[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
  THE USE OF PUBLIC-PRIVATE PARTNERSHIPS AS A MANAGEMENT TOOL FOR 
                         FEDERAL REAL PROPERTY

=======================================================================

                                HEARING

                               before the

           SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT POLICY

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 1, 2001

                               __________

                           Serial No. 107-92

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform
                               -----------
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                    U.S. GOVERNMENT PRINTING OFFICE
81-425 PDF                 WASHINGTON : 2002



                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida         EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California             PATSY T. MINK, Hawaii
JOHN L. MICA, Florida                CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia            ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
BOB BARR, Georgia                    DENNIS J. KUCINICH, Ohio
DAN MILLER, Florida                  ROD R. BLAGOJEVICH, Illinois
DOUG OSE, California                 DANNY K. DAVIS, Illinois
RON LEWIS, Kentucky                  JOHN F. TIERNEY, Massachusetts
JO ANN DAVIS, Virginia               JIM TURNER, Texas
TODD RUSSELL PLATTS, Pennsylvania    THOMAS H. ALLEN, Maine
DAVE WELDON, Florida                 JANICE D. SCHAKOWSKY, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida              DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho          ------ ------
EDWARD L. SCHROCK, Virginia                      ------
JOHN J. DUNCAN, Jr., Tennessee       BERNARD SANDERS, Vermont 
------ ------                            (Independent)


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                     James C. Wilson, Chief Counsel
                     Robert A. Briggs, Chief Clerk
                 Phil Schiliro, Minority Staff Director

           Subcommittee on Technology and Procurement Policy

                  THOMAS M. DAVIS, Virginia, Chairman
JO ANN DAVIS, Virginia               JIM TURNER, Texas
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
DOUG OSE, California                 PATSY T. MINK, Hawaii
EDWARD L. SCHROCK, Virginia

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
                    Melissa Wojciak, Staff Director
              Victoria Proctor, Professional Staff Member
                          James DeChene, Clerk
          Mark Stephenson, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on October 1, 2001..................................     1
Statement of:
    Sessions, Hon. Pete, a Representative in Congress from the 
      State of Texas.............................................    10
    Ungar, Bernard L., Director, Physical Infrastructure Issues, 
      U.S. Government Accounting Office, accompanied by Ron King, 
      Maria Edelstein, and Lisa Wright Solomon, project team 
      members, and Steve Warner, Signet Partners; Stephen A. 
      Perry, Administrator, U.S. General Services Administration, 
      accompanied by Joe Moravec, Commissioner of the Public 
      Building Service, and David Bibb, Deputy Associate 
      Administrator for Real Property, Office of Governmentwide 
      Policy; Raymond F. DuBois, Jr., Deputy Under Secretary of 
      Defense, Installations and Environment, U.S. Department of 
      Defense; Anatolij Kushnir, Director, Office of Asset 
      Enterprise Management, U.S. Department of Veterans Affairs, 
      accompanied by Michael Simmons, Senior Counsel, Office of 
      the General Counsel; Kim H. Burke, principal, Ernst & 
      Young; and Sherwood Johnston III, designated broker-
      Arizona, CarrAmerica Realty Corp., Building Managers 
      Association................................................    15
Letters, statements, etc., submitted for the record by:
    Burke, Kim H., principal, Ernst & Young, prepared statement 
      of.........................................................    61
    Davis, Hon. Thomas M., a Representative in Congress from the 
      State of Virginia, prepared statement of...................     3
    DuBois, Raymond F. Jr., Deputy Under Secretary of Defense, 
      Installations and Environment, U.S. Department of Defense, 
      prepared statement of......................................    42
    Johnston, Sherwood, III, designated broker-Arizona, 
      CarrAmerica Realty Corp., Building Managers Association, 
      prepared statement of......................................    72
    Kushnir, Anatolij, Director, Office of Asset Enterprise 
      Management, U.S. Department of Veterans Affairs, prepared 
      statement of...............................................    53
    Perry, Stephen A., Administrator, U.S. General Services 
      Administration, prepared statement of......................    34
    Sessions, Hon. Pete, a Representative in Congress from the 
      State of Texas, prepared statement of......................    12
    Turner, Hon. Jim, a Representative in Congress from the State 
      of Texas, prepared statement of............................     7
    Ungar, Bernard L., Director, Physical Infrastructure Issues, 
      U.S. Government Accounting Office, prepared statement of...    18


THE USE OF PUBLIC-PRIVATE PARTNERSHIPS AS A MANAGEMENT TOOL FOR FEDERAL 
                             REAL PROPERTY

                              ----------                              


                        MONDAY, OCTOBER 1, 2001

                  House of Representatives,
 Subcommittee on Technology and Procurement Policy,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 3:45 p.m., in 
room 2154, Rayburn House Office Building, Hon. Thomas M. Davis 
(chairman of the subcommittee) presiding.
    Present: Representatives Davis, Horn, and Turner.
    Staff present: Melissa Wojciak, staff director; Victoria 
Proctor, professional staff member; Amy Heerink, chief counsel; 
George Rogers, counsel; David Marin, communications director; 
James DeChene, clerk; Mark Stephenson, minority professional 
staff member; and Jean Gosa, minority assistant clerk.
    Mr. Tom Davis of Virginia. Good morning, or good afternoon 
I should say. Welcome to the subcommittee's oversight hearing 
on the benefits of public-private partnerships for Federal real 
property management.
    I think, as most of you know, the Federal Government is 
among the world's largest property owners and spends billions 
of dollars annually to maintain properties. The GSA is one of 
the primary agencies that controls these assets. Its portfolio 
is characterized by aging buildings that lack the capability to 
accommodate new technology and sometime pose health and safety 
concerns. Agencies often vacate Federal properties and lease 
costly office space to compensate for the lack of adequate 
federally owned space.
    While hundreds of millions of dollars are spent each year 
to maintain its buildings, GSA indicates that it still lacks 
sufficient funds to reduce its deferred maintenance backlog. 
Furthermore GSA has many buildings with negative net cash-
flows.
    Currently, GSA has several property management tools that 
it can employ, including outleasing authorities, disposal of 
buildings representing a net loss to the Federal Buildings 
Fund, special pricing and a refocused repair and authorization 
program. But these management tools can't eliminate the 
underlying cause of the repair and authorization backlog, which 
is a lack of funding from Congress.
    GSA seeks creative alternatives to improve its Federal 
property managers' ability to effectively manage its 
multibillion dollar inventory and address the growing 
challenges created by deteriorating properties. This will be a 
daunting task without reforms that will allow the agency to 
operate in a more modern and businesslike fashion. Therefore, 
GSA needs broader management authorities in order to 
efficiently and cost effectively manage its property portfolio. 
GSA must have the ability to upgrade its properties to their 
highest and best uses but lacks the capital to do so.
    For some properties, the public-private partnerships would 
be a solution, allowing GSA to leverage its property assets. 
That's why I cosponsored H.R. 2710 with my good friend, 
Representative Pete Sessions, a former member of this 
subcommittee. This bill would allow GSA to enter into public-
private partnerships and extend the authority to other agencies 
in order to facilitate government reform.
    Since we have started late, I'm going to ask unanimous 
consent to put the rest of my remarks in the record and yield 
to Congressman Turner for his opening statement.
    [The prepared statement of Hon. Thomas M. Davis follows:]
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    Mr. Turner. Thank you Mr. Chairman. I appreciate the fact 
you've held this hearing. Obviously, over the last few years, 
we have had an accumulation of deferred maintenance and 
underutilized Federal properties and we need to look at new and 
innovative ways to deal with the limited funding that we've had 
available for repairs and renovations and alterations of 
Federal property.
    I want to commend my colleague from Texas, Mr. Sessions, 
for his particular interest and leadership in delving into this 
area and to offer a piece of legislation that he believes would 
allow us to move forward by incorporating public-private 
partnerships through the General Services Administration. I 
know there was another bill, last Congress, also introduced on 
the subject that perhaps dealt with it in a little broader way.
    Having served with Chairman Steve Horn on the committee 
that had jurisdiction of this last year, we did have one good 
hearing, as I recall, on the subject, and Mr. Sessions 
testified at that hearing. And so I really appreciate the good 
work that my colleague from Texas has done.
    I do recall, Mr. Chairman, last Congress when we had a 
hearing on the issue, there were two groups that wanted to be 
heard. One of them was the National Association of State 
Agencies for Surplus Property, and the other was the National 
Law Center on Homelessness and Poverty. And I think, for 
completeness of the record, it might be good for us to 
incorporate in our record the record of testimony from that 
earlier hearing in the last Congress, from those two groups who 
are not able to be here today.
    Mr. Tom Davis of Virginia. Without objection, we'll do 
that.
    Mr. Turner. Thank you, Mr. Chairman. I look forward to 
hearing from all our witnesses.
    Mr. Tom Davis of Virginia. Thank you.
    [The prepared statement of Hon. Jim Turner follows:]
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    Mr. Tom Davis of Virginia. Let me recognize now, if I may, 
the gentleman from Texas, Mr. Sessions, who introduced this 
legislation in previous Congresses. I think he is going to be a 
successful author this time, and I just want to remind everyone 
he has a sore throat, so bear with him. Thank you.
    Mr. Sessions, good to have you with us.

