[Senate Hearing 110-418]
[From the U.S. Government Publishing Office]
S. Hrg. 110-418
FEDERAL REAL PROPERTY: REAL WASTE IN NEED OF REAL REFORM
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HEARING
before the
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
INFORMATION, FEDERAL SERVICES, AND
INTERNATIONAL SECURITY SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
MAY 24, 2007
__________
Available via http://www.access.gpo.gov/congress/senate
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TED STEVENS, Alaska
THOMAS R. CARPER, Delaware GEORGE V. VOINOVICH, Ohio
MARK L. PRYOR, Arkansas NORM COLEMAN, Minnesota
MARY L. LANDRIEU, Louisiana TOM COBURN, Oklahoma
BARACK OBAMA, Illinois PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri JOHN WARNER, Virginia
JON TESTER, Montana JOHN E. SUNUNU, New Hampshire
Michael L. Alexander, Staff Director
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, FEDERAL SERVICES,
AND INTERNATIONAL SECURITY SUBCOMMITTEE
THOMAS R. CARPER, Delaware, Chairman
CARL LEVIN, Michigan TOM COBURN, Oklahoma
DANIEL K. AKAKA, Hawaii TED STEVENS, Alaska
BARACK OBAMA, Illinois GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri PETE V. DOMENICI, New Mexico
JON TESTER, Montana JOHN E. SUNUNU, New Hampshire
John Kilvington, Staff Director
Katy French, Minority Staff Director
Liz Scranton, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Carper............................................... 1
Senator Coburn............................................... 4
WITNESSES
Thursday, May 24, 2007
Clay Johnson III, Deputy Director for Management, Office of
Management and Budget.......................................... 5
Mark L. Goldstein, Director, Physical Infrastructure Issues, U.S.
Government Accountability Office............................... 6
Boyd K. Rutherford, Assistant Secretary for Administration, U.S.
Department of Agriculture...................................... 20
Robert J. Henke, Assistant Secretary for Management, U.S.
Department of Veterans Affairs................................. 21
Philip W. Grone, Deputy Under Secretary of Defense, Installations
and Environment, U.S. Department of Defense.................... 23
David Winstead, Commissioner of Public Buildings Service, U.S.
General Services Administration................................ 24
Alphabetical List of Witnesses
Goldstein, Mark L.:
Testimony.................................................... 6
Prepared statement........................................... 43
Grone, Philip W.:
Testimony.................................................... 23
Prepared statement........................................... 87
Henke, Robert J.:
Testimony.................................................... 21
Prepared statement........................................... 75
Johnson, Clay, III:
Testimony.................................................... 5
Prepared statement with an attachment........................ 39
Rutherford, Boyd K.:
Testimony.................................................... 20
Prepared statement........................................... 68
Winstead, David:
Testimony.................................................... 24
Prepared statement........................................... 95
APPENDIX
Chart entitled ``Excess/Underutilized Property At the Department
of Energy''.................................................... 105
Chart entitled ``Construction vs. Operating Leases''............. 106
Copy of the ``State of the Portfolio, fy 2007'' submitted by Mr.
Winstead....................................................... 107
FEDERAL REAL PROPERTY: REAL WASTE IN NEED OF REAL REFORM
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THURSDAY, MAY 24, 2007
U.S. Senate,
Subcommittee on Federal Financial Management,
Government Information, Federal Services,
and International Security,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:02 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Thomas R.
Carper, Chairman of the Subcommittee, presiding.
Present: Senators Carper and Coburn.
OPENING STATEMENT OF CHAIRMAN CARPER
Chairman Carper. The hearing will come to order. Welcome,
Dr. Coburn. To our first panel, to Clay Johnson, to Mark
Goldstein, thank you for joining us today.
I just got some good news. The good news is that it looks
like our first vote may not be until a little bit after noon,
so we may be able to finish this hearing without interruption,
which would be very nice.
We appreciate our witnesses taking the time to participate
in the hearing. I think this is the third in a series of
hearings on property management and what needs to be done and
what is being done and what further action is required by the
Administration and by us in the Legislative Bbranch.
This hearing will examine the findings and conclusions in
GAO's most recent update of the high-risk report on Federal
property management. Federal property management has been on
GAO's high-risk list, I believe, since 2003, and as many of
those watching and listening to this hearing will know the
high-risk list details the most serious management issues that
the Federal Government faces. It is not a good list to be on,
but it is an important list to keep, and it is an important
list for us to hold oversight over in many instances.
But just casual reading of the testimony we have before us
today should tell most of us why the way in which agencies are
handling their property is problematic and why the Financial
Management Subcommittee that we serve on will continue to
exercise oversight in this area.
Many Federal agencies have a presence, sometimes a major
presence, not just here in Washington but in communities large
and small across our country. That is not the problem. The
problem is that too many of the properties that agencies make
use of to serve the American people appear to be managed in
ways that are likely wasting billions of dollars that taxpayers
are paying each year.
The Administration, as they have in several other key
management areas, has begun to address this problem, and some
initial progress is being made toward improving Federal
property management, and we will hear about that today, as well
as a to-do list of what lies ahead. The President has responded
to GAO's high-risk designation for property management by
setting up for the first time a team of qualified senior
leaders at key agencies whose sole job is to better manage
agencies' property assets and to align their physical
infrastructure with their agencies' missions. The President
also set up a Federal Real Property Council, which is working
to develop a reliable inventory of all Federal property and to
set property management standards and to put systems in place
for measuring agency performance.
Agencies are now graded on their adherence to sound
property management principles through the President's
Management Agenda, and we applaud that. As GAO has pointed out,
however, there are still a number of very costly challenges
that remain. Chief among the management deficiencies that we
will hear discussed today is the fact that many agencies hold
onto, year in and year out, thousands of pieces of property
that are unneeded, underutilized, or, as Senator Coburn and I
found out during a field hearing in Chicago, just completely
vacant, and I think Mr. Goldstein was there with us at that
time.
When an agency maintains possession of a property it does
not need to carry out its mission, taxpayers must shell out
large sums to pay for unnecessary security, to pay for
maintenance, and to pay utility costs. It is apparently a major
problem at several agencies, among them NASA and the
Departments of Energy and Homeland Security. At those agencies,
GAO has reported that more than 10 percent of agency assets are
sitting idle and could be taken off the books.
Dr. Coburn and I hope to address this problem later this
year with legislation we are currently working on, legislation
that the President has recommended in his budget, that would
streamline the property disposal process and give agencies the
financial incentive to get rid of what they no longer need.
Agencies such as the VA that have the ability to retain some of
the proceeds when they dispose of properties they own carry
very few unneeded assets, and we will hear about that later. We
should take what works at those agencies, like the VA, and use
it to help make other more sensible management decisions.
Another expensive property management problem that has been
highlighted by GAO is the overreliance that some agencies place
on leases to meet their space needs, even when purchases or new
construction may be the most cost-effective way to meet these
needs over the long run. This is another issue that Senator
Coburn and I plan to spend some time working on. GAO, at this
Subcommittee's request, is currently examining the cost
differences between leases and other available options so that
we can get a better sense of how much these lease agreements
that agencies are entering into with increasing regularity are
costing us. The costs, I suspect, are likely to be quite
significant.
GAO has testified, for example, that the true costs of the
lease the Patent and Trademark Office entered into for their
new headquarters building in Alexandria, Virginia, several
years ago will cost taxpayers $38 million more than a lease-
purchase agreement would have cost. And it will cost us $48
million more than it would have cost us to construct a new
building from scratch. And that is just unacceptable, and I
fear that may be only the tip of the iceberg.
Our witness from GSA will testify today that, by the end of
this year, his agency will reach the point for the first time
where the majority of GSA's portfolio will consist of leased
buildings.
Now, do not get me wrong. Leases make sense in some cases,
but they do not make sense in others, and what we have got to
do is make certain that agencies are doing their due diligence
at the outset in making sure to the best of their abilities
that they are going about meeting their space needs in the most
cost-effective manner. We will also need, in all likelihood, to
revisit the arcane budget rules that encourage agencies to go
with leases when it does not make sense in the long run for
them to do so.
These two problems are just the most costly of those
highlighted by GAO and others. Maintenance backlogs are
another. When an agency, either due to incompetent management
or lack of resources, ignores a routine maintenance problem
until it becomes a catastrophic one, taxpayers are at risk of
spending significant amounts of money to repair or restore
something which could have been addressed early on for
significantly less money. According to GAO, just seven agencies
they contacted reported more than $77 billion in maintenance
backlogs, and the Department of Defense alone reported $57
billion in maintenance backlogs.
And, finally, there is the fact that at least some of the
data agencies have on their property inventory is just flat out
unreliable. For fiscal year 2006, as it has been for, I guess,
the last 9 years, GAO reported that the Federal Government
could not satisfactorily determine that information on Federal
property was properly reported in its annual financial
statement. Without reliable information in this area, agencies
do not fully know the assets they own and do not know the
location and condition of that property. They also cannot
effectively manage their assets to achieve their mission in the
most efficient way possible.
Well, there is a road map out there for us to follow. That
is the good news. We have made a start, and that is good news
as well. We look forward to working with our witnesses today,
the agencies that they represent and others that are not at the
table, to working with my colleague Senator Coburn and others
on this Subcommittee to provide the oversight and give agencies
the tools and maybe sometimes the push that they need to give
taxpayers the kind of property management system that they
expect and they deserve.
Dr. Coburn.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. Well, thank you, Senator Carper, and
welcome to our witnesses. This is a sleepy, little, non-
invigorating area of the Federal Government that is costing the
American taxpayers billions every year because we are not doing
the appropriate thing.
A chart was just put up that shows the Department of
Energy's unneeded space--20 million square feet.\1\ To get a
handle on what that means, that is 19 times the size of this
building, this entire office building, or 3 times the size of
the largest office building in the world, the Pentagon. And
that is just in the Department of Energy, space that we do not
need, that we have not sold, that we have not turned over, that
we are continuing to spend money on.
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\1\ The chart entitled ``Excess/Underutilized Property At the
Department of Energy'' appears in the Appendix on page 105.
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The Administration is to be congratulated as it works
towards getting a handle on the real property. I know Clay
Johnson is involved in that as well. But it is difficult for us
to have any credibility, and this really is not a problem with
you all as much as it is with Congress. We have set so many
road blocks up so that you cannot get rid of buildings. The
difficulty in terms of meeting the requirements to ever put a
building up for sale is almost impossible. The requirements
associated with that in terms of what happens and the
requirements that it goes through; it can be used for an
airport, prison, education, public health, homelessness, the
whole works. These are the things that, in fact, are mandated
and must be used for before it can be sold. Some of those
things are realistic, and some are not.
What is probably more important is to really identify the
problem, which is part of what this hearing is. We need to try
to effect a legislative solution so that we can handle real
property in a way that makes sense and that does not cause us
to continue to spend tremendous amounts of money maintaining
buildings that we do not need.
Finally, Senator Carper mentioned leases.\2\ That is our
problem, too. Because of the way the budget rules are set up,
we actually force agencies because we expense a lease-purchase
agreement all in the year in which it is made. That is crazy.
Nobody else does that in the world. That is not even a
generally accepted accounting standard. So the fact is that we
need to be changing that, and we need to give the agencies the
ability to do lease-purchase and then accurately reflect the
cost of that in the budget year on an annual basis over the
life of that lease-purchase.
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\2\ The chart entitled ``Construction vs. Operating Leases''
appears in the Appendix on page 106.
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So I am thankful that we are going to have this hearing. My
hope is that as we raise awareness, Senator Carper on his side
of the aisle and I on my side of the aisle can build a
consensus, can alleviate the fears that we might leave somebody
out who might have some need in this country and do the common-
sense thing of handling real property in a way that gives
taxpayers value, and also making sure--I am not sure I agree
with Senator Carper that there is ever a time that the Federal
Government should be leasing space. If we fix it to where it is
easily turned, then there is no reason that we should not
purchase it and then turn it rather than lease it. Leasing is
basically the least valuable way to hold a property in terms of
return for the taxpayers.
