    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

      INDEPENDENT LEASING AUTHORITIES: INCREASING OVERSIGHT AND REDUCING
                   COSTS OF SPACE LEASED BY FEDERAL AGENCIES

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

                                    (114-47)

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
        ECONOMIC DEVELOPMENT, PUBLIC BUILDINGS, AND EMERGENCY MANAGEMENT

                                     OF THE

                                  COMMITTEE ON
                       TRANSPORTATION AND INFRASTRUCTURE
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  JULY 6, 2016

                                   __________

                           Printed for the use of the
                 Committee on Transportation and Infrastructure

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                 COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                      BILL SHUSTER, Pennsylvania, Chairman
    DON YOUNG, Alaska                    PETER A. DeFAZIO, Oregon
    JOHN J. DUNCAN, Jr., Tennessee,      ELEANOR HOLMES NORTON, District of
      Vice Chair                             Columbia
    JOHN L. MICA, Florida                JERROLD NADLER, New York
    FRANK A. LoBIONDO, New Jersey        CORRINE BROWN, Florida
    SAM GRAVES, Missouri                 EDDIE BERNICE JOHNSON, Texas
    CANDICE S. MILLER, Michigan          ELIJAH E. CUMMINGS, Maryland
    DUNCAN HUNTER, California            RICK LARSEN, Washington
    ERIC A. ``RICK'' CRAWFORD, Arkansas  MICHAEL E. CAPUANO, Massachusetts
    LOU BARLETTA, Pennsylvania           GRACE F. NAPOLITANO, California
    BLAKE FARENTHOLD, Texas              DANIEL LIPINSKI, Illinois
    BOB GIBBS, Ohio                      STEVE COHEN, Tennessee
    RICHARD L. HANNA, New York           ALBIO SIRES, New Jersey
    DANIEL WEBSTER, Florida              DONNA F. EDWARDS, Maryland
    JEFF DENHAM, California              JOHN GARAMENDI, California
    REID J. RIBBLE, Wisconsin            ANDRE CARSON, Indiana
    THOMAS MASSIE, Kentucky              JANICE HAHN, California
    MARK MEADOWS, North Carolina         RICHARD M. NOLAN, Minnesota
    SCOTT PERRY, Pennsylvania            ANN KIRKPATRICK, Arizona
    RODNEY DAVIS, Illinois               DINA TITUS, Nevada
    MARK SANFORD, South Carolina         SEAN PATRICK MALONEY, New York
    ROB WOODALL, Georgia                 ELIZABETH H. ESTY, Connecticut
    TODD ROKITA, Indiana                 LOIS FRANKEL, Florida
    JOHN KATKO, New York                 CHERI BUSTOS, Illinois
    BRIAN BABIN, Texas                   JARED HUFFMAN, California
    CRESENT HARDY, Nevada                JULIA BROWNLEY, California
    RYAN A. COSTELLO, Pennsylvania
    GARRET GRAVES, Louisiana
    MIMI WALTERS, California
    BARBARA COMSTOCK, Virginia
    CARLOS CURBELO, Florida
    DAVID ROUZER, North Carolina
    LEE M. ZELDIN, New York
    MIKE BOST, Illinois
                                    ------

     Subcommittee on Economic Development, Public Buildings, and Emergency
                                   Management

                      LOU BARLETTA, Pennsylvania, Chairman
    ERIC A. ``RICK'' CRAWFORD, Arkansas  ANDRE CARSON, Indiana
    THOMAS MASSIE, Kentucky              ELEANOR HOLMES NORTON, District of
    MARK MEADOWS, North Carolina             Columbia
    SCOTT PERRY, Pennsylvania            ALBIO SIRES, New Jersey
    RYAN A. COSTELLO, Pennsylvania       DONNA F. EDWARDS, Maryland
    BARBARA COMSTOCK, Virginia           DINA TITUS, Nevada
    CARLOS CURBELO, Florida              PETER A. DeFAZIO, Oregon (Ex
    DAVID ROUZER, North Carolina             Officio)
    BILL SHUSTER, Pennsylvania (Ex       VACANCY
        Officio)

                                    CONTENTS

                                                                       Page

    Summary of Subject Matter........................................    iv

                                   TESTIMONY

    David Wise, Director, Physical Infrastructure Issues, U.S.
      Government Accountability Office...............................     5
    Chris Wisner, Assistant Commissioner for Leasing, Public
      Buildings Service, U.S. General Services Administration........     5
    Hon. W. Thomas Reeder, Director, Pension Benefit Guaranty
      Corporation....................................................     5
    John K. Lapiana, Deputy Under Secretary for Finance and
      Administration, Smithsonian Institution........................     5

                   PREPARED STATEMENTS SUBMITTED BY WITNESSES

    David Wise.......................................................    25
    Chris Wisner.....................................................    39
    Hon. W. Thomas Reeder............................................    44
    John K. Lapiana..................................................    48

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

      INDEPENDENT LEASING AUTHORITIES: INCREASING OVERSIGHT AND REDUCING
                   COSTS OF SPACE LEASED BY FEDERAL AGENCIES

