[Senate Hearing 109-656]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-656

 BIG TICKET WASTE: ARE EMPTY FEDERAL BUILDINGS EMPTYING THE TAXPAYERS' 
                                WALLETS?

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

                                HEARING

                               before the

                FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
                     INFORMATION, AND INTERNATIONAL
                         SECURITY SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 6, 2006

                               __________

                   FIELD HEARING IN CHICAGO, ILLINOIS

                               __________


       Printed for the use of the Committee on Homeland Security
                        and Governmental Affairs





                    U.S. GOVERNMENT PRINTING OFFICE
                           WASHINGTON : 2006 
27-026 PDF

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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma                 THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island      MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah              FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico         MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia

           Michael D. Bopp, Staff Director and Chief Counsel
   Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk


FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL 
                         SECURITY SUBCOMMITTEE

                     TOM COBURN, Oklahoma, Chairman
TED STEVENS, Alaska                  THOMAS CARPER, Delaware
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
LINCOLN D. CHAFEE, Rhode Island      DANIEL K. AKAKA, Hawaii
ROBERT F. BENNETT, Utah              MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico         FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia

                      Katy French, Staff Director
                 Sheila Murphy, Minority Staff Director
            John Kilvington, Minority Deputy Staff Director
                       Liz Scranton, Chief Clerk



                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Coburn...............................................     1
    Senator Carper...............................................    18

                               WITNESSES
                        Monday, February 6, 2006

Hon. Barack Obama, a U.S. Senator from the State of Illinois.....     6
Mark L. Goldstein, Director, Physical Infrastructure Team, U.S. 
  Government Accountability Office...............................     8
William H. Matthews, Assistant Commissioner, Office of Real 
  Property Asset Management, U.S. General Services Administration     9
James M. Sullivan, Deputy Director, Office of Asset and 
  Enterprise Management, U.S. Department of Veterans Affairs.....    12
Tom Samra, Vice President, Facilities, U.S. Postal Service.......    13
Dr. Get W. Moy, Director, Installations Requirements and 
  Management Directorate, Office of the Deputy Under Secretary of 
  Defense (Installations and Environment), U.S. Department of 
  Defense........................................................    16

                     Alphabetical List of Witnesses

Goldstein, Mark:
    Testimony....................................................     8
    Prepared statement...........................................    39
Matthews, William H.:
    Testimony....................................................     9
    Prepared statement...........................................    54
Moy, Dr. Get W.:
    Testimony....................................................    16
    Prepared statement...........................................    74
Obama, Hon. Barack:
    Testimony....................................................     6
Samra, Tom:
    Testimony....................................................    13
    Prepared statement...........................................    70
Sullivan, James M.:
    Testimony....................................................    12
    Prepared statement with an attachment........................    62

                                APPENDIX

Questions and Responses for the Record from:
    Mr. Goldstein................................................    85
    Mr. Matthews.................................................    94
    Mr. Sullivan.................................................   106
    Mr. Samra....................................................   113

 
 BIG TICKET WASTE: ARE EMPTY FEDERAL BUILDINGS EMPTYING THE TAXPAYERS' 
                                WALLETS?

                              ----------                              


                        MONDAY, FEBRUARY 6, 2006

                                       U.S. Senate,
          Subcommittee on Federal Financial Management,    
      Government Information, and International Security,  
                            of the Committee on Homeland Security  
                                          and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10 a.m., in 
room 3087, Cardiss Collins Post Office, 433 W. Harrison Street, 
Chicago, Illinois, Hon. Tom Coburn, Chairman of the 
Subcommittee, presiding.
    Present: Senators Coburn and Carper
    Also present: Senator Obama.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. I welcome you to this hearing and welcome 
Senator Obama, and Senator Carper shall be here shortly. And I 
want to especially thank the Postal Service for their help in 
both arranging the hearing and also the information that 
they've been, and the assistance they've given to my 
Subcommittee staff.
    Senator Carper and I held 21 Subcommittee hearings last 
year. We'll hold about 42 hearings this year in terms of 
highlighting the problems of both in terms of inefficiency, 
government waste, lack of planning, lack of accountability, and 
lack of transparency.
    There is a significant problem in terms of Federal 
ownership of buildings, both in terms of the costs associated 
with those buildings, the maintenance costs, the efficiency 
with which we handle them. The long term maintenance costs, and 
the decisionmaking process under which those buildings are 
managed.
    It is also, we discovered in one of our other hearings that 
very rarely does the Federal Government now consider lease 
purchase arrangements. They don't do that because of the way 
CBO scores that in terms of charging the complete lease costs 
to the building at the time, even though it's a poor financial 
decision, we make a decision that helps make the budget numbers 
look well and better, but at the same time in the long term 
hurts our children.
    Senator Obama and I have worked together on multiple items 
in terms of trying to control spending and efficiency in 
transparency throughout the Federal Government. The underlying 
problem is: Last year the Federal Government spent $500 billion 
more than what it took in. The debt increased by $520 billion. 
That comes to $1,700 per man, woman, and child in this country. 
If you amortize that over 30 years, you're talking about 
$30,000 a year that we're adding to our children's debt.
    This is just one small hearing among many in the oversight 
hearings that the Congress is going to conduct this year to 
look at how we get better. How do we do things more 
appropriately, more efficiently. How do we utilize the 
information that a lot of the agencies know but don't have the 
ability to do because Congress has either hamstrung them with 
regulation or laws that limit their ability to function in a 
proper financial manner that will, in fact, promote efficiency 
and save them money.
    Our goal through this hearing is to listen, to not make 
judgments at this hearing, but also to consider the things that 
maybe Congress ought to be trying to do to make this more 
efficient. The President issued an executive order in February 
2004 that put, for the first time, a demand that Federal real 
property be managed. There's a Real Property Council that has 
now come forward, and it's our hope that through this process, 
and what we can do in terms of oversight, that we can assist in 
the management of the real assets.
    A couple of problems that we've noticed in looking and 
preparing for this hearing: One is the private sector 
utilization of square footage is about one third the amount of 
the Federal Government's utilization per square footage doing 
exactly the same thing. That's a question that raises some very 
disturbing problems for us to look at in the long run. The 
other thing is that the cost often times is greater, both in 
terms of the management cost and the acquisition cost. And that 
is even after you discount for the specificity and specialized 
characteristics of government buildings.
    The one thing we do know is up until December of this year, 
the Federal Government had no idea what it really owns, and has 
no complete record of the condition of those assets, the 
availability of those assets, the efficiency of those assets. 
Through the executive order issued in February 2004, that is 
starting to come together and the Real Property Council is 
starting to put that together. We think that's a good trend, 
but we think probably more needs to be done. And it's my hope 
that during this hearing that we're enlightened, and the 
gentlemen that are going to be testifying before us can help us 
in terms of making decisions to ease this or tell us where else 
to look to make us better stewards of the taxpayer's money when 
it comes to building.
    I want to thank Senator Barack Obama for being here. I 
thank him also for his friendship and the way he's worked with 
me in Congress thus far, and I would like to turn it over to 
him. Senator Obama.
    [The prepared statement of Senator Coburn follows:]
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    [GRAPHIC] [TIFF OMITTED] T7026.002
    
    [GRAPHIC] [TIFF OMITTED] T7026.003
    
 TESTIMONY OF HON. BARACK OBAMA, A U.S. SENATOR FROM THE STATE 
                          OF ILLINOIS

    Senator Obama. Thank you so much. Well, thanks so much to 
Chairman Coburn. I want to thank Senator Carper in advance. I 
know that he'll be here in a second. And obviously I want to 
welcome both of you to Chicago. Having worked with both Senator 
Coburn and Senator Carper, I have to say that both of them are 
outstanding Senators and both of them operate with great 
conviction. And I think this hearing is a testimony to that. 
You have to have a lot of conviction to schedule a hearing in 
Chicago in February, particularly when it starts off with a 
tour of an unheated postal building.
    Senator Coburn. We missed you.
    Senator Obama. Yes. I've seen it before. Now I'm not a 
member of this Subcommittee, but the subject today is of great 
importance to me, one that I'm pleased to participate in. I 
appreciate the panelists who are going to be taking the time to 
enlighten us on some of these issues. I know that you guys have 
busy schedules, and I appreciate you recognizing the gravity of 
the problem.
    I think Senator Coburn outlined the problem well. 
Regardless of what side of the aisle you're on, whether you're 
a Republican, Democrat, Conservative, or a Liberal, one thing 
that's clear is that this country is in dire financial straits. 
We've got a Federal budget deficit that will exceed $400 
billion this year. By the end of 2006, we will have spent the 
same amount of money on the wars in Iraq and Afghanistan. The 
cost of reconstruction in the gulf coast as a consequence of 
Hurricane Katrina and Rita will easily exceed at least $100 
billion.
    At the same time, we in Congress face a whole host of 
difficult choices about how we're going to fund important 
domestic programs that are important to average Americans, 
programs like Medicare, Medicaid, and Student Aid. Today we 
know that the President will release his budget for next year. 
We have no doubt that we will probably see additional cuts in 
these important programs, even as we're going to be continuing 
to ask taxpayers to spend additional monies to deal with the 
war in Iraq and Afghanistan.
    So, given the financial crisis facing our country, I think 
it's incumbent upon our government agencies to function as 
effectively and as efficiently as possible with limited 
resources at its disposal. Which brings us to the subject of 
today's hearing. Insuring that the Federal Government manages 
its assets in the most cost effective way is a critical goal. 
Clearly, it's not going to close a $400 billion budget 
shortfall. It's not going to address some of the structural 
imbalances between revenues and expenditures. I think Senator 
Coburn and I both agree on that. But it's an important step in 
the right direction.
    A more efficient property management system would get 
unneeded and underutilized properties off the government books 
more rapidly. It would provide Federal agencies with much 
needed funds that could be used to provide direct services to 
the American people. And it certainly doesn't make sense for 
taxpayers to continue spending money on holding costs for 
vacant buildings, like the one that Senator Coburn and Senator 
Carper just took a tour of, buildings that the government 
doesn't need or doesn't want. Particularly as is the case here 
where there are private interests involved, and we're talking 
about prime real estate.
    Selling unneeded Federal property also has the additional 
benefit of spurring economic development especially in places 
like Chicago where commercial real estate in downtown areas is 
always at a premium.
    So what I hope we can accomplish today is to learn a little 
more about the process of how the government determines which 
properties to keep and which properties to sell, and in doing 
so maybe we can identify some of the pitfalls that exist and 
figure out how we can improve the system overall. This is just 
the start of an undertaking that's going to require a sustained 
commitment by all branches of government. And I'm very 
appreciative that Senator Coburn and Senator Carper should be 
commended for conducting this oversight process.
    Just one last note. Senator Coburn mentioned that he and I 
have been working on quite a few issues. We joined together to 
see if we could encourage better oversight of the process of 
spending for gulf coast reconstruction. He and I have been 
concerned about no-bid contracts, and we're working on a 
variety of other fronts to see if we can improve the fiscal 
management in Washington.
    Maybe it's because we're both new that we're naive enough 
to think that the process can change. But people often are 
curious how is it that a Democrat from Chicago and a Republican 
from Oklahoma see eye to eye on this stuff. A lot of times the 
media portrays Republicans and Democrats as opposed when it 
comes to budget battles.
    Here would be my argument; that if you are progressive and 
you care about government helping out the vulnerable, and you 
are concerned with the government's ability to provide 
services, then you should be more conservative when it comes to 
how a government spends its money than just about anybody. We 
can't afford to waste money. We don't have enough money right 
now to provide enough student loans for the students who need 
it. We don't have enough money to provide health care to all 
the people who need it. And so from my perspective at least, I 
think it makes perfect sense to be a fiscal hawk because every 
dollar that's wasted on a building that's not being used, is a 
dollar that could have been sent to somebody who really needs 
help. And I think Senator Coburn agrees with me on that.
    So with that, I appreciate very much your time.
    Senator Coburn. Thank you Senator Obama. I'm going to 
introduce our panel and we will recognize you, and then after 
we have heard from all the panel, then we'll go through 
questions.
    First is Mark Goldstein of the Government Accountability 
Office. Mr. Goldstein is Director of Physical Infrastructure 
Issues at the U.S. Government Accountability Office. He is 
responsible for the agency's reviews, audits, and 
investigations in Federal property, telecommunications, and 
special projects. He has done a great deal of work in recent 
years on the government's management of real property assets. 
Mr. Goldstein.