 STATEMENT OF HON. PETE SESSIONS, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF TEXAS

    Mr. Sessions. Mr. Chairman, thank you so much, and my 
friend and colleague, the gentleman from Texas, Mr. Turner. I 
appreciate you both taking time to be here today.
    Thank you for noticing my sore throat. I hope my voice 
lasts. I think that you consider that an opportunity for me to 
be very brief.
    With that said, Mr. Chairman, I'm going to try and read my 
statement and then see if you've got any questions.
    I want to thank both of you for inviting me to testify 
today concerning my legislation, H.R. 2710, the Federal Asset 
Management Improvement Act, and other legislation related to 
the reforming of activities of the General Services 
Administration.
    GSA is a very large enterprise. GSA, like any other 
government organization, continues to change with time. Today 
is a great day to address some of those changes that I believe 
are necessary and prudent. Due to the GSA being largely funded 
through agency fees, rather than direct appropriations, 
congressional oversight tends to focus on the crisis of the 
moment. I believe that it's time for this committee to take a 
fundamental look at the GSA and the responsibilities exercised 
by their wonderful Administrator, Steve Perry. GSA has evolved 
greatly since 1949 but many of GSA's management tools are based 
on archaic laws and rules. They need to be updated to reflect 
modern practices.
    Before I get too deeply into my statement, I also want 
everyone to remember the last weeks, 2 weeks ago, terrorist 
attack on the large urban center that took place in New York 
City. This same type of attack took place also in 1995 when the 
Alfred P. Murrah Building was destroyed in Oklahoma City. And 
that was a GSA building filled with Federal tenants. The 
terrible disaster in Oklahoma has been reemphasized by the 
disaster in New York and the Pentagon. The GSA is on the front 
line when it comes to protecting Federal buildings all over the 
United States, and I certainly want Administrator Perry to know 
that every Member of Congress stands ready to assist him as he 
makes needed adjustments to improve security in our Federal 
buildings.
    Modern property management requires a range of tools in the 
GSA tool kit. A significant gap in this tool kit is GSA's 
inability to enter into a public-private partnership with a 
private entity to further the public purposes for which the GSA 
was created.
    According to GSA's own estimates at the end of 1998, GSA 
deferred maintenance requirements by almost $5 billion. In 
other words, GSA needed $5 billion to maintain its inventory of 
aging buildings and to bring them up to current standards for 
energy efficiency, Internet connectivity and rentability. If 
GSA's properties continue to deteriorate, Federal customers 
will explore their options. A scenario will be created in which 
more Federal customers will be driven to pay rent to private 
landlords. If this happens, GSA will continue to be stuck with 
more and more deteriorating properties that lose money for the 
Federal Government, a scenario that wastes taxpayer money.
    My answer to this problem is a public-private partnership. 
In such a public-private partnership, the private sector will 
be responsible for making the needed improvements, including 
paying for them. This is an attractive offer to a private 
investor because if the Federal Government does not want to 
take occupancy due to changing needs, it does not have to 
utilize this option. The private sector will then be free to 
rent the space to another tenant. The private sector is subject 
to the market and financial risk while the government acquires 
simply the space it needs.
    The public-private partnership addresses: Aging and 
deteriorating buildings; underperforming properties; and, 
creates demand for economic performance and accountability.
    The government gains, as it will share in net cash-flow and 
retains proceeds for use as directed.
    The private sector receives a corresponding financial 
reward in terms of a preferred return.
    The government provides no financial or space use 
guarantees. By contributing investment capital, the private 
sector assumes the risks.
    H.R. 2710 will authorize the administrator to enter into 
such arrangements. The authority also may be delegated to other 
Federal agencies. In looking at the feasibility of such public-
private partnerships, the General Accounting Office concluded 
that the concept shows great merit to help taxpayers and the 
agencies that will serve taxpayers to save money and to become 
more efficient.
    I know that GAO is on the next panel, and they will 
thoroughly describe their findings. They have come to the same 
conclusion as many who have studied this issue, and that is 
that public-private partnerships can be a valuable component of 
modernizing the GSA Federal office buildings.
    I know that GSA has a lengthy list of other reforms related 
to property management generally, and the Federal Property and 
Administrative Services Act of 1949 in particular. Most of 
these changes appear both beneficial and uncontroversial. They 
were proposed by the previous administration and are supported 
by the current one. I would urge this committee to carefully 
consider these changes in the law.
    Our goals must be simple and clear, to permit the GSA 
additional tools to improve its inventory of public buildings 
for the furtherance of its public purposes of providing space 
for Federal agencies. A workable version of public-private 
partnership is certainly within our grasp.
    I want to thank each of you who is here today and this 
subcommittee for the heavy lifting that they will do to get 
this on the floor.
    I appreciate your help, Mr. Chairman.
    Mr. Tom Davis of Virginia. Mr. Sessions, thank you very 
much. Thank you.
    [The prepared statement of Hon. Pete Sessions follows:]
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    Mr. Tom Davis of Virginia. Now I'm going to call our 
witnesses, Mr. Ungar, Mr. Perry, Mr. DuBois, Mr. Kushnir, Ms. 
Burke and Mr. Johnston.
    As you know, it is the policy of this committee that all 
witnesses be sworn before they testify. So if you'd rise with 
me and raise your right hands.
    [Witnesses sworn.]
    Mr. Tom Davis of Virginia. Please be seated.
    To afford sufficient time for questions if you'd limit your 
comments to 5 minutes. There are some lights in front of you. 
The green will go on, you'll get 5 minutes. After 4 minutes, it 
will turn orange. That gives you 1 minute to sum up. And try to 
stay within 5 minutes.
    Your total testimony is part of the record. We've read that 
and are basing questions on the totality of the testimony. But 
it helps us for you to sum up.
    We'll start with Mr. Ungar, we'll move with you; and then 
Mr. Perry, and then straight on down the line. Please go ahead.

      STATEMENTS OF BERNARD L. UNGAR, DIRECTOR, PHYSICAL 
   INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTING OFFICE, 
   ACCOMPANIED BY RON KING, MARIA EDELSTEIN, AND LISA WRIGHT 
    SOLOMON, PROJECT TEAM MEMBERS, AND STEVE WARNER, SIGNET 
    PARTNERS; STEPHEN A. PERRY, ADMINISTRATOR, U.S. GENERAL 
     SERVICES ADMINISTRATION, ACCOMPANIED BY JOE MORAVEC, 
 COMMISSIONER OF THE PUBLIC BUILDING SERVICE, AND DAVID BIBB, 
  DEPUTY ASSOCIATE ADMINISTRATOR FOR REAL PROPERTY, OFFICE OF 
  GOVERNMENTWIDE POLICY; RAYMOND F. DuBOIS, JR., DEPUTY UNDER 
   SECRETARY OF DEFENSE, INSTALLATIONS AND ENVIRONMENT, U.S. 
 DEPARTMENT OF DEFENSE; ANATOLIJ KUSHNIR, DIRECTOR, OFFICE OF 
   ASSET ENTERPRISE MANAGEMENT, U.S. DEPARTMENT OF VETERANS 
AFFAIRS, ACCOMPANIED BY MICHAEL SIMMONS, SENIOR COUNSEL, OFFICE 
OF THE GENERAL COUNSEL; KIM H. BURKE, PRINCIPAL, ERNST & YOUNG; 
     AND SHERWOOD JOHNSTON III, DESIGNATED BROKER-ARIZONA, 
    CarrAMERICA REALTY CORP., BUILDING MANAGERS ASSOCIATION