                                  ----------

                            WEDNESDAY, JULY 6, 2016

                      House of Representatives,
                  Subcommittee on Economic Development,
            Public Buildings, and Emergency Management,
                Committee on Transportation and Infrastructure,
                                                        Washington, DC.
        The subcommittee met, pursuant to notice, at 10:30 a.m., in
    room 2167, Rayburn House Office Building, Hon. Lou Barletta
    (Chairman of the subcommittee) presiding.
        Mr. Barletta. The committee will come to order.
        Since I became chairman of the subcommittee, the committee
    has worked with GSA on reducing the cost of leased space by
    negotiating better deals and reducing the real estate
    footprint.
        We held a hearing and a series of roundtables with GSA,
    tenant agencies, and real estate experts on the large number of
    GSA leases expiring in the next 5 years and how we can take
    advantage of the current market to reduce costs to the
    taxpayer. We could save $500 million annually by just
    negotiating better lease deals.
        As a result of these efforts, we introduced and the House
    passed H.R. 4487, the Public Buildings Reform and Savings Act,
    which includes a leasing pilot program which will give GSA the
    tools that it needs to more effectively lock in good lease
    deals.
        But while we have been working to improve how GSA manages
    its leases, there are more than 50 other agencies with their
    own authority to lease office and warehouse space. And half of
    those agencies do not even have to comply with OMB's directives
    to reduce space or report their leases to the governmentwide
    Federal real property database.
        For many of these agencies, there is little oversight of
    how they manage their leases. That is why the committee
    requested that the GAO do a review of these independent leasing
    authorities, including:
        One, how they are used and managed;
        Two, whether the agencies are getting good deals for the
    taxpayer;
        Three, whether agencies are reducing their costs and space
    footprint; and
        Four, whether agencies are acting within their legal
    authority.
        While the GAO found that some of these agencies were able
    to get comparable leasing rates or even better than GSA, in
    part due to their use of real estate brokers, very often they
    leased more space than they needed.
        In addition, there are serious questions about whether some
    of these agencies are exceeding their leasing authority,
    potentially running afoul of key laws such as the Anti-
    Deficiency Act.
        The committee's investigation of the Securities and
    Exchange Commission's use of its leasing authority in 2011
    revealed the pitfalls agencies can fall into. The SEC exceeded
    its leasing authority and wound up committing the taxpayers to
    a $500 million lease that it did not need and, ultimately, had
    to be bailed out with help from GSA. The SEC, the Commodity
    Futures Trading Commission, and the VA are just a few agencies
    that have run afoul of laws limiting their leasing authorities.
        Intentional or not, agencies that do not have real property
    as their primary mission face serious legal risks. And it is
    critical, starting with this hearing, that this message is made
    clear to them.
        Before an agency signs a lease, there are three basic
    questions it should ask:
        One, does the agency have leasing authority?
        Two, does the agency have either no-year funding or
    explicit authority to enter into multiyear leases?
        And, three, does the agency have an exemption from the
    Anti-Deficiency Act and the recording statute?
        While there are a few exceptions, if the answer to any of
    these questions is no, the agency may not have the legal
    authority to sign a lease or may have to obligate the full
    amount of the lease upfront.
        This analysis is separate from the analysis for whether or
    not a lease is a capital lease for scoring purposes.
        We hope to hear more from GAO about its findings and learn
    how agencies with their own leasing authorities are managing
    and using their leasing authorities.
        We also asked the GAO to review the use of purchase options
    in GSA leases. If used strategically, purchase options could
    save significant taxpayer dollars.
        The budgetary scoring rules enacted in the 1990s
    effectively ended the practice of negotiating discounted
    purchase options in lease agreements by labeling them as
    capital leases. As capital leases, the full cost of the lease
    must be obligated upfront, creating a disincentive to use them.
        The result has been the taxpayer paying for a building
    several times over through lease payments without ever being
    able to gain an equity interest. For example, we will have paid
    nearly $2 billion for headquarters space for DOT when the
    current lease expires without accruing any equity.
        By identifying and reviewing a number of purchase options
    in GSA leases, GAO found that in the options exercised in
    recent years there was an $80 million benefit to the taxpayer.
    The Public Buildings Reform and Savings Act includes a
    provision that would provide GSA with the ability to again
    include these options, where appropriate, in its leases.
        I look forward to hearing more from GAO and from our other
    witnesses today on these issues.
        Thank you.
        I now call on the ranking member of the subcommittee, Mr.
    Carson, for his opening statement.
        Mr. Carson. Thank you, Chairman Barletta and Ranking Member
    DeFazio.
        Welcome to today's hearing about the use of independent
    leasing authority, on behalf of subcommittee Chairman Barletta
    and I, who have requested two reports from GAO on the use of
    independent leasing authority by Federal agencies and the use
    of purchase options in leasing.
        This hearing highlights some of the findings from both of
    these reports. I am especially interested in the assessment of
    how GSA manages the civilian real estate inventory and its
    ability to advise other parts of the Federal Government on
    leasing commercial office space and warehouse space.
        In 1949, President Harry Truman signed a law that created
    the modern day GSA and consolidated several Federal agencies
    into one agency tasked with providing workplaces for Federal
    employees and administering supplies. Since GSA was created, it
    has grown into a real estate giant that leases over 8,000
    property assets, totaling 191 million rentable square feet with
    annual costs of $5.6 billion.
        However, in January 2003, GAO designated Federal real
    property management as a high-risk area due, in part, to the
    Federal Government's overreliance on costly leasing. The
    Federal Government's real estate portfolio was in need of
    oversight and corrective action.
        To that end, the Office of Management and Budget issued
    memoranda in 2012, 2013, and 2015 requiring Federal agencies to
    freeze and reduce their space footprint. This administration's
    sustained efforts, coupled with the efforts of this
    subcommittee, have resulted in millions of square footage of
    underutilized and unneeded property being shed from the Federal
    real estate inventory. These efforts have saved money and have
    allowed precious resources to be better used to achieve agency
    missions.
        While there has been progress in really right-sizing the
    Federal real estate inventory, last February the leadership of
    this committee wrote to GAO asking them to study how agencies
    with their own leasing authority independent of GSA are
    exercising that authority. As detailed earlier by the chairman,
    many of these agencies were not subject to the Freeze the
    Footprint or even Reduce the Footprint directives from OMB.
        Though this group of agencies tended to get lease rates
    that were similar to GSA, many of them often acquired more
    space than GSA would typically allow.
        Additionally, GAO has indicated that some of the agencies
    that have independent leasing authority do not necessarily have
    the legal authority to sign a long-term operating lease. Many
    of the agencies that GAO have examined are doing a good job,
    but there is still room for improvement and the opportunity to
    find additional savings in future lease agreements.
        Today's testimony and dialogue should serve as guideposts
    to how agencies exercise their independent leasing authority
    going forward and how more effective use of purchase options
    can lower the cost of housing Federal agencies further.
        I look forward to moving on with this discussion.
        I yield back, Mr. Chairman.
        Mr. Barletta. Thank you, Ranking Member Carson.
        I now call on the ranking member of the full committee, Mr.
    DeFazio.
        Mr. DeFazio. Thank you, Mr. Chairman, and thank you for
    putting scrutiny on this important issue, the costs and
    potential efficiencies that could be gained with enhanced
    leasing.
        The review of the independent leasing authority certainly
    has merit, and I do not mean just to gloss over that and I look
    forward to hearing more about that, but the other issue which
    has really disturbed me for so many years is that some idiot at
    OMB in 1990 promulgated a rule which we have been bound by
    which is restricting the Government's ability.
        We hear a lot about running Government like a business.
    Well, what business is going to go out, enter into a costly
    lease, and deny itself the opportunity to purchase at the end
    of that lease at a discounted price, therefore being
    perpetually forever locked into expensive leasing?
        Well, brainiac down at OMB, you know, wrote this into a
    rule, which somehow has never gotten changed at OMB. I am not
    certain how we change OMB. I am working with Chairman Chaffetz
    on OMB reform because I keep running into them doing all sorts
    of things that do not make sense for the U.S. Government or the
    taxpayers of the United States of America.
        But in this case I am pleased to see that our committee has
    a solution in H.R. 4487. I mean, you know, for the first time
    ever in I think it was 2008, the Federal Government began
    occupying more leased than owned space, and in almost every
    case that is the more expensive way to go, and it also deprives
    the Federal Building Fund of direct payments that would help
    for future acquisitions of space and for maintenance and repair
    of Federal assets.
        So the bill, H.R. 4487, does not really address the idiots
    at OMB. It does not end-run around their rule, but that is at
    least an improvement. So I fully support H.R. 4487, and I am
    looking forward to hearing more.
        And I would love anybody on the panel to justify what we
    are doing now by denying ourselves the authority to purchase at
    a discounted rate, and if anybody wants to volunteer that, I
    would be happy to discuss it with them.
        Thank you, Mr. Chairman.
        Mr. Barletta. Thank you, Mr. DeFazio.
        On our panel today we have Mr. David Wise, Director of
    Physical Infrastructure Issues, Government Accountability
    Office; Mr. Chris Wisner, Assistant Commissioner for Leasing,
    Public Buildings Service, General Services Administration; the
    Honorable W. Thomas Reeder, Director, Pension Benefit Guaranty
    Corporation; and Mr. John K. Lapiana, Deputy Under Secretary
    for Finance and Administration, the Smithsonian Institution.
        I ask unanimous consent that our witnesses' full statements
    be included in the record.
        Without objection, so ordered.
        Each of you is no recognized for 5 minutes. Mr. Wise, you
    may proceed.