     TESTIMONY OF MARK L. GOLDSTEIN,\1\ DIRECTOR, PHYSICAL 
   INFRASTRUCTURE TEAM, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Goldstein. Good morning. Thank you very much, Mr. 
Chairman, Senator Obama.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Goldstein appears in the Appendix 
on page 39.
---------------------------------------------------------------------------
    Senator Obama. How are you sir?
    Mr. Goldstein. Good, thank you. I thank you for the 
opportunity to testify today on our work related to Federal 
real property and, in particular, the problems with excess and 
underutilized property.
    As you know, at the start of each new Congress since 1999, 
we have issued a special series of reports entitled the 
Performance and Accountability Series: Major Management 
Challenges and Program Risks. In January 2003, we designated 
Federal real property as a high-risk area as part of this 
series, and we issued an update on this area in January 2005. 
We identified excess and underutilized property as one of the 
major reasons for the high-risk designation.
    Other reasons included deteriorated property, unreliable 
real property data, over-reliance on costly leasing, which you, 
Mr. Chairman, held a hearing last fall, and the challenges 
associated with protecting these assets from terrorism. My 
testimony today will discuss one, our designation of Federal 
real property as a high-risk area, focusing on excess and 
underutilized property, and two, describe various efforts to 
address the problem and what more needs to be done. My 
testimony highlights the following points.
    The condition that led to our January 2003 high-risk 
designation still exists. Many of the assets in the 
government's vast and diverse portfolio of real property are 
not effectively aligned with, or responsive to, agencies' 
changing missions and are therefore no longer needed. 
Furthermore, many assets are in an alarming state of 
deterioration. Agencies have estimated restoration and repair 
needs to be in the tens of billions of dollars. Additionally, a 
heavy reliance on costly leasing, instead of ownership, to meet 
new needs is a pervasive and ongoing problem. These problems 
have been exacerbated by underlying obstacles that include 
competing stakeholder interests in real property decisions, 
various legal and budgetary related disincentives to 
businesslike outcomes, and the need for better capital planning 
by real property-holding agencies.
    The Administration has acknowledged the problems in this 
area. In February 2004, the President added the Federal Asset 
Management Initiative to the President's Management Agenda and 
signed an executive order on real property management reform. 
These and other efforts at the agency level are positive steps. 
However, the breadth and complexity of the issues involved and 
the long-standing nature of the problems and their underlying 
causes will likely continue to hamper agencies' efforts to 
realign their real property assets to their missions. As a 
result, we continue to believe that a comprehensive and 
integrated transformation strategy is needed to address the 
aforementioned underlying obstacles. As an example, the Office 
of Management and Budget and other stakeholders could look to 
the U.S. Postal Service Transformation Plan and related 
progress reports, which GAO has supported for guiding postal 
reform.
    In summary, the excess and underutilized property problem 
was, and continues to be, a major reason the real property area 
remains high risk. In the last decade alone, the Federal 
Government has reduced its workforce by several hundred 
thousand personnel, and several Federal agencies have had major 
mission changes. With these personnel reductions and mission 
changes, the need for existing space, including general purpose 
office space, has declined overall and necessitated the need 
for different kinds of space. At the same time, technological 
advances have changed workplace needs, and many of the older 
buildings are not configured to accommodate new technologies. 
The advent of electronic government is starting to change how 
the public interacts with the Federal Government. These changes 
will have significant implications for the type and location of 
property needed in the 21st Century. Furthermore, changes in 
the overall domestic security environment have presented an 
additional range of challenges to real property management that 
must be addressed.
    Mr. Chairman, this concludes my prepared statement. I'll be 
happy to respond to any questions that you or Members have.
    Senator Coburn. Thank you very much, Mr. Goldstein. Next is 
Bill Matthews of the U.S. General Services Administration. Mr. 
Matthews is the Assistant Commissioner of the Office of Real 
Property Asset Management at the U.S. General Services 
Administration. He is responsible for asset management and 
continuous financial improvement for a nationwide portfolio of 
over 1,500 federally owned properties which generate almost 
$7.3 billion per year in revenue. He is also responsible for 
capital planning and investment, portfolio strategy, policy and 
analysis, and disposal. Mr. Matthews.

 TESTIMONY OF WILLIAM H. MATTHEWS,\1\ ASSISTANT COMMISSIONER, 
OFFICE OF REAL PROPERTY ASSET MANAGEMENT, U.S. GENERAL SERVICES 
                         ADMINISTRATION

    Mr. Matthews. Thank you, and good morning Dr. Coburn, 
Senator Obama.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Matthews appears in the Appendix 
on page 54.
---------------------------------------------------------------------------
    Senator Coburn. Good morning.
    Mr. Matthews. I'm pleased to have an opportunity to talk 
about GSA's Real Property Asset Management Program. GSA is one 
of the largest public portfolios of buildings in the world. Our 
portfolio's diverse, consisting primarily of office buildings, 
but also courthouses, laboratories, border stations, and 
warehouses.
    GSA has an inventory system that is capable of accurately 
and consistently reporting real property data that meets the 
Federal Real Property Council's new inventory reporting 
requirements. Using the FRPC government-wide standards and 
criteria, our current inventory would consist of over 8,932 
assets, leased and owned, totaling just short of 388 million 
square feet.
    GSA captures the inventory information in our System for 
Tracking and Administering Real Property. It is the primary 
tool by which GSA manages our real property assets to store 
inventory data, building data, customer assignment data, lease 
information and related data for over 20,000 assignments of 
space for all three branches of government.
    Over 4 years ago, GSA implemented a PBS portfolio strategy 
to restructure our portfolio of owned assets to consist 
primarily of financially performing assets for which there is a 
long-term continuing Federal need to reinvest first in these 
assets to optimize and preserve their value for customer 
agencies and the taxpayer. Thus far, following this strategy, 
we have been able to reduce the percentage of underutilized 
properties from 42 percent to 26 percent within our inventory, 
to reduce vacant space from 9.2 percent to 6.8 percent. We have 
reported in excess of 204 assets and demolished 50 buildings, 
eliminating 3 million square feet of space and outwitting 
reinvestment cost of over $400 million.
    Applying the FRPC definition of asset utilization, 96 
percent of GSA's leased and owned assets are utilized. Only 376 
assets are considered not utilized or underutilized. As a 
result of GSA's efforts to restructure, we have developed 
strategies for non-performing government owned assets ranging 
from cost containment, outleasing of excess space, exchanging 
assets, conveying assets to tenant agencies and disposal. One-
third of our underutilized and unutilized assets have already 
been reported excess and accepted into the disposal process. 
Eighty-nine leased facilities in 2005 were determined to be 
underutilized. In cases like this, GSA uses backfill of other 
competing customer requirements, terminating the lease or 
buying out, when it's possible, the remaining term of the 
lease. At the end of fiscal year 2005, GSA's lease vacancy rate 
was for us a record low level of below 1.5 percent.
    At any given time with an aging inventory it's imperative 
to reinvest, and at any given time some of the buildings in our 
inventory will be vacant, or partially vacant, as a result of 
modernization. Again, in 2005 we had 21 assets in this category 
that were temporarily vacant. Of the remaining underutilized 
assets, space is vacant and available for assignment for 
tenants, however, this group accounts for less than 1.5 percent 
of our total. Now 76 of these buildings are embedded in 
facilities where they cannot be easily separated and sold. 
Eighteen of the buildings are active courthouses. Sixteen 
buildings are vacated because of the Hurricane Katrina and will 
soon be reoccupied. And for the remainder, we're working on 
strategies for reinvestment.
    When it comes time to dispose of an asset, GSA conducts a 
thorough retention disposal asset management and utilization 
kind of study. And for decisions to dispose of them, we would 
do a report of access and turn the properties over to our 
office of disposal, which not only disposes of GSA's 
properties, but any other land holding agency using our own 
authorities or the authorities of the agency that wishes us to 
help them with the disposal.
    We follow a four step process. First, we screen our 
properties for other Federal use that might be continuing 
outside of GSA's needs. We screen for opportunities for Public 
Benefit Conveyance opportunities. We negotiate with local 
community stakeholders to promote highest and best future reuse 
of the property in the context of the community. And finally, 
for properties that for which have not been claimed during that 
screening process, we take them to market using sealed bid, 
public outcry auctions, and internet sales.
    We're particularly pleased with our success in conducting 
internet auctions. Last year we were able to sell a 75-year-old 
warehouse of 55,000 square feet in Portland, Oregon, for almost 
$2 million, and 17 percent over our expected fair market value. 
And the transaction cost was less than one half percent of the 
sale price.
    GSA also makes use of exchange authorities, exchanging 
properties with other Federal agencies and public entities.
    Two of the significant challenges we face in doing 
disposals; the first involves funding required by our customers 
in underutilized assets where there's partial occupancy that 
continues. When we dispose of the asset, those people have to 
be relocated and the obligation for moving costs, 
telecommunications and related soft costs are borne by the 
tenant, who's often challenged budgetarily in their own right.
    GSA also struggles with limited reinvestment capital to 
choose between investing in buildings we know we want to keep, 
backfilling vacant space, replacing important pieces of 
infrastructure, versus the cost of disposal, remediation of 
environmental issues, due diligence, and occasionally, 
demolition costs.
    GSA's portfolio strategy calls for retention of assets for 
which there's a continuing Federal need first, and which 
generates sufficient rental income to cover their cost. With 
the exception of a few historic assets, the opposite of that is 
we divest of what's left. That divestiture has resulted in cost 
savings and holding cost and reduced the amount of vacant space 
in our inventory. GSA uses performance measures and commercial 
benchmarks such as vacant space disposal cycle time, and 
operating costs to monitor our performance.
    Unless there is the use of a special retention of proceeds 
authority, the net proceeds generated from the sale of GSA 
properties are directed for deposit into the Department of 
Interior Land and Water Conservation Fund rather than our own 
Federal Buildings Fund. We believe that retention of proceeds 
is one of the most powerful incentives available for vigorous 
asset management and prompt decisions on disposal.
    A specific example of this financial incentive is GSA's 
pending sale of a two million square foot facility at Middle 
River in Baltimore County, Maryland. In fiscal year 2005, 
Congress specifically granted GSA the authority to dispose of 
the property and retain the proceeds for sale in the Federal 
Buildings Fund. These funds will then be used for real property 
capital investment needs.
    GSA is in a unique position with customer agency 
requirements driving the composition of our real property 
inventory. We experience a dynamic real estate environment with 
customer agencies changing their mission, growing programs, 
shrinking programs, and adjusting to market conditions. Despite 
record levels of disposal in the last few years, GSA's 
portfolio's continued to be relatively stable with modest 
growth.
    Mr. Chairman, that concludes my statement. I would be 
pleased to respond to any questions you may have.
    Senator Coburn. Thank you, Mr. Matthews. Next is Jim 
Sullivan, the Department of Veterans Affairs. Mr. Sullivan 
serves as Director of the Office of Asset and Enterprise 
Management at the Department of Veterans Affairs. Mr. Sullivan 
helped create this relatively new department level office that 
serves as the principal policy office and business advisor 
regarding acquisition management and disposal of all department 
capital assets. Mr. Sullivan.