But I thank you again, Senator Carper, for holding this
hearing. My hope is that this year we can start down the road
and probably have something the President can sign that will
change this archaic system into something that is smart,
flexible, meets the needs of the agencies, and also is good
financial management.
Thank you.
Chairman Carper. Thank you, Dr. Coburn.
We have two panels before us today, and our lead-off
witness is Clay Johnson, and we welcome you today. Your full
statement and that of your counterpart here, Mark Goldstein,
are going to be made part of the record, so I am not going to
go into any elaborate introductions. I think Mr. Johnson comes
by about every other month, and so we are always happy to see
him and both of our witnesses.
I am going to ask you to use maybe roughly 5 minutes. If
you go a little bit over that, that is OK, but go ahead and get
started. If you get too far into it, if it gets past lunch, I
will rein you in and we will go to questions.
Senator Coburn. Can I interrupt for just a second? I have a
Judiciary hearing that I may have to leave for, so it will not
be anything you said. It will be because I am getting a page
that I need to be there.
Chairman Carper. Fair enough.
Alright. Mr. Johnson, why don't you lead us off? Thank you.
TESTIMONY OF CLAY JOHNSON III,\1\ DEPUTY DIRECTOR FOR
MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET
Mr. Johnson. Thank you, sir. Senators, thank you very much.
I just have a few very general comments before getting to your
questions.
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\1\ The prepared statement of Mr. Johnson with an attachment
appears in the Appendix on page 39.
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One, we really applaud your interest in this subject. You
both are very well known for asking the question at every one
of your hearings: What can we do to help? We have some answers
to that, and I think your support, to work with us, to figure
out how to structure this pilot program, to figure out how to
dispose of these properties more readily, more effectively, and
in a more businesslike fashion, I am confident working together
we can figure out how to do that and do that this year and get
on about it.
Chairman Carper. Sometimes we ask that question--What can
we do to help?--and we do not get much back. But in this case--
--
Mr. Johnson. Well, we have some proposals.
Chairman Carper [continuing]. It looks like there is plenty
we can do.
Mr. Johnson. And I know how genuine and deep your interest
is in this subject, and so we welcome that and applaud that.
I was reading all the testimony from the other panelists
the last couple days, and I was thinking that 3 or 4 years ago,
you could not even have had this panel discussion. We would not
have been able to answer any of the questions that you want to
ask today. We just did not have the information.
What we have today that we did not have until a couple
years ago, starting a couple years ago, is that there is
leadership in every agency, there is information, a whole lot
of information, about real property, and we have asset
management tools that we have never had before. And so we have
the ability now to tackle these issues that we have never had
before. The 100 largest, most unnecessary real property assets,
that would have been a laughable question 4 or 5 years ago. We
can answer that question now, and we have been challenged to
answer that in this report that is due to Congress on June 15,
identifying all the unnecessary property, and particularly the
100 largest and most unnecessary.
But, anyway, we are prepared, and as GAO has pointed out in
the report, we have made a great start, but now it is time to
start using all these tools to start delivering and start
disposing of properties and start managing things more
effectively. And agencies are really excited about doing this.
They are real proud of what they have accomplished so far, and
we are real proud of them. And we look forward to working with
you in the months and years ahead to actually deliver on the
promise of all these new-found capabilities. Thank you.
Chairman Carper. Fair enough. Thank you for that statement,
and your full statement will be made a part of the record.
Mr. Goldstein, why don't you share with us your thoughts?
TESTIMONY OF MARK L. GOLDSTEIN,\1\ DIRECTOR, PHYSICAL
INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Goldstein. Sure. Good morning, Mr. Chairman.
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\1\ The prepared statement of Mr. Goldstein appears in the Appendix
on page 43.
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Chairman Carper. Good morning. By the way, thanks very much
for the most recent report, which we have had a chance to read
and to try to digest. A lot of good substance here. Thank you.
Mr. Goldstein. Thank you very much. Our team did a very
great job, and we appreciate the Subcommittee's----
Chairman Carper. Are any of them here today?
Mr. Goldstein. The team is, in fact, right behind me.
Chairman Carper. Will the team members raise their hands?
Good. Thanks very much. Front-row seat.
Mr. Goldstein. Exactly. That is not always a good thing,
but we will do our best.
Thank you for the opportunity to testify today on the
progress and the challenges that the Federal Government has
made in managing its real property. At the start of each
Congress since 1999, GAO has issued its ``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
updates on this area in January 2005 and January 2007. My
testimony is based largely on a recent report on Federal real
property that you just mentioned, and as well as other GAO
reports on real property issues that we have talked about over
the years. My testimony focuses on the progress made by the
Administration and the major real property-holding agencies to
strategically manage real property and address longstanding
issues, and what problems and obstacles, if any, remain today
to be addressed still.
The major points of my testimony are as follows:
First, the Administration and major real property-holding
agencies have made progress toward strategically managing
Federal real property and addressing some longstanding
problems. In response to the President's Management Agenda and
related Executive order, relevant agencies have, among other
things, designated senior real property officers, established
asset management plans, standardized real property data
reporting, and adopted various performance measures to track
progress. The Administration has also established a Federal
Real Property Council to help support real property
improvements. Additional initiatives seek to provide agencies
with other management tools to more effectively manage real
property, such as broader authority for enhanced-use leases.
Second, although progress toward strategically managing
real property and addressing some longstanding problems has
been made, many problems have not been fixed, and several
underlying obstacles that hinder progress remain unresolved.
For example, Energy, DHS, and NASA reported that over 10
percent of their facilities are excess or underutilized. In
addition, Energy, NASA, GSA, Interior, State, and VA reported
repair and maintenance backlogs that total over $16 billion.
DOD reported a backlog of more than $57 billion, which includes
the cost of restoring and modernizing obsolete buildings.
Furthermore, Energy, Interior, GSA, State, and VA reported an
increased reliance on operating leases--an approach which we
have reported is often more costly for long-term space needs.
While agencies had made progress in collecting and reporting
standardized real property data, data reliability is still a
challenge in some agencies, and agencies lack a standard
framework for data validation. Finally, all the major real
property-holding agencies reported using risk-based approaches
to prioritize security needs, as we have suggested, but cited a
lack of resources for security enhancements as an ongoing
problem.
In our past high-risk reports, we called for a
transformation strategy to address the longstanding problems in
this area. The Administration's approach is generally
consistent with what we have envisioned, but certain areas
warrant further attention. More specifically, underlying
obstacles such as competing stakeholder interests, legal and
budgetary limitations, and a need for improved capital planning
persist. For example, some agencies cited local interest as
barriers to disposing of excess property. Furthermore,
agencies' limited ability to pursue ownership often leads them
to lease property that may be more cost effective over time for
them to own. And, finally, long-term capital planning efforts
to improve the efficiency of government operations continues to
be a challenge, and these efforts are not clearly linked with
the real property initiative.
The Federal Government has generally not planned or
budgeted for capital assets such as real property over the long
term. In our April 2007 report on real property, we made
recommendations in three areas: One, to ensure the validity of
agency data; two, to focus reform efforts to better address the
leasing problems and security challenges; and, three,
addressing obstacles that included competing stakeholder
interests and the need for improved capital planning.
Mr. Chairman, this concludes my opening statement. I would
be happy to answer any questions that the Subcommittee has.
Chairman Carper. Good. Thanks very, very much.
Let me just start off, if I can, and we will maybe do 7-
minute segments here, but not that I will stick to that too
closely. Let me just start off by asking you, Mr. Goldstein,
when you looked at the work that the Administration has done in
response, I guess, to the news in 2002 and 2003 that real
property management was on the high-risk list, when you look at
what has been done to date, what do you especially admire? And
where do you find that there is still more that they can do
without our help? And I am going to get into what we can do as
well. What are the things especially meritorious and what are
some areas where you think they are still falling a bit short?
Mr. Goldstein. Sure. I think that----
Mr. Johnson. Should I step out of the room? [Laughter.]
Chairman Carper. You have got to stay for this part.
Mr. Johnson. OK.
Mr. Goldstein. No. Actually, I was about to compliment Mr.
Johnson. I think the Administration has done a very good job
and a lot of progress has been made. His comment that we could
not hold this kind of a hearing 4 or 5 years ago I think is
absolutely true. When GAO put real property on its high-risk
list in 2003, we did so for five reasons: Issues with data
reliability, excess property, backlogs, leasing, and security.
And I think you would find today that there has been progress
made in all five of those areas.
At the same time, as I have mentioned--and I suspect Mr.
Johnson would agree--we have still got a long way to go. These
problems are not fixed, and some of the underlying obstacles
that I have talked about--some of the legal and budgetary
disincentives, the competing stakeholder interests, and the
like--could hamper progress in the future if we do not continue
to address these issues. But there has been considerable
progress made.
Chairman Carper. When you look at the areas where the
Administration without our help could do more, or agencies
could do more, what are some that come to mind?
Mr. Goldstein. Clearly, in the area of data validation, I
do not think they need the help of the Congress.
Chairman Carper. Talk a little bit more about that point,
please.
Mr. Goldstein. Sure. Within the Federal Real Property
Council, the database that has been established by the
Administration and the agencies, collecting Federal real
property data, over the years that data has been quite sketchy.
The effort underway now is to try to improve that by
standardizing the kind of data elements that are used and the
definitions that are used to collect data. But there are still
some holes in the collecting of the data, and there are still
some discrepancies and differences of how agencies are actually
defining that information and, therefore, reporting it. So that
it is not uniform at this point in time, and there has not been
any validation, certainly that I am aware of, at the
Administration level to determine that what is being reported
is completely accurate and complete. And so agencies need to
get, I think, more involved in having accountability and
control mechanisms in place that will assure both the
Administration as well as Congress that the information that is
being reported in the database is accurate and complete and so
that the government does know what it owns, where it is, and
what its disposition status is.
Chairman Carper. Mr. Johnson, do you want to respond to
that at all?
Mr. Johnson. Just a comment on the data validity. All the
agencies have been charged to come back to us, I think by the
end of the third quarter, with their plan--or fourth quarter of
this year--with their plan, what they are going to do to
validate this data. I do not know whether that is a sampling or
they are getting the Inspectors General involved or announce
that they need to confirm the validity of the information.
A couple of examples of indications that the data may not
all be 100 percent accurate is a building would be reported on
their inventory as being in good condition and go in as such on
the inventory, and 2 months later it is condemned for asbestos
problems or something. Well, that suggests that the original
designation was not accurate. Or an agency, unnamed, would
submit information and maybe there are 50,000 more assets than
last year. Well, we did not acquire 50,000, so that number is
wrong--this year or last year?
So it is those kinds of things that says, Oh, maybe this is
not all 100 percent accurate, and maybe agencies need to be
doing something every year to look at the accuracy of the
condition information or the number information or the
replacement value information to ensure that we have the most
valid data that we can possibly get.
Chairman Carper. OK, good.
Mr. Goldstein, anything else that comes to mind in terms of
a to-do list for the Administration without our help?
Mr. Goldstein. Well, I think they will need your help,
obviously, on excess property. On backlogs, I think the
agencies can do a fair amount themselves by getting a better
handle on what their backlog requirements are, which some of
them are starting to do, but trying to understand at a more
detailed level what the funding requirements to deal with
repair and maintenance backlogs are going to be and perhaps
approaching it in a smarter way. They need to make better cases
to agency management that these funds are needed up front, not
later, because obviously, as you mentioned, the longer you wait
to do these kinds of repairs, the worst shape you are going to
be. Not one of your agencies here today, but to me one of the
most glaring examples of this problem sits on the National
Mall. It is the Arts and Industries Building of the
Smithsonian, which for years has had an increasingly growing
problem, and now the entire building, of course, is closed
because the roof could cave in at any point. It is now going to
cost hundreds of millions of dollars to repair an American
treasure sitting in the middle of the National Mall. It could
have been repaired at a much earlier date for a lot less money.