      TESTIMONY OF DAVID WISE, DIRECTOR, PHYSICAL INFRASTRUCTURE
     ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; CHRIS WISNER,
     ASSISTANT COMMISSIONER FOR LEASING, PUBLIC BUILDINGS SERVICE,
     U.S. GENERAL SERVICES ADMINISTRATION; HON. W. THOMAS REEDER,
      DIRECTOR, PENSION BENEFIT GUARANTY CORPORATION; AND JOHN K.
    LAPIANA, DEPUTY UNDER SECRETARY FOR FINANCE AND ADMINISTRATION,
                        SMITHSONIAN INSTITUTION

        Mr. Wise. Chairman Barletta, Ranking Member Carson, and
    members of the subcommittee, I am pleased to be here today to
    discuss our work on Federal use of independent leasing
    authority for real property.
        While GSA leases real property on behalf of many Federal
    tenants, Congress can provide independent leasing authority to
    Federal entities either through their enabling legislation or
    through an appropriations act. GSA tracks and reports on its
    tenants' real property holdings. However, less is known about
    the holdings of Federal entities that independently lease real
    property.
        In 2004, the President issues an Executive order
    establishing the Federal Real Property Council, FRPC, composed
    of CFO Act Federal entities. OMB chairs the FRPC.
        Goals of the FRPC include developing guidance, facilitating
    agency asset management plans, and serving as a clearinghouse
    for leading practices. The order also directed establishment of
    a governmentwide real property database, now called the Federal
    Real Property Profile, FRPP.
        Today I would like to make four main points. One, in
    surveying 103 Federal entities, we found that of the 52
    reporting leasing authority 25 are not required to report to
    FRPP, and there is a lack of coordination and information
    sharing with the FRPC.
        Two, most of the 37 selected independent leases we reviewed
    were comparable to or lower than matched GSA rates.
        Three, most selected entities' leasing policies generally
    align with leasing practices but lack documentation.
        And, four, most selected entities exceeded GSA's
    recommended target for space allocation.
        While not required, neither GSA nor OMB maintains a
    comprehensive list of Federal Government entities with
    independent leasing authority. FRPP offers a possible way to
    determine this, but the information is incomplete, as only the
    agencies in the FRPC are required to annually submit their real
    property information to FRPP.
        Based on our survey, the 25 entities that are not members
    of FRPC reported in fiscal year 2015 that they leased space
    covering approximately 8.3 rentable square feet and costing
    about $293 million in annual rent.
        FRPC members coordinate efforts and share leading practices
    in areas such as space allocation that OMB staff have said are
    critical to reform efforts. However, the 25 non-member entities
    are excluded from FRPC efforts.
        We also found that FRPC members were more likely to have
    leasing policies that aligned with the leading practices than
    non-members. Increasing FRPC participation would likely allow
    all Federal entities to benefit from the collaboration and
    sharing of leading practices.
        Our related report that we issued today recommended that
    OMB establish efficient methods for including data from non-
    FRPC member entities to the FRPP and increase collaboration
    between FRPC member and non-member entities. OMB agreed with
    both recommendations.
        We analyzed 37 selected independent leases across seven
    Federal entities. Of these 14 had rates that were less costly
    than matched GSA leases and 11 had comparable rates. The
    remaining 12 leases had rates that cost more than matched GSA
    leases. We identified several possible factors why some of the
    independent leases we analyzed were less expensive than matched
    GSA leases as follows.
        GSA uses standardized lease documents that include clauses
    that can be more rigorous than the leases provided by private
    sector landlords.
        Renovation or reconfiguration costs were more common in GSA
    leases than the independent leases in our sample.
        The independent leases we analyzed had periods of free rent
    built into the leases more frequently than the matched GSA
    lease.
        We developed a list of leading practices that Federal
    entities should incorporate into their real property leasing
    functions. These include: one, assessing need; two, planning
    ahead; three, ensuring best value; and four, analyzing and
    documenting lease budget effect.
        We reviewed the extent to which eight selected Federal
    entities had policies that aligned with leading Government
    leasing practices. Although most of the selected entities had
    established policies consistent with leading Government
    practices, we found numerous instances where the lease files
    lacked evidence of support that the leading practices were
    actually used.
        Specifically, we found that a high percentage of the
    entities' lease files lacked evidence for analyzing and
    documenting the budget effects of the lease. This is important
    because Federal entities must comply with the recording statute
    requires Federal agencies to record the full amount of their
    contractual liabilities, including leases, against funds
    available when the contract is executed.
        Violations of the recording statute can also result in
    Anti-Deficiency Act violations if lease obligations exceed
    available budget authority at the time the lease is executed.
        All of the eight entities we reviewed leased more office
    space per employee than GSA's recommended target of 150 square
    feet per employee. Twenty-eight of the thirty selected office
    leases we analyzed exceeded the GSA recommended target on
    average by a factor of two. Many of these leases had vacant
    office spaces, which can inflate the per person space
    allocation.
        Greater involvement in FRPC could help these agencies learn
    and implement leading practices in space utilization.
        This completes my prepared statement. I would be pleased to
    respond to any questions that you may have.
        Mr. Barletta. Thank you, Mr. Wise. Thank you for your
    testimony.
        Mr. Wisner, you may proceed.
        Mr. Wisner. Good morning, Chairman Barletta, Ranking Member
    Carson, and members of the subcommittee. I am Chris Wisner, the
    Assistant Commissioner for Leasing at the General Services
    Administration's Public Buildings Service. I appreciate being
    invited here today to discuss GSA's efforts to provide cost
    effective leased space for our partner Federal agencies.
        GSA's mission is to provide the best value in real estate
    to Government and to the American taxpayer. We currently have
    an inventory of 376 million square feet of space. Approximately
    half of that is leased, accounting for more than 8,300 leases
    across the country.