 TESTIMONY OF JAMES M. SULLIVAN,\1\ DEPUTY DIRECTOR, OFFICE OF 
 ASSET AND ENTERPRISE MANAGEMENT, U.S. DEPARTMENT OF VETERANS 
                            AFFAIRS

    Mr. Sullivan. Mr. Chairman and Members of the Subcommittee, 
I am pleased to appear this morning to provide you with an 
overview of the Department of Veterans Affairs ongoing efforts 
and processes to strategically manage underutilized and vacant 
space within the VA system. VA is the owner, tenant, and 
operator of one of the largest healthcare related real estate 
portfolios in the Nation. Our inventory consists of a large 
assortment of lands, building, and facilities such as 
hospitals, clinics, office buildings and cemeteries. In total, 
we own more than 32,000 acres of land and 5,300 buildings 
spread across 300 sites across the Nation.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Sullivan appears in the Appendix 
on page 62.
---------------------------------------------------------------------------
    At the close of 2005, VA owned approximately 148 million 
square feet of space. Of this total, VA generated revenue from 
about 5 million square feet of underutilized space. This 
represents a million square foot reduction in non-productive, 
underutilized space from the previous fiscal year. Nationwide, 
the cost per square foot to operate and maintain VA properties 
was the equivalent of $4.98 per square foot, or about $750 
million a year.
    VA does, however, have a significant number of properties 
in its inventory in locations that do not coincide with where 
veterans currently live and receive services, and many of these 
buildings are more than 50 or 60 years old. Nationwide, we have 
approximately seven million square feet of vacant space, or a 
little less than 5 percent of our total inventory, scattered 
across the country. As modern trends in healthcare move away 
from large inpatient units and more toward outpatient care, VA 
may see areas of vacant space at one facility, while another 
facility may have a need for significantly more space.
    In 2003, VA launched the Capital Asset for the Realignment 
for Enhanced Services for veterans, or CARES initiative. This 
was to conduct a comprehensive, system-wide approach, 
identifying the demand for VA care and projecting into the 
future the appropriate function, size and location of VA 
facilities. The Secretary of Veterans Affairs announced his 
decision on May 7, 2004, and this became and is VA's roadmap 
for the future.
    I'm excited to share with the Subcommittee the success VA 
has had with public private ventures to leverage VA's 
underutilized assets. VA has put in place transitional homeless 
housing units, affordable housing, hospice facilities, in 
formerly underutilized properties and provide these services 
for our Nation's veterans.
    VA has a unique authority, its Enhanced-Use Lease 
authority, which was authorized in 1991 providing a proven 
method to leverage VA's diverse real estate portfolio and 
market position. From underutilized assets, revenue is 
redirected back to the healthcare and capital operations of our 
medical centers, cemeteries, and benefit offices that serve our 
Nation's veterans every day.
    VA partners with private or nonprofit entities who in turn 
provide as consideration such things as low-cost senior 
housing, cogeneration or energy facilities, homeless shelters, 
childcare centers, mental health centers, office buildings, and 
parking facilities. In 2005, VA received over $900,000 in cash, 
in-kind considerations such as homeless housing, space parking, 
and discounted energy services, and $28 million in a one-time 
payment from these efforts.
    In fact, here in Chicago is the first site whereby VA used 
its Enhanced-Use Leasing authority to implement a CARES 
realignment decision. Specifically, on January 2005, VA signed 
a 75-year Enhanced-Use Lease with Northwestern Memorial to 
outlease an unneeded VA hospital in downtown Chicago at the 
Lakeside facility, providing VA $28 million in outlease 
revenue. And eventually we disposed of that facility, about 3 
months ago, for an additional $22 million which came back to VA 
to provide additional services.
    In addition, VA has recently signed several agreements at 
the Hines facility here in Chicago. VA signed a 32-year lease 
of land in exchange for the renovation of existing VA 
facilities to provide for preferential residential transitional 
housing for veterans. It also signed a 75-year lease in 
exchange for the renovation of an existing VA building for 
senior housing at the Hines facility.
    Similarly, in Minneapolis, VA, we signed a 60-year lease 
for five acres of property in exchange for affordable housing 
facility for needed services for veterans.
    There are many initiatives here that we could speak of, and 
my testimony that is submitted for the record. I would be happy 
to answer any questions, and thank you for your support in our 
commitment to our Nation's veterans. Thank you.
    Senator Coburn. Thank you, Mr. Sullivan. Next is Tom Samra. 
Mr. Samra was named Vice President, Facilities, at the U.S. 
Postal Service in November 2005. He is responsible for one of 
the largest civilian construction programs in the United 
States. He oversees all Postal Service properties, including 
over 8,000 owned and 26,000 leased facilities valued at more 
than $10 billion. He is also responsible for the disposition or 
redevelopment of excess properties. Mr. Samra.

  TESTIMONY OF TOM SAMRA,\1\ VICE PRESIDENT, FACILITIES, U.S. 
                         POSTAL SERVICE

    Mr. Samra. Good morning, Chairman Coburn, Senator Carper 
and Senator Obama. I'm pleased to discuss the Postal Service's 
continuing and aggressive efforts to dispose of surplus 
buildings and real estate. We are particularly pleased to host 
today's hearing. While I will limit my remarks, I have 
submitted a written statement and ask that it be included in 
the record.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Samra appears in the Appendix on 
page 70.
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    I'm relatively new to the Postal Service. I have been at my 
job for 2 months, however, having spent 12 years at UPS and 9 
years at the American Red Cross, I have been impressed with the 
efforts of our people to adjust our network of properties to 
meet the changing demands of our customers and their 
communities. We assume, considering the pace of change today, 
that the process of change will be constant going forward. It 
is our intention to remain flexible, responsive and to keep a 
sharp eye on the bottom line. Because the Postal Service 
operates like a business, recovering our operational costs 
through the sale of our product and services, not through 
appropriations, we must maintain our focus on minimizing excess 
costs and optimizing revenues. We remain focused on maximizing 
customer value.
    Many communities are growing, while others are not. Our 
population centers are shifting and modern technology is 
offering constant improvements to our operations. In order to 
maintain our efficiency, we must continually adjust our network 
to accommodate these changes. These adjustments and 
accommodations often result in turning perfectly useful 
components of our network into surplus properties.
    Since 1997, we have been guided by a focused asset 
management program intended to maximize the return on 
underutilized and surplus facilities through sales and leases. 
This program has allowed us to remove more than 500 properties 
from our portfolio, and has generated more than $1 billion in 
gross revenues. Last year we sold 50 unneeded buildings.
    When a property is no longer needed by our operation, it is 
immediately added to our sale property database and we begin 
the disposing process. Normally, this happens a considerable 
time before the facility is actually vacated. This is the key 
to keeping our inventory of unneeded facilities as low as 
possible. Today fewer than one-tenth of one percent of our 
properties are considered surplus, only 44 out of more than 
34,000. Of these, 27 have been offered for sale, 13 are under 
contract, and 4 are in active negotiations.
    Even with our best efforts, the sale of some properties can 
be extremely challenging. Let me explain more about one such 
property, the former Chicago mail processing center, which we 
just visited. It served us well for many years, but it could 
not accommodate the space requirements of today's automated 
equipment and mail flows. This is an industrial building on 
which construction began in 1922. It is the largest building 
that the Postal Service has ever owned. It is essentially three 
buildings combined into one. Floor elevations do not align. The 
window to floor ratio is extremely low, and the ten floors, 
each of 250,000 square feet, have proved nearly impossible to 
divide into smaller uses. Because of the configuration and 
sheer size, at 2.5 million square feet, it has been proven 
impossible to identify a single use purchaser.
    We have considered mixed use projects, such as a mix of 
office, hotel and residential. These require a very long 
development time and are very dependent on market cycles for 
each use. The high vacancy rate for Chicago area office space 
has made this facility a much less attractive option for 
potential office tenants. It requires extraordinary repairs and 
alterations, and it competes with more modern space. I should 
add that efforts to comply with historic landmark regulations 
have also limited our redevelopment options for this property.
    We have pursued redevelopment approaches for this very 
unique site over the course of the last 7 years. I emphasize 
that each development proposal requires a great deal of time. 
The first was to keep the building intact, with a significant 
residential component. Unfortunately, the market downturn 
following September 11 has all but eliminated the feasibility 
of this plan.
    We have explored the telecommunication hotel concept, which 
appeared at first to be an ideal use for the property. But the 
dot-com crash in 2000 and the changes in banking regulations 
requiring financial institutions to locate operation centers 
away from downtown areas, has rendered this use no longer 
possible. In addition, the fact that this property straddles 
both a major expressway and an active rail operation reduces 
interest in the site.
    Our third and most recent proposal involves modifying the 
site in hope of reviving the mixed use concept. We believe we 
now have a plan that preserves the special historic 
considerations, while making the building more attractive to 
users. We are guardedly optimistic about the prospect for this 
concept, and we are working vigorously with other stakeholders 
in pursuit of this use.
    We are working with appropriate Federal, State, and local 
government agencies to satisfy a wide range of requirements and 
obtain needed support. We have identified a developer who has 
made a significant investment in pursuit of a profitable use 
for the site. We are also continuing our active dialogue with 
the City of Chicago and addressing their concern. I should 
point out that this process, though not typical of most sites, 
is in line with projects of this magnitude and complexity. This 
site's urban location, its proximity to highways and rail 
lines, its historic value, some of the material used in its 
construction that are now considered to be hazardous material, 
and its pure magnitude and scale all combine to demand 
extraordinary due diligence on the part of all who are 
involved.
    We also recognize that this building has become a local 
landmark for Chicago residents. They too have an interest in 
the future of this site. We want to be certain that the final 
use, design, and construction of the ultimate concept will 
optimize the value for each of the stakeholders while 
respecting the need for the Postal Service to minimize expenses 
and deliver value to our customers as a matter of course.
    I want to assure you that this project remains a top 
priority for us. I also would like to thank you for your time 
and interest in this particular project. This hearing will help 
us--the interests of all stakeholders and ultimately your 
support will be instrumental in helping us dispose of this 
quite unique surplus property.
    Regarding our overall program, we continue to diligently 
whittle away at our surplus properties. Other successes you may 
find of interest include the sale of our historic Memphis, 
Tennessee property. This building was sold for $5.3 million 
last month, and because this sale satisfies an immediate need 
on the part of the buyer, we will avoid the cost of carrying it 
as a vacant property. The day we vacate the site, we will turn 
the keys over to the new owner. The sale of an interest in the 
income from a ground lease on our New York Lexington Avenue has 
resulted in revenue of $130 million. And over the last several 
years, the sale of major mail processing facilities in Los 
Angeles and Denver contributed to more than $60 million in 
revenues.
    In conclusion, I can assure you that the Postal Service 
fully recognizes the need to maintain a facility network that 
provides maximum efficiency in a constantly changing business 
environment. This is critical to our mission of providing 
affordable, universal mail service for our Nation and its 
citizens. In a network the size of the Postal Service, surplus 
properties are part of providing the best business solution for 
our operations. The expense related to disposing of these 
properties will remain a necessary business expense that must 
be managed with the same attention to detail and due diligence 
as our other major expenses. We remain open to any suggestions 
you might have on how we might improve our approach. I will now 
be pleased to answer any questions you may have.
    Senator Coburn. Thank you, Mr. Samra. Our next guest is Dr. 
Get Moy. He's the Director of Installations Requirements and 
Management at the Department of Defense. He's responsible for 
the stewardship of the Department of Defense installations 
nationwide. As Director, Dr. Moy supports military readiness in 
life, appropriate sizing of domestic and overseas based 
structures, and improved installation management, while 
ensuring that energy and environmental mandates are met. Among 
other duties, Dr. Moy oversees real property accountability at 
the Department of Defense. Dr. Moy.