    Mr. Ungar. Thank you, Mr. Chairman, Mr. Turner, Mr. 
Sessions. We are certainly pleased to be here today to discuss 
the work that we have done at your request, as well as from 
other Members of Congress with respect to public-private 
partnerships.
    Before I begin my summary, I would like to mention that I 
am accompanied today by our project team, Ron King, Maria 
Edelstein and Lisa Wright Solomon. In addition, we did have 
contract support. Kim Burke from Ernst & Young is a member of 
the panel, and Steve Warner from Signet Partners is also here, 
and we appreciate their help in this particularly complex 
effort.
    For many years, as you all have indicated, the General 
Services Administration [GSA], has experienced significant 
problems with aged and deteriorating buildings; and I think 
that can be very easily demonstrated by two projects that we 
worked on--one in 1991 and one in 2000--almost 10 years apart. 
And you could take the 1991 report, just change the date on it, 
and the findings would be the same, which are that GSA does 
have numerous buildings which are in disrepair and has not had 
the funding necessary to adequately deal with these problems.
    These are problems that the Department of Defense and the 
Veterans Administration have also faced with their physical 
infrastructure; and I might note that they do already have 
authority for enhanced-use leasing.
    As a result of the problems that GSA faces and has faced 
with these buildings, Federal employees and visitors face 
situations of being in buildings that aren't in the best of 
condition with respect to, particularly, health and safety 
problems. Taxpayers end up paying higher costs for operating 
expenses such as fuel and energy costs. And GSA is losing money 
on a number of buildings because of either low occupancy or no 
occupancy, and is at risk of losing money on other buildings in 
which the tenants are not happy with the conditions that they 
are in.
    In our view, GSA needs to take more aggressive action to 
deal with this range of problems; and it does not have all the 
tools necessary to do that. Public-private partnerships provide 
one tool which could be very useful to GSA.
    As has already been indicated, in our review, with the help 
of our contractors, we did lay out a structure over here on the 
chart which is also an attachment to our testimony in which a 
partnership could take place.
    In summary, the Federal Government would contribute a 
property in the form of a lease to a private partner. The 
private partner would provide cash and/or financing ability to 
redevelop or renovate the property. That would form the 
partnership.
    Once the partnership began, there would be a cash-flow from 
the rental payments. There would be operating expenses. You'd 
be left with a net income after that. After that, we would take 
out funds for the master ground lease which would go to GSA. 
Debt service would be repaid.
    It would be a replacement reserve to avoid the problem of 
aged and deteriorating buildings, and the private sector 
partner would get a preferred return off the remainder for the 
risk that the private sector partner undertakes. And then the 
remainder would be shared, an agreed-upon percent between GSA 
and the private sector partner.
    In our review, with the help of our contractors, we looked 
at 10 properties and found that 8 of them had potential 
viability as a partnership. There are two reasons for this. 
Primarily, one, they were in very good locations, locations in 
which there was a strong Federal and non-Federal demand for the 
space. And having a non-Federal demand is critical since the 
government would not guarantee occupancy. In all these 
locations, fortunately, there was a strong demand in terms of 
the eight.
    Second, the condition of the properties was such that, on a 
very general and a very quick review, it appeared as though the 
cost would be--on the order of magnitude, there would be left a 
sufficient financial return to attract a private sector 
investor. Now, in our case, we did this quite quickly with the 
help of our contractors, and we weren't able to do an in-depth 
study. But we did find that--at least on the surface, the 
information would suggest that the projects would be viable; 
and we suggest that GSA do more study and more in-depth study, 
particularly on the financial viability of the projects that we 
did look at.
    In sum, we believe that GSA does need to have more tools in 
its tool kit. It does need to have legislative authority to 
enter into public-private partnerships. We suggest that this be 
done on a pilot basis, primarily because this is a very complex 
undertaking. There are a lot of risks.
    While other agencies have had the authority, GSA has not 
had it in a general sense, and we thought it would be helpful 
to get some lessons learned and to see what actually happens 
compared to what's expected to happen under these types of 
arrangements.
    And before entering into these partnerships, we think, 
again, that GSA would need to further explore the financial 
viability of them and then use other--look at all the tools 
that it has at its disposal to assure that appropriate action 
is taken to the properties that may not be appropriate for a 
public-private partnership.
    Mr. Chairman, that ends my summary. I'd be happy to answer 
questions at the appropriate time.
    Mr. Tom Davis of Virginia. Thank you much.
    [The prepared statement of Mr. Ungar follows:]
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    Mr. Tom Davis of Virginia. Mr. Perry.
    Mr. Perry. Chairman Davis, Congressman Turner, thank you 
very much for inviting me to this hearing today to discuss 
GSA's views on ways to promote efficient and effective 
stewardship and property management.
    If I may, I'll just divert for a moment to thank 
Congressman Sessions not only for his leadership in this area, 
but for his public acknowledgment of the good work that GSA 
people did in the aftermath of the attacks on America and the 
ongoing work of our security efforts.
    I'm pleased to be with you to discuss various reform 
processes to improve the more than 50-year-old statute under 
which Federal agencies manage and dispose of their real and 
personal property assets. GSA believes that agencies should be 
provided with the freedom to manage their assets, more 
effectively through the use of appropriate and up-to-date 
management practices and incentives. Accordingly, we believe 
that these changes--that certain changes to the property 
management statutes are necessary to reflect the current needs 
of the government, as well as current needs of the commercial 
marketplace; and this will help agencies achieve their missions 
and goals by reducing the amount of deteriorated vacant or 
underutilized space in the existing inventory of Federal 
buildings.
    I will submit a longer document for the record as well as 
this booklet entitled, ``Our Federal Buildings,'' which gives 
some pictorial indications of some of the more egregious 
situations that we have today.
    Before I begin the rest of my testimony, I'd like to 
introduce the GSA team that's with me today. It includes Joe 
Moravec, who is the Commissioner of the Public Building 
Service; and Mr. David Bibb, the Deputy Associate Administrator 
for Real Property in GSA's Office of Governmentwide Policy.
    Mr. Chairman, first of all, I would applaud the committee 
and its predecessor for their concern and efforts to improve 
Federal property management as a priority management reform 
issue. During the past 2 years, the subcommittee has provided 
GSA and other Federal agencies the unique opportunity to 
discuss the problems, policies and procedures surrounding the 
management and disposal of Federal assets.
    As we know, Representative Sessions took the lead on this 
issue in the House by introducing H.R. 3285, the Federal Asset 
Management Improvement Act of 1999. In the Senate, Senators 
Thompson and Lieberman introduced, by request, S. 2805, the 
Federal Property Asset Management Reform Act of 2000. The bill 
was developed by GSA in consultation with Federal landholding 
agencies for the purpose of improving the management of the 
Federal Government's billions of dollars' worth of real and 
personal property.
    At this hearing, GSA would like to discuss a number of the 
provisions included in these bills that we believe should be a 
part of any final legislative package concerned by Congress. 
Specifically, we believe that the bill should include the 
following four goals.
    Goal No. 1, establish effective property management 
processes and procedures. GSA would collaborate with other 
Federal landholding agencies, and OMB to develop what we call 
asset management principles. In addition, each landholding 
agency would prepare a strategic real property management plan. 
They would appoint a senior real property officer, and they 
would contribute to the development and upgrading of GSA's 
governmentwide real property information data base. And I would 
emphasize that all of the discussions we're having today apply 
not only to GSA's role, but to a governmentwide role in this 
area.
    Goal No. 2 would be to help agencies maintain the good 
physical condition of assets needed to accomplish their 
agency's mission requirements. GSA believes that the current 
property act should be amended to provide agencies with common-
sense, businesslike practices and techniques to manage their 
property holdings strategically. The existing act is very 
limited in helping agencies manage their real and personal 
property assets. GSA would suggest that agencies have new 
authorities to address these limitations.
    Those authorities would include exchange/sale of real 
property, subleasing and outleasing, including outleasing to 
public-private partnerships; and fourth, expanding the 
exchange/sale of personal property.
    On the subject of public-private partnerships, as you know, 
the L. Mendel Rivers Federal Building in Charleston, SC, which 
this hearing was originally scheduled to take place at, was 
favorably reviewed as a pilot for public-private partnership in 
the General Accounting Office report of July 2001, entitled, 
``Public-Private Partnerships: Pilot Program Needed to 
Demonstrate the Actual Benefits of Using Partnerships'' and Mr. 
Ungar just referred to that.
    There were several other buildings which were also 
favorably reviewed in that report. Public-private partnerships 
could have worked in Charleston, according to the report by 
GAO, and GSA certainly concurs in that.
    GSA strongly supports appropriate use of public-private 
partnership authority to enable agencies to use private sector 