        We seek to provide space for our partner Federal agencies
    and assist them in achieving their missions while best serving
    the public interest. As a part of the administration's
    management agenda, GSA prioritizes finding ways to maximize
    utilization of the existing federally owned inventory,
    including reducing the number of leases we hold in our
    portfolio. By dramatically improving utilization of our current
    inventory, we have saved millions of dollars for our partner
    Federal agencies and the general public.
        GSA works closely with OMB to help implement the national
    strategy for the efficient use of real property, and the two
    agencies have been key coordinators of Freeze the Footprint and
    the current Reduce the Footprint initiatives. GSA is
    implementing Reduce the Footprint by helping other Federal
    agencies increase their office space utilization and minimize
    cost, including thoroughly implementing innovative workplace
    strategies.
        One example of GSA's efforts is the Department of Homeland
    Security consolidation at St. Elizabeths due to be completed in
    2021. The first phase of the project completed in 2013
    consolidated the United States Coast Guard Headquarters at the
    St. Elizabeths campus. As a result, GSA was able to vacate
    several leases totaling nearly 1 million square feet.
        When all three phases of the consolidation are completed,
    approximately 40 leases will be consolidated on the federally
    owned campus resulting in over $1 billion in savings.
        GSA leasing support services contract, or GLS, continues to
    be a workforce multiplier and is a critical part of GSA's
    strategy in delivering space. This past September GSA awarded
    nine GLS contracts across the country, including two to two
    small businesses.
        We anticipate GLS to be used for approximately 30 to 40
    million square feet of our inventory, equating to approximately
    $100 million in rent cost avoidance to our partner Federal
    agencies.
        GSA's goal for the leasing program is to make it easier for
    the real estate industry to do business with the Federal
    Government, for GSA to deliver space quicker to our Federal
    customer agencies, and for GSA to secure competitive lease
    rates.
        GSA uses a comprehensive, deliberative process that ensures
    full competition and fair rental rates for the taxpayer, while
    taking into account such public interest as proximity to
    central business districts and public transportation and
    supporting the mission requirements of GSA partners.
        In an effort to improve the delivery of leased space in
    2015, GSA rolled out is online offered portal known as the
    Automated Advanced Acquisition Program, or AAAP, in all U.S.
    markets. The goal for the platform is to make it easier for the
    real estate industry to do business with the Federal
    Government, for GSA to deliver space quicker to its Federal
    customer agencies, and for GSA to receive competitive rates.
        AAAP's paperless, online offered submission process enables
    the Government to establish this goal. Since its inception in
    the GSA national capital region in 2005, the AAAP has conducted
    over lease transactions totaling over 4 million square feet and
    over $1.7 billion in total contract value.
        Chairman Barletta, Ranking Member Carson, and members of
    the subcommittee, we strive to meet our customers' requirements
    in an efficient and transparent manner and are committed to
    reducing cost. Thank you for the opportunity to testify before
    you today. I will be happy to answer any questions.
        Mr. Barletta. Thank you for your testimony.
        Mr. Wisner. Thank you, sir.
        Mr. Barletta. Mr. Reeder, you may proceed.
        Mr. Reeder. Good morning, Mr. Chairman, Ranking Member
    Carson, Ranking Member DeFazio, and members of the
    subcommittee.
        I am very pleased to appear before you today to discuss the
    Pension Benefit Guaranty Corporation and its engagement of the
    General Services Administration to secure a new headquarters
    lease for PBGC that reduces our space and consolidates our
    headquarters operations into a single location.
        PBGC was established over 40 years ago by the Employee
    Retirement Income Security Act, or ERISA, to protect the
    retirement incomes of workers and retirees covered by private
    sector defined benefit pension plans. PBGC receives no taxpayer
    dollars. PBGC's operations are financed by insurance premiums,
    investment income, and assets and recoveries from failed plans.
        PBGC covers more than 40 million Americans and more than
    23,000 pension plans. We work with financially troubled
    employers that sponsor pension plans to help them preserve
    promised benefits and avoid plan failure.
        For workers and retirees in plans that do fail, the
    agency's guarantee is critical to their retirement security.
    Today PBGC is responsible for the payment of current and future
    pensions for about 1.5 million Americans in 4,800 failed
    pension plans.
        PBGC's staff come from diverse fields, including law,
    actuarial science, financial analysis, auditing, and
    information technology. The great service provided by our
    highly collaborative, talented and devoted workforce is well
    recognized by our customers.
        In 2015, our customers' satisfaction score surpassed the
    scores of all Government agencies, as well as the best
    companies in the private sector.
        PBGC began leasing its current headquarters space at 1200 K
    Street in 1992. As the demand for PBGC's services has grown,
    its Federal and contractor workforce has also expanded, and
    it's now over 1,800 total Federal employees and contractors,
    and our headquarters has expanded to two additional nearby
    buildings here in Washington.
        PBGC also leases space in Kingstowne, Virginia, to take
    advantage of lower rates for certain back office operations
    while maintaining proximity for headquarters staff, and we have
    a decreasing number of field offices.
        In 1994 we had 17 field offices. Today we have only five as
    we continue to find opportunities to improve efficiency and
    further reduce our footprint.
        Although ERISA technically gives us independent leasing
    authority, it was an obvious decision for us to go to the
    agency with the expertise, bench strength, and clear authority
    to obtain the best value for PBGC's premium payers and other
    stakeholders as we contemplated the expiration of our
    headquarters lease at the end of 2018.
        Last year we submitted our program of requirements to the
    GSA, and in March of this year, PBGC met with GSA, and the
    broker assigned to PBGC's lease procurement to go over proposed
    timelines and additional information.
        Last month GSA submitted the prospectus lease for PBGC's
    consolidated headquarters space to the committee, and we have