    TESTIMONY OF DR. GET W. MOY,\1\ DIRECTOR, INSTALLATIONS 
 REQUIREMENTS AND MANAGEMENT DIRECTORATE, OFFICE OF THE DEPUTY 
  UNDER SECRETARY OF DEFENSE (INSTALLATIONS AND ENVIRONMENT), 
                   U.S. DEPARTMENT OF DEFENSE

    Dr. Moy. Good morning, Mr. Chairman.
---------------------------------------------------------------------------
    \1\ The prepared statement of Dr. Moy appears in the Appendix on 
page 74.
---------------------------------------------------------------------------
    Senator Coburn. Good morning.
    Dr. Moy. I appreciate the opportunity to brief you and the 
other Members of the Subcommittee on how the Department of 
Defense goes about managing its disposal of underutilized and 
vacant space. I have a prepared statement which, with your 
permission, I'll submit for the written record.
    Senator Coburn. All prepared statements will be made a part 
of the record without objection.
    Dr. Moy. Sir, the first thing I would like to start off 
with is the statistics. From the Department's standpoint, the 
Department currently owns and manages 570,000 buildings with a 
plant replacement value of over $650 billion and over 46,000 
square feet. Of the 570,000 buildings and structures, we own 
about 480,000 of those facilities. We lease about 11,000, and 
we manage about 81,000 that are owned by others, such as NATO, 
such as the State governments for National Guard facilities.
    From a perspective of the real property inventory, since 
1997 the Department set out to build a corporate-wide inventory 
management system of its assets. And it's been extremely 
important, because we use that as a forecast as to what our 
requirements are to support operation and maintenance, 
sustainment and recapitalization of its facilities. So it's 
extremely important to keep an accurate inventory system.
    From a management standpoint, what you have in front of you 
in the red colored document, is a document that we issued in 
September 2004. It's a capabilities-based, performance-based 
Defense Installation Strategic Plan that we use to manage our 
assets in the Department of Defense. It incorporates 
recommendations that the General Accountability Office has 
recommended, and has been approved by the Office of Management 
Budget as a mechanism for the Department to manage its assets 
in accordance with the executive order on asset management and 
the Federal Real Property Council's requirements.
    With regards to the specific matters at hand, at today's 
hearing, there are four points I'd like to cover. One is that 
one of our identified weaknesses in real property inventory, is 
the reporting of, the ability to report accurately, with 
confidence, vacant and underutilized spaces. We found that last 
year during our Base Realignment and Closure (BRAC) process, 
commonly known as BRAC, we had to go out and make special data 
calls to make sure that we had current information on 
underutilized and vacant space at the corporate level.
    Learning our deficiency in that area, we initiated a 
reporting process that by September 30, 2006, we at the 
corporate level of the Department of Defense, will be able to 
receive data from our military departments on the exact 
information on underutilized and vacant space and will be able 
to answer specific questions. At least be better to answer 
specific questions on vacant or underutilized spaces.
    The second point is that the management of the Department's 
real property is the responsibility of the Military Department 
that owns that underlying real property, that real estate--the 
Army, Navy or the Air Force. In accordance with the Federal 
Property and Administrative Services Act of 1949, when that 
Military Department has determined that property no longer has 
a need, a military need in the Department, we turn that over to 
the General Services Administration for disposal, which goes 
through its protocols. However, before we actually do that 
there is a very rigorous process to make sure that there is no 
military need for that property.
    The third point is that in 1998 the Department set out on a 
6-year program to eliminate 80 million square feet of obsolete 
and excess facilities. Six years later we had concluded that 
effort by exceeding our target, removing a total of 86 million 
square feet. As part of a continuing effort to dispose of 
unneeded facilities, the Department recently completed a new 
survey of demolition requirements and established a goal of an 
additional 66 million square feet to be eliminated, which we 
are in the process of pursuing.
    The fourth point is that since 1988, the Department has had 
the statutory authority to restructure its land and facilities 
commensurate with changing missions in accordance with the 
legislative mandated BRAC process. The Secretary of Defense has 
mandated that BRAC should be used to rationalize our 
infrastructure and make sure it supports the force 
infrastructure, that joint capabilities are used in joint 
utilization and that we eliminate any excess capacities.
    The previous four BRAC commissions, 1988, 1991, 1993 and 
1995 resulted in closure or realignment of 152 major 
installations and 235 smaller installations. The recently 
completed 2005 BRAC round recommendations affect over 800 
locations, 25 major closures, 24 major realignments and about 
765 lesser actions. The prior BRAC rounds, the General 
Accountability Office has reviewed those and has been very 
supportive of our way of methods of accounting for the savings, 
but the net present value as well as our annual savings.
    I would say that the most successful example of the BRAC 
disposal process has been the Navy's sale of the former Marine 
Corps Air Station property at El Toro, which consisted of about 
3,700 acres and netted about $649 million, which was done in 
partnership with our GSA colleagues and the local governments.
    Along with transforming our military forces, the Department 
has been transforming its installations and business practices 
to include the management and disposal of vacant and unutilized 
space through a comprehensive asset management strategy, and 
we're beginning to see the results of that transformation.
    Mr. Chairman, I appreciate the opportunity for addressing 
and appearing before this Subcommittee this morning. Thank you.
    Senator Coburn. Thank you, Dr. Moy. Let me recognize 
Senator Carper. He's been a great partner this past year as we 
both try to work hard to identify waste and inefficiency within 
the Federal Government, recognize what it does well and give 
kudos to that, but also ask questions so that we can see more 
visibly the areas that need attending to. And I recognize him 
now for both a statement and to start our questioning.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Good. Thanks very much. Mr. Chairman, it's 
a pleasure being your partner in this effort, and I thank you 
for the chance to join you here today for a home game in the 
turf of Senator Obama. And Senator Obama, for those of you here 
in Chicago, is a great addition to the U.S. Senate. And I've 
only been there 5 years. In my experience, I've not seen 
anybody who hit the deck running and began making an impact, a 
very positive impact on both sides of the aisle, any more than 
Senator Obama. So we're just really pleased to be here in his 
home State that he represents.
    Mr. Chairman, I have a statement for the record that I 
would like to offer. But I also want to make some comments in 
general first before I ask a few questions.
    [The prepared statement of Senator Carper follows:]
    Thank you, Mr. Chairman, for continuing this Subcommittee's efforts 
to examine the way in which agencies are managing their property.
    Our constituents expect the Federal Government to have a presence 
where they live. They need access to a post office, to a VA hospital, 
or to an IRS help center. Communities change, however, and the way in 
which Federal agencies serve those communities changes as well. It's 
vitally important that agencies are able to adapt to these changes.
    It's clear from the evidence before us, Mr. Chairman, that the poor 
management of the property controlled by the Federal Government is 
preventing agencies from serving the American people in the best, most 
efficient way possible. It's also wasting billions of dollars.
    Today, as GAO will point out this morning, we have Federal agencies 
in many case working, and I quote, with ``an infrastructure based on 
the business model and technological environment of the 1950s.'' This 
is unacceptable.
    I don't know how much we spend in total each year to maintain 
vacant or under-used Federal buildings, but I do know that every dollar 
the Postal Service spend to keep the building across the street 
standing is one dollar they can't spend to expand or improve service in 
growing parts of the country.
    And when an employee in another agency goes to work every day in a 
old, dilapidated building without the technology he or she needs to be 
effective, I think we lose a little bit of the trust and confidence the 
people we serve place in our government.
    I know all of the agencies here today will be testifying about 
steps they've taken to rid themselves of un-needed property and 
modernize the facilities they truly need. Addressing this problem piece 
by piece, however, is difficult. That's why it's important that the 
President and OMB continue their efforts to establish government-wide 
guidelines for the management of Federal property and help agencies 
develop the expertise necessary to achieve goals.
    I believe our witnesses today represent the agencies that hold a 
majority of the vacant or under-used Federal property out there. I look 
forward to hearing more from them about what they're doing to address 
the Federal Government's property management challenges and what 
lessons we can apply to other agencies.
    Thank you again, Mr. Chairman.