resources and the expertise that they could bring to repair and 
renovate Federal facilities. Any legislative proposal to amend 
the property act should include criteria that would assure 
agencies would use public-private partnerships and other tools 
only in cases where it was economically advantageous to the 
government to do so.
    Public-private partnership authority also should require 
pre-transaction notices to Congress, we believe, in all cases 
over $2 million.
    Goal No. 3 would be to provide incentives to dispose of 
assets which are not needed for agency mission requirements. 
GSA recognizes that most agencies simply don't have the 
opportunity to make such disposals under today's rules. 
Agencies are not allowed to sell, exchange, sublease or utilize 
capital assets that may no longer support their agency 
missions. Consequently, they divert resources to hold these 
underused and unproductive property that have little or no 
functional value with respect to their mission.
    I'll go to goal No. 4, which is to streamline and enhance 
existing processes. GSA believes that changing certain sections 
of the property act could increase efficiency, deliver savings, 
reduce administrative burdens and streamline Federal asset 
management processes in a number of areas.
    In closing, Mr. Chairman, I would conclude that I would 
like to say that improving Federal asset management is critical 
to improving each agency's ability to meet its mission goals 
and improving governmentwide performance results. At GSA, we 
have adopted the issue of having this change in legislation 
completed as our No. 1 priority; it's that important to our 
operation. We believe that any legislation considered by this 
subcommittee and the Congress should incorporate life cycle 
property management practices which we've outlined to provide 
the asset management principles, incentives and flexibilities 
needed by agencies to effectively manage their portfolio of 
assets.
    Mr. Chairman, that concludes my statement, and I'm happy to 
answer questions at the appropriate time.
    Mr. Tom Davis of Virginia. Thank you very much.
    [Note.--The report entitled, ``Our Federal Buildings, a 
Pictorial Report on the Condition of our Federal Buildings and 
an Update on Their Repair and Alterations Nees,'' may be found 
in subcommittee files.]
    [The prepared statement of Mr. Perry follows:]
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    Mr. Tom Davis of Virginia. Mr. DuBois.
    Mr. DuBois. Thank you, Mr. Chairman, Congressmen Turner, 
Sessions, Horn, again for giving me this opportunity to address 
unique DOD legislative authorities contained in Title 10 that 
permit the Department to pursue public-private ventures for 
military housing, base utilities and our newest authority for 
enhanced-use leasing.
    As you know, for years the Department has allowed our 
installations and facilities to deteriorate due to competing 
budget priorities and underfunded requirements. Much of our 
infrastructure is old in various stages of decline. The average 
age of facilities across the Department is over 41 years.
    Without adequate sustained recapitalization, the facility 
performance degenerates. It also impacts negatively our 
operational readiness, and mission support suffers. Service 
life is lost and total costs rise. But we understand that 
appropriating more money for these efforts will not, by itself, 
bring us up to the state of readiness we aspire to in a timely 
manner.
    Secretary of Defense Rumsfeld has made it quite clear that 
he intends to significantly change how we do business in the 
Department, and we believe that public-private partnerships and 
enhanced-use leasing can be effective tools in this effort.
    As you know, through the diligent efforts several years 
ago--1996, I believe--Congressman Joel Hefley of Colorado and 
Solomon Ortiz of Texas aided us and worked with Congress to 
provide the Department with significant new authorities to use 
private sector expertise and capital to eliminate a serious 
shortage in quality, affordable housing for our military 
families. Using the housing privatization authorities, we 
developed projects that provide higher-quality housing, faster 
and at less cost than traditional methods.
    Our policy requires, however, that privatization for the 
sake of privatization is not the appropriate answer. It must 
yield at least three times the amount of traditional MILCON, or 
military construction, for the same amount of appropriated 
dollars.
    The 11 most recent military family housing privatization 
projects, which are described in my written statement, 
leveraged appropriated military construction dollars at a rate 
of almost seven to one. We have 16 projects currently in 
solicitation, and an additional 43 projects have been 
identified to Congress as privatization candidates.
    We have in the Department over 1,600 utility systems. By 
``utility,'' I mean water or water treatment, gas and electric 
which are available for privatization. The sooner we get out of 
the business of running utility systems and turn them over to 
public-private or private sector professionals, the sooner we 
can focus our attention and dedicate our assets and resources 
to our core missions.
    The 2001 National Defense Authorization Act also enacted 
amendments to the Department's leasing statute that gives us 
broad authority to outlease real property and facilities on 
military installations in exchange for cash payments and in-
kind services.
    These public-private partnerships can come in different 
forms. There's no cookie cutter or one-type-fits-all. A base 
commander could share an office building on the base with a 
company willing to renovate and maintain that building in lieu 
of a lease, in lieu of lease payments, a scenario very similar 
to that being envisioned for a GSA building in Congressman 
Sessions' bill.
    Or an installation may outlease land to a company for the 
construction of a commercial hotel that can also be used to 
house overnight travelers on government business, a concept 
that is already in place via special legislation at Wright-Pat 
Air Force Base in Ohio, home to our friend Dave Hobson.
    A third example involves the construction of a private 
office park and a warehouse operation on military land whereby 
the base gets the use of part of the warehouse space and the 
entrepreneur also agrees to pay for the renovation and repair 
of certain on-base properties to include historic structures 
greatly in need of rehabilitation. A project of this nature is 
being developed at Fort Leonard Wood in Missouri at this time.
    There are many other examples at the Defense Department to 
include Fort Sam Houston in San Antonio, TX, where it recently 
announced a partnership with local real estate and 
environmental firms to redevelop and lease over 465,000 square 
feet of unused buildings that comprise the old Brooke Army 
Medical Center and the Beach Pavilion Complex.
    Another San Antonio, TX, example is the Brooks Air Force 
Base so-called City Base Project, again, a demonstration 
project enabled by legislation passed by Congress known as the 
Base Efficiency Project, here again, a transaction which 
includes transferring 1,310 acres of land and all the 
facilities comprising Brooks Air Force Base to the city of San 
Antonio, wherein will evolve a high-technology business park. 
But unlike a traditional real estate transaction, where there 
is an exchange of land for money or other consideration with no 
continuing relationship between the parties, the Brooks City 
Base transaction establishes a partnership between the city of 
San Antonio and the U.S. Air Force.
    Out in Honolulu, HI, a 450-acre part of the Pearl Harbor 
Naval Base called Ford Island is another example of where we 
will outlease land for commercial use.
    In conclusion, Mr. Chairman, we are particularly 
appreciative of H.R. 2710, wherein both you and Congressman 
Sessions provide us with new authority that complements and 
enhances our existing Title 10 authorities, providing the 
Department with additional tools to derive more value from our 
real property assets.
    Thank you very much, Mr. Chairman. I'm happy to answer 
questions.
    Mr. Tom Davis of Virginia. Thank you very much.
    [The prepared statement of Mr. DuBois follows:]
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    Mr. Kushnir. Good afternoon, Chairman Davis, Congressmen 
Turner, Sessions and Horn. Thank you for inviting me to this 
hearing on the benefits of public-private partnerships as real 
property management tools and to discuss the Department of 
Veterans Affairs' experience in this area.
    Before I begin my testimony, I would like to introduce Mr. 
Michael Simmons, who is with me today. Michael is Senior Legal 
Counsel in the Department's Office of General Counsel. 
Michael's considerable experience in VA's loan privatization 
sales program provided the legal expertise necessary to 
successfully undertake these transactions and to further 
develop the enhanced-use leasing program within the Department.
    Since the enactment of the Department's enhanced-use 
leasing authority in 1991, over $250 million worth of private 
investment has been secured in VA facilities and properties. 
This investment has resulted in positive, tangible enhancements 
to the VA mission and program. Through the enhanced-use leasing 
program we have secured office space for veterans' benefit 
centers, upgrades to our health care facilities, transitional 
housing for our homeless veterans, electricity and other energy 
products through cogeneration plants for our medical centers, 
high-tech medical equipment for our veterans, onsite child care 
centers for our employees, as well as parking for our patients 
and veterans having business at VA hospitals and facilities. We 
have been able to obtain these services and upgrades without 
increasing our capital budget.
    More importantly, these projects have resulted in actually 
reducing operational expenses without having to undertake long-
term obligations or commitments of VA resources.
    Briefly, VA is the second largest department in the Federal 
Government in terms of employees. It has a unique mission, the 
delivery of comprehensive assistance and benefits to the 
Nation's veterans and their families. VA is the major 
landholding agency, as well, with an extensive and diverse 
portfolio of properties, including over 23,000 acres of land, 
over 46,000 buildings at approximately 270 locations, in 
addition to over 550 leased spaces nationwide.
    To manage its property, VA uses all the traditional 
authorities available to Federal agencies. However, in many 