    begun discussing the prospectus with subcommittee staff.
    Although it is still early in the process, I believe we have
    established a sound working relationship with GSA. The PBGC and
    GSA teams have been working well together and communications
    are good. We are moving forward in accordance with the steps
    GSA and PBGC have agreed to, and we are making good progress.
        PBGC is pleased to be partnering with GSA in seeking a
    consolidated headquarters location. Consolidating our
    headquarters into one building will not only reduce our
    footprint and our cost, but it will also improve effective
    communication and collaboration in serving our customers.
        Again, I appreciate the opportunity to appear before you
    today and look forward to answering any questions you may have.
        Mr. Barletta. Thank you for your testimony.
        Mr. Lapiana, you can proceed.
        Mr. Lapiana. Thank you.
        On behalf of the Smithsonian Institution, thank you,
    Chairman Barletta, Ranking Member Carson and members of the
    subcommittee, for the opportunity to testify before the
    subcommittee today.
        The Smithsonian is the world's largest museum, education
    and research complex, consisting of 19 museums and galleries,
    the National Zoo, and nine research facilities. Millions visit
    us each year, but very few see the hard work happening away
    from the museums that makes it all possible, and much of that
    behind the scenes work is being accomplished in leased space.
        The Smithsonian's leasing requirements are unique. Our
    combined need for collections storage, administrative offices,
    research, laboratory and exhibition space is unlike that of any
    other Federal agency.
        We currently lease about 1.5 million square feet at an
    annual cost of approximately $52 million. This is a significant
    cost to the Smithsonian and, in turn, to the American public.
        As a result, we take seriously our responsibility to spend
    these dollars wisely and transparently. We get our wisdom
    through in-house professional real estate staff and outside
    private sector experts who identify the most cost effective
    leasing opportunities through detailed studies of real estate
    markets and submarkets.
        We recognize that by relying on both internal and external
    expertise the Smithsonian can best meet its unique space
    requirements, ensure competitive negotiations with lessors, and
    identify when consolidation makes the most economic or
    programmatic sense.
        We believe that this reliance has resulted in leases at or
    below market rates. We also believe that the Smithsonian is
    obligated to demonstrate that its use of taxpayer dollars is
    responsible. As an entity with independent leasing authority,
    we are not required to file annual reports with the Federal
    Real Property Council, but we do so voluntarily as part of our
    commitment to follow best practices.
        Our Board of Regents, too, recognizes the importance of
    following best practices and must vet and approve all leases by
    the Smithsonian with a net present value of $5 million or more.
    Six Members of Congress sit on the Board, and three of those
    congressional Regents are also members of the Board's
    Facilities Committee, which has primary oversight over the
    Smithsonian's leasing activities, among other duties.
        In determining our leasing requirements, Smithsonian
    museums, research centers, and support offices are required to
    formally compile a detailed request of their needs. Once
    approved, our real estate office works with the unit to verify
    and refine the requirement and develop an appropriate space
    plan.
        We will only look to leasing space if current Smithsonian
    assets are unavailable, insufficient, or inappropriate for the
    proposed use.
        As the Smithsonian's inspector general noted in a 2014
    audit report on leasing activities, ``by monitoring the
    Smithsonian's use of leased office spaces the Real Estate
    Office successfully consolidated some spaces to reduce costs
    where possible.''
        A disciplined leasing process is particularly important in
    securing space to house the national collections. Since
    Congress established the Smithsonian in 1846, we have learned
    much about the proper care and preservation of diverse
    collections and have applied that learning to develop realistic
    space requirements.
        And these requirements can vary dramatically among the 138
    million items in our collections, from mosquitoes to
    daguerreotypes types to the space shuttle, but all must satisfy
    Smithsonian standards for temperature, relative humidity,
    ventilation, lighting, fire suppression, and security. Our
    stringent policies and our adherence to them reflect how
    seriously we take our obligation to preserve and protect the
    national collections.
        Looking ahead, last year we issued a collection space
    framework plan to guide our current and future collection needs
    while providing renovation and construction strategies that in
    the end will eliminate our need for leased collection space.
    Pursuant to the framework, we are planning to construct an
    additional storage pod at the Museum Support Center in
    Suitland, Maryland, and two new storage modules at the Udvar-
    Hazy Center in Chantilly, Virginia.
        The first of those modules will initially serve as a
    temporary collection swing space during the revitalization of
    the National Air and Space Museum. A bill authorizing those
    projects has been referred to this subcommittee.
        Our requirements for office space are less complex, but
    still carefully developed to ensure operational needs are met
    in a cost effective manner.
        In addition to controlling leasing costs through
    competition, the Smithsonian is now pursuing a long-term cost
    savings strategy. Our current leased office holdings in DC are
    scattered across the metro area, creating operational
    inefficiencies and growing leasing costs.
        To address this, we have aligned the termination dates of
    these leases with an eye toward consolidating space and
    creating savings. Proposals are now being evaluated in response
    to a nonbinding solicitation to consolidate Smithsonian
    administrative office space in the DC metro area.
        We are conducting a cost-benefit analysis of all realistic
    options, from maintaining to status quo and extending those
    leases to outright purchase of a building, and we have also
    consulted with the GSA to identify suitable properties that may
    be available for consolidation within the Federal real estate
    portfolio.
        As we look forward to the opening of the new National
    Museum of African American History and Culture this September
    and the renovation of the Air and Space Museum, and as our
    collections continue to grow, our need for space is greater
    than our budget will allow. For that reason, the Smithsonian