Chairman Carper. Yes. Mr. Johnson, would you make a comment
or two in response to what Mr. Goldstein just said?
Mr. Goldstein. Well, is that all the suggestions that you
are talking about Congress could do or not, or just----
Mr. Goldstein. These are ones that agencies and the
Administration----
Chairman Carper. That agencies might be able to do on their
own.
Mr. Goldstein. Not all, but some of them.
Mr. Johnson. The costs of disposing of properties that are
a real issue, particularly in an area of tight budgets, which
is what we are in now. And so changing this pilot program
proposal where agencies are allowed to keep for a period of
time 20 percent----
Chairman Carper. No. I think the point he was talking about
was getting--and the Smithsonian is just one example where
agencies are not asking--are not getting the money. I do not
know if they are asking in their budget request that they are
sending to the folks who run the agencies or to OMB, but
apparently there is a concern are they getting the money that
they need to maintain the----
Mr. Johnson. So it is the deferred maintenance question.
Chairman Carper. Yes.
Mr. Johnson. OK. In tight budgets, you look at the things
you absolutely have to have, and deferred maintenance is
usually one of the first things that you could go without for
one more year, and then it is the same answer the next year,
and pretty soon you have a whole bunch of accumulated years of
deferred maintenance that is not funded.
The one thing that we are doing in this initiative is
causing agencies to prioritize, understand here is all your
deferred maintenance needs, here is how much money you might be
able to get, what are your highest priorities, and make sure
that they are not--that their highest priority deferred
maintenance issues are being addressed. That is the one thing
that we can do now with existing resources, and being smart
about what is deferred maintenance and if they can get rid of
properties versus continue to maintain them or upgrade them or
really do not need them, that kind of thing.
The issue of available resources, spending more money on
it, is a budget issue and a deficit issue, and all of a sudden
politics gets into it, and how big do we want the deficit to be
and what do we want the top line to be and so forth. So it is a
much bigger issue.
Chairman Carper. Alright. As I prepare to turn this over to
Dr. Coburn for questioning, one thought that comes to mind--I
have not asked yet what could we do, and we are getting there.
Dr. Coburn will probably get into that, and I will as well. But
to the extent that we allow some agencies--VA comes to mind--to
retain a portion of the value of the assets that they dispose
of, the excess property that they dispose of, to the extent
that they can use that for deferred maintenance, that would
seem to make a whole lot of sense. It would provide a good
incentive for agencies to get rid of some excess property
knowing that they could keep the portion of that and use it for
something that is hard to get through--dollars that are hard to
get through the budgetary process. We can explore that later. I
am sure we will.
Alright. Dr. Coburn.
Senator Coburn. Do we know how much excess Federal property
we have?
Mr. Johnson. We are supposed to produce a report for
Congress June 15. The preliminary information is that it is
approximately 21,000 distinct assets with a replacement value
of about $17 billion.
Senator Coburn. Seventeen billion dollars for 21,000? There
was an estimate put out by Vista that has tons of management
contracts with the Federal Government. It estimated that
approximately one-third of all Federal property or 1.2 billion
square feet is considered excess. Do you have any comments on
that?
Mr. Johnson. It sounds high to me.
Senator Coburn. It sounds high? OK.
Do we have any idea what the cost is to us as a Nation for
maintaining that excess property?
Mr. Johnson. No, we do not. But we have the information to
get in the ballpark of what that is. We just do not have that
now. But let us pick a date, and we will get back to you by
that date with that estimate.
Senator Coburn. OK. I think the testimony was from the
Department of Defense in Chicago--and, Senator Coburn, you
might correct me on this, but I think they spend about $3
billion a year maintaining properties they do not want. Just
think about what that would do for us, and that is the
Department of Defense, and I know that is one of the larger
ones.
Let us talk about this pilot project and what the President
has requested. A couple of things. If an agency did not have to
go through--put that list of steps you have to go up through--
the list of steps that are required, and let me more accurately
describe this. This is from 2002 to 2006. In 2006 alone, there
were over 1,000 properties disposed of, and if you just
extrapolate that back over 5 years, that means you have 5,000
properties. So you have less than 4 percent of the properties
that actually went. But every one of those properties had to go
through every one of those steps to do it. Do you believe that
agencies would be more effective if we could limit the number
of steps or maybe even eliminate the steps and say if we have a
need over here, we will buy a property and we will not connect
it to the disposal of present property?
Mr. Johnson. Yes. These rules were established for, I am
sure, good reasons at the time. A lot of these rules, I think a
number of them, a majority of them, were established in 1949. I
am thinking maybe the needs have changed. The world has
certainly changed. They need to be rethought. And the McKinney
Act, the homeless provision, also is a very sensitive issue. A
lot of advocates of making all the properties possible to be
available for the homeless, the fact of the matter is in the
last 30 years, less than 1 percent of all the properties we
have disposed of have ended up going for the use by the
homeless.
So we have to go through a very protracted--we have to go
over some hurdles to end up with less than 1 percent of the
properties end up being conveyed to the homeless.
Senator Coburn. Has anybody gone back to look at the
properties that were available to the homeless to see if they
are still being used for the homeless?
Mr. Johnson. I do not know.
Mr. Goldstein. Dr. Coburn, may I?
Senator Coburn. Yes, please.
Mr. Goldstein. Maybe I can answer your question a little
bit. GAO did a report several years ago on public benefit
conveyances, and we found out a number of things that I think
are pertinent. One is--and the Chairman asked this question a
little while ago--about what more could agencies do on their
own. One of the things we found in that report was that many of
the properties that were up to be conveyed through the public
conveyance process had not been communicated in any way to the
public that was successful. There were many properties out
there, and people tended to find out about them in an ad hoc
basis. In other words, GSA could better--we recommended could
better use its website and other public communications vehicles
to try and get those properties out there so that the public
could deal with them and know that they were available.
In terms of taking a look at whether anyone has gone back,
when we did our report, I think 2 or 3 years ago now, we went
and looked at some 40 properties that had been conveyed to
ensure that they were still being used for the purposes that
they were supposed to be used and the like. And we found in
almost all cases that they were still being used properly,
whether they were for the homeless or for other reasons.
Senator Coburn. OK.
Mr. Johnson. On the subject of those conveyance rules,
homeless provisions, nobody is proposing that we completely
eliminate those and we let the agencies do as they please,
although the thought has entered some of our minds. But I think
we need to use the pilot project and sit down with you and
other interested parties and figure out how we can test doing
this differently, determining what resources are potentially of
interest to the homeless, have an expanded set of criteria
beyond the ones now that agencies--that we look at in the first
review of properties, and just be able to do it faster. This
whole process can take up to a year for just a review of the
McKinney process.
Senator Coburn. Which is one step.
Mr. Johnson. Which is one of the steps, right. And it was
concurrent with other things, so it is not additive. But,
still, it is a year. And that and the cost of disposition of
properties is a major obstacle to agencies to dispose of
properties. Most of the properties that are disposed of are
destroyed. They are not sold. The vast majority are destroyed.
Senator Coburn. You mean razed?
Mr. Johnson. Razed, right. And that costs money, and that
is usually money that agencies do not have. And so you add a
lot of time to it and you add a lot of cost to it, and those
are two pretty big hurdles for paying attention to other things
on your to-do list.
Senator Coburn. OK. Let me get you to repeat. I think your
testimony was 21,000 properties, $17 billion.
Mr. Johnson. That is our estimate now, but we will come
forward----
Senator Coburn. That cannot be right because that makes the
average property worth $1,235. Would you check that number?
Mr. Johnson. OK.
Senator Coburn. If you take $17 billion divided by 21,000,
there is something wrong with that number. If you would check
that for me.
Do earmarks play a role at all in how properties are either
acquired or disposed of?
Mr. Johnson. I do not know, but I remember when Rob Portman
came into the Director's job at OMB, we were talking about what
goes on in the management world, and I was telling him about
real property, and he was smiling sheepishly. I said, ``What
are you smiling for?'' And he said, ``I used to love to get
Federal properties and make them available for the city of
Cincinnati.'' I said, ``Well, you are on the other side of that
effort now.''
So I do not know to what extent earmark mechanisms play a
role in that or not, but, of course, every elected official
representing their State or district would love to get Federal
properties made available for their local municipalities.
Senator Coburn. Let me go back again. Real numbers, deficit
added to the debt last year, excess of $300 billion. All the
States are running a surplus. When we are running a deficit,
why would we be giving excess property to the States or the
municipalities?
Mr. Johnson. You would have to ask them that, but I think
the answer to that is because they can.
Senator Coburn. But does anybody agree that is smart? I
mean, when we are running a deficit and they are running
surpluses and all what we are, in fact, doing is enhancing our
deficit?
If we get this pilot program going, what do you hope to
achieve? At the end of 5 years, what is the goal?
Mr. Johnson. The goal is--not necessarily in any particular
order--to demonstrate that when agencies are allowed to keep a
portion of the proceeds--and we are recommending they keep 20
percent of the net, so there is some cost of disposition offset
there--that it shows how much of a--there is a huge increase in
the activity so that it is scored as a plus for the Federal
Government. Right now, if you went in and said let the agencies
keep 20 percent, it is scored as a cost to the Federal
Government because less goes to the Treasury than would
otherwise go to the Treasury. So we want to demonstrate the
impact that this has on the level of disposition activity.
We also want to, in a controlled environment with a 5-year
time frame set on it, engage you all and think through these
public conveyance provisions, McKinney Act provisions and so
forth, and see if we cannot agree on a more sensible, current
view of the world approach to this so we can still address all
the issues that need to be addressed, but in a more expeditious
fashion.
Those are the two primary benefits of conducting this
pilot.
Chairman Carper. Just talk to us, if you will, with some
specificity, Mr. Johnson, about what we can do to get this
moving.
Mr. Johnson. This bill on the pilot almost made it to
voting status last year, and the thing that held it up, as I
understand it, was concerns about McKinney, and what we were
proposing ostensibly was that all be put on the sideline for 5
years and not be a factor.
What we would like to do is, knowing now that there is
real, honest to goodness seriousness here about moving forward
on this, let us sit down and agree on some language--we do not
have anything to propose to you today, but develop some
language that we think addresses these public conveyance issues
and McKinney issues that we think will be satisfactory on a
trial basis for this pilot, and then figure out how we can help
you build a consensus around this on both sides of the aisle to
get it done.
Chairman Carper. Mr. Goldstein, you are sitting over there
sort of outside of the legislative process. Any advice as an
objective observer on how you think we ought to get this thing
moving?
Mr. Goldstein. I think, Mr. Chairman, that Mr. Johnson is
right in that there are definitely some--and as you point out,
too, there is clearly flexibility and incentives that can be
put into this process, and they do seem to need to come out of
the legislative framework because the authorities are not
present for most agencies today. And so it will take input from
the Congress to make that work. But, clearly, greater incentive
and greater flexibility would, I think, help agencies deal with
some of the problems in an environmental remediation in having
money if demolition is the appropriate response and in dealing
with other kinds of factors that they would have to do to
prepare properties for sale or for surplusing in some other
fashion. So I think it would be beneficial. We have long been
in favor of that.
Chairman Carper. Just kind of thinking out loud, if you are
a Federal agency and you do not have money in your budget to
pay for demolition, a pretty good disincentive to demolish and
get rid of a property, if you know that even if you had
something--land, if you will--to sell, at the end of the day
you knew you were not going to get any of that money back to
help pay for the demolition costs, that is a pretty good
incentive not to do anything.