    Senator Carper. I'm going to go ahead and telegraph my 
questions now so that our witnesses, and we thank you each for 
being here, but I want to tell you what I'm going to start off 
by asking.
    I'm going to start off by asking you to, really sort of a, 
each of you a three-part question. Mr. Goldstein, you may not 
be asked a three-part question given the fact that you're not 
with one of the agencies that's before us, but we appreciate 
very much the work that you and your colleagues at GAO do. But 
I'm interested in some of you sort of giving us some examples 
of, maybe a model that you think is worth emulating, something 
you've done particularly well in terms of managing or disposing 
of unused properties, underutilized properties in a way that 
enabled you to recapture some money for the Federal Government, 
for your agency. But I'm interested in best practices and I'm 
going to ask you to hold up a couple of examples. It could be, 
as Dr. Moy's talked about, El Toro, that sort of thing, but I'd 
be interested in that.
    Second, some of the practices you're not so proud of, or 
situations that you feel that are really problematic, and that 
you are trying to get your arms around and trying to figure how 
to dispose of or better utilize an underutilized asset.
    The third thing I'm going to ask you to do is to tell us 
what we can do. Not just the three of us, but the Senate, the 
House, and the executive branches. What can we do in terms of 
enabling you to better manage the properties that you're 
responsible for? To sell those which need to be sold, and to 
upgrade those which need to be upgraded, but just some good 
practical solutions if you will.
    My colleagues, Senator Coburn and Senator Obama may have 
already mentioned this, but today is the day that the President 
submits his budget to the Congress. We expect a budget deficit 
to be forecast there, to be somewhere in the range of $300 to 
$400 billion. We are, in my view, we're swimming in a sea of 
red ink in this country. And what the combination of an 
enormous Federal budget deficits coupled with trade deficits 
almost twice as large, roughly $700 to $800 billion, it's just 
not sustainable.
    The President calls for cutting the deficit in half, I 
think by 2009, but I believe that inherent in that forecast is 
a couple of assumptions which I'm not sure are credible. One is 
that we are not going to be spending any money in Iraq then, 
we're not going to be spending any money in Afghanistan then, 
and three is that I don't think that we will have fixed the 
problems that we have with the alternative minimum tax, which 
is going to be an expensive fix as we all know.
    I think the truth of the matter is if we are going to begin 
making real progress on reducing our deficits, it has to be a 
broad, comprehensive approach. It just can't be surplus 
property or underutilized property, although that's important. 
It's got to include collecting the taxes that are owed. And 
Senator Coburn and I have had the first of a series of hearings 
that focus on all the money out there that's owed to the 
Federal Government, a couple hundred billion dollars, that's 
just not being collected.
    We've had some hearings also on something called improper 
payments, and there's been a fair amount of focus on monies 
that are improperly paid with respect to the war in Iraq, with 
respect to Katrina and on the heels of Katrina. But it turns 
out there's probably $50 billion on top of that of improper 
payments. Mostly overpayments that some of us, GAO's been very 
helpful in this, our inspector generals are helpful in this, in 
trying to figure out where we are improperly paying money and 
how can we reduce that.
    My own view is if we're going to make progress on the 
deficit, we've got to figure out how to, as the Iraqi's stand 
up militarily, how do we stand down and how do we realize some 
cost savings from doing that. And how do we get the other 
nations in the region to come in and backfill for us as we 
begin to reduce our presence there.
    The President, in his State of the Union address last 
Tuesday, talked about entitlement programs, he talked about a 
Blue Ribbon commission as the boomers, some of us, get ready to 
move toward retirement age. How are we going to--what is the 
impact of the boomer retirement on Medicare, Social Security, 
Medicaid, and we look forward to the creation of a real 
bipartisan commission that will help us to begin to deal with 
those.
    Another little program that I think has some real promise, 
and this is just an example. We've got to look everywhere for 
savings. And one of the places we're going to look is flood 
insurance. We have in our national flood insurance program some 
kind of a perverse incentive that encourages people to build in 
the most dangerous places, or are likely to have damage to 
their homes and with a program that's $10 to $20 billion in the 
red.
    And finally, we got a lot of really good ideas out of GAO, 
and a lot of good ideas out of the inspector generals, and what 
we need to do is to be your partner in taking those good ideas, 
putting a spotlight on them, and making sure that we follow up.
    And the last thing I would say is I would like to close 
before I ask you to respond to my three-part question, I just 
want to mention the theory of holes. The theory of holes, which 
was offered by Dennis Healy, former Exchequer over in Britain. 
Dennis Healy used to say that when you find yourself in a hole, 
stop digging. And we are in a hole, big hole, as a country 
fiscally. And I think as we consider tax cuts, further tax cuts 
to make, we have to keep in mind, particularly as we would 
propose to cut the taxes of those who, frankly, are doing 
pretty well, that we have to be careful not to dig the hole 
much bigger. We have to stop digging. And as we prepare to do 
all these other things to try to right our fiscal ship of 
state.
    I want to go back to my three-part question, if I may. And 
I wanted to ask you again, if you'll recall, for each of you to 
give us an example or two of the best practices that you're 
really proud of what you and your agency have done to better 
manage your properties, dispose of your properties, get some 
money back for the Treasury.
    Two, a couple of examples, just be honest with us where 
you're disappointed with the results that you've gotten. 
Everything we do, everything I do, I know we can do better. And 
I'm sure the same is true for all of you.
    And the last piece is what do we need to do, what laws, 
what regulations do we, either Congress or the Administration, 
need to change to enable you to think outside the box, to be 
creative, and end up with better and better results as we 
approach this area. And Mr. Matthews, since you are the closest 
one to me, I'm going to call on you to go first, and then we'll 
just head on down the line.
    Mr. Matthews. Thank you. In terms of best practices, there 
are a number. I specified one in my statement about the use of 
internet auctions and public outcry auctions. We're 
consistently having excellent results when we bring the 
commercial, our commercial advisors in to help us market. This 
is after we've gotten past the public benefit conveyance and 
the community involvement, properties we actually sell. We 
found consistently that the better we can expose those 
properties to the market using the best commercial practices, 
the better success we have.
    Public outcry auctions work well. Internet auctions work 
equally well or better and have a lower cost.
    Senator Carper. Explain the difference between the two.
    Mr. Matthews. A public outcry auction, for example, using 
the building next door you just toured, if they conducted a 
public outcry auction we'd have a contract appraiser who would 
come in and heavily publicize the sale of the building and 
actually conduct a live auction right there on the spot. It 
does tend to have fairly high administrative costs, but they're 
very effective. And the better they're exposed to the public 
and the market, the better the results.
    You can do the same thing on the internet by publicizing 
and reaching out to actually bigger market than the local 
markets. And consistently when that is done and allowed to have 
a soft close so that it closes at about this day, but we may 
leave it open 24 or 36 hours beyond that point, we're finding 
we attract investors from all over the country. Not just from 
all over the metropolitan, or geographic area.
    Senator Carper. How long have you been doing the internet 
auctions?
    Mr. Matthews. For about the last 3 years, and there is some 
disagreement among our stakeholders as what's the best way to 
do that, and whether or not the public outcry auction is better 
than internet. I would never advocate that we only do that or 
that we never have sealed bid. There are some properties where 
it's small properties and it probably is best marketed to local 
people in the community. But for the bigger, more commercially 
valuable properties, the public outcry, or even better, the 
internet auction seems to generate very good returns, well 
above what our estimates are.
    Senator Carper. Give me an example of a practice or a 
procedure, or maybe a property where you're not pleased with 
what's going on, maybe disappointed with what's going on, and 
maybe it's even something where we ought to be involved 
changing rules and regulations or statutes that would enable 
you to turn that around. Anything come to mind? It doesn't have 
to be one example, it could be like a series of them.
    Mr. Matthews. Well, I'll give you a good practical example. 
For the last few years, we have, regardless of whether we got 
to keep the proceeds, we decided we're going to let go of what 
doesn't serve a good Federal continuing need. And the easy 
ones, the vacant ones, and the ones that clearly nobody has an 
objection to are leaving the inventory fairly rapidly by our 
standards. But now we're getting into properties that are still 
partially occupied and still serving some degree of Federal 
ongoing program need.
    For example, in Clearfield, Utah we have two large 
warehouses, at one time served a number of Federal agencies. 
Right now the primary tenant is the IRS who, in Ogden, Utah, 
has a big processing center. And this is their warehouse and 
forms distribution operation in these two warehouses. As the 
other tenants have left, we found ourselves with half of one 
building and a quarter of the other building. Together we could 
have about filled up one building, but the costs of moving 
everybody out of the other one into the other is pretty 
staggering.
    And we've allowed that discussion to drag on too long 
because we haven't engaged with the customer enough to talk 
through their long term needs and whether they're realistic 
about what the cost would be, whether they even need to be 
engaged in warehousing opportunities anymore. And we've been 
reluctant to spend our own limited capital to move and 
consolidate. This cost could be as much as a million dollars.
    Senator Carper. Now that's not one that we need to fix. 
That's one that you all need to fix, right?
    Mr. Matthews. That's an example of where lack of compelling 
incentives caused us to be slow to make up our mind what's best 
to do. And I'm neither picking on the occupant customer, and 
I'm not trying to be overly critical on us. They're hard 
decisions to make, because they involve alternate----
    Senator Carper. Give us an example, if you will, before we 
call on Mr. Sullivan, give us an example of something we need 
to do differently in order that you can be more successful.
    Mr. Matthews. First, I think the most compelling thing that 
Congress can do is to make sure that every Federal agency can 
retain the net proceeds for continued reinvestment in the 
existing inventory. The biggest deterrent I have seen both 
within my own agency and with other land holding agencies that 
we serve, is the sometimes punitive effect of deciding to do 
the right thing. And how taking a property that may have been 
in the inventory a long time, it may have environmental 
remediation, it may have historic value, it may be of strong 
interest to community interest groups or community elected 
officials. It takes a lot of money to do the due diligence. 
Sometimes it takes a lot of money to clean up the environmental 
problems to a level appropriate to satisfy the State 
regulators. And then it takes a while to work through the 
issues with a community.
    If at the end of that all the costs go to the program that 
holds the property and none of the benefits, the marginal cost 
of holding that property is not very painful to endure as 
opposed to taking on all those costs in a long process that 
sometimes is painful and difficult. So that positive incentive 
is just critical to your success.
    Senator Carper. I get you.
    Mr. Matthews. There's one other thing, if I may?
    Senator Carper. Yes. Sure.
    Mr. Matthews. There's a whole web of disposal authorities 
and associated environmental and historic preservation and 
other laws that were all written for great public purposes. I 
wouldn't suggest we repeal any of them, but there are points in 
the law where they're not clear. They don't have time limits. 
It's not always specified who does what function. And they're 
not insuperable obstacles. We can always find a way to dispose 
of the property and work our way through the process. But since 
there's so many overlapping laws and authorities, it may be 
time to re-engineer and look at the whole web of related legal 
requirements that we have to contend with that with just minor 
tweaks here and there might speed the process for everybody.
    Senator Carper. OK, thank you. Mr. Chairman, I'm going to 
be mindful of the time, and I'd be happy to hold off until 
maybe second round, but I'm going to ask the same question of 
each of the other witnesses.
    Senator Coburn. OK. Senator Obama.
    Senator Obama. Well, thank you very much gentlemen for your 
presentations. I found them illuminating. Mr. Samra, let me 
start with you. I don't want to get bogged down with the 
particular property that was the subject of the tour this 
morning. My understanding is that there are some ongoing 
negotiations that have been taking place. I am curious to find 
out whether there's any time frame whatsoever in terms of 
whether the negotiations on the disposal of that property might 
be completed.
    Mr. Samra. Thank you, Senator. We are really very anxious 
to have a very short time line for negotiations, but again, the 
magnitude and complexity of this deal and stakeholders that 
have interest in this prevent me from giving you an exact time 
line. But we are very positive about the third and current 
proposal that we have today with this property. I met with the 
Planning Commissioner of the City of Chicago 2 weeks ago, and 
we're going to have another meeting this week, and I think we 