instances, these authorities do not adequately address the 
needs of a specific mission or development issue. Because of 
these limitations, exacerbated by ongoing budgetary 
constraints, privatization and income generation programs have 
become increasingly important to the Department's efforts. To 
obtain significant operating cost reductions and pursue 
alternative funding sources for veterans' programs, VA is 
constantly developing and implementing new programs, such as 
enhanced-use leasing program.
    An enhanced-use leasing program is, in essence, a 
cooperative arrangement for the development of VA property 
under which VA property is made available to the public or to a 
private entity through a long-term lease. The leased property 
may be developed for non-VA and/or VA uses, and in return for 
the lease, the Department obtains fair consideration in the 
form of revenue, facilities, space, services, money or other 
in-kind consideration.
    In implementing the enhanced-use leasing authority, VA has 
discovered several key points to developing a successful 
private-public development program. The single most important 
is the enabling statute itself. This authority must provide 
sufficient flexibility to allow the agency to be innovative in 
its approach to secure private investment into its facilities.
    While preserving the integrity of the governmental process, 
that agency implementation procedure must be tempered so as to 
be responsive to the broad span of market, environmental 
political and legal issues that arise in any large-scale 
development of property. Agency officials involved in the 
process must be committed to the effort's success, and while 
attempting to be responsive to the legitimate demands of the 
private sector, they must remain committed to structuring each 
transaction in a manner that will not impact future operational 
decisions nor commit the agency to long-term financial 
obligations.
    Finally, these transactions can succeed only if they're 
founded on sound business decisions from both the public and 
the private sector perspectives.
    To accomplish these objectives, the agencies must 
participate fully as equals with the developer lessee in the 
project's development, financing and in the local community 
review.
    Finally, in stovepiping project development, investing 
control over any particular program development within a single 
office really ignores the multiple legal, fiscal and program 
issues that arise from such a development. Our experience has 
been, successful implementation of this type of authority is 
dependent upon developing a coordinated approach that not only 
includes all the various offices and disciplines involved, that 
is, the legal, the contracting, the facility development, but 
also has a strong link to our agencies', our Department's 
strategic objectives.
    That concludes my oral remarks. Thank you very much.
    Mr. Tom Davis of Virginia. Thank you very much.
    [The prepared statement of Mr. Kushnir follows:]
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    Mr. Tom Davis of Virginia. Ms. Burke.
    Ms. Burke. Thank you, Mr. Chairman and members of the 
subcommittee, for allowing me the opportunity to share my views 
regarding the potential benefits of these partnerships. I stand 
united with the rest of the panel in support of the benefits of 
these partnerships.
    My name is Kim Burke. I'm a principal with Ernst & Young in 
the real estate advisory services group, advising both Federal 
and private sector clients. Prior to that I served at both OMB 
and CBO.
    This February, GAO selected Ernst & Young, together with 
Signet Partners, to evaluate and quantify the benefits that 
might be obtained if public-private partnership authority were 
granted to GSA. I served as the manager for this project and 
have served on similar projects for DOD and GSA.
    Since the other panel members have discussed the existing 
programs and partnership structures, I'd like to focus my 
testimony and share with you lessons learned from our study and 
from Ernst & Young's prior work with private entities, as well 
as State and local governments in two areas.
    First, considering different types of partnerships, and 
second, considerations for the implementation in partnership 
authority. For types of partnerships, what conditions would the 
private sector look for? First, financial attractiveness, 
including the ability of the partnership to generate a 
sufficient return on investments. Second, control of the 
project and other ground lease terms. Third, the risk level of 
the investment. Fourth, the potential for multiple uses. Fifth, 
condition and size of the property. And sixth, market demand.
    They would also look at such factors as adding diversity to 
their own portfolio and whether such a partnership would 
enhance or maintain an existing business relationship that they 
had with a Federal Government.
    What would the government look for? One criterion is 
getting the project done faster than it might otherwise be 
possible, or a quick infusion of private sector capital to 
maintain Federal infrastructure, and tapping into the private 
sector experience to leverage and enhance Federal service 
delivery.
    Which type of deal is best? The form of each partnership 
must be carefully evaluated on a case-by-case basis to 
determine the best economic value and mission enhancement for 
the Federal Government and how to best leverage both the 
government and the private sector resources and expertise.
    Let's consider three options: first, joint ventures where 
the partners share in the future project returns. These might 
be considered when a property is undervalued under current 
market conditions, and the government could then share in 
appreciation in the value of the site; or if a property is 
considered high risk by the private sector, thus requiring a 
higher return, then such a venture would allow the government 
to also share in the higher return.
    Second, a ground lease might be considered when the cash 
proceeds from a transaction are not available for retention by 
the agency, or if the partner in the transaction brings special 
expertise or services considered by the government to have high 
value for mission enhancement.
    Third, creation of a special purpose entity might be 
considered when shared space would result in the sharing of 
knowledge to enhance the Federal missions such as shared 
resources for a hospital and lab or research space.
    The questions from the committee asked for issues for GSA 
to consider in implementation. Some of the examples are 
consistent program implementation, including consistent 
guidance to field offices and other agencies. This is 
particularly important in cases such as H.R. 2710, where the 
GSA Administrator could delegate the authority to other 
agencies. Consistency is also needed to identify potential 
sites and in developing standardized partnership proposal 
evaluation process; taking time to complete property-specific 
market research to identify the best target use and potential 
users of the property and the true expected development costs, 
including remediation and other land use costs, is also 
important.
    The government must also navigate Federal requirements 
including compliance with the Historic Property Act, 
Environmental Protection Act, OMB scoring rules and circulars 
and congressional notifications and public hearings.
    Finally, fair and open competition to select qualified 
partners, attracting partners through identification of 
properties with high market appeal, ensuring deal terms are 
eligible for private sector financing and securitization; and 
of course, controls must be designated for monitoring and 
protecting the Federal interests.
    In closing, we've seen partnerships work to the benefit of 
State and local entities. We've seen them on the Federal level 
at RTC, at HUD, DOD and VA. They're good for the government. 
They're good for business and they're a way to provide a low-
cost economic stimulus for communities across America.
    This concludes my prepared remarks. I'd be pleased to 
answer any questions. Thank you.
    Mr. Tom Davis of Virginia. Thank you very much.
    [The prepared statement of Ms. Burke follows:]
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    Mr. Tom Davis of Virginia. Mr. Johnston, you're clean-up.
    Mr. Johnston. Good afternoon, Chairman Davis and members of 
the committee. My name is Sherwood Johnson III, president of 
the Building Owners and Managers Association International and 
a real estate professional with CarrAmerica. Thank you for the 
opportunity to address the issue of the Federal Government 
entering into public-private partnerships for real property.
    First, let me start by telling you a little about BOMA. 
Founded in 1907, BOMA International is a dynamic federation of 
more than 100 local associations with over 18,000 members who 
own or manage over 8.5 billion square feet of commercial 
properties in North America. Our mission is to advance the 
performance of commercial real estate through advocacy, 
professional competency standards and research. The General 
Services Administration, along with other Federal agencies in 
State and local building departments are a valued segment of 
BOMA's membership.
    Managers of public and private property alike face the 
constraints of tight budgets for funding repairs and 
alterations. However, owners and managers of private property 
have at their disposal a wide array of asset management and 
financing tools to assist them. It is our belief that the 
managers of government-owned buildings must be given similar 
tools and be allowed more flexibility.
    To this end, BOMA International is pleased that the 
committee is considering legislation that would allow the GSA 
to enter into public-private partnerships. However, these 
public-private partnerships are just one of the many tools that 
the Federal Government property professionals should have at 
their disposal. We encourage you to go a step further and take 
into consideration all of the asset management tools that would 
allow the GSA and other agencies to do their jobs more 
effectively.
    As Congress explores the opportunity to encourage public-
private partnerships, it is critical to understand that the 
main thing the private sector will look for in any partnership 
is a return on invested capital. No one will enter into any 
arrangement with the government unless there is an expectation 
of economic benefit. So the primary question must be, how could 
the private sector make a return on any joint venture 
arrangement?