On the other hand, if it is a property that needs to be
heated, cooled, whatever, maintained, that is a drain on the
Treasury. There has got to be a good, common-sense way here to
change the way we operate. What are some agencies that have
already been a pilot, if you will--I always like to talk about
the States being laboratories of democracy, 50 of them, and we
learn from what they do well or not so well. But give us some
examples of some Federal agencies that already has served as a
pilot, and we have had a chance to watch what they do and to
learn from them. The idea of waiting a number of years for us
to be able to make real progress here is not appetizing.
Mr. Johnson. Well, there are agencies, a number of agencies
have the flexibilities--and correct me if I am wrong, but DOD
has retention flexibilities, GSA, VA, USDA, State Department.
State Department international facilities, I think. So they are
allowed to keep, I think, all of the proceeds for use on real
property, maintenance, investment, whatever. And I do not know
if they could demonstrate that before they had those
flexibilities, here was the situation, and once they got the
flexibilities, here is what happened to the activity. But they
have those flexibilities now and are glad they have them. Those
are our largest real property agencies, so it is a good thing.
So we are talking about similar flexibility, but they retain
only 20 percent for the other agencies.
Chairman Carper. Given the fact that we have so much
experience, obviously years of experience with some of these
other agencies that have a lot of property, how long is this
pilot program going to run?
Mr. Johnson. We are proposing 5 years--which is a long
time.
Chairman Carper. Yes. Do we really need 5 years?
Mr. Johnson. I do not think so. The question that is going
to be raised, as I understand it, by elected officials is these
public conveyance issues and homeless issues, because some of
those are very sensitive issues. But I do not think we are
saying let us take those out of the consideration; let us do it
in a much more businesslike--that is a bad term--a much more
effective, efficient, expeditious fashion.
Chairman Carper. OK. Dr. Coburn, I know you have a couple
more questions. You go ahead, and I might ask one more.
Senator Coburn. Our numbers were wrong. Yours were right on
the previous comment.
Mr. Johnson. Well, we will be glad to say that we were
wrong, if that helps.
Senator Coburn. No. [Laughter.]
Mr. Johnson. Always trying to help out, sir.
Senator Coburn. It is not often people on this side of the
table are saying we are wrong, so you ought to take that and
run with it.
Mr. Goldstein, as far as this proposal, this pilot, is it
the GAO's position that this is an effective method of looking
at another way of disposing that might be more expeditious? Do
they have a position on what we are trying to do or what we are
suggesting?
Mr. Goldstein. Yes, Senator. GAO has been in favor of
providing increased flexibility and giving agencies more of an
incentive, and part of the way to do that is to have them
retain some of the proceeds that they can then put to
offsetting costs in future excess property activities and the
like. So we have been in favor of this for a number of years.
We typically believe that demonstrations of this kind can
certainly help the government better understand what works and
what does not work and to be able to make changes certainly at
the margins and then transfer those positive benefits, if there
are some, to other activities, to other agencies of the
government. So we are in favor of it. We were in favor of that
legislation when it was before the House last year.
Senator Coburn. I am just sitting here thinking about the
average American homeowner, and if they had a lot next door and
a building on it, and the freedom that they have to say, ``The
cost of maintaining this lot and paying the taxes on it for me,
I think I will get rid of this lot. I am tired of mowing the
grass. I am tired of the city code saying I have to keep it up.
It is not economically feasible for me to use anymore. I think
I will sell it.'' And yet that common-sense approach based on
economics and the situation they find themselves in is not
available to us in the Federal Government. You just have to ask
yourself the question. Is it not because we want to do good
things for other things?
I would venture to say that we could develop a homeless
program for a whole lot less than the costs of doing the
homeless survey for every piece of Federal property that we
want. We could just take a chunk of that money from properties
and say we are going to put this over here for homeless, and we
would be far better off than what we are doing, well intended
but very costly and not efficient.
Go ahead and comment.
Mr. Johnson. My understanding is that when thinking has
been thrown out on the table in the past, the representatives
of the homeless, whoever that is, have said they do not want
the money. Why, I do not know. But I think that what I suggest
we do is we pick a date here, not too far down the road--this
summer, perhaps before the August recess--and all these hurdles
we have to go over, public benefit conveyances and so forth,
homeless, whatever, let us try to rethink what--fresh thinking,
what they ought to be for a pilot over some period of time, how
they would be implemented, who would have to sign off on them
and so forth, and try, at least amongst ourselves, to figure
out what that would be, get the appropriate people to look at
it, GAO, whomever to look at it, and then start working that
with the appropriate people that have expressed concerns about
we might change this or change the homeless----
Senator Coburn. Well, the other way to go is to have the
GAO say go in and look at, under the methods we have today,
what are we spending to try to be able to get property
available to finally be sold. You know, that is the other
thing. And how much money are we spending just on this process
that we have set up, and could we spend that money in a way
that achieves the goal? I mean, if we are really talking about
4 percent of the properties----
Mr. Johnson. Less than 1 percent.
Senator Coburn. Less than 1 percent being conveyed.
Mr. Johnson. To the homeless, anyway.
Senator Coburn. No, I am talking about total. All
conveyances. We are talking about less than 4 percent of the--
so that means 96 percent is not going that way, yet we are
going through these steps, these 17 steps, on every piece of
property. That has to cost a fortune. So maybe we could look at
what are we spending now as we go through all these steps on
all the pieces of property and look at that and say wouldn't it
be advantageous to try to create something to serve these needs
outside of the property and not tie it to it, so we can make
good economic decisions about properties.
Mr. Goldstein, would you have any thoughts on that?
Mr. Goldstein. That is something we could certainly look
at, sir. We would be happy to work with the Subcommittee to
develop that, if that is the direction they wish to go in,
sure.
Mr. Johnson. Why don't we get back to you with a date by
which we will come back to you and say here is the approach we
suggest taking to look at this particular impediment. It is not
20 percent, 30 percent, that is the retention percentage. It is
the impediment, and what analyses, what discussions, what
ruminations, whatever we want to engage in to come back before
we start trying to convince other Senators and Congressmen that
this is the way to go.
Senator Coburn. The other thing I am thinking is how many
agencies never put a property that truly is excess up because
they do not want to have to go through this bureaucratic
nightmare, to go through all the steps and spend the money.
They are just saying that the cost of maintaining this building
is less than the cost of getting it ready to be disposed of. Do
you have any idea on that?
Mr. Johnson. I do not, but I hear agencies talk about that,
because they are going to eat their maintenance costs this
year, they are going to each the destruction costs, the razing
costs this year, and this year's budget is real. And then on
top of that, they have a lot of bureaucratic hurdles they have
to go through, so, ``Tell me why I am doing this.''
Senator Coburn. And don't we have an agency for housing and
urban development? Why are we tying up this whole idea of real
property management for a function that we already have an
agency that sat there and designed to address?
Mr. Johnson. Right.
Senator Coburn. I do not have any other questions.
Chairman Carper. Let me go back, if I can, to this issue of
leases versus buy or build. There has been some discussion in
recent years, I believe regarding the Patent and Trademark
headquarters, I think, in Alexandria. It is apparently costing
the Trademark Office, I am told, tens of millions dollars more
to lease its facility than it would to buy it or even to build
something similar from the ground up. And I suspect there are
similar examples out there, especially now that agencies'
reliance on leases continues to increase. And I think we said
earlier that we expect sometime this year or next that more
properties will be leased than actually bought or built.
Is there anything that the Administration is doing to
encourage agencies to rely less on leases?
Mr. Johnson. The things that we are doing to question the
level of leases, the number of leases, there are several
things. One, agencies in their plans are asked to look at
opportunities to combine leased spaces to see if they can
consolidate them in fewer locations and have less separate
facilities. The Department of Labor has done a really good job
of this. There is more information now about, in a particular
neighborhood, all the different Federal entities that have
space, so there is more information that an agency--the
Agriculture Department could look at and say, ``I need some
space. What other Federal agencies might have space in this
geographical area that I might be able to utilize,'' instead of
lease something new. So there is information available now that
was not available before that allows us to potentially avoid
leases.
Then when an agency in their budget wants to propose
creating a new structure or a new physical asset, they have to
propose a purchase or a lease arrangement in that, and OMB then
agrees to that or does not agree with that. In some cases, the
things that drive leasing--and Dave McCormack can talk more
professionally and intelligently about this than I; he is going
to be on the next panel--is that sometimes we need space for a
very short period of time and it is a very small amount of
space. And so leasing is the way to get into it the fastest and
also be able to get out of it when we no longer need it.
But the other thing, quite frankly, is money. And maybe a
less expensive thing to do, all things considered, is to buy.
That is true for you and me and so forth, but sometimes we just
cannot afford to pay cash for things, and so we lease it. That
is the same thing for the Federal Government.
Chairman Carper. Alright. One more question, if I could,
for Mr. Goldstein. I am sure you know that Federal property
management is now part of the President's Management Agenda,
and agencies are scored based on their success in meeting
property management goals that are set by OMB, and I assume by
the Federal Real Property Council. There is some discussion in
your testimony on how agencies are scored and which ones
received green, yellow, or red scores.
In your view, is it clear that why some agencies receive
the scores that they do receive, is it clear to you what an
agency has to do to receive a higher score, and what some
agencies, like the Departments of Agriculture, Labor, or
Defense, for example, have done in the past to see their scores
drop?
Mr. Goldstein. Our April report, Mr. Chairman, on real
property examined pretty much at a high level by surveying
agencies the kind of progress they were facing. And so we did
not specifically look at the scores that the agencies were
getting in the scorecard. However, because we wanted to
understand generally the process that the Administration was
going through and working with the agencies, we did ask OMB
about the process and about how agencies were scoring so we
could understand it.
Unfortunately, OMB's response to us was that the kind of
information was pre-decisional to the Executive Branch, and so
consequence we do not have access to that information, so I
cannot answer that question for you, unfortunately, at this
point in time. It is something, I think, that would be
important to know so that we could have a better understanding
and be able to assure Congress so that the process itself is
working as it should and that agencies do have a very clear
understanding of how they can get from red to yellow to green.
There is guidance out there--it is on OMB's website--about
how they can do that. It seems to be relatively clear when we
read it. Also, we found when we did our survey of the major
property-holding agencies and we asked them to describe that
process, then most of them seemed, at least in their written
responses to us, to have a pretty good understanding. But,
nevertheless, I cannot directly answer your question.
Chairman Carper. Alright. Well, we are probably going to
have some more questions we would like to send you to respond
to for the record. Before we send you on your way, I do not
know, Mr. Goldstein, if you might be able to stick around for
the second panel, but if you could, that would be much
appreciated.
Mr. Goldstein. I would be happy to, sir.
Chairman Carper. Thank you. Senator Coburn and I talked a
good deal about the size of the budget deficit and what we can
do to rein it in. There is a lot that we can do. We can collect
some of the taxes that are owed but that are not being
collected. We can reduce improper payments. There are all sorts
of things that we can do to right our fiscal ship.
We can also do a better job of managing our properties. We
could eliminate all the missteps that we take with respect to
managing our properties, and we would still have a budget
deficit, but it would be a smaller one. And I think the
taxpayers of this country would probably appreciate any
progress that we might continue to make.
I applaud the fact that we have gotten started. I applaud
GAO for raising the flag, the danger signal, several years ago,
4 or 5 years ago, along with the Adminidstration for responding
to that. And we have an opportunity here to build on the steps
that have already been taken. And what I want us to do is just
to pick up the pace.
My father used to say to me when I was a kid growing up, he
would say to my sister and me--we would do some boneheaded
stunt, and he would say, ``Just use some common sense.'' He
said it a lot. We must not have had much. And by the time we
finished up and we went on our way in the world, my sister and
I spent a lot of time in our lives, professionally and
otherwise, saying, ``Well, if we used some common sense, what
would we do?''