are very close to coming up with the right solution for 
everybody.
    Senator Obama. Good. Well, I would just emphasize obviously 
this has been sitting for a long time. And I think my 
constituents, the City of Chicago has a deep concern in making 
sure that we're utilizing a property that is admittedly a 
little bit outdated, but continues to be on a prime site. And 
my hope would be that you working with the city and others can 
get this dealt with as quickly as possible. And if you need 
help from my office, please let me know. But I think for it to 
be sitting there for years and to be spending the amount of 
money that's being spent just maintaining it doesn't make too 
much sense. So I'd like to emphasize that.
    Let me shift to a broader point. And I thought that Senator 
Carper asked an excellent question about what laws we might 
change to improve all of you doing your tasks. I know that 
there has been some question, Mr. Goldstein, I think you 
mentioned it, in terms of the difficulty of getting the right 
balance between leasing and purchasing. I'm curious as to are 
there laws on the books that we could change that would make 
sure that you are, that all these offices are operating at an 
optimal level when it comes to the right mix of leasing and 
purchasing land?
    Mr. Goldstein. Senator, I think there are a number of 
things. In fact, this Subcommittee held a hearing last fall 
that explored these at some length. But it's clear that the 
current structure of the budget laws do hamper agencies, and do 
hamper the government in being able to effectively and 
efficiently deal with its property issues because of the up 
front scoring that's required. And I know Senator Coburn 
mentioned this this morning. That's one of the biggest issues 
that hampers agencies. There are many others, and Mr. Matthews 
referred to some of them. I think some combination of 
flexibility and greater coordination is needed. Flexibility 
with respect to the ability of agencies to retain net proceeds 
from its sales and disposals would be helpful.
    Senator Obama. How does it currently work? It all just goes 
back to, let's say you get net proceeds from one of these 
agencies. Let's say one of the agencies that is, Mr. Matthews 
from GSA, obtaining property from GSA. How does that work?
    Mr. Goldstein. Well, several agencies have the authority to 
retain proceeds. VA does. DOD does to some extent. GSA did in 
the last fiscal year.
    Senator Obama. Is that statutory or is that just internal 
policy?
    Mr. Goldstein. That is, those are statutory.
    Senator Obama. OK.
    Mr. Goldstein. And they're able to retain proceeds, net the 
cost of disposal itself in order to, and it varies agency by 
agency, it doesn't all work exactly the same way. It depends on 
the statutes for each. But they're able to retain some of those 
proceeds for dealing with other properties, for repairing, for 
alteration, and for a variety of other purposes to improve the 
properties.
    And this is another one of the major issues that the 
government has beyond having issues with respect to the leasing 
problem that we've mentioned as well as to vacant property, is 
the vast backlog in deteriorated property and the amount of 
money that agencies have said it will take to fix existing 
properties that it wants to retain, and those are in the tens 
of billions of dollars.
    Senator Obama. And how are we going about sorting through 
all that? And I don't know whether that's best directed at you 
or Mr. Matthews, or the other agency heads, but what are we 
doing about deteriorating properties?
    Mr. Goldstein. It's one of the issues that the Federal Real 
Property Council is working through. One of the things that GAO 
has suggested over the years is that the government, and I 
mentioned in my testimony this morning, create a transformation 
plan that would bring together a lot of different stakeholders 
to deal with a variety of problems, because many of these 
problems are interrelated. If you can get rid of some of the 
vacant property and use those proceeds to fix properties. If 
you could reduce the overall costs from leasing and be able to 
own property. If you could find ways to limit problems 
associated with the environmental restoration or historic 
preservation, all the various things that we have.
    The problem in knowing exactly what properties the 
government does own, and what condition they are, and how 
secure they are in, and having all of this information 
available and useful so the government can strategically deal 
at an over-arching level with its real property portfolio. That 
would be very helpful. It's all interrelated.
    Senator Obama. Let me turn to some of the other panelists. 
The issue of environmental clean up or containment issues has 
come up. You say that's part of the issue that's been holding 
up some sort of solution to the Post Office property here in 
Chicago. Do all the agencies, as soon as they have identified a 
property for disposal, do their own environmental assessment? 
In the case of these auctions that you mentioned, whether it's 
through the internet or, what was it, public cry auction?
    Mr. Matthews. Outcry.
    Senator Obama. Outcry auction. Have those environmental 
assessments already been done, or are often times you putting 
properties up for sale in a caveat emptor, buyer beware 
situation? How do the agencies handle that?
    Mr. Matthews. We try to find out long before we get to the 
point of disposal and document our properties which have 
environmental liabilities, which can range from relatively 
modest, easily fixed problems to extremely difficult 
challenges.
    Senator Obama. Right. So it might be lead paint, it might 
be asbestos, or it might be storage tanks or----
    Mr. Matthews. Right.
    Senator Obama [continuing]. Serious ground contamination 
that would be much more costly to deal with.
    Mr. Matthews. And there are options now that didn't used to 
be available. If we have well documented issues sometimes we 
can sell them with those disclosed and subject to the State 
regulators cleaning it up to whatever level they think that the 
new owner will take it to within zoning and land use 
restrictions. It's better than it used to be. It's easier.
    To go back just a little bit to your previous question 
before you got into environmental, I'll give you a good example 
of how this comes up is a GSA property in Buffalo, New York. 
It's about a 300,000 square foot multi-tenant Federal building. 
It's built in the 1960's. It's full of asbestos. It has a huge 
reinvestment liability. It passed it's 30-year life cycle for 
replacing elevators.
    We looked at the continuing customer need, which remained 
unchanged, and we looked at the market alternative, which was 
leasing. And in the City of Buffalo, there was lots of 
excellent space at a very reasonable rate. We decided to sell 
that building, move everybody to lease space. Their rent didn't 
go up and we avoided a couple hundred million dollars in 
reinvestment. And before we've even gotten through the disposal 
process, we've found that there's a remarkable degree of 
interest in people who want to redevelop that property.
    Senator Obama. So that's a good story.
    Mr. Matthews. That's a good story and it shows that there 
is some flexibility. You don't have to fix every single 
environmental issue every time.
    Senator Obama. Right. OK. And gentlemen, anything you want 
to add on this issue of either environmental clean up or the 
broader questions that I posed earlier?
    Mr. Samra. First let me thank you for extending the offer 
of helping us with the existing building in the Postal Service. 
We, at the Postal Service, have a full time department that 
deals with environmental issues in our buildings. Any issue 
that we determine that we have to deal with it immediately, 
deal with it immediately. Everything is done and finished with 
it. However, for the facilities or properties that become 
surplus, as you know, some of the asbestos and paint, you can 
keep them. They're encapsulated. If the new user of the 
building can use the building without disturbing that. So we 
disclose the information to them, and if, depending on what the 
user wants to do with it.
    Senator Obama. OK.
    Dr. Moy. Senator, there's a couple of ways I want to answer 
your question. One is in terms of the environmental clean up, 
restoration. Of course, with a process as involved as the Base 
Realignment and Closure Act, every time we close a base or 
realigning to a new location of major troops, we go through the 
National Environmental Policy Act, and the process to determine 
what the impact is. So we work in conjunction with the local 
regulatory, the local governments to make sure that whatever 
new use is taking over that, that what we turn over is 
compatible with what's coming up.
    I had mentioned we'd gone through some extensive 
demolition, forecasting what our demolition requirements are of 
vacant underutilized spaces. Those are usually within our 
internal, within the fence line, and we make sure that we take 
the proper precautions. If we have lead paint or asbestos, that 
we are following all the necessary requirements, but we do go 
ahead and execute the demolition as program.
    In regards to best practices, I think one of the things I 
would come back to is we look at the infrastructure management 
as a big business in the Department of Defense. You can just 
look at our inventory. And so one of the things that we did 
early on was look at large companies, private companies, and 
see what practices they follow in terms of investments, in 
terms of financing, in terms of their disposal, their public 
works practices. So what we try to find is what their best 
practices we can adopt in the Department of Defense.
    One of the things that we have found to be a problem in the 
past was we were never able to find out or come to a 
conclusion, and in competing with the weapons systems and the 
manpower, what was the cost of operating our infrastructure. 
Well, based on using industry standards and what our models are 
in terms of sustainment, operation and maintenance, 
recapitalization for restoration and modernization, we've been 
able to come up with pretty clearly what the forecasting 
requirements are to support our infrastructure in the 
Department of Defense. It's still a leadership decision to 
decide what investments to make, but at least the leadership 
knows what the requirements are needed to invest to make sure 
that we have the assets that are supporting the operational 
forces in our mission.
    Senator Obama. Well let me, since I'm a guest of this 
Subcommittee, let me not overstay my welcome. Mr. Chairman?
    Senator Coburn. We'll come back for another round.
    Senator Obama. If we have another round, I'll be able to 
ask Mr. Goldstein.
    Senator Coburn. Yes, we will. Let me ask Mr. Goldstein. 
Right now, if the American public wanted to go on line, could 
they find anywhere on line, other than security related or 
national security related issues, could they find any one place 
where they can find every piece of property the Federal 
Government owns?
    Mr. Goldstein. Not that I'm aware of sir.
    Senator Coburn. And could anybody in the Federal Government 
find that?
    Mr. Goldstein. Not that I'm aware of.
    Senator Coburn. And why is that?
    Mr. Goldstein. Well, I think there's a couple of reasons. 
When GAO issued its first report and put this issue on the 
high-risk list several years ago, we said that there had been 
no progress. There was no central focus looking at property 
management and the portfolio. That has changed obviously, and 
you've alluded to some of that. There is work ongoing on trying 
to improve the worldwide inventory and to understand what it is 
that the government owns, and what condition it's in, how 
secure it is, and how old it is and all those kinds of things. 
But it takes a while. And as the Defense Department has 
indicated when it tried to do the last round of BRAC, it wasn't 
able to do as much as it could, or could not do it as quickly 
as it wanted to because it lacked some of that central data.
    Senator Coburn. So it's going to be 2\1/2\ years for the 
Defense Department to even know what they have, essentially. 
Correct?
    Dr. Moy. Sir, we're hoping to have by September 2006, the 
inventory of what underutilized and vacant space we have on 
hand. And keep that in a little bit more ongoing basis.
    Senator Coburn. Right. But the executive order that was 
issued in February 2004 requested that all the agencies by the 
end of this last year, fiscal year, report into the Real 
Property Committee so that we could get a handle on it. So it's 
important for people to know, we don't have transparency within 
the Federal Government, so that you all could transfer 
information, if you might be able to trade sites. And we 
certainly don't have the accountability if we don't have the 
information. And those are the things that we're trying to get. 
Part of that is because we've set it up.
    GSA put this booklet out, and it's very revealing because 
it talks about CERCLA and NEPA, and all the different 
contaminants and everything that has to go through, all the 
different things that have to be looked at just in terms of our 
environmental assessment before you can even consider looking 
at an excess property.
    So I think what one of the things that we want to try to 
focus on is when do you think, in terms of your agencies, are 
we going to be able to have a consistent, yearly update of what 
the real properties are, what the conditions of the real 
properties are, what the excess properties are, the 
underutilized properties are, and those properties that are at 
risk from an environmental standpoint or otherwise. Anybody 
want to answer that? Go ahead, Mr. Samra.
    Mr. Samra. OK. Thank you. As I mentioned before, the 
process that we have at the Postal Service is really very 
effective. Having spent 30 years out in the private industry, I 
would say this is one of the best programs I've seen. We have a 
database for every facility that we own. We have a database 
that tells us every facility that we lease, when the lease 
expires and when we need to renew it. We also have a database 
that keeps track of every surplus property that we own.
    Senator Coburn. So the Postal Service knows what it has.
    Mr. Samra. Absolutely.
    Senator Coburn. It's available.
    Mr. Samra. Absolutely.
    Senator Coburn. And it can be utilized.
    Mr. Samra. Yes.
    Senator Coburn. All right. Mr. Sullivan.
    Mr. Sullivan. Yes, Mr. Chairman. The Department of Veterans 
Affairs has a complete database. We can tell you how many 
leases down to the square foot we have anywhere in the country. 
As of last week, we had over 1,100 leases. We had 146 million 
square feet that we own. We can tell you based upon the latest 
guidance from the Federal Real Property Council, not only how 
many buildings, acres, how many flagpole structures, and even 