    BOMA International generally supports the lease-back 
concept of public-private partnership arrangements. Here the 
government would have a private entity take over economic 
control of a building and renovate it. The government would 
have a first refusal option to lease the building back for a 
rent that includes a return on the building improvements.
    Please keep in mind that absent the guarantee that the 
government would lease back the building, there would have to 
be a strong private sector demand for the space, based on 
location or physical attributes. The private developer would 
need a reasonable expectation that the building could be leased 
at a rate that would allow for the investments to be recouped.
    This type of arrangement becomes much more problematic if 
the property is a special purpose building that did not have 
private sector demand. Separately, there might be some building 
that the government owns that would be profitable to lease 
outright to the public sector--excuse me, to the private 
sector.
    In those cases, the government could lease to a private 
real estate company under a long-term lease. These companies 
would then invest in the repairs, lease the space to private 
sector companies and make money in the usual way. After the 
expiration of the lease, the building would revert to the 
government, who would inherit the improved property.
    The benefits to all parties are obvious. A private sector 
company undertakes the management of the building, filling it 
with tenants for the benefit of both the private sector partner 
and the taxpayer. The government would retain ownership rights 
to a structure that it could bring back into its operational 
portfolio in enhanced condition. The risk of cost overruns is 
born by the private sector or could be shared with the Federal 
Government. As a result, the GSA would be better able to direct 
their scarce capital upgrade funds toward buildings that are 
not involved in the public-private partnership arrangements.
    Finally, the private sector would appreciate having access 
to the public sector tenants who have previously not been part 
of the commercial real estate market.
    While BOMA supports congressional action on this issue, we 
must once again caution that the GSA and the private sector 
will need flexibility in crafting these types of arrangements. 
Every building is different. Every real estate market is 
different. Every real estate transaction is different. The GSA 
and private sector partners must have the ability to enter into 
arrangements that are mutually beneficial; otherwise nothing 
will be accomplished.
    BOMA International knows firsthand the GSA and other 
Federal agencies have highly educated and capable property 
professionals on their staffs. The Federal Government's 
property managers actively participate in BOMA's education and 
training opportunities. They hire top-notch people who are 
capable of using sound business and asset management principles 
to make educated decisions. I've personally had the pleasure of 
working with many of them.
    While Congress has a role to play in overseeing this 
function of government, it will never be done effectively until 
the property professionals are allowed the flexibility to use 
all the tools available.
    I thank the committee for its time. I would urge the 
committee to refer to BOMA's written comments, which are more 
extensive than my own testimony. BOMA International would 
welcome the opportunity to work with the committee and provide 
additional expertise as you proceed on these issues. And I'm 
also happy to answer any questions.
    Mr. Tom Davis of Virginia. Thank you very much.
    [The prepared statement of Mr. Johnston follows:]
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    Mr. Tom Davis of Virginia. I appreciate the questions from 
the panel.
    Let me start with a question to BOMA and GSA, everyone. I 
wonder if you could elaborate a little bit on the potential 
budget effects of these partnerships in the bill at hand, H.R. 
2710. And what are the specific scoring triggers that could bar 
successful implementation of the public-private partnerships? 
Who wants to start on that?
    Mr. Johnston. Well, the GSA is probably the most qualified 
to answer the question about the scoring issues that they have.
    Mr. Tom Davis of Virginia. All right.
    Mr. Perry. Let me begin on that, and I'll invite my 
colleague, Joe Moravec, to maybe respond as well.
    But specifically, with respect to scoring, it really 
relates to the last part of Mr. Johnston's testimony. Since 
these will not be one-size-fits-all kinds of transactions, 
there will be the need to consider each transaction separately. 
The scoring rules need to have consistency.
    We believe, as we have looked at a number of projects which 
may well fit under this public-private partnership approach, 
that the scoring rulings, as they are currently interpreted and 
used, would result in our being able to go forward with those 
kinds of projects. We are working closely with OMB with respect 
to this to make sure that is the case.
    Joe, would you care to elaborate?
    Mr. Moravec. The specific things that would score, that 
would cause a scoring convention to be violated, would be if 
the government were, in fact, leasing back from itself.
    The way this H.R. 2710 has been written is that the 
government would not guarantee a lease-back. In other words, 
the lease-back of the space by a government agency would be 
separate and apart from the creation of the public-private 
partnership, so that the public entity leasing back would be, 
in effect, an arm's-length lessee of the property.
    Second, the way the legislation is crafted, there would be 
no subordination of the government interests. The government 
would have an unsubordinated senior interest in the property 
and it could never, in effect, be foreclosed on, so that its 
actual equity in the property and the partnership would never 
be at risk.
    And finally, the way the legislation is crafted, there 
would be--the government's liability in the partnership would 
be no greater than the value of the equity that it's 
contributed. So the government would have no indebtedness.
    And as Administrator Perry has said, as long as those three 
conditions are present in the creation of a public-private 
partnership, we believe that we will be well within scoring 
conventions.
    Mr. Tom Davis of Virginia. So this legislation suffices, 
you think? It doesn't need to be tweaked any?
    Mr. Moravec. We do.
    Mr. Tom Davis of Virginia. OK. Thanks.
    Let me ask GAO, if the administrator of GSA is given the 
authority to proceed with the public-private partnership 
program, what controls, both internal to GSA and external, do 
you think should be in place to ensure proper management of the 
property?
    Mr. Ungar. Mr. Chairman, I think there are a number. First 
of all, I think it would be appropriate for GSA to have a real 
good, solid business plan which lays out the business case and 
the financial issues, the risks, who's going to assume those 
risks and how the project would, you know, be operated.
    Second, GSA, in our view, would come up--or, you know, 
would be wise to come up--with some criteria that it would use 
in terms of deciding whether to go forward or not, what 
factors, what conditions ought to be present or should not be 
there in order to proceed on a public-private partnership.
    Third, we think there ought to be some sort of review and 
approval process that is systematic within GSA to make sure all 
the bases are covered, the i's dotted, t's crossed. That would 
include some form of congressional notification of the intent 
to proceed, as well as probably some effort to work with the 
local community involved to assure that there aren't any 
pitfalls or unforeseen issues there.
    And finally, some sort of an evaluation process that would 
be--a plan and process that would lay out how GSA intends to 
measure the success of the effort once it gets going.
    In addition to that, we would suggest that Congress also 
certainly review the proposal of the relevant committees, the 
subcommittees, as they currently do for large projects that GSA 
proposes, and that there would be some congressional oversight 
of the process and, particularly, the use of funds that would 
be retained as a result of these projects.
    Mr. Tom Davis of Virginia. Thank you.
    Let me ask Mr.----
    Mr. Perry. Mr. Chairman, may I just quickly elaborate on 
Mr. Ungar's response?
    First of all, I'd just like to say that we fully agree with 
every single point he made, and in the proposal that we have 
submitted, each of those points is addressed, starting with the 
strategic plan to the overall process, to the review and 
approval, including review by Congress, the evaluation is 
there, as well as making a final review to renew the 
legislation after a 10-year sunset.
    Mr. Tom Davis of Virginia. OK.
    Let me ask Ernst & Young, Ms. Burke, do you know any 
examples of private-public partnerships at the State or local 
government level that could be used as a guide in crafting a 
workable program here at the national level?
    Ms. Burke. We do. One example is Penn Station in New York. 
Another example is the Seventh Regiment Armory in New York. 
Another example is Arizona State University.
    A lot of the construction State and local governments have 
done, and cities of athletic facilities, like stadiums, take 
the form of partnerships that are very similar to this. And so 
those would be examples.
    Mr. Tom Davis of Virginia. I think there is tremendous 
potential. This allows private businesses to do this kind of 
thing every day. They do it because it is in their financial 
advantage to do it.
    Let me ask any--my minutes are up.
    Mr. Turner.
    Mr. Turner. Thank you, Mr. Chairman.
    Mr. Perry, the proposal that you have been referring to I 
understand is being reviewed by OMB currently for their 
comments.
    Mr. Perry. Yes, sir. That's correct.
    Mr. Turner. What are the areas of concern that have arisen 
out of that review, or have you yet to hear regarding what 
their view is on this proposal?
    Mr. Perry. We have heard what their view is on the 
proposal. We are in lock-step agreement with respect to the 
proposal. We have worked very closely with Shawn O'Keefe and 
others on his staff to discuss the objectives. And the 
legislation has been circulated among the other agencies to get 
feedback for the proposed legislation.
    And to my knowledge there was nothing adverse that has 
come. So my understanding would be that we are in agreement 
with respect to the objective of this legislation.
