number it owned in the first half of the century.

The Commonwealth's buildings and their systems are in a constant state of deterioration. Naturally, as the buildings age, components start to wear. This deterioration is cyclical and compounds the deficiencies. However, not only are the Commonwealth's buildings deteriorating, they often do not fulfill the needs of the agencies' and institutions' current missions. Technological advancements, programmatic and social changes, and economic fluctuations over the years have changed the way the Commonwealth does business and the resources needed to do business.

We determined there is no accountability for the condition of the Commonwealth's buildings and how agencies maintain them. In addition agencies and institutions do not budget or account for operating maintenance. The budgeting that occurs does not consider actual need, but uses historical information. Since agencies and institutions do not budget for actual need, they are using their maintenance reserve allocations to perform activities that they should fund through the operating budget. Therefore, the Maintenance Reserve Program is not a good indicator of the current backlog of deferred maintenance for the Commonwealth.

There is no complete inventory of all Commonwealth-owned buildings and their components and their current physical condition. The Commonwealth does not provide agencies and institutions with any policies or guidance on how to maintain facilities. The Commonwealth's current capital outlay and maintenance process is not functioning as intended and will continue to accelerate the growing deferred maintenance backlog if not reformed.

We recommend that the Governor and General Assembly consider the following:

• Reforming the operating, maintenance, and capital outlay budget process especially for facility maintenance, renewal, and renovation;

• Establishing a standard condition level for state-owned facilities and requiring agencies and institutions to develop a program to achieve this level;

• Eliminating the Maintenance Reserve Program and establishing a reserve fund for each agency that owns buildings for continuous maintenance;

• Requiring agency and institution management to provide information that they have properly performed operating and continuous maintenance; and

• Establishing a Capital Preservation and Renewal Reserve Fund to accumulate long-term funding for capital renewal activities by relating the funding to financing instruments used to fund capital improvements, renovations, or new building construction. Requiring the agencies and institutions to demonstrate that they have only used the funds for the purposes intended and not used the funding on other facilities, programs, or activities.

We are also recommending a statewide Facility Asset Management System to allow for the accumulation, analysis, and prioritization of the data needed to assess maintenance costs and management performance of maintenance. In addition, the system will provide the information necessary to plan for each phase in the life cycle of a building.

[For Final Report, see HD37, 2006.]