in our case, historic properties that have been designated.
    What we're trying to move, which is the next step is, now 
that we know what we own, how much it's costing us, we have our 
strategic plan, if you will, for CARES, which is where we want 
to be in 2012 and 2022, is saying here's our current assets. 
Here's our plan. What do we do to shift from one to the next. 
And that's what we're working on very diligently now.
    Senator Coburn. Is anybody surprised that in 2006, that we 
have two of the 20 agencies that have land, real property who 
really know, GSA knows, and I'll given them credit. They know a 
lot about what they have, but it's through multiple agencies. 
Is anybody surprised that it's 2006 before we're finding this, 
a management practice that should have been instituted long 
ago? Is anybody surprised at that? And if you're not surprised, 
why aren't you surprised?
    Mr. Goldstein. Mr. Chairman, I think it's something that 
does take a long time to understand. As we've all said this 
morning, the government owns a staggering amount of property in 
every major city and many rural parts of the country. And for 
many years, the government did not pay terribly close attention 
to this problem. There were other pressing problems, I suppose. 
I would give the government some credit today. It is moving in 
the right direction.
    Senator Coburn. Right.
    Mr. Goldstein. But probably not fast enough. And as I've 
indicated, there is more that needs to be done. GAO this year 
will reevaluate whether or not Federal property would still 
remain on this high-risk list and we will go out and examine 
the implementation of the executive order, and we'll work with 
the Federal Real Property Council and really try to determine 
whether the kinds of things agencies are doing are sufficiently 
successful and what more needs to be done. So we will, in 
January, be able to update our work in this area.
    Senator Coburn. I think that's a very important point, 
because we've seen a tremendous movement in several agencies 
and we've seen a tremendous collection of data. The important 
thing is to be able to utilize that data to save the American 
taxpayer money, and to more efficiently spend the money that 
we're going to spend on that. The FRPC, the Federal Real 
Property Council, does that meet monthly or quarterly?
    Mr. Matthews. There's not an exact requirement. Generally 
the full committee meets quarterly, and there are a number of 
subcommittees that deal with various aspects of asset 
management that meet monthly or every other month.
    Senator Coburn. OK. As many of you know, last October the 
House Government Reform Committee passed out and improved a 
bill called the Federal Real Property Disposal Pilot Program 
and Management Improvement Act. And the whole purpose behind 
that is to expedite the disposal of Federal excess, surplus, 
and underperforming real properties, for 5 years to look at 
that. The bill would also codify the Federal Real Property 
Council. Is that a good start? Any comments on that, positive, 
negatively?
    Mr. Goldstein. Mr. Chairman, we testified at that, at the 
hearings for that particular legislation. My boss, Controller 
General, was GAO's witness. And at that time, we felt that it 
would be useful. We supported it. We supported the fact that 
any experimentations and pilot projects would probably be very 
helpful. It was only dealing with a small portion of the 
government's portfolio, but given where we are with property 
issues, we felt that it would be helpful. Our sort of one 
caveat at the time, was that it obviously would need some 
pretty strong Congressional oversight, and then we recommended 
that hearings on it be held regularly, because these were sort 
of experimental approaches and how proceeds would be 
distributed. But we were generally supportive.
    Senator Coburn. All right. Senator Carper.
    Senator Carper. Thanks, Mr. Chairman. I want to go back and 
amend my earlier question just a little bit. And the Chairman 
was just asking a question about why is it taking us so long to 
put together in a manageable form the data involving property 
that we own or lease. And why don't we do a better job of 
utilizing that data.
    I think part of it, and a couple of our witnesses have 
alluded to this, deals with the incentives that we provide for 
agencies to dispose of property. And whether or not they 
actually dispose of the property, do they actually realize any 
benefit from that disposition. I think I heard Mr. Sullivan 
mention earlier that the VA has the ability of when you dispose 
of a property or assets, that you don't need any more, that you 
actually get some benefit from the disposition of those assets. 
I see that as maybe a best practice. And I'd like for you to 
just take a minute and talk with us about that.
    Mr. Sullivan. Sure. We have an authority which is called 
the Public Private Venture Authority. And we think we've had a 
lot of success in using that to take pieces of unused property 
or buildings, working with private or for not-for-profit 
developers and coming back with a use for that building which 
would provide a service to veterans and provide additional cash 
flow back to the VA and put those properties back on the tax 
rolls. I think in all of this, we need to find a win-win that's 
going to work for the localities and work for the Federal 
agencies to provide the incentives and also some incentive for 
the locality. And in many cases we have found that to be 
particularly helpful.
    In Lakeside here in Chicago, we just finished doing a deal 
where we had three hospitals in Chicago. We went through all 
the processes that says, we don't need three. Everybody knows 
that, so when we got it down, we decided to surplus one of the 
hospitals. There we entered in an Enhanced-Use Lease with 
Northwestern Memorial, which is a local hospital here, to lease 
it to them for $22 million. Subsequent to that lease, we then 
moved to dispose of it for another $28 million, and we just 
signed that this January. So in that case, it works very well 
for the people here. It works very well for VA. We're getting 
$50 million back in services and in cash to VA.
    Another example we're particularly proud of is in 
Leavenworth, Kansas. We had about 50 or 60 acres out there that 
we had all buildings on it. We were still paying to maintain 
them. We needed to get rid of them. We had to deal with the 
needs of the historic folks, because all of these properties 
had historic designations. It was listed as the No. 1 property 
in danger on the National Historic Register. So we worked with 
our Public Private Venture and got a non-profit developer to 
come in, deal with the historic issues, renovate some of those 
facilities which under the lease he is going to. We're going to 
provide homeless services, transitional housing. We're also 
going to free up about 50 acres of land, because we have a 
cemetery next door that is out of land. So it will be a way to 
give VA the land, give the developer and some of the folks 
locally what they need, and have a significant reduction in the 
amount of money VA has to spend.
    So I think it has to be not one size fits all here. The 
more tools that we can have to find ways, and I would encourage 
anything innovative, to bring back, value back to the 
government from underutilized properties is what we need to aim 
for.
    Senator Coburn. Yes. Are there other agencies that are 
seeking that same authority that you have at the VA?
    Senator Carper. Or, our GSA friends, or GAO may be aware of 
this.
    Mr. Matthews. GSA has several times sought similar 
variations on the authorities available. That gets back to what 
I mentioned earlier. There's a whole web of archaic laws and 
regulations involving the use of real estate, reinvestment in 
real estate, and it would be nice to have a standard that we 
could all use. I'd love to have the tools in his toolbox.
    Senator Carper. I think there's something to this.
    Senator Coburn. The interesting thing is, is why isn't 
there the same standard across all the government agencies?
    Mr. Matthews. The government's been in the real estate 
business since the founding of the republic. And for most of 
that first 200 years the emphasis had been on acquiring for 
specific purpose, postal, defense, and other public purposes 
that have come into being at different points of time with 
different rules and regulations.
    Only in the last 15 or 20 years has there been a growing 
sense that there's so much real estate that we need a more 
focused, disciplined attention to asset management. And most 
agencies are responding pretty positively to do that for their 
own reasons, and with encouragement from stakeholders like 
yourself. But we've not had, that I'm aware of, a single 
legislative mandate for portfolio and asset management, some 
broad governing principles that apply to all of us. It's always 
been built around programmatic needs of the particular agencies 
that are holding the real estate.
    Senator Carper. I think part of it is VA, we know that 
traditionally or historically we've underfunded a lot of cases. 
VA needed healthcare for veterans. And this is, by virtue of 
giving VA the ability to retain the money from the disposal of 
the assets it helps them to limit their shortfall.
    Mr. Sullivan. One of the best features of it, at least in 
our views, is not only money, but you can get in-kind 
consideration in terms of services or facilities or space back. 
Because in many cases it may be much easier for the private 
sector to be able to give us space, or to give us services back 
rather than cash. And that flexibility opens many doors on your 
ability to get rid of properties if you don't have to have the 
cash in hand up front. And in many cases, we provide homeless 
services which are a big issue for us, and it allows us to be 
able to get those services and facilities there which otherwise 
we would have to use appropriated dollars for. And so it's a 
win-win for everyone.
    Senator Carper. Wouldn't it be amazing, and I say this to 
my colleagues, wouldn't it be amazing if the VA not only turned 
out to be sort of model here for us in the way that we handle 
the disposition or disposal of assets and land and buildings as 
it was, but also a model with respect to the way that we handle 
the procurement of medications for our veterans, and also a 
model for the way we harness information technology to provide 
electronic health records for folks. It's just very 
interesting. My time's about expired. I'm going to ask Dr. Moy 
if you would respond to my earlier question, just for the 
record, please. If you would, that would be great.
    And I have a somewhat different question for Mr. Samra. I'd 
ask you to respond to my first question for the record, 
especially looking for what are the things that we're doing we 
need to do differently; Congress, the Administration, 
regulation, executive action, legislation, that would enable us 
to use a little more common sense and get to a better practical 
solution.
    Mr. Samra, this falls in the category that all politics is 
local. And what I want to do is ask you a question, just as 
there's interest here in Chicago about the vacant postal 
production facility, I have a similar kind of question I'd like 
to ask you about that relates to the Delaware Valley, 
Philadelphia, and Delaware.
    A couple of years ago, President Bush put together a 
commission to study the Postal Service. And he found that the 
Postal Service had, I believe, more processing capacity than 
was believed to be needed. The commission also found that 
processing productivity often varies from plant to plant 
because the Postal Service is still using some older facilities 
that often can't fully accommodate the newest state-of-the-art 
processing equipment.
    I know that the Postal Service is currently building a 
brand new single story processing facility just outside of 
Philadelphia, and my question is this. If you can answer it 
fine, if you can't just answer it for the record, but if you 
can answer it here that would be great. A question about this 
processing facility that's being built just outside of 
Philadelphia, which we consider a suburb of Wilmington, 
Delaware. Is this facility the model for what the Postal 
Service would like to do around the country? And second, what 
does a facility like the new one in Philadelphia allow the 
Postal Service to do with respect to cutting costs and finding 
efficiencies?
    Mr. Samra. Thank you, Senator. Let me start by answering 
the first question. The nature of the Postal Service, which is 
run like a private business not like a government agency, our 
model that I said before has been very effective. The main 
reason for that, because it's a proactive model, it allows us 
to know about the property that's coming, to become a surplus 
way before it becomes a surplus. So we have the chance to go 
out to market it, have our plan together, and the example I 
gave you about Memphis where the deal is done and finished 8 
months before we even vacate the property, so it will transfer 
immediately to the owner without the Postal Service paying a 
penny for getting it as a vacant property.
    And the other success story that we can tell is out of 
34,500 facilities that we own and lease, only 44 properties are 
surplus and half of them are already committed.
    Senator Carper. That's a pretty good record.
    Mr. Samra. Thank you, Senator. As for Philadelphia, I said 
before I've been here for 2 months only at the Postal Service. 
I'm not familiar with every facility that they have.
    Senator Carper. How come?
    Mr. Samra. I'm working on it, Senator. But the Postal 
Service is moving very efficiently in using technology. And the 
real reason of changing facilities in the Postal Service, and 
the Postal Service in Chicago is because of the new technology 
that we are putting in place. And the new technology is raising 
the value of our service very high to levels that we have not 
seen before. And they are decreasing our cost. And a good 
example of that is 100,000 less people work at the Postal 
Service today than it used to be before.
    Senator Carper. If you will, Mr. Samra, I appreciate the 
fact that you're still pretty new on the job, but I really 
would like you to answer on the record the questions. Is the 
new facility being built in Philadelphia, is this facility the 
model for what the Postal Service wants to do around the 
country? And what does a facility like the new one in 
Philadelphia allow the Postal Service to do with respect to 
cutting costs and dealing with inefficiencies? So, if you could 
answer that one for me on the record later on in writing, that 
would be much appreciated.
    Mr. Samra. I'll be happy to.
    Senator Carper. All right. Thanks. Thanks, Mr. Chairman.
    Senator Coburn. Senator Obama.
    Senator Obama. Thank you, Mr. Chairman. I just want to 