    will continue to seek efficiencies and consolidate our leased
    spaces in the most responsible and transparent manner possible.
        Thank you for the opportunity to testify today, and thank
    you for your support of the Smithsonian Institution.
        Mr. Barletta. Thank you for your testimony.
        I will now begin the first round of questions limited to 5
    minutes for each Member. If there are any additional questions
    following the first round, we will have additional rounds of
    questions, as needed.
        Mr. Wise, one report issued by GAO today is a review of the
    independent leasing authorities of agencies outside of GSA, and
    a number of agencies like the SEC and the Commodity Futures
    Trading Commission, or CFTC, have exceeded their legal leasing
    authorities and run afoul of the law.
        We want to alert the other agencies before they make
    mistakes.
        If we could have the chart put up.
        Generally, in order to determine if an agency has the
    obligational authority to sign a lease, GAO asks three
    questions:
        First, does the agency have leasing authority?
        Second, does the agency have either explicit multiyear
    leasing authority or no-year funds?
        And, third, does the agency have explicit exemptions from
    the Anti-Deficiency Act and the recording statute?
        Barring some exceptions, the answer to all of these
    questions must be yes for an agency to sign a long-term lease,
    and not to obligate the full cost of the lease upfront; is this
    correct?
        Mr. Wise. Yes, sir. Yes, Mr. Chairman, that is correct.
        Mr. Barletta. Mr. Wise, and to be clear, the evaluation of
    whether an agency has the obligational authority to sign a
    lease under the Anti-Deficiency Act is a separate evaluation
    from the scoring issue of whether a lease is a capital or an
    operating lease; is that correct?
        Mr. Wise. Yes, Mr. Chairman. That is also correct.
        Mr. Barletta. Mr. Wise, recently GAO reviewed the CFTC's
    use of its leasing authority. Can you elaborate on what GAO
    found?
        Mr. Wise. Yes, Mr. Chairman. In the case of CFTC, it was a
    little bit of kind of putting the cart ahead of the horse. What
    happened with CFTC was they anticipated getting a great
    increase in their funding and then at the same time anticipated
    they would be hiring a lot more staff.
        It did not happen. In the meantime, they leased the space,
    and as a result they ended up with a lot of very underutilized
    space and some significant obligations that could incur up to
    about $75 million in additional leasing costs.
        As a matter of fact, I had an opportunity to visit the
    office in Kansas City that was one of the offices that was part
    of our review, and it was rather modest office space, but it
    included two floors, one of which had been emptied out.
        Now, CFTC was trying to work with the landlord to see if it
    could sublease that space, but the landlord, of course, has
    probably relatively minimal interest in doing that since he is
    already being paid by CFTC, and these leases do not expire
    until 2025. So there is a significant issue there with the
    Recording Act.
        Now, whether or not it is an Anti-Deficiency Act violation,
    that is something that is still being determined. Our report
    was issued back in May, and CFTC is still trying to work
    through those issues, but it was definite an issue with the
    Recording Act, and they got way ahead of themselves when it
    came to getting into obligations that were beyond the authority
    that they had.
        Mr. Barletta. Mr. Reeder, the PBGC is now working through
    GSA to lease new headquarters space. Why did your agency decide
    to use GSA?
        Mr. Reeder. As you can probably tell from my oral
    testimony, I am very proud of what the PBGC does. We are very
    busy and very adept at preserving pensions and protecting
    pensioners and paying timely benefits and maintaining high
    standards of stewardship.
        And regarding stewardship and accountability, we believe
    that the GSA is more adept at obtaining the best value for our
    headquarters lease. Although we clearly meet the first two
    criteria that you mentioned, that we have express statutory
    leasing authority and we have no-year funds, the interpretation
    of the recording statute is unclear enough to us that we wanted
    to go with the GSA to have a clearer authority for our
    headquarters lease.
        Mr. Barletta. Thank you.
        Mr. Lapiana, I understand the Smithsonian is currently
    reviewing its leasing authority. As chairman of the
    subcommittee, it seems the answer should be a simple one: work
    with GSA to meet your leasing needs.
        When do you expect to have a decision on how the
    Smithsonian plans to proceed with its leases?
        Mr. Lapiana. Thank you.
        Let me back up and just say that as we have entered into
    leases, we have done so in good faith, and we think we have
    very good grounds for doing so.
        The issue was raised in the last few months about whether
    we had the budget authority to do so or not, and there was some
    lack of clarity. We are working with OMB right now in
    addressing those issues, and we will keep the committee
    apprised of our results there.
        We are hopeful that it will be sooner rather than later.
        Mr. Barletta. Thank you.
        I will now recognize the ranking member, Mr. Carson.
        Mr. Carson. Thank you, Chairman Barletta.
        Mr. Wise, is it fair to say that agencies that are
    responsible for procuring their own space tend to acquire more
    space per employee than when GSA procures space for other
    agencies? What do you think is the case?
        Mr. Wise. Yes, in our review, Ranking Member Carson, we
    found that in most cases, almost all the independent leasing
    entities ended up allowing almost twice as much as the
    recommended 150 square feet per employee that GSA now
    recommends.
        Mr. Carson. In your mind, sir, should GSA be making greater
    use of purchase options to reduce the cost of housing Federal
    employees?
        Mr. Wise. Well, it is certainly a possibility. The way we
    view it is that purchase options could be one more tool in the
    GSA toolkit that would potentially enable the Government to
    save money in acquiring space for its employees.
        In our review we found a few cases where that has taken
    place, and there are a couple more in the pipeline that could
    potentially save money. I think as the chairman mentioned in
    his opening remarks, there was some significant savings for
    several properties over the past several years.
        And so, yes, I think it could be an option that could be
    useful for the Government and could lead to some potential
    savings, although one needs to analyze the totality of the
    leasing environment.
        Mr. Carson. Thank you.
        Mr. Wisner, how long on average does GSA occupy a building