This is a real good one to apply some common sense on. It
is a real good issue. Obviously, there are some things that the
Administration can and cannot do on their own, and it is pretty
clear as the noses on our face that if you say to an agency,
``We are going to put you through the hassle of trying to
figure out how to get rid of a property, we are going to make
you pay for it, and we are not going to reimburse you for that,
then if there is anything left, any money left over from the
sale and disposal of the building or the ground, you do not get
any of it,'' we should not be surprised if we got a lot of
excess properties and they are costing us money. And whether it
is a couple million dollars in property or a couple of billion
dollars, that is real money. And we can do better on this, and
we want to.
I am going to talk with Senator Coburn. I am sure he is as
interested in this issue as I am, and we will find ways to work
with one another and with others on this Subcommittee, but
especially with the Administration and with GAO. We are sort of
in this one together, and we are making some progress, but we
can make a whole lot more progress if we figure out
collectively what our next steps could be.
Dr. Coburn, do you want to add anything else?
Senator Coburn. No. Nothing.
Chairman Carper. Alright. Gentlemen, thanks very much, and
it was good to see you both. And, Mr. Goldstein, I especially
appreciate you sticking around.
Thank you.
With that, I am going to ask our second panel to come
forward. Gentlemen, welcome. I had a chance to shake all your
hands a little bit earlier, and we are glad that you stuck
around through the first panel, and we look forward to your
testimony.
I am just going to ask, Mr. Rutherford, if you would like
to lead us off, and we will ask you to keep your comments to
about 5 minutes. If you run a little over, we will not throw
you out, but when you have all finished, we will be asking some
questions. Welcome. We are glad you are here. Your full
statement will be made a part of the record. If you would like
to summarize, feel free.
TESTIMONY OF BOYD K. RUTHERFORD,\1\ ASSISTANT SECRETARY FOR
ADMINISTRATION, U.S. DEPARTMENT OF AGRICULTURE
Mr. Rutherford. Thank you. Good morning.
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\1\ The prepared statement of Mr. Rutherford appears in the
Appendix on page 68.
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Chairman Carper. Good morning.
Mr. Rutherford. Chairman Carper, thank you for the
opportunity to come before you today to discuss real property
asset management at the U.S. Department of Agriculture. I would
like to begin by providing a brief overview of USDA's real
property profile. USDA is a leader in America's food and
agricultural systems, helping the farm and food sectors operate
in a highly competitive marketplace to respond to changing
consumer demand for high-quality, nutritious, and convenient
food and agricultural products. USDA also carries out a wide
variety of services and activities related to the management,
research, and conservation of the Nation's agricultural
resources. As a result of such a huge mission, USDA manages an
extensive asset portfolio. Land, facilities, and other real
property held by USDA are an integral support component to its
mission.
As the second largest landholder in the Federal Government,
USDA occupies approximately 89 million square feet of owned,
commercially leased, and General Services Administration-
assigned space. USDA also manages 193 million acres of land, of
which 99 percent is National Forest land, and a Roads Program
totaling 383,900 miles. USDA operates in 23,400 buildings and
31,000 structures having a replacement value of approximately
$46 billion.
With such a large footprint, USDA has made rightsizing the
Department's asset portfolio a priority. Executive Order 13327
has provided a framework for addressing the many areas of real
property asset management. Since the implementation of the
Executive order, USDA has taken the following actions:
In May 2004, USDA established the Corporate Property
Automated Information System (CPAIS)--I think that is
``Inventory System,'' excuse me. CPAIS is a system of record
for all real property assets controlled by the Department.
USDA developed a comprehensive asset management plan which
guides managers' activities to ensure that assets are in the
right place, at the right price, and in the right condition to
support mission requirements.
USDA established asset management performance measures,
consistent with those published by the Federal Real Property
Council.
USDA has developed a Capital Programming and Investment
Process that will formalize project management for capital
improvement projects. And, locally, USDA is currently
undertaking a project to consolidate staff from seven different
leased locations within the National Capital Region into a
single lease, which will result in an 18-percent improvement in
space efficiency and potentially $24.3 million in cost
avoidance over the term of the lease.
Whereas USDA was not subject to the GAO study, the
Department is working to address the longstanding problems
mentioned in the study through implementation of the USDA's
asset management plan. USDA agencies are evaluating program
requirements, asset performance, and facility conditions to
determine whether an asset fits within the long-term mission of
the Department. The recent GAO study highlights the Federal
Government-wide problem with holding excess assets. A number of
factors must be considered when deciding between disposal
through sale or transfer and demolition and the time frames for
carrying out the decision.
As was pointed out by the GAO, remediation of hazardous
materials must be performed prior to disposal or demolition.
Delays in carrying out a decision often occur, as remediation
projects are subject to the availability of funds. USDA
understands the importance of maintaining its real property
portfolio. Unfortunately, as with most Federal agencies and
State governments, USDA has a significant backlog of
maintenance and repair projects. Using guidance provided by the
Executive order and the Office of Management and Budget, the
Department is developing a strategy to address the asset
backlog.
USDA generally agrees with the GAO's assessment of the
challenges to improving Federal real property management. Some
challenges can be overcome through enhanced real property
authority. The ability to retain all or a portion of the
proceeds from the disposal of excess property provides a real
incentive for agency heads to thoroughly analyze their facility
requirements. In addition, authority to enter into enhanced-use
leases provides a means for making meaningful upgrades to
facilities while adding to their overall mission.
In conclusion, USDA is committed to ensuring that effective
management of real property assets is ingrained in the culture
and business processes of the Department. I would like to thank
you again for this opportunity to discuss USDA's successes in
managing its real property assets, and I am ready to answer any
questions you have.
Chairman Carper. Thank you, Mr. Rutherford.
Mr. Henke, do you pronounce your name ``Henke''?
Mr. Henke. Yes, sir. That is correct.
Chairman Carper. That is the way I will pronounce it. Thank
you. Welcome.
TESTIMONY OF ROBERT J. HENKE,\1\ ASSISTANT SECRETARY FOR
MANAGEMENT, U.S. DEPARTMENT OF VETERANS AFFAIRS
Mr. Henke. Yes, sir. Mr. Chairman, I am pleased to be here
today on behalf of Secretary Nicholson to talk to you and the
Subcommittee about the VA, how about how we manage our real
property portfolio, and some of the many initiatives we have in
place to sustain real reform in Federal real property.
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\1\ The prepared statement of Mr. Henke appears in the Appendix on
page 75.
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Our priority, of course, and our dominant value is our
commitment to meet the needs of America's veterans in providing
them with world-class health care, benefits, and memorials.
Just to give you some perspective on how busy the VA is lately,
in health care this year we will treat 5.7 million unique
patients, an increase of 34 percent over 2001. This year, we
will have about 65 million outpatient visits, an increase of 47
percent since 2001. Our Benefits Administration last year
processed its 18 millionth home loan, and we processed almost
800,000 claims for disability benefits.
All this is to put into context our real property program,
the main components of which are: One, to have a strategic
plan; two, manage what we have most effectively; three, make
prudent investments in what we need for tomorrow; four, measure
our performance; and, five, dispose of assets we do not need,
which brings revenue for health care and other services that we
can reinvest directly to provide benefits for veterans.
In many ways, VA is ahead of the power curve. We have had a
Capital Asset Realignment for Enhanced Services (CARES) process
underway now for a number of years. This document was approved
in May 2004, and it is our blueprint for meeting the current
and future health care needs of our veterans in modern,
efficient health care facilities, and it is updated regularly.
Based on the capital investment process for CARES, VA has
plans to develop and build four new medical centers and also to
consolidate existing campuses--for example, the Cleveland
campus from two campuses to one, and the Pittsburgh campus from
three to two. At the same time, we are putting facilities where
veterans live and where the demographics required them, for
example, in Las Vegas, Nevada, and Orlando, Florida.
VA uses performance metrics to evaluate and analyze how
well our assets are performing, and these measurements are
aligned with the Federal Real Property Council, and they have
the performance measures of cost, condition, utilization, and
mission dependency.
VA uses every means available to dispose of unneeded
assets. We have disposed of 156 buildings since 2004, and we
have plans to dispose of 146 more, and 2.7 million gross square
feet, this year and next year.
While we have many challenges, we are using innovative ways
to deal with the situation in today's real estate market, and
the way to succeed, we believe, is to find a win-win-win for
the local community, for the Federal Government, and, most
importantly, for veterans. The reuse of Federal buildings
through, for example, VA's enhanced-use lease authority, allows
for us to transfer buildings and real estate from the Federal
to the non-Federal sector without adversely affecting the local
community, VA facilities, or, most importantly, veterans.
Our great enhanced-use lease program provides a proven
method of leveraging our real estate portfolio, and it has
brought significant cost savings, realignment of
underperforming assets, and also produces the ``highest and
best use return'' for veterans and taxpayers.
We have processes in place to ensure that dollars spent on
capital assets make business sense and meet the goals of the
Department and align with the goals of the FRPC and the
President's Executive order. We have processes in place also to
evaluate leasing and major equipment purchases, and we are
always striving to link our real property initiatives with our
capital planning process.
Of course, throughout this process, we have worked with OMB
and the Congress and will continue to do so.
So, Mr. Chairman, thank you for the opportunity to be here
today to tell you about some of the progress we have made and
the efforts we have underway, and I am happy to answer your
questions.
Chairman Carper. Mr. Henke, that is a pretty good story,
and we look forward to coming back and asking some questions
about it.
Mr. Grone, welcome. Your full statement will be entered
into the record, and we are anxious to hear what you have to
say. Thank you.
TESTIMONY OF PHILIP W. GRONE,\1\ DEPUTY UNDER SECRETARY OF
DEFENSE, INSTALLATIONS AND ENVIRONMENT, U.S. DEPARTMENT OF
DEFENSE
Mr. Grone. Mr. Chairman, I appreciate the opportunity to
appear before the Subcommittee today on the management of
Federal real property and to provide some insight to the
progress being made within the Department of Defense.
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\1\ The prepared statement of Mr. Grone appears in the Appendix on
page 87.
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Federal real property was first designated in January 2003
as a high-risk area by the Government Accountability Office
because of issues concerning inaccurate inventory reporting,
deteriorating facilities, unidentified underutilized
facilities, and the challenge of protecting facilities from
future terrorist attacks.
Realizing that the Department of Defense has challenges
with properly managing and maintaining its assets, DOD has
undertaken an aggressive, comprehensive program to transform
business processes with the end goal of having complete
integrated lifecycle asset management--from planning through
disposal.
Management of the Department of Defense portfolio, which
currently comprises over 533,000 buildings and structures, over
51,000 square miles of real estate, and a plant replacement
value in excess of $710 billion, is founded on a multitiered
strategy that is designed to prevent deterioration, counter
obsolescence, enhance the military readiness and capability of
real property assets, and eliminate excess capacity.
To support this strategy, the Department's business
practices on real property inventory controls are being
fundamentally transformed through the Business Management
Modernization Program. DOD has established standardized
business processes, business rules, and data elements for real
property assets to drive accurate, authoritative,
comprehensive, secure, and timely enterprise property
information. In support of these requirements, the systems of
the military departments and the components and their processes
are currently being modified, and all of this is scheduled to
be completed in fiscal year 2009. A real property registry is
being established in this calendar year, which will assign
unique identifiers to all DOD real property to enable
consistent management of real property across the Department.
The Department's efforts to reshape and reposition
installation assets through base realignment and closure and
the Global Posture Review are also significant. BRAC 2005
affects over 800 locations across the Nation--which, I may add,
is 2\1/2\ times the size of all prior rounds of BRAC combined--
through 24 major closures, 24 major realignments, and 765
lesser actions. In the end, State facilities amounting to a net
of roughly $20 billion of plant replacement value will come off
the Federal books through BRAC, and an equivalent number will
come off through our overseas Global Posture Realignment.