    Mr. Turner. But they are also looking at the actual bill 
itself that you had last year with regard to the specific 
details of it; is that correct?
    Mr. Perry. All of that was a part of the input; that is, 
where we were last year at the end of that session of Congress 
was a starting point. We recognized that there were 
shortcomings in last year's proposal, and so we worked on 
eliminating these items that would have been items that could 
have rendered the use of last year's bill to be fairly 
difficult, and we have gotten those things to be addressed, 
partly by, as was mentioned, the strategic plan and the process 
that we have outlined.
    Mr. Turner. This suggestion, I believe, that was in the 
bill, that if the value of the property is not over $2 million, 
then there is no congressional review, as I understand that 
process, it is just basically a notification to basically the 
staff of this committee that a sale is proposed. Currently I 
guess it is any sale over $100,000; is that correct?
    Mr. Perry. I think that is the correct number. We haven't 
worked out the details of that, but the objective of this is--
that is to say, if there is a project under consideration that 
has a value of $2 million or more, that we would effectively 
notify the Congress, not just something that would be 
perfunctory, but effectively inform the Congress what our 
intentions were before moving ahead.
    Mr. Turner. Under the current process for congressional 
oversight, if you have notified the Congress, and this 
committee has reviewed it and doesn't approve of it, does this 
committee or this Congress have any control over that decision, 
or it is merely a notification process that we are talking 
about here?
    Mr. Perry. I am going to ask Joe to respond to that. My 
belief is that we would adhere to the direction that we get 
from congressional moods on this. It is done through the budget 
process where we name the specific project that is under 
consideration and get budget authority for it.
    Mr. Moravec. Right now it is--prospective level for 
projects that require congressional authorization is about $2 
million. So this is totally consistent with the process that we 
subscribe to now with regard to all of our capital investment 
submissions to Congress.
    Mr. Turner. But as I understood it, we--there is a 
provision that talks about a $100,000 value and above, and does 
that relate to disposal of property? Is that what that relates 
to?
    Mr. Moravec. That is related to disposal.
    Mr. Turner. Is there a proposal in this legislation to 
change that as well?
    Mr. Perry. Yes. That is in the section having to deal with 
streamlining the disposal process. Yes.
    Mr. Turner. All right. Now, if I understood that provision, 
if the Congress is notified that a piece of property worth 
$150,000 is going to be sold, and this committee reviews that 
and has some objection, is there any procedure where we 
actually have any role of changing your mind, or is that simply 
a notification procedure?
    Mr. Moravec. I think as a practical matter we wouldn't move 
until we had resolved that with the committee.
    Mr. Turner. Even though there is no statutory authority in 
the Congress to block the sale of a property at that level?
    Mr. Moravec. Even though there is no statutory authority.
    Mr. Turner. Has that been particularly burdensome to give 
such notice to this committee regarding disposal of property in 
excess of $100,000?
    Mr. Moravec. It is not particularly burdensome, it is just 
that the dollar threshold, we believe, is a little low. We 
would like a little more latitude in terms of the dollar amount 
involved.
    Mr. Turner. But I mean as a practical matter, does it 
really represent any significant impediment to the process of 
disposal just to notify this committee that the properties----
    Mr. Perry. It would be a case of--we haven't encountered 
any difficulty with respect to those items. Many of the 
properties that we do dispose of are in excess of that previous 
limit. We think it is a matter of administrative efficiency to 
not send that many requests over.
    As it turns out, there hasn't been a burden. It is more of 
a case of low value kind of work, both on the part of GSA and 
on the part of the Congress, to review them.
    Mr. Turner. How many times would this committee ever see 
notice, say over the last year, that property was going to be 
disposed of?
    Mr. Moravec. I am sorry. We will have to get back to you 
for the record on that.
    Mr. Turner. I want--I only make the inquiry--it strikes me 
if this is just a notification procedure, and it is not too 
extremely burdensome, then it is probably a good thing for the 
Congress to know; particularly if it involves a piece of 
property in, you know, my district, I would like to know.
    And I don't have much in my district that you could dispose 
of that would be over $2 million, so it might be a provision 
that would be nice to keep in the law, at least as some lower 
limit than $2 million.
    That is all the questions I have.
    Mr. Tom Davis of Virginia. Thank you.
    Mr. Horn.
    Mr. Horn. Thank you, Mr. Chairman. This is a very 
worthwhile hearing. And it does have effects across the 
country. And I am glad to see the Administrator of GSA here, 
Mr. Perry. I hope will you enjoy the way we do business. You 
had a fine record in Ohio.
    And I would like to ask a question about Deputy Under 
Secretary DuBois. How long has the environmental portion of 
your rank--was that earlier in the Office of the Secretary of 
Defense, but not with the Under Secretary, or Deputy Under 
Secretary? When did that move?
    Mr. DuBois. Under the prior administration, the Clinton 
administration, there was established the Deputy Under 
Secretary of Defense for Environmental Security, I believe, in 
1993.
    When Mr. Rumsfeld became Secretary and was confirmed on 
January 20th, we discussed various ways to streamline the 
management and the procedures of the Office of the Secretary of 
Defense.
    It was considered a good idea at that time, and I think it 
continues to be a good idea, to combine both installations and 
environment, because one impacted the other in both positive 
and negative ways, as you well know, given the hearing that you 
held in California, sir. Therefore, on April 29th, when I was 
appointed to this position as Deputy Under Secretary for 
Installations and Environment, it so was established.
    Mr. Horn. I think that makes a lot of sense, personally, 
and I had been griped the other way that this--it never was 
going anywhere in 1994, 1995. They just sort of sat on the 
money was my feeling.
    And in my Subcommittee on Government Efficiency we took a 
hearing a few weeks ago at Fort Ord, and that is--we appreciate 
the help that is there from a lot of you there. But we have a 
little problem still there, which is live artillery. And there 
has been, I think, the one heavily hospitalized, and I am told 
one died there. And I just would like to see if we can help on 
that, because that was under the Army to put the money out.
    And another one I am going to take here was from the Navy. 
And I think you are absolutely right to have that under the 
Office of the Secretary with somebody with some clout, and you 
are the one with clout I am looking at.
    So let me go down the line on a few questions I want to 
have Administrator Perry--I am sorry, I came in late because I 
had the usual 15 people in our office.
    What is the length on the contract that GSA feels on land 
use? Have you picked a number? Is it 20? Is it 25? 30? 50? 
What?
    Mr. Perry. The proposed legislation would allow as long as 
50 years for that. We would expect that the individual leases 
would be of a shorter term, but 50 is a general maximum.
    Mr. Horn. Well, I am glad to see that, because some end at 
5 years, 10 years, 20, just wasn't working.
    Mr. Perry. Right.
    Mr. Horn. In our case I want to thank you for the GSA 
working with NASA in the town of Downey. Now, that was the 
Rockwell plant that built the space lab, the Apollo, the one 
that now sends it up and back, that one, but Boeing now takes 
that over. And it was already going because we couldn't keep 
the repairs going since it was just--they were not needed at 
that point.
    So in Downey you have got a plant that, when I came to that 
area in 1970 that had 35,000 workers, now have none. I don't 
think there is even a maintenance person to keep that property, 
because it is a patch system where the old committee on--at 
Goddard was on way back in the 1930's. And the--obviously NASA 
is now in it, and Administrator Goldin has been very helpful, 
and we appreciate that.
    And so that is another one there that I would hope it has 
worked out, and I think it is supposed to be worked out, Mr. 
Perry, because there is a lot of other agencies, EPA, so forth, 
besides GSA, and we would appreciate it if we could just finish 
that one up.
    Now, another one is on the west side of Long Beach. In the 
1930's, Long Beach was the headquarters of the Pacific Fleet. 
And one chief executive of the--Chief Operating Officer of the 
Navy, he said that was the stupidest decision that they ever 
had was to go to Hawaii. You saw what happened. By accident we 
had our aircraft, people out there, but thousands died December 
7th. And on that land on the west side, it was naval housing 
for about 38 ships. That was under my predecessor Mr. Anderson.
    What we turned that into is something that gets economic 
development, and one--there is three things here. We have a 
technical high school being built. I was able to get out of the 
President a Job Corps situation back in about 1995. And then 
there is--besides the Job Corps, the technical high school. We 
had there 30 acres for the College of Engineering at California 
State University Long Beach. That is very needed because Orange 
County has now had a good Silicon Valley-type approach, just 
like Fairfax County and San Diego, but southern Los Angeles 
County have not had the development that they should have. And, 
of course, the land that went to the Port of Long Beach is very 
helpful. But we could do better in terms of biological and 
Silicon Valley-type firms.
    Then we have on the east side of town, which is coming 
along, there were two patches there given to the Navy, $1 
apiece, in the beginning of the Second World War. And that--
unfortunately the city attorney missed one, and they gave them 
the dollar and thought, well, if they ever leave, they will 
give us the property back.
    And the fact was that they went--when the split came, where 
the city attorney had put that in, we easily got that property 
