Vol. 40, Number 3 — March 2008

Judiciary and GSA Sign Agreement on Rent

A Memorandum of Agreement on rent has been signed by Administrative Office Director James C. Duff with the General Services Administration (GSA). The agreement will apply to new courthouses constructed in the future and to most courthouses constructed since 2000.

"This agreement," said Duff, "will not only result in lower budget requests from the Judiciary, but it also provides the Judiciary with some measure of predictability for its budget. It also will eliminate GSA's ability to set our rents through sometimes subjective fair market value assessments that have occurred on occasion. GSA recognized its overcharges and the shortcomings of the current system."

By statute, GSA, through its Public Buildings Service, provides space in federal courthouses for, and charges rent to, the federal courts. Rent charges are usually set by market-based appraisals of other buildings in the same location and typically change every five years. The Judiciary has contended that, because it is highly likely that the courts will continuously occupy new courthouses for decades, a different rent approach should be adopted which gives credit for long-term occupancy by the courts. This new agreement takes the low vacancy risk factor into account. The courts also have claimed that it is not appropriate to use rental rates in commercial office buildings as the basis for setting rates in courthouses, which have unique structural, layout and use characteristics.

In 2007, the Judicial Conference Committee on Space and Facilities and the Executive Committee encouraged the AO to pursue a new agreement on rent. "It was one of my top priorities upon arriving at the AO," said Duff. "I am pleased that, through the hard work of AO staff and with the support of Chief Judge Joseph Bataillon (D. Neb.), Chair of the Space and Facilities Committee, and his Committee members, we were able to reach this important milestone." Bataillon agreed. "There were some bumps along the way, but by continuing a dialogue with GSA and mutually respecting the needs of both institutions, we reached a very fair agreement."

Rent in new courthouses subject to the agreement will be based on the cost of constructing the buildings, as opposed to the market-based appraisals that have been used in the past and at times have been controversial. A mechanism is in place to adjust the rent in light of additional capital expenditures, such as replacement of the roof. The new agreement eliminates the need to account for real estate taxes in new courthouses, which the federal government does not pay but GSA is allowed to charge, or to charge extra rent where space has to be modified to account for secure elevators and other courtroom attributes.