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FOURTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 1 State of the Federal Budgetary Environment Kim H. Burke Jones Lang LaSalle December 10, 2013

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FOURTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 2 Federal Spending Has Nearly Doubled Since 2001 2013 Federal Spending Breakdown: All Other Activities: 33% Social Security: 22% Defense: 18% Medicare: 14% Medicaid: 7% Interest: 6% Source: CATO Institute Total Federal Spending ($Trillions)

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FOURTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 3 How Spending is Allocated Has Also Changed Source: Bipartisan Policy Center

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FOURTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 4 Budget Impasse Has America Living on the Edge Havent gone over the fiscal cliff... but not yet out of the woods either!

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FOURTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 5 Space Reduction Budget Battles Fiscal Cliff No-Net-New Consolidation DoD/Civilian BRAC(?) Continuing Resolutions Fiscal Cliff Debt Ceiling Sequestration Budget Chaos through the Eyes of a Federal Employee

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FOURTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 6 Budget Gridlock Shutdown GDP grew 3.6% in 3Q13 but 16-day shutdown may slow growth at a rate more harmful than initially estimated Initial Estimates At least $300M/day ($4.8B over 16 days) in lost economic output, with daily impact predicted to accelerate due to depressed business/consumer confidence and spending (Source: IHS) Final Estimates Removed $24B ($1.5B/day) from U.S. economy and reduced projected 4Q13 GDP growth from 3.0% to 2.4% (Source: S&P) Post-Mortem 6.6M days of lost work, $2B in back-pay costs, and 120K lost private-sector jobs (Source: Obama Administration)

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FOURTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 7 Sequestrations Impact Across Federal Government Total Projected Savings from Sequester: $1.2T (2013-2021) Savings from Spending Cuts: $984B ($109B/year for 9 Years) Assumed Debt Service Savings: $216B 2014 Sequestration Cuts Hit Defense and Non- Defense Equally Sequester Savings Breakdown (2013-2021, in $B) Source: Bipartisan Policy Center

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FOURTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 8 Sequestrations Impact to DoD Sequestrations full impact not yet felt due to timing of when appropriation cuts occur and when funds are actually spent (i.e., outlays)and more pain may be on the way Source: Bipartisan Policy Center Because of the structure of defense spending, our national security forces and defense industry have been able to continue operating under sequestration, but not without permanent damage. The full brunt of the cuts hasnt hit yet, and if we go down the sequester path for too long, we wont be able to reverse the devastating impacts. Merely Stupid to Dangerous: The Sequesters Effects on National and Economic Security (Bipartisan Policy Center)

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FOURTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 9 Approach to the New Reality PROJECTED FUNDING SHORTFALL PROJECTED FUNDING SHORTFALL REMAINING FUNDING SHORTFALL COST CUTTING DECREASE FUNDING SHORTFALL REMAINING FUNDING SHORTFALL ALTERNATIVE FINANCING DECREASE FUNDING GAP Increase Available Funding (or Services In-Kind) ESPC EUL PPA UESC

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FOURTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 10 OMB and CBO Positions on Alternative Financing CBO Position on VA Leases Scored as capital leases, requiring up-front funding for the full lease term and resulting in the delay of 27 leases in FY 2013-2014 (24 clinical) OMB and ESPCs Memo from Jack Lew (July 25, 1998) classified all budget authority and outlays associated with ESPCs as discretionary and recognized on annual basis CBO and ESPCs Treats contract as direct (mandatory) spending but net savings in energy costs as a potential reduction in discretionary spending Savings are not fully captured as most are expected to occur beyond the five- and ten-year estimating windows covered by CBOs cost estimates

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FOURTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 11 Other Opportunities for Energy Reduction and Cost Savings Scale of Federal portfolio presents tremendous opportunity to reduce resource consumption and CO 2 emissions, increase tenant-agency satisfaction and decrease operating expenses More than 42K federally owned and leased assets categorized as office space in 2011encompassing nearly 800M SF in space Two-thirds held or leased by civilian agencies One-third held or leased by DoD and military departments Strategies for achieving greater energy and cost savings: Consolidations, co-locations, dispositions Portfolio right-sizing / optimization of existing space (reconfigurations) Workplace strategies (telework, hoteling, etc.) to reduce demand for space and energy resources GSA Headquarters Space Before Renovation GSA Headquarters Space After Renovation Source for Photos and Portfolio Metrics: GAO Report 14-41: Federal Real Property Selected Agencies Plan to Use Workforce Mobility to Reduce Space, but Most Efforts are Too New to Have Realized Savings (October 2013)

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FOURTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 12 Contact Kim H. Burke Managing Director, Public Institutions Jones Lang LaSalle (202) 719-5613 kim.burke@am.jll.com