to revert back to the city of Long Beach. And they are still in 
a situation, or were with the Navy, of, well, you owe us $8 
million. Good heavens, you know, that is a pretty good property 
for the dollar that we asked them to give us back in the--oh, 
probably 15 years ago that they closed that naval hospital, 
which was about 5,000 people with patients and all of that.
    So those are the examples I have lived with in a way, and I 
would appreciate it if we could take a look at that, and I 
would like to sit down with you, Mr. DuBois, and see if we 
can't work it out and finish it forever and get the economic 
side of that part of Los Angeles County--it would be very 
helpful.
    So I thank you all for your testimony. And, as I said, Fort 
Ord it is coming along. It has got a wonderful campus of the 
California State University system at Monterey Bay. They had 
5,000 applicants the first year they opened there. And there is 
space there for economic development, more of it, and we 
appreciate anything you can do on that. Thank you.
    Mr. Tom Davis of Virginia. Thank you very much. I didn't 
mind it, I did my basic training at Fort Ord 100 years ago.
    Mr. Horn. No fooling. Well, you should have come up and 
seen me. I was at Fort Ord, too, in terms of shooting off 
rifles, but I didn't shoot off the artillery.
    Mr. Tom Davis of Virginia. It is amazing what they have 
done with that. When I was driving through recently, I dropped 
by to see some of the construction that they have had.
    Let me ask a few more questions before we wind this up.
    I will start, Mr. Perry, with you. What are the major 
barriers to effective asset management that you see right now 
at the Federal level?
    Mr. Perry. Well, there are a number of major things. First 
of all, there is not at this point in time a--sort of a global 
standard as to what the process should be for what we call life 
cycle management, not only to apply good practices in the case 
of acquisition, but to also apply good property management 
practices throughout the asset's life and to apply good 
processes to its subsequent disposal.
    So those are among them. There are some other things that 
you might cite among those, that is--for example, making sure 
that agency acquisition and use of real property assets are 
consistent with the agency's mission. Now, some of that would 
sound pretty straightforward. You know, you decide whether you 
need the asset for a long term, in which case owning it might 
make sense, or is it a short-term need, in which case leasing 
would make much more sense.
    We don't think that all of the agencies have people on 
their staffs who are skilled at thinking through those. What we 
would propose to do, therefore, is to provide this list of 
management principles and standards that we would help to 
ensure that each agency follows.
    Mr. Tom Davis of Virginia. Do you have any idea how many 
pieces of property GSA owns right now that aren't being 
utilized, for one reason or another, and are either boarded up 
and are just sitting there?
    Mr. Perry. We don't know how many complete facilities would 
fall in that category. I do know that we have over 100 
buildings that we have documented that have what we have called 
egregious conditions with respect to the need for upkeep. Many 
of those buildings are nevertheless still occupied, or at least 
partially occupied. We do have some where Federal agencies have 
moved out and refused to use the space based upon condition.
    But there is this 100 or so that are in a deteriorated 
state, and then within that group of 100 we have identified 20 
that would be sort of on the top list that need immediate 
attention.
    Mr. Tom Davis of Virginia. OK, let me ask you another 
question. What would be the benefit of broader legislation? Are 
you familiar with S. 2805 introduced by Senators Thompson, 
Lieberman?
    Mr. Perry. Yes.
    Mr. Tom Davis of Virginia. How would the provisions of this 
bill enhance the management of Federal property; how would that 
be effective for you?
    Mr. Perry. Well, first of all, it--that bill would have had 
some limited or some restrictions on the use of the public-
private partnership approach, and we would propose that those 
limitations be eliminated.
    Additionally, the bill may not have addressed the issue of 
disposal. I think it did address disposal, maybe not as 
comprehensively as we are. It did include both the use of 
outleasing and subleasing, which, by the way, are not as 
comprehensive in the Sessions bill.
    So when you take those bills together, I think it generates 
a package. As long as you take the best of both, that would 
make it workable.
    Mr. Tom Davis of Virginia. OK, let me ask the 
representatives from DOD and VA, what are the cost savings to 
the government that you have demonstrated through the use of 
public-private partnerships?
    Mr. DuBois. As you know, in the Department of Defense 
military housing privatization alone has probably saved, will 
through the end of this fiscal year, that is to say 2002, 
probably--and ``savings,'' again, is a difficult term. 
Leveragewise we may be dealing with nearly $1 billion.
    You asked a few minutes ago about asset management, what 
would help us manage our assets better. Clearly until the 
Defense Department--and I think, no question, we concur in 
GSA's proposal, which is, as we read it, more far-reaching than 
the Sessions bill, those authorities given to us ought to be 
given elsewhere in the Federal Government, utility 
privatization and enhanced use of leasing, military housing 
privatization.
    But the most important asset management authority that 
Congress could give us at this time is for a further round of 
base closures and realignment, which we hope will come out of 
the conference. As you know, the Senate did vote essentially 
for it last week 53 to 47. That in and of itself could save the 
Department of Defense, i.e., the American taxpayer, anywhere 
from $3 to $6 billion more.
    Mr. Tom Davis of Virginia. I am in support of that. I mean, 
Mr. Turner is on the committee in the House. It is very 
controversial with a lot of the districts that would be 
impacted from that, but I agree with you.
    Mr. Kushnir. From the Department of Veterans Affairs 
perspective, we saved a considerable amount of money. I think I 
mentioned in my testimony, we have achieved over $250 million 
worth of value that was invested into VA properties. This 
included energy plants, and it included parking facilities, 
medical facilities, and also resulted in significant savings to 
VA operational dollars, which are really paid out of its 
medical care funds. So it results in more of those funds 
directly being used for veterans' health care.
    So we have found this enhanced use leasing, which is 
essentially a public-private partnership vehicle, as being very 
helpful to us in achieving our mission requirements.
    Mr. Tom Davis of Virginia. I think sometimes we just pass 
too many rules and regulations that centrally drive things that 
we try to keep open, public, and keep people from stealing 
money, but we don't allow you to do a lot of other things, too, 
in the process.
    We ought to let you manage this and give you the tools. And 
we see this done every day in the private sector where they are 
driven by a bottom line. I just think it makes everything more 
efficient. I think you agree as well.
    Mr. Kushnir. Yes, sir.
    There was a question earlier, comments about stakeholder 
involvement. Our legislation provides for public hearings at 
the site where we are contemplating doing an enhanced use 
lease, and our enhanced use leasing goes from a sort of a 
lease, lease-back arrangement, to more of your outlease 
arrangement that was talked about earlier in deriving revenues 
from it.
    But we believe in public hearings. We also have 
congressional notification to our oversight committees for each 
and every one of our proposed enhanced use leases.
    Mr. Tom Davis of Virginia. Thank you.
    Anyone have anything else that they want to add?
    Mr. Perry. Yes, Mr. Chairman. I think what we are really 
looking at here is a decision to decide to apply what I would 
call very prudent good management practices. And as I have 
listened to today's testimony and the other information that I 
have been able to be a part of as we have worked on this 
project, it would appear to me that the evidence is pretty 
conclusive that this prudent good management practice is tried 
and tested and proven in the commercial sector. And we heard 
that again today from Ms. Burke of Ernst & Young, and from. Mr. 
Johnston on BOMA.
    I think we are very fortunate to have Joe Moravec as our 
Commissioner of Public Service, having done this himself 
personally for 30 years. So we are not speculating with respect 
to whether this is something that can work.
    Second, we also heard from representatives of DOD and VA 
that this, in fact, even works in the public sector, has been 
working in terms of the demonstration projects. And then we 
have had the General Accounting Office do a thorough review and 
also endorse the fact that this can work.
    So I hope there is no further concern as to whether or not 
we are embarking upon something which is not tried and tested.
    The other issue is we have, as we sit here, a large and 
growing inventory of deteriorating Federal buildings, not a 
livable situation. There is--on my way of looking at it--no 
other alternative solution on the horizon. And each day we 
wait, each year we wait, and we have waited a year since this 
was introduced in the last session, that inventory and backlog 
of repair and alterations work which is continuing to grow does 
grow.
    So I commend the committee for taking a serious look at 
this so that we don't leave a legacy of further deteriorated 
Federal buildings, and, in fact, we take the bold step to be 
the group that provides the answer to the problem that we have 
been living with for a number of years now.
    Mr. Tom Davis of Virginia. Thank you very much. I want to 
thank all of you, for attending the hearing. We have had some 
great testimonies today.
    I want to thank Congressman Turner, Representative Horn and 
Representative Sessions for participating.
    I want to thank my staff and Mr. Turner's staff for 
organizing this. I think it has been very, very productive. I'm 
going to enter into the record the briefing memo distributed to 
subcommittee members.
    We will hold the record open for 2 weeks from this date for 
those who may wish to forward submissions for possible 
inclusion.
    These proceedings are closed. Thank you.
    [Whereupon, at 5:10 p.m., the subcommittee was adjourned.]