    where GSA is the sole lease tenant?
        Mr. Wisner. Sir, where we are the sole lease tenant, on
    average we are in the building between 26 and 27 years.
        Mr. Carson. How do other governments, either local or
    foreign, handle long-term leasing?
        Mr. Wisner. My own personal information on these is Canada
    and Japan and England often own their Federal facilities.
        Mr. Carson. OK. And thanks you, sir.
        And lastly, Mr. Reeder, can you elaborate on how PBGC came
    to the conclusion as to why it was in their interest to have
    GSA take over the lease consolidation efforts?
        Mr. Reeder. As I mentioned earlier, we do think that they
    have the bench strength and the clear authority to negotiate a
    lease. Since we saw our lease ending in 2018, beginning in 2014
    we began looking at all of the options we had, various leasing
    options and including a purchase option. Before making the
    decision to go to the GSA, we hired a space planner and
    architectural firm and began developing our program of
    requirements.
        We made the decision to go with GSA fairly recently. So we
    did it in consultation in our own building as well as with OMB,
    as well as with GSA, and I think it is the right decision.
        Mr. Carson. Lastly, really this time, Mr. Lapiana, would
    the Smithsonian lose anything by going through GSA to meet
    their leasing needs for office and warehouse space?
        And does the Smithsonian have the institutional knowledge
    to be an effective player in the commercial office real estate
    market?
        Mr. Lapiana. If I could answer your second question first,
    we believe we do, and as Director Reeder noted in the rationale
    for why PBGC looks to GSA, at the Smithsonian we do have the
    expertise. We do have the bench strength. We have diverse and
    unique leases and properties that we manage, and for us, the
    most efficient and effective and responsive way to enter into
    leases or at least seek leases is internally with outside
    experts.
        We also rely on GSA as an important resource. As I
    mentioned in my testimony, we voluntarily report to the council
    because we know it is the best practice, and we are always open
    to discussing with GSA other opportunities that would make our
    leasing more efficient and cost effective.
        Mr. Carson. Yes, sir. Thank you, gentlemen.
        I yield back, Mr. Chairman.
        Mr. Barletta. And the Chair recognizes Mr. DeFazio.
        Mr. DeFazio. Thank you, Mr. Chairman.
        Mr. Wisner, let us just look at purchase options for a
    moment. If purchase options are included, does that invariably
    drive up the monthly rental cost? I mean, does the owner exact
    a premium at the beginning? And would it make it more difficult
    for you to negotiate if you were including the purchase option?
        Mr. Wisner. Sir, each deal would need to be evaluated
    specifically, but it is my experience that when you are
    negotiating in the initial prior to award, purchase options can
    be built into leases. They are a point of negotiation.
        We in the past have traded purchase options for free rent.
    We have traded purchase options for other things. So kind of
    all things being equal, it is what is important to the
    individual that you are negotiating against, what their
    financial requirements are, and what their institutions behind
    the lease want.
        So if they are a long-term hold organization, they may not
    be as interested in a purchase option. If they are looking at a
    potential get GSA or get the Federal Government as a tenant and
    then sell the building, a purchase option may be of no
    consequence to them.
        So every deal is specific, but my experience is that you
    can put purchase options on the table, yes.
        Mr. DeFazio. So it could be a useful tool.
        Mr. Wisner. Yes, sir.
        Mr. DeFazio. And right now, as this committee has
    recognized, I mean, this is a little bit nonsensical. So let me
    just give a really simply, I know not realistic example. We
    have an operating lease for 30 years. We are going to pay $1
    million a year, OK, $30 million outlay. We have a lease-
    purchase, and let us just say it worked the same way. You are
    going to pay $1 million a month, but at the end of 30 years,
    you get to purchase at a discount from the value of the
    property, and you would be able to continue tenancy, et cetera.
        But the one with annual rent counts in this year's budget
    as $1 million and the other one counts as $30 million plus the
    purchase price; is that correct?
        Mr. Wisner. Sir, scoring is not in my purview.
        Mr. DeFazio. Yes.
        Mr. Wisner. However, I can tell you that there must be an
    evaluation of the entire deal. So when we look at the deal, it
    is the value of the rent and whatever the purchase option is at
    the end, and it could score as a capital lease for us.
        Mr. DeFazio. Right. And so what would be ideal would be we
    would look at all the same way. We would look at the obligation
    over time. So if we are going to rent it for a million bucks a
    year, we are going to say, well, it is going to cost $30
    million to the taxpayers, and if we are going to rent it, you
    know, for less and have a lease-purchase, then you could say,
    well, gee, that is going to cost 50, except we would get an
    asset.
        I mean, there has got to be a better way to do this. I
    mean, I think the rule was written, and maybe someone there can
    address it; I think the rule was written because at the time
    the Government used to actually more regularly build, acquire
    property and build structures when we knew we were going to
    have long-term needs because that is the most cost effective
    way to go.
        But then the lease-purchase came along, which was less cost
    effective obviously, but what happened in writing a rule to try
    and level the playing field, we actually put the lease-purchase
    off the table and Congress, in its infinite wisdom, not having
    created capital budgets, does not hardly ever allow the
    purchase of property in the building of a structure. We would
    rather be idiots and pay a premium and end up with nothing.
        Can anybody address that?
        No? OK. Mr. Wise.
        Mr. Wise. Yes, I do not know if I would characterize
    Congress quite that way, but in any case, the----
        Mr. DeFazio. Do not call us idiots. I can call us idiots.
        Mr. Wise. What happened is pretty much what you said. It
    leveled the playing field. It was an attempt to level the
    playing field, but then it took away the incentives for the
    lease-purchases, especially the discount lease-purchases.
        And as a result, agencies moved more towards operating
    leases which only had to be accounted for, as you put it, 1
    year at a time versus counting the totality, which put a pretty
    big hole in agency budgets.
        So then you end up with a situation where agencies may be