The elimination of excess and obsolete facilities in the
inventory, an effort separate and distinct from the BRAC
process, continues to be another key element of the
Department's asset management plan. Efforts are underway to
refine the manner in which disposals are forecast and to
reflect them more accurately in the real property inventory.
The Department is also in the midst of a second demolition
initiative, separate from BRAC, which targets 50 million square
feet of facilities and additional excess infrastructure by the
year 2013. This follows our successful completion in 2003 of
the demolition of 86 million square feet.
The Department continues to refine our modeling for
recapitalization, facilities sustainment, installation support,
and real property services, all of which are benchmarked to
best practices in the public and private sector and each of
which is designed to guide investment choice and to enhance our
understanding of lifecycle asset management cost.
Mr. Chairman, the Department recognizes the need to ensure
improved real property asset management practices and
accountability. I sincerely thank you and this Subcommittee for
the opportunity to highlight the Department's success as well
as our challenges in the management of DOD's real property
portfolio and to outline our plans for continued improvement in
the future.
I appreciate your continued support, and we look forward to
working with you as we continue to transform and move these
plans to action. Thank you, Mr. Chairman.
Chairman Carper. Mr. Grone, thank you so much.
Mr. Goldstein, I will not put you through this one more
time, but we will skip over you. Thanks for staying around.
Mr. Winstead, welcome.
TESTIMONY OF DAVID WINSTEAD,\1\ COMMISSIONER OF PUBLIC
BUILDINGS SERVICE, U.S. GENERAL SERVICES ADMINISTRATION
Mr. Winstead. Thank you. Chairman Carper, thank you so
much. I am David Winstead. I am the Commissioner of Public
Buildings at the GSA. I am pleased to be here to address this
important issue of Federal property asset management as well as
disposal. And as you know, we are the primary landlord to most
civilian agencies, and our real estate portfolio is driven very
much by our customer agencies' missions and needs while our
performance of our portfolio is driven really by a strategic
approach to asset management, much as some of the other
panelists have talked about.
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\1\ The prepared statement of Mr. Winstead appears in the Appendix
on page 95.
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GSA, like many landholding agencies, has made significant
progress in addressing the issues outlined in the GAO high-risk
series. Today, I would like to address GSA's asset management
strategy and our progress towards reducing vacant and
underutilized space, our data reporting efforts, and our
participation on the Federal Real Property Council, which Clay
Johnson is a key part of.
I would like to also discuss two related issues: The issue
of current reinvestment challenges in terms of reinvestment of
our own portfolio, as well as increased reliance on operating
leases.
In terms of asset management and property utilization, as
highlighted in today's first panel, GAO described the
continuing challenge of managing Federal real property and
identifying several agencies with over 10 percent of their
property inventory as vacant or underutilized. GSA has two very
vigorous efforts underway to reduce the amount of vacant space
and underutilized property, as well as government-wide, our
Office of Real Property Disposal assists other landholding
Federal agencies in terms of their disposal of underutilized
assets.
Internally, GSA has made significant progress, we think,
over the last 4 years or so in reducing the amount of vacant
and underutilized property in our owned inventory. In fiscal
year 2003, we initiated a strategy to restructure our portfolio
of owned assets. We have made, I think, credible progress
nationwide, and since the end of fiscal year 2006, we have
reduced the percentage of under- or non-performing assets from
45 percent to 30 percent. We have reduced vacant space from 9.2
percent to 7 percent, which is significantly below, by the way,
the private sector average of 11.6-percent vacancy in the
commercial market. We have reported as excess 258 assets,
disposing of 52 buildings totaling 15 million square feet, and
this has avoided carrying costs of about $588 million in terms
of capital reinvestment needs.
As a result of this restructuring initiative, by the end of
fiscal year 2006 less than 3 percent of our nearly 9,000 owned
and leased properties met the FRPC's definition of vacant or
underutilized. The 251 assets identified as vacant or
underutilized included 149 government-owned and 102 leased
properties. Of these assets considered vacant or underutilized,
84, or 56 percent, have already been reported excess to the
needs of the agency and are in the disposal process; 4
additional assets are planned for disposal; 22, or 15 percent,
are mission-critical facilities such as courthouses; and 13, or
9 percent of inventory, are vacant due to a major modernization
and will be fully occupied once those modernizations are
completed.
Senator, I would mention, because it was commented on
earlier in questions, about the speed which we are now doing
this. I would like to mention that under our disposal process,
we are taking about 240 days average in terms of disposal
through utilization and also donation, and only about 170 days
if we are going to public sale or negotiated sale. So we really
have addressed the issue of timing and getting these excess
properties out of our inventory.
Under the real property inventory data issue--and I know
GAO addressed that, and Federal real property--and Mr. Grone
actually chairs the Subcommittee on this--a key element of
GSA's process is managing our portfolio is the ability to
capture data, to look at performance and analysis of our real
estate assets, and strategically move forward on decisions we
are making about retaining that asset or disposing of that
asset or reinvesting in it.
Under the Federal property government-wide standards, GSA's
inventory consists of almost 8,900 total assets, about 380
million gross square feet. When these assets are separated
between leased and owned--your comments earlier about the fact
we are now just surpassing our owned inventory in terms of
leased inventory--but we still have 1,788 owned assets totaling
about 219 million gross square feet and another 7,100 leased
assets. The annual operating costs for fiscal year 2006 were
$4.8 billion, $850 million for government-owned, and $3.9
billion for leased portfolio.
I think that Mr. Johnson and others have testified about
the Federal Real Property Council activities. I am pleased to
not only advance their objectives and the President's
management objectives, but I am also pleased to chair the Asset
Management Subcommittee, and I think that we are very proud at
GSA for being the first agency to be recognized as ``Green''
status under the Federal Real Property Standards. We did that
by improving by 3.2 percent over the last 5 years. We did that
by looking at reducing operating costs to about 4.2 percent
below market, and also reporting the assets, as I mentioned
earlier.
Just to conclude, I would mention, because I know my time
is up, on the reinvestment side, we do have enormous needs in
reinvesting in our buildings. The Federal Triangle, our
landmark, Cabinet agency headquarters, do require a lot of
investment now in terms of their age. We are looking very
carefully, about $6.6 billion in terms of reinvestment needs
that we have, and we are moving aggressively as we can to do
that. I will tell you, though, with cases like the Department
of Interior, we do have to have phased modernization. The EOB
is now in a three-phase modernization of the White House's
Executive Office Building. But we are, I think, doing
aggressive reinvestment of the proceeds from the sale of
assets, and I think we are also applying the almost $8 billion
coming to us through Federal property and the Federal building
fund to reinvest in these inventories.
I would mention just in closing that our reliance
increasingly on lease is accurate. We have, in fact--and OMB's
overview of us for almost two decades has said focus on
uniquely government-owned buildings and utilize the
efficiencies in the private sector to provide general office
space. And that is what we are seeing, and now we have a little
bit over 50 percent leased space to the government-owned space.
I would like to put my statement in the record, Senator,
for the Subcommittee. I would also like to give to all the
Subcommittee Members--every year we produce a State of the
Portfolio.\1\ This is our fiscal year 2007 document. I would
also like to enter this into the record of the hearing.
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\1\ Copy of the ``State of the Portfolio, fy 2007'' submitted by
Mr. Winstead appears in the Appendix on page 107.
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Chairman Carper. Without objection, that will be part of
the record.
Mr. Winstead. We also are trying on our own in terms of
utilizing our buildings and leased space, helping Federal
agencies to do a better job in the workplace environment
design. We just came out with a new program we are calling
``Workplace Matters,'' which is now being implemented through
our realty specialists around the country, and I have also
provided a document of that, as to how we can get better value
out of both our own space as well as our leased inventory. And
I will tell you with great pride, and I think this
Subcommittee, in looking at the whole issue of real estate,
Federal real estate, should recognize that for almost 17 years
now, GSA has administered the Design Excellence Program. The
Prettyman Courthouse across the street and the new ATF building
over on New York Avenue are examples of our effort and success
in drawing in the best architectural minds in the world to
build these new Federal landmarks. And just recently I presided
over the award of our GSA Design Awards given to some of the
winners. Thank you.
Senator Carper. Let me again thank you for what you all
have brought to the table and to us today. And I want to go
back to a question I asked of the first panel, and that is,
what do we need to do on the legislative side in order to save
some money here and to really use common sense and enable our
agencies to use common sense, to incentivize them to do the
kinds of things that Mr. Henke talked about.
Mr. Rutherford, let me just start with you. What do we need
to do on the legislative side here?
Mr. Rutherford. Well, I mentioned in terms of some of the
enhanced authority with----
Chairman Carper. Go through that again, please.
Mr. Rutherford. Well, I mentioned in my testimony with
regard to having the authority to retain a portion of the
proceeds, if not the total proceeds. The Forest Service, which
is part of USDA, has that authority through--I believe it is
calendar year 2008. They have been able to utilize that to take
money that they can then apply to the maintenance of existing
facilities, critical facilities.
Chairman Carper. Let me just interrupt you. Mr. Winstead,
why is it that we have some agencies that have authority and in
the case of USDA one portion of a larger agency has authority?
And it sounds like it expires in a year or so. How does that
happen? It sounds like a bit of a mish-mash here.
Mr. Winstead. Right. Senator, it is, and we have those
three agencies with enhanced-use leasing authority. We did not
have it until our retention efforts in the fiscal year 2006
appropriations act--2005, rather. We actually got now retention
of proceeds for the first time. Although we do not have
enhanced-use leasing, we do have under disposal authority of
Section 412 that we are now looking at that gives us some of
the same options that we have under enhanced-use leasing.
I think Congress has continually looked at this issue with
the purview and, basically the blinders on, of the scoring
roles in the Budget Act of 1988, and that has been driving much
of this in terms of where can an agency look at special purpose
authority such as VA and get that from Congress to deal with
certain real estate assets or through BRAC and other means. We
do not have it yet, still, and yet we do feel optimistic that
under new authority under Section 412 we can do some of the
things that are being done under enhanced-use leasing.
I will tell you, though, as all of us on this panel would
admit, we do not have the authorities and the tools that the
private sector has to look at lease-to-own options, to look at
bargain purchase options. Federal Building Bank actually gave
us financing authority on several buildings, the last one of
which is opening in July, the San Francisco Federal Building.
But it has been a disjointed approach, and there have been
separate authorities gotten for a specific purpose. So that is
really the record to date.
Mr. Rutherford. If I can add?
Chairman Carper. Please.
Mr. Rutherford. Specific to Agriculture, we have split
authority when it comes to Congress. The Forest Service
jurisdiction is--the oversight jurisdiction has to do with the
same as Interior, whereas the rest of us are under the
Agriculture Committee. So whereas those who are looking at the
Forest Service--which is our largest landholding agency. They
were given specific authority, but it did not necessarily
transcend into some of the other areas.
Chairman Carper. Alright. Mr. Henke, I was impressed by all
that you have done at the VA, and as a veteran myself, I
applaud a lot of what you are doing outside of real property
management. But in terms of what we can do, not necessarily
just to help VA, but maybe some of the other agencies that even
are not represented here, Mr. Henke, your advice and counsel
would be appreciated. We are talking about doing a 5-year
pilot, which may or may not make sense. It seems like a long
time to wait to get where we need to go. But I think you and
some other agencies, forestry and others, have been the pilot,
and what we need to do is learn from you and shorten that 5-
year time frame to something a lot less.
Mr. Henke. Sir, I would think that any proposal that allows
quicker disposal for agencies, that allows a more streamlined
process, and that allows, most importantly, the agency to
retain the proceeds of it to carry out its mission would be----
Chairman Carper. All the proceeds? A portion of the
proceeds?
Mr. Henke. Sir, in the case of VA, we have a particularly
wonderful authority in Title 38 to retain the proceeds from our
enhanced-use leases to provide better services for veterans.
And if I could give you two examples of that, I would
appreciate it----
Chairman Carper. How did you happen to get that? Do you
know the genesis of that?
