Recommendations of the Texas Comptroller

Improve the State’s Surplus Property Policies and Procedures

Summary

Texas must improve the systems it uses to dispose of its own surplus property and to acquire such property from the federal government. Texas’ system for identifying and disposing of surplus property is inefficient and unnecessarily costly; it should be streamlined to reduce the time required to move property through the system. Texas also receives surplus federal property from the Federal Surplus Property Program. By taking advantage of a federal criterion concerning documented needs for “critical items,” Texas could receive preferential treatment in the federal government’s distribution of surplus property.

Background

Texas’ system for identifying and disposing of surplus property is inefficient and unnecessarily costly. As many as 158 days can lapse between identifying surplus property and its subsequent disposal.

Texas also receives surplus property from the Federal Surplus Property Program, which makes surplus property from federal agencies available to state and local governments. The US General Services Administration (GSA) generally allocates surplus federal property to all states equally, regardless of population. However, exceptions are made based upon a formula with eight criteria, including a documented need for “critical items” that allows certain states to receive preferential treatment. Texas does not take adequate advantage of this criterion.

State Surplus Property

All organizations generate surplus property. Computers and other office equipment become obsolete and furniture wears out. The challenge is to sell the surplus property for the maximum amount while keeping the state’s costs for its storage and sale as low as possible. The state should not store or transport property if doing so will cost more than the amount the state can reasonably expect to receive from selling it.

Chapter 2175 of the Texas Government Code establishes requirements for agencies’ disposal of their surplus personal property. The General Services Commission (GSC) coordinates all sales of agency surplus inventory except for those of agencies specifically exempted by the chapter, which include the Legislature, the Texas Department of Mental Health and Mental Retardation, and public colleges and universities.

Every month, state agencies determine the property that should be declared as surplus and enter that information by the 16^th of each month into the State Property Accounting (SPA) system maintained by the Comptroller’s office. State warehouse managers periodically review the inventory in their warehouses to determine the values of the items they store and identify surplus items. The decision to declare property surplus is left up to each individual agency; no statewide guidelines govern this decision.

Surplus property can be transferred to other state agencies in need of it. Surplus items not transferred in this way are listed by the Comptroller’s office in a monthly hard-copy document and on the Internet. Groups that are eligible to purchase state surplus property are notified when the list becomes available; the property is advertised for 30 days to allow for its sale to other state agencies, school districts, local governments, and nonprofit organizations.

Except for computer equipment, property remaining after the 30-day period is listed for sale by sealed bid or public auction by the agency selling the surplus. (Surplus computers are repaired and refurbished by the Texas Department of Criminal Justice and sold to Texas school districts for the cost of the repairs.) GSC mails invitations to bid to a list of bidders it maintains. About three weeks later, GSC tabulates any bids it receives and forwards them for review by the agency selling the surplus. Agencies then can accept or reject the bids and notify GSC accordingly. Buyers pay GSC and take possession of the property, then the agencies provide the paperwork needed to transfer the title.

GSC also holds public auctions four times per year. Individual agencies determine which of their surplus properties will be included in these auctions. About three weeks before each auction, GSC mails notices to its bidder list and updates the information on its Web site. GSC contracts with private auctioneers to conduct the auctions. The auctioneer mails brochures to its own bidders and arranges for required newspaper advertisements. GSC also advertises the auctions in the Austin newspaper. On auction day, buyers pay and take possession of property at the auction site. Larger items not at the auction site must be picked up within 30 days.

Under this process, as many as 158 days can elapse between the time an item is entered into SPA and its sale. If the item is sold at public auction, the delay can be even longer. Agencies must store property until it is sold or discarded. This takes up a great deal of warehouse space and imposes administrative burdens on the agencies involved.

Oregon’s Surplus Property Program

Oregon has been able to increase its profits from surplus property sales by moving from traditional live auctions to selling goods on the Internet auction site eBay. The state compared 137 items that previously were sold at traditional auctions and now are being sold on eBay, and found that the state’s net profit on these items rose from $7,728 to $15,623, an increase of 102 percent (Exhibit 1).[1]

Exhibit 1

Sample Oregon Surplus Sales, Traditional Auctions vs. eBay

Source: Oregon Department of Administrative Services.

Unclaimed Property

Texas already has used the Internet to dispose of unclaimed property—properties left unclaimed for several years or more in the state’s financial institutions. In December 1999, the Comptroller used the online services eBay, Yahoo, and Amazon.com to auction unclaimed property, instead of its traditional live auction held in Austin. Eighty-one auction items sold for $12,265. Their appraised value was just under $10,000 and the minimum combined selling price the Comptroller expected was $3,409. The state paid about $282 to sell the items online. The auction greatly expanded the state’s potential pool of bidders, attracting winners from across the US as well as from Canada, Germany and Hong Kong, and generated higher-than-usual bids, including a Carson City Morgan dollar that sold for $227. A similar dollar sold for $137 at the Comptroller’s most recent live auction of unclaimed property.[2]

Administrative Rules

GSC administers the state’s surplus property process based upon provisions found in the Texas Government Code and its own administrative rules. The following excerpts clearly allow GSC to modify its approach to allow agencies to directly dispose of property instead of going through GSC, thus reducing the time required for the process:

TEX. GOV’T. CODE, Sub A, Sec. 2175.065: The commission may authorize a state agency to dispose of surplus or salvage property if the agency demonstrates to the commission its ability to dispose of the property under commission rules adopted under this chapter.