    paying rent essentially ad infinitum.
        I mean, we found cases where I think in one of our reports
    we found EPA renting a facility in Seattle for 60 years.
        Mr. DeFazio. Well, EPA has not existed quite that long.
    Jimmy Carter was the EPA. That was not 60 years.
        Mr. Wise. Well, anyway, renting for a long time in Seattle.
    In doing this work, we examined over 18,000 leases since the
    early 1990s, since the scoring rules came into effect.
    Validating your point, we only found 17 cases where lease-
    purchases were involved. Thus, the scoring rules had
    effectively taken away the incentive both for discount and for
    even lease-purchases.
        Thus we are left with what we have today, which is a great
    overreliance on leasing and, as you framed it, much higher
    costs in the long run to the Government, which is something we
    have talked about in many of our reports for this committee and
    for others.
        Mr. DeFazio. Thank you.
        Thank you, Mr. Chairman.
        Mr. Barletta. Thank you.
        The Chair recognizes Mr. Curbelo.
        Mr. Curbelo. Thank you very much, Mr. Chairman, and I thank
    all the witnesses for their testimony today.
        Mr. Wise, while the GAO report does not include an
    exhaustive list of agencies with leasing authorities, is there
    a particular reason why the VA is not included in the report?
        And I will explain to you why I am asking you this
    question. I represent the southernmost district in Florida, and
    we have many veterans who live down on the Florida Keys, and
    oftentimes these people have to drive long distances in order
    to get the quality care they deserve. Sometimes they do not
    even get that, but that is a separate issue.
        So I wanted to pose a question and see if there is anything
    we can do by working together to remedy this situation.
        Mr. Wise. Yes, thank you for your question.
        Actually I think the short answer to that is VA now goes
    through GSA for its leasing.
        Mr. Curbelo. OK. So you do not foresee any role or any
    opportunity for us to work on this. I would have to be
    exclusively through GSA?
        Mr. Wisner. I can take part of that answer from the GSA
    side. So the Veterans Administration has come to GSA for
    delegation of authority. We are using our authority to assist
    them in the acquisition of leased space for these requirements.
        I am not familiar with the one in Florida, but we have
    approved a significant number of leases and lease actions with
    the Veterans Administration. They have done a lot of work to
    centralize their real estate program, and we have seen a
    significant amount of improvement over the couple of years that
    I have been involved with them.
        Mr. Curbelo. OK. Well, I thank you, and I look forward to
    working with you to remedy this situation because, again,
    sometimes we have veterans driving 3 and 4 hours in order to
    get care, and if we can do anything to expand access to care,
    it would make a great difference to the people in my district
    and I am sure this is something that happens throughout the
    country.
        So thank you both very much.
        That is all I have, Mr. Chairman. Thank you.
        Mr. Barletta. Thank you.
        We will now begin the second round of questions.
        Mr. Reeder and Mr. Lapiana, what steps have your agencies
    taken in the past to ensure you achieve the best lease rates
    for the taxpayers?
        Mr. Reeder, do you want to start first?
        Mr. Reeder. Yes. We began leasing our current headquarters
    back in 1992, and our field offices in our Kingstowne space
    were leased in a comparable timeframe. So as I implied earlier,
    we do not do a lot in the leasing arena and not often. It has
    been 24 years since we have leased our main space, and we
    follow procurement standards. We follow the regular procurement
    requirements, and we believe we have gotten competitive or
    below market rates on most of our leases, as has been shown by
    the GAO report.
        But we believe that our turn towards the GSA will help us
    do that even better.
        Mr. Curbelo. Mr. Lapiana?
        Mr. Lapiana. Thank you.
        Before we even consider whether we should be seeking a
    lease, we do an internal needs analysis and make sure that
    within our portfolio we can accommodate the needs of the
    particular unit or museum.
        After the needs analysis, both staff, real estate experts
    and outside consultants and brokers advise us on framing an
    RFP.
        All of our leases are subject to competition, and it is a
    rigorous competition. We take it very seriously, and the
    Smithsonian is a very good tenant, and we get very good
    responses to our RFPs.
        Once we get down to the best and final offers, we negotiate
    hard with our potential lessors. As I mentioned, we are a very
    good tenant, and the competition and the responses that we get
    reflect that, and our staff of experts look to use every
    available tool. Tenant improvement allowances, free rent,
    negotiation of escalation costs, it is all part of the final
    negotiation.
        And we believe that in the end the proof is in that our
    leases are at or below market rates.
        Mr. Curbelo. Mr. Wisner, how does GSA ensure that its
    tenant agencies do not lease more space than they need?
        Mr. Wisner. Excuse me, sir. So we work with tenant agencies
    on their program requirements, and many of the tenant agencies
    have submitted the reduced footprint plans to OMB. They
    oftentimes have already set their space requirements, which is
    a really good way to enter into the program.
        Sometimes we work with a customer agency who has not
    established their utilization rates or are in the process of
    establishing their utilization rates, and that is where we use
    the recommended square footage utilization that GSA has in
    place.
        So we work with our customer agencies. We have units around
    the country that are workplace strategists. Their job is to
    help more efficiently plan the space, look for the most
    efficient ways to plan space, look for shares space, look for
    all opportunities with before we go to the market and run a
    competition.
        So the goal is to get the program requirements locked in at
    a utilization rate that is significantly improved over where
    they are currently and get to the 150 square foot GSA standard
    that we are looking at, but we have many agencies that are
    below the 150 square foot standard right now.
        Mr. Barletta. Mr. Lapiana, in your testimony you talk about
    the importance of minimizing lease costs. How much office space
    do you current lease and how many people do you house in that
    space?
        And do you currently meet or exceed GSA's standard for
    space utilization?
        Mr. Lapiana. We have the vast majority of our office space
    in the metro DC area, and