Mr. Henke. Sir, I believe it was authorized in the 1992 or
1993 time frame. I am not sure of the origin, but a recognition
that VA's capital infrastructure was very wide and divergent,
and that the best use of those assets was, if not for direct
care for veterans by VA, then to retain the resources for VA.
But I am not sure about the exact legislative history.
Chairman Carper. Alright. Thank you.
Mr. Henke. One example of our enhanced-use lease authority
that is really fantastic, in the fall of 2002, as part of our
CARES process, we decided to realign medical care in the
Baltimore area. We moved some facilities, some care from Fort
Howard, into the Baltimore downtown area. And what we have
done, as recently as last fall we signed a lease. I remember it
was September 28 last year. It is not every day that I get to
sign a 75-year document that takes us into 2081, so I remember
that. But we have a lease with a private sector entity to
finance, design, and build what we call a ``life care
community,'' which provides a veteran-focused retirement
community with over 1,300 units.
As part of the package there for VA, the developer is going
to build a brand-new outpatient clinic (OPC), 10,000 square
feet, that will provide medical care for the residents there
and for other veterans in the area. So that is really a great
win for vets and VA, and that is what we try to do, is to set
up an arrangement where the local community wins, the VA
manages its portfolio better, and veterans receive the care
they need in the setting that they deserve.
The other example, if I may, sir, we have authority under
our enhanced-use lease provisions actually to dispose of
assets, and we have used that provision in Chicago. I think 4
or 5 years ago, we enhanced-use-leased what we call our
Lakeside facility, and then sometime later, we determined that
the facility was no longer required for VA, and we would
consolidate those to another campus in Chicago. VA received $22
million for the lease and--on the sale of the property, $28
million on disposal, so $50 million retained by VA to enhance
services, and in that local area, in Chicago, in that network.
So our enhanced-use lease authority is fantastic.
One thing we would ask for support for is that the
authority expires in 2011, and we will need to have that
authority reauthorized so we can continue to make progress.
Chairman Carper. Mr. Grone, what can we do to help what you
have begun with BRAC?
Mr. Grone. Well, Mr. Chairman, following in--I do not want
to repeat a good deal of what has already been said. I think
Mr. Johnson and my colleagues have spent a good deal of time
emphasizing, I think, what is the central point, which is
something--a framework that is more flexible and more aligned
with private sector practice. Not that we will always behave as
we are the private sector, because we do have public sector
responsibilities. But something that is more flexible and
respective of the market dynamics in which particularly my
colleagues who do not sit behind large installation complexes
have to deal with or they are in the market, but not always
able to behave in the market.
And while we at Defense have certain authorities--enhanced-
use leasing has been mentioned--we also have authorities for
real property exchange, which the Army in particular is using
to exchange reserve centers in exchange for real property and
other construction considerations. We also have some fairly
powerful authorities in BRAC. To the extent that we are able to
retain dollars, they stay, not for the deferred maintenance
question, but they are retained within the program to be used
for other BRAC purposes, which could be used to offset our
construction requirements, and in the out-years, after
implementation, to mitigate any additional environmental costs
that the Department may incur.
But the reason why we have some of the budget restrictions
that we have goes back to the whole question in the early 1990s
about the liabilities incurred by government-sponsored
enterprises, and a lot of the provisions that were in the
Budget Enforcement Act of 1990 were designed to get at the
question of appropriate visibility of liability to the taxpayer
for long lead costs, whether it was for GSA or leasing or
whatever it might be.
So the question that I believe Senator Coburn raised
earlier about accounting standards, if we can find a way to
combine flexibility with transparency and visibility in
budgetary terms, that should provide the surety that we need.
But what is also critical is that we standardize some of the
tools between and among the agencies, because as the inventory
chairman of the FRPC, what we are trying to do is standardize
data between and among the agencies, which, yes, will provide
better reliability for congressional and other oversight, but
from a management perspective, if we are all proceeding from a
common framework of data, it then allows for the interagency
collaboration that Mr. Johnson suggested was necessary so we
would make better investment choices. And if we have the data
standard but our tool sets are not aligned, that is not as
optimal.
So I think it is critically important that whatever we do,
that it be a set of authorities that can apply to all agencies,
while recognizing that we each have some unique missions that
need to be carried out.
Chairman Carper. Alright. Thanks. Mr. Winstead, do you want
to add your comments to my question?
Mr. Winstead. Yes. I think that Mr. Grone addressed it
quite well in terms of the uniformity and through the Federal
Real Property Council, looking at our relative authorities and
see how they can be more effective and more uniform. Obviously,
from a legislative standpoint, the proposal that you all are
considering about for other agencies, the retention of 20
percent is a good incentive to get, define, analyze excess
properties, get them in the marketplace, or get them to public
use. Obviously, as mentioned before, more flexibility in terms
of the budget rules and looking at transparency as well.
Additional authorities that are commonplace in the private
sector are obviously those that we always sort of strive for,
but we do feel that under this Section 412 we are beginning to
get some of those tools to allow us to lease, ground lease or
lease back facilities for renovation, but still maintain
Federal ownership, which would be good. And also allowing the
concept that we see, is the value of approaching. In several
cases, we have been very effective, the consolidation of
properties for Federal construction use, which, as mentioned
before, under a 30-year analysis is always cheaper. And two of
those instances over the last number of years, which I think
are very effective and demonstrating the value, is our proposal
for St. Elizabeth's campus for the Department of Homeland
Security, which is well underway and a master planning process,
has got historic property issues and others. And the other one,
I was just with the Commissioner of FDA last night, the Food
and Drug Administration new headquarters in White Oak,
Maryland, where we have $1.4 billion. Again, we are taking, in
the case of White Oak, a lot of private sector leases that are
in the Rockville area in private buildings and bringing them
onto a piece of ground we acquired 5 years ago and building a
very efficient headquarters for the FDA in government-owned
space. That is also a cure for a lot of this.
Chairman Carper. Thank you. I know that some of the
agencies, at least those that are represented on this panel
today, have the authority to retain a portion of the proceeds
from the disposal of properties. We have been talking about
that. And as I understand things, this gives our agencies the
incentives, as we have been talking about, to dispose of
properties and the proceeds going to the Treasury.
Let me just ask, this authority gives those who have it a
little more flexibility to make good use of a piece of property
that otherwise would be sitting idle. And the question that I
have--and the responses to the questions you have given me, I
think you have pretty much answered this question, so I am
going to skip over that one and go to the next one.
Mr. Winstead has testified today that GSA is about to reach
the point at which the majority of its portfolio will consist
of leased facilities. And Mr. Goldstein has testified that
agencies are increasing their reliance on leases, sometimes
even when other more cost-effective options are available. And
I have got a couple of questions about this phenomenon.
My first is: How did we get to this point? I think I have
an idea how we got to this point, but I would like to ask it
anyway. What is in current law and agencies' property
management processes that encourages leases when leases may not
make sense? And then in what circumstance do you think leases
are appropriate and when are they not appropriate? Senator
Coburn said earlier that they are almost never appropriate, but
I can envision sometimes when they would be appropriate. But in
what circumstances do you think leases are appropriate and when
are they not appropriate? Have any of your agencies ever
decided to go with a lease knowing that it was not the most
cost-effective option? I would especially like you to focus on
those last two questions. In what circumstances do you think
leases are appropriate or maybe not appropriate? And, finally,
have any of your agencies ever decided to go with a lease
knowing that it is not the most cost-effective option?
Mr. Winstead. Senator, GSA has a very aggressive analysis,
a 30-year lifecycle cost analysis, looking at net present value
of the options that we bring up here to Congress. You all
authorize everything we do, both owned, built, as well as
leased actions. And we are always looking at the owned solution
versus the leased solution versus the lease-construction
solution to meet our clients' needs. And I will tell you that
the overview both from the budgetary standpoint has been for a
couple of decades--I have only been with the agency since
October 2005, but the philosophy has been use the
competitiveness and the economies in the private sector office
market, general use market, to tap good leases, good actions to
get space solutions for Federal agencies.
When I say that--and 70 percent of our leases for our 60-
some agency clients are less than 10,000 square feet. So what
generally is a policy----
Chairman Carper. Say that number again?
Mr. Winstead. About 70 percent are less than 10,000 square
feet, so they are small leases, the majority of them are. So
what we tend to do and find is that when you are in the market
for a small space, a lot of times the efficiency of the private
sector, where you do not have--our first rule is always go to a
GSA federally owned building to meet that need. Where we do not
have that, we do find with the shorter-term leases and the
small-space leases, the efficiencies in the private lease
market and our ability to tap, competitive lease rates, we are
actually achieving about 8 to 9 percent below the market rates
that most private sector tenants are getting and, in fact,
through this national brokerage contract over the last couple
of years, we are seeing we are even getting in some cases 13
percent what the private sector rate is. So we are getting
economies.
With that said, this analysis that we perform, our
portfolio management people right behind me, a very capable
group, when they do a 30-year pro forma on our options, space
options, it is almost in every case that government-owned is
the best solution from a cost standpoint.
Senator Coburn mentioned--and you did as well--the Patent
and Trademark Office. I was not around when that was negotiated
by the National Capital Region, but you are correct. Under the
30-year analysis, basically the operating lease was $48 million
more expensive than a government solution.
The reality in that instance--and I think also in the
Department of Transportation's new headquarters--is the ability
to address a one-point-some-billion-dollar headquarters with
the constraints of an $8 billion annual budget for GSA in the
Federal building resources. We could not get to the
construction solution. We could not deliver the needs with the
expiring lease DOT had and their need for new headquarters
without going a private sector route or lease.
Our preference is--and the economics in most deals--these
new FBI field offices, if you look at the 36 field offices we
are building for the FBI since September 11, 2001, their new
requirements and their new mission, we are seeing if we were to
build those 36 field offices, it would be a $1.7 billion cost
to the Federal Government. Some of the lease-constructs we are
entering now, the aggregate costs for those lease-constructs
will be about $160 million. So we are able actually coming here
with these perspectives to analyze that and obviously get your
approval. But in every instance, we do try to find federally
owned property and provide that space. But what I am suggesting
is increasingly, now about 50-50, we are finding the solution
in the private sector lease market.
Chairman Carper. Alright. Let me go back to the question I
asked. Have any of your agencies ever decided to go with a
lease knowing that it was not the most cost-effective option? I
would be surprised if the answer were no.
Mr. Henke. Mr. Chairman, I would have a couple of
observations on that.
In the case of VA, leasing gives us the opportunity to
respond more quickly to the health care dynamics in the
marketplace, and particularly with regard to demographics of
where veterans are and where they need access points to care,
and also the delivery methodology of care, the modality. In
other words, a more outpatient-focused basis than an inpatient
basis.
The example of the post-Hurricane Katrina situation in New
Orleans, the VA Medical Center in downtown New Orleans was
destroyed, and we were able to very quickly establish on the
outer perimeter of Greater New Orleans three outpatient
clinics, community-based outpatient clinics (CBOCs), and we
have about 880 of those across the country, typically in leased
space, typically not large structures and not medical-unique
space. But in the case of Katrina, we were able to establish
clinics in Hammond, LaPlace, and Slidell, Louisiana, to re-
establish care in that area. So in that situation, leasing was
flexible and made a lot of sense, and the cost considerations
were certainly secondary to providing access to care for vets
in that area.
Chairman Carper. Alright.
Mr. Rutherford. Can I add a little bit?
Chairman Carper. Please.
Mr. Rutherford. With regard to the Department of
Agriculture, whereas GSA's average lease is about 10,000 square
feet, our average lease is about 3,000 square feet. In our
agencies which we consider our customer service agencies, which
is the Farm Service, Rural Development, Natural Resource
Conservation, the key there is often being close to the
customers that they serve. And in many cases, we do a cost/
benefit analysis, but in many cases our best approach is to
either house in a GSA facility or we will share in many cases
with a county or State office, which also requires a lease, but
usually at very favorable rates. So often ours is
geographically dictated.