TEX. ADM. Code, TITLE 1, PART 5, CHAPTER 126, SUB A, RULE §126.3,: (a) General. If no state agency, political subdivision, or assistance organization desires to receive any property reported as surplus or salvage, the commission may dispose of the property with the exception of data processing equipment by sealed bids or auction, or delegate to the state agency having possession of the property the authority to sell the property by sealed bids or auction.

Acquisition of Federal Surplus Property

The Federal Surplus Property Program makes surplus property from federal agencies available for use by state agencies and certain nonprofit organizations. The program is regulated by the General Services Administration and is administered in Texas by GSC under a cooperative agreement with GSA. In fiscal 1999, Texas state agencies acquired $64 million worth of surplus federal equipment (based on their historical cost).[3]

The GSA generally allocates surplus federal property to all states equally, regardless of their population. Exceptions can be made to this general rule, however, based upon a series of criteria, including a documented need for “critical items.” These criteria give certain states preferential treatment in receiving federal surplus property. The State of Pennsylvania, for example, has received numerous snowplows from the federal government, saving millions of dollars, by demonstrating a “critical” need for this equipment.[4]

Recommendations

A. State-owned surplus properties identified by state agencies for sale to public or other entities should be advertised immediately on a Comptroller-maintained Web site.

Property that is sold or transferred should be removed from the list immediately.

B. State law should be amended to reduce the advertising period required for state surplus properties to no more than 10 business days. After this time period, the properties should be sold to the highest bidder via commercial Internet sites.

C. The General Services Commission (GSC) should eliminate the hard-copy distribution of surplus property notifications.

Moving notification to the Internet would ensure that all potential bidders receive notice of items becoming available at the same time, without the intervening factor of postal delays.

D. GSC should create a “critical items” list for all state agencies to use in declaring their need for items available through the Federal Surplus Property Program.

The US General Services Administration prioritizes documented needs for federal surplus property. An effective “critical needs” list, developed in a timely manner, would increase federal allocations of surplus property to Texas.

Fiscal Impact

The Comptroller already maintains a Web site for surplus property; it could be used to advertise additional surplus property with no new expenditure of state resources.

The cost of posting items for bid on commercial Web sites varies depending on the item’s starting and final values; costs increase if items are displayed in a special section or otherwise highlighted on the site. Regular costs on eBay range from 2 percent to 5 percent, with the higher percentage applying to lower-value items. The present estimate assumes that Texas could increase its revenue from surplus property sales by 15 percent by using an online auction site such as eBay or another commercial site as appropriate (for example, heavy construction equipment could be sold on a site that specializes in such equipment).

The average annual sale price of surplus items sold over the last five years was $796 ($5,385,838 divided by 6,766 items sold per year). The average vendor cost for selling such items is assumed to be 3 percent:

Over the past five years, the percentage of revenue returned to general revenue from sales of surplus property averaged 89 percent, with 11 percent returned to other funds:

Due to the time needed to implement the program, additional revenue would not be generated the first two months of the first year, reducing first-year revenue to $580,000 for general revenue and $72,000 for other funds.

Eliminating the hard-copy distribution of surplus property notifications would have no significant fiscal impact, since eligible organizations are charged for any hard copies they receive.

Finally, a “critical items” list for all federal surplus items should increase the amount of property received by the state, but any savings would depend upon the items that become available and cannot be estimated.

Endnotes

[1] Oregon Department of Administrative Services, “Online Property and Evidence Sales,” Salem, Oregon.

[2] Texas Comptroller of Public Accounts, “Comptroller Rylander’s First Online Unclaimed Property Auction Attracts Bidders From Around the World,” Austin, Texas, December 21, 1999 (http://www.window.state.tx.us/news/91221auc.html). (Internet document.)

[3] E-mail correspondence from Dan Brimer, director of the Federal Surplus Property Program, General Services Commission to Mike Hay, Comptroller of Public Accounts, October 24, 2000.

[4] Interview with Dan Brimer, director of the Federal Surplus Property Program, General Services Commission, Austin, Texas, October 13, 2000.

e-Texas is an initiative of Carole Keeton Rylander, Texas Comptroller of Public Accounts
Post Office Box 13528, Capitol Station
Austin, Texas

Privacy Policy