finish up on a couple of specifics, just so I get a sense of 
how time frames are, what kind of time frames we're talking 
about, generally, with some of these properties. Do we keep 
track of what the average length of time it takes to dispose of 
properties once it's designated for disposal? Is that, Mr. 
Samra, you're shaking your head. You want to talk about that 
for a second?
    Mr. Samra. Yes. We keep track, as I said, from when it 
becomes available and when we dispose of it. Our average for 
our surplus property from 1997 to now is about 1 year.
    Senator Obama. About 1 year.
    Mr. Samra. About 1 year on the market.
    Senator Obama. OK. And do the other agencies keep track of 
it in the same way, and is that about the same time frame for 
most of those?
    Mr. Matthews. Yes, sir. GSA does, and for the typical 
property that's not on the extreme, a year is about right for 
us too.
    Mr. Sullivan. All of our disposal properties that we've 
done recently that haven't been Public Private Ventures are 
handled, in most cases, by GSA.
    Senator Obama. OK.
    Dr. Moy. From the perspective of the Department of Defense, 
when we dispose of a property it's not disposing of individual 
buildings. In some cases, it's disposing of a large 
installation, a small installation, and sometimes it can take 
up to 4, 5, or 6 years.
    Senator Obama. Right.
    Dr. Moy. This current round of BRAC 2005, we have 
statutorily mandated 6 years to execute.
    Senator Obama. OK. While I was out of the room, did you 
have a chance to ask about this statistic which I think is 
pretty interesting. Since I'm on the topic, Mr. Moy, on this 
graphic, ``Amount DOD Spends per Active Duty Soldier 
Annually,'' maintaining buildings it does not need, $2,000 to 
$3,000 per active duty soldier. I don't know if you agree with 
that statistic or not. If you do, it's pretty powerful and 
would suggest that we can do better, since $2,000 to $3,000 per 
active soldier conceivably could be used to do a better job 
with body armour and so forth.
    So first of all, do you agree with a calculation like that. 
Second, do you think that this calculation excludes the latest 
BRAC rounds, and do you feel like that number would go down 
once some of the installations that were identified in BRAC 
went forward?
    Dr. Moy. Sir, this is the first time I've seen that graphic 
and that figure.
    Senator Obama. So it would be hard off the top of your head 
to know whether it was accurate or not?
    Dr. Moy. Yes sir. During this past year we kept a firewall 
between my operation, which was supporting the operational 
bases, and we considered everything to be operational until the 
time the base realignment and closure commission had made their 
announcement. It very well may have been a figure that came 
from the BRAC side of the House.
    Senator Obama. OK.
    Senator Coburn. This came from DOD. Last year they 
estimated between $3 and $4 billion per year in maintenance of 
buildings they don't need.
    Dr. Moy. I would say that's probably taken care of. Once we 
close those bases down or excess them, or rely on our forces it 
will dramatically make a change to that.
    Senator Obama. Right. Well, obviously that's a powerful 
statistic and I think it's something that would bear looking 
at. In between BRAC rounds, I assume that there is still some 
process whereby installations or properties may or may not be 
disposed of, or does all of it get funneled through BRAC?
    Dr. Moy. Sir, the BRAC legislation has a specific threshold 
for when it triggers a BRAC action, usually 300 civilians or 
more that are being moved or closed.
    Senator Obama. OK. So short of that----
    Dr. Moy. Short of that, we do have capabilities. As I 
mentioned earlier in my testimony, when we have a piece of 
property or land or building that we consider as excess or is 
vacant, and we have found that there is no military need in the 
Department for that, we turn it over, we declare and turn it 
over to the General Service Administration for disposal.
    Senator Obama. OK. Just two more questions, and I think 
that they've already been touched on by Senator Coburn, but I 
guess I want to reiterate these. One, can we say with 
confidence that each of your agencies, if it doesn't already 
possess it, is on track to making information about these 
disposable properties available in an easy to use fashion to 
the public, through the internet and web sites? And I don't 
know if this does or does not apply with respect to DOD, but I 
see no reason why it wouldn't.
    Dr. Moy. Sir, I would characterize that in two parts. One 
is we are, I guess every part of our fiber is focused on 
executing the BRAC recommendations. And so as we go through the 
process and find out what the best way of that with the local 
redevelopment authorities, with the local governments, we will 
proceed with that. I think there is an e-government initiative 
for the Federal Government in which we're working with GSA, in 
terms of where we have excess property or Federal asset sales, 
we are working with GSA to put those properties up on the 
internet.
    Senator Obama. Is GSA coordinating the efforts by these 
other agencies? I think Senator Coburn's question was right on 
target, which was why there might not be a single site. If I'm 
somebody who's interested in real estate, who's a developer and 
might be interested in underutilized properties, that I don't 
have to wade through reams of paper, but can just go on and 
see, OK, here's a list of 3,000 sites that are readily 
available. Here are the environmental issues that may be 
involved in them, here are historical landmark issues that 
might need to be resolved, here is the contact number that can 
allow me to get more information.
    Mr. Sullivan. So you're talking about properties that are 
in the disposal process, that are ones that we want to make 
available to developers?
    Senator Obama. Right.
    Mr. Sullivan. There was a Federal asset sales and e-
government initiative as Dr. Moy referred, that allows you to 
come into the FirstGov website to a page that talks about real 
estate opportunities, and then you can select commercial 
properties and all the properties that GSA has listed can be 
found there with a lot of detailed information about each 
property. If you choose housing, you can go to the HUD website 
and it will list the houses.
    Senator Obama. So this does exist, or doesn't? I was 
confused.
    Mr. Sullivan. This does exist.
    Senator Obama. I thought when Senator Coburn asked the 
question there was some hesitation.
    Mr. Sullivan. These are for properties that have already 
been, we've decided to dispose. They've been turned over by the 
holding agency for disposal either by GSA, or if they're farms, 
agriculture, or housing, HUD.
    Senator Obama. OK.
    Mr. Sullivan. I would not suggest that is 100 percent.
    Senator Coburn. But it's not the U.S. Post Office 
Department, and it's not the VA in the same group, unless it's 
one they haven't done.
    Senator Obama. OK. So it's not consolidated?
    Senator Coburn. Yes.
    Mr. Sullivan. No. It's a new initiative and it's gradually 
increasing to other agencies as they see fit to list----
    Senator Obama. It seems like a very simple step to take, 
would just be to consolidate them. This doesn't sound like it 
would either be particularly--if each of you are already 
maintaining these databases separately, just making certain, 
particularly given what you're telling me which is, is these 
outcry auctions or internet auctions are already working very 
well. It seems that there's interest there. That's a tool that 
people are going to be using, and to the extent that we can 
make it one-stop shopping, I think that would be best.
    Senator Coburn. Let me ask a question. Every piece of 
property that either the VA or the U.S. Postal Service, the 
Defense Department, doesn't trade or barter or negotiate or 
something, it goes out for excess. From every other agency, 
does it come through GSA?
    Mr. Sullivan. No, sir.
    Senator Coburn. Every piece of property?
    Mr. Sullivan. It does not.
    Senator Coburn. No. And there's the problem. We have no one 
way that anybody is following all the excess property in this 
country. And I believe the executive order that President Bush 
issued in February 2004 mandated GSA, in combination with OMB, 
to recommend legislative changes that we can make to make this 
come into fruition. Is that not correct, Mr. Matthews?
    Mr. Matthews. I'm not familiar with the legislative 
mandate. We have worked very hard with the worldwide inventory.
    Senator Coburn. I promise you that it's in there.
    Mr. Matthews. OK.
    Senator Coburn. And we're going to be expecting the 
recommended legislative changes from GSA in regard to that.
    Let me follow up with a couple of other things. Dr. Moy, 
you all got rid of 86 million square feet of excess space. 
Correct?
    Dr. Moy. Yes, sir.
    Senator Coburn. How much did you add?
    Dr. Moy. Over that time frame, I couldn't give you a 
number.
    Senator Coburn. Well, I think that's an important question. 
Eighty-six million is a lot of square footage, but if you added 
100 million, I'm not real impressed with it in terms of whether 
or not we're downsizing and becoming more efficient. So it's 
important that we see both sides of that.
    Mr. Goldstein, are you familiar at all with the number of 
square footage that was added by the Defense Department in that 
same period of time?
    Mr. Goldstein. I'm not, Mr. Chairman. We could certainly 
try to add something to the record for you.
    Senator Coburn. That would be an interesting thing, because 
the other thing, I want to go back for a minute. The American 
public deserves better value when it comes to leasing. And part 
of the recommendations that come from you at GSA has got to be 
budget process change where we have, we can make better 
decisions through lease purchase than pure lease. We lose the 
appreciation value of the properties and they cost us more when 
we purely, on a service lease arrangement. Does anybody know of 
any lease purchase agreements in any of your agencies in the 
last 2 years?
    Mr. Matthews. We have none.
    Senator Coburn. None. Isn't that interesting? We've bought 
all, we've signed all these new leases, we have hundreds of 
thousands of leases, 10,000 to 20,000 new leases a year, and 
not one of them is a lease purchase agreement where the 
taxpayers of this country get more value? Mr. Samra.
    Mr. Samra. Yes. The Postal Service, Senator, every facility 
that we acquire we run a lease versus purchase financial study, 
and most of the time, anything over 10,000 square feet, we do 
own it. We own 80 percent of all square footage. And in the 
cases when we lease, most of the time we negotiate the lease 
purchase agreements.
    Senator Coburn. OK. So the Post Office is one exception 
within the Federal Government that is still doing lease 
purchase. And part of that has to be is because they have some 
business requirements on them now in terms of competitiveness 
that they didn't have before. But I think that's an important 
thing. We need the recommendations back from you all saying, 
you've got to change the budget process because if somebody 
makes a good decision for our grandchildren, they can't be 
penalized in the year they make that decision by charging the 
entire lease against their budget that year. And so that needs 
to come back from you. It needs to come from the Defense 
Department, GSA and GAO.
    A couple other things and then we'll finish up. We will be 
submitting to each of you written questions that we'd like for 
you to try to get back with us in 2 weeks, if you could, 2 to 3 
weeks, so that we can follow this up.
    Dr. Moy, I wanted to ask again, what do you think the cost 
is per maintenance of these properties that need to be disposed 
of are now, per year? Do you have any idea? Was it your 
testimony that you didn't know what that cost is now by the 
Defense Department?
    Dr. Moy. No, sir. I do not.
    Senator Coburn. OK. Thank you. And we'll be asking you to 
try to look at that. And this is for Mr. Matthews again. Your 
testimony, one-third of the GSA assets that have been accepted 
for disposal, what's the actual length of time, if you averaged 
out, once you put something on the disposal list, what's the 
average length of time it takes, from the time it hits the list 
to the time it's off and disposed of?
    Mr. Matthews. About two-thirds of a year on average. The 
really big ones----
    Senator Coburn. Take longer.
    Mr. Matthews [continuing]. Like the El Toro, where you have 
to really work for a while with the community to make sure 
everything's in place can take multiple years. And I don't 
think that's inappropriate to do it right.
    Senator Coburn. Let me just go through this real quick for 
a moment, and then we'll close out. This is for Mr. Goldstein. 
Has the GAO looked at the net difference in cost to the 
American taxpayer from lease versus lease purchase over the 
last several years? Have we looked at what that's actually 
going to cost us more, cost our kids more in terms of increased 
dollar outflow for what's happening in terms of lease versus 
lease purchase?
    Mr. Goldstein. We don't have a single number, Mr. Chairman. 
Over the years, over the last decade we've issued a number of 
reports, many of which we talked about last fall, that went 
into what it would have cost, taking a look at a selection of 
leases versus owned. And those numbers were presented in those 
reports. We are about to start work that you've requested from 
us, taking a look more holistically over time at the various 
costs.
    Senator Coburn. Right.
    Mr. Goldstein. And we'll be beginning that work shortly.
    Senator Coburn. All right. Well, again, Senator Obama, do 
you have any other questions?
    Senator Obama. No. I very much appreciate all of you taking 
the time to be here.
    Senator Coburn. Let me once again thank the U.S. Postal 
Service. Your staff has been tremendously helpful with this, 
and each of you for your cooperation in this. This is a real 
issue for us as a Nation. We need to be great stewards of the 
physical assets. We need to get rid of the physical assets that 
we're not utilizing. We need to get the best value that we can 
for them. We need not to buy another square footage of office 
space, or space, until we're utilizing what we have today. 
There ought to be a moratorium on new expansion of any new 
space until we've got this centralized, controlled and know 
what our inventory is. Each of you, I know, is a dedicated 
professional, and I want to thank you for spending the time to 
prepare for this hearing, and also for coming and testifying. 
Look forward to working with you in the future. Thank you.
    The hearing is adjourned.
    (Whereupon, at 11:50 a.m., the Subcommittee was adjourned.)
                            A P P E N D I X

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