Chairman Carper. Alright. Thanks.
Mr. Henke, in our State, in Delaware, we only have three
counties. In our southernmost county, Sussex County, we have
two community-based outpatient clinics for our veterans. We
have a large veterans population in southern Delaware, large
and growing. The VA in our State wants to consolidate those two
from one in the western side of Sussex County, the other in the
eastern side, and consolidate them in Georgetown into a single
space. We talked it through with the veterans organizations in
our State, and they believe they will get better care, more
comprehensive care at that one central location in Sussex
County.
At the same time, VA has been working to find a site for a
community-based outpatient clinic in Kent County in the
southern part of our State in the Dover area, and I think what
they are doing there is they found land, will knock down a
structure, and they are going to bring in, I think, about a
6,000-foot modular unit to put it to use and be able to stand
it up within just literally days--a couple of weeks.
Mr. Henke. Yes, sir. The decision package for the next
round of community-based clinics is with the Secretary now, and
he is about to make a decision and move forward with 30 or more
additional CBOCs across the country, and I would expect that
decision and announcement to be made very imminently. But we
recognize there are situations where there is a great demand
and a need to put a clinic in that community, and we will work
very aggressively to do that.
Chairman Carper. Good. Maybe one or two more questions, and
then we will call it a morning. GAO has presented us with some
startling figures on maintenance backlogs, and apparently the
seven agencies they contacted in putting together the high-risk
report that inspired this hearing reported more than $77
billion in maintenance backlog. I think I mentioned that number
earlier. About $57 billion of that amount is attributable to
the Department of Defense alone.
Mr. Grone, I will ask you a question separately about why
Defense's backlog is so significant, but to the rest of you,
what is it that makes up these backlogs? What kind of problems
do they present to you operationally? Is there something that
needs to be done, such as a change in management practice or an
increase in resources, to help address this problem? If the
others want to respond first, and then I will go back to Mr.
Grone.
Mr. Winstead. Sure. Senator, I will be happy to respond. In
the 2008 prospectus program that is up here, we have about $6.6
billion in the repair and alteration portion of our budget, and
the Federal Triangle is an example. They have aged inventory
that does require modernization--substantial in the case of the
Executive Office Building, a couple hundred million dollars.
But what we are seeing is that it is forcing us to have to
manage this renovation in a much more innovative way and phased
approach. With that $6.6 billion, we would need on average
about $1 billion a year to address it, and we are now getting
about $700 million a year. So there is a gap there that we are
very concerned about it, and it would take 8 years to
essentially resolve that backlog of renovation needs. So we do
have about an 8-year backlog that we need to address.
But I would stress to the Subcommittee that what you have
heard today is a sort of consistent approach of the Federal
Real Property Council on how to manage our assets, and we are
exchanging best practices, and what we are--you have had
evidence today is that we are all approaching this from the
standpoint of let's retain those assets that are most mission
critical, that we, for example, have full tenant, we only have
4-percent vacancy in our own spaced inventory, that we are
really utilizing them to the highest level of efficiency, and
that is our tier one assets, and then maintaining those that
still have a lifecycle value for a period of years, and then
disposing of them, the third tier, disposing of them, getting
them out.
What that will allow us to do as we continue on this path
that was started in fiscal year 2002 is the more we get out of
underperforming and underutilized and excess properties, the
more from the rent revenues coming to the Federal building fund
we can put back into repair and alteration and modernization
projects.
So exactly what we are trying to do here and what this bill
that would incentivize retention from disposal will do is to
help refocus this Federal building--from our perspective--fund
resources into modernization and repair work. So I think what
we have gotten started here very aggressively will help.
Chairman Carper. Before I call on Mr. Grone, anyone else on
the maintenance backlogs?
[No response.]
Chairman Carper. Mr. Grone.
Mr. Grone. How much time do we have, Mr. Chairman?
[Laughter.]
Chairman Carper. Ten minutes. I will ask you to use half of
that.
Mr. Grone. Well, I joke, but the answer has a great deal of
lineage to it.
Chairman Carper. Feel free to respond more fully for the
record.
Mr. Grone. I understand, sir. Mr. Johnson talked about the
phenomenon in the context of deferred maintenance of the
ability to wait one more year, and a lot of this, quite
frankly, with an inventory the size of the Department, you can
get to large numbers rather quickly. So when we have a plant
value of over $710 billion with a legacy of many decades and
years of that deferral issue, waiting one more year, how were
we in that position because we really could not truly define
the requirement.
One of my predecessors many times removed, when he began
what became then known as the Excellent Installations program,
had a target established of 2 percent of plant replacement
value to be plowed back into maintenance on an annual basis,
which was also, frankly, the state of industry thinking at the
time. But there was no real way to calibrate what was a true
requirement.
That thinking later evolved to 3 percent of plant, but in
the last 5, 6 years, we have actually begun to deploy, which
GAO has had ready access to throughout the process, our
modeling techniques for how do we think about the sustainment
and maintenance of an asset, how do we think about how to
recapitalize it and think about those in portfolio terms so we
can think about the investment choice we need to make.
Those models are being benchmarked to both the best
practices in the public and the private sector, so the
leadership can now see what the requirement is and that it has
some foundation in fact other than a calculation, which is 3
percent of some number.
We will work through a good deal of that backlog,
particularly through BRAC, as we undertake a fairly significant
and sizable recapitalization of the plant as we move and
reposition missions. But the critical piece here is that a lot
of that backlog is associated with some of the more mundane
aspects of the inventory. Over a fifth of our plant is
associated with utilities and improvements, like roads,
curbing, parking lots, and the like. That is a fifth of the
inventory. When we talk about repair and maintenance backlog,
we are also talking about repair and maintenance backlog in
relation to those types of assets.
So the $57 billion is not, strictly speaking, just the
built environment above the ground. It is also is the wires and
pipes, the roads, the sidewalks that are associated with those
assets, and those are equally important, and we will continue
to work through that.
I am less, frankly, focused on backlog of maintenance
repairs and management construct because that then becomes part
of our recapitalization target. Do we have the business
processes in place and the decision tools in place based on
real data to understand what we own, where it is, what is its
condition, what does it cost us to operate it, and what is its
operational availability and capability?
Everything we are doing is built on answering or trying to
answer those five questions about any asset with data that is
standardized, and then rolling those into our predictive
modeling to get a sense of cost. If we are able to do that
effectively, I think over time we will have that number, and we
will always have a backlog of maintenance and repair of some
number. But in the future, I would expect that it would be far
less significant than the $57 billion number. But how we got
here is simply because in many ways we did not have the tools
to do anything else. And what we have said about doing in the
last 5, 6, 7 years is building the tool set that allows the
leadership, not just of our Department but of any Department,
because Department of Energy and others and NASA have looked at
the way in which we think about recapitalizing assets and
sustainment, and are incorporating some of the things that we
have learned into their management models as well.
So there is a lot of sharing, and I want to be very
optimistic about chewing our way through that number. But a lot
of it, frankly, was because we did not have the know-how and we
did not have the tools. And now we have them. The question is
understanding the requirement, making risk-based trades against
everything else, the other investments we need to make, and for
this Department it is a Nation at war, reinvesting in not just
our fixed assets but the military hardware that is necessary to
transport the force, our people and their costs, some of which
we share with my friend to my right, in terms of the things
that we need to be concerned about.
So, I think we are on the path, but I do think that number
is sort of a significant target of what it is, a constant
reminder of the legacy of poor management practice. And that is
what we have to work through to make sure that we do not leave
that as a legacy for my successors down the road.
Chairman Carper. Well said.
Mr. Goldstein, you have been good to stay here with us to
the bitter end, and for your trouble, I am going to ask you not
to give the benediction. I will give that. But I would like to
ask you just to sort of reflect on what we discussed with you
and Mr. Johnson in the first panel and just reflect on the
comments that we have heard here with the second panel, their
statements and responses to questions, and just give me what
you think should be some of our most important takeaways for
the Members of this Subcommittee and our staff.
Mr. Goldstein. Sure. Thank you, Mr. Chairman, and I
appreciate not giving a benediction.
I think a couple things are important. One, I just want to
mention that some of the things you have asked today, GAO is
continuing to look at. In part for this Subcommittee, we are
looking at the whole issue of leasing--some of the things you
have asked today you will be seeing in the study that you have
requested from us in the near future.
We are also going to shortly begin studies that the
Congress has asked us to prepare looking at the backlog as well
as looking the whole issue of retained earnings. So many of the
things that we have talked about today, we will be able to help
shed some light on in the coming months. So I wanted to mention
that to you.
I think one of the biggest takeaways that the Subcommittee
should have here is that a lot of progress has been made in the
last couple years, and you had asked at the beginning if there
are things that the Congress might consider doing, and we have
talked about some of those in terms of additional authorities.
But one thing that you have not mentioned this morning is the
whole structure that is in place. At the moment much of the
progress that has occurred through the President's Management
Agenda and the Executive order has occurred because of the work
that this Administration has done and the seriousness with
which they have taken the high-risk issue that we presented a
number of years ago. But this Administration will not be here
forever, and the focus that they place on this issue may not be
here forever, either. And so Congress may want to consider
whether or not they ought to codify the Executive order or some
of the other things that are part of the structure so that the
kind of emphasis that has been placed on real property can
continue to be placed on it in the future. Because, obviously,
initiatives come and go as Administrations come and go, so I
think that may be an important aspect of this whole puzzle to
ensure success in the future.
Chairman Carper. Anyone else have anything you want to get
off your mind that pertains to this subject before we wrap it
up?
[No response.]
Alright. I want to thank each of you for coming, for
preparing for the hearing. I want to just express my
appreciation for the work that has been done by GAO over the
last 5 or so years on this subject and more recently by the
Administration in response to GAO's findings and the placement
of property management on the high-risk list.
There is obviously a role for the Administration to do
more. There is a role for the GAO to be our watchdog. And there
is an opportunity for us to conduct oversight, but not just
conduct oversight. This is, I think, our third hearing on this
subject, and I do not know about the rest of my colleagues, but
I am ready to get going with respect to legislation that might
be helpful to incentivize the agencies to really--maybe not
just incentivize them, but to help unleash them, unleash some
energy and incentivize them to use common sense. They all have
it. We want to make sure what we have is not precluding their
use of that common sense.
As I said before, when you say to an agency that you have
this surplus property and you are not using it, we are not
going to reimburse you to destroy it or to sell it, if you sell
it, you do not get to keep the proceeds, not even the value of
the land, you cannot use the proceeds to help work down your
unfunded maintenance costs that are out there standing out
there by the billions of dollars, that does not make much
sense. And we ought to be smarter than that, and we have to
find a way to address that and to do so not 5 years from now
but more recently. And the idea that we have all these agencies
that are leasing space--and it sounds like more all the time--
in some cases that makes sense. These VA clinics that we are
talking about that Mr. Henke--it might make perfect sense to do
that. There are a lot of instances where it does not. But we
have a situation where our budget scoring rules say that if you
go out and build a property and it maybe takes $10 million, but
you decide instead because you can do a long-term lease at a
fraction of that cost for 1 year, and because of the way we
score that, we incentivize people to make what is over the
lifetime of the property the wrong decision, the wrong
decisions for the taxpayers. We ought to be smarter than that.
And my hope is that by working together we will be smarter than
that.
We have made a good start. I am anxious to pick up the
pace. I suspect some of you and some of the other agencies that
are not here today would like to pick up the pace as well. And
the folks that will benefit will be the people that you serve,
the people who work with you, and your employees, and the
taxpayers who pay the freight for all of us. That is a good
agenda to work on, and we look forward to working on it with
you.
With that having been said, this hearing is adjourned.
Thanks very much.
[Whereupon, at 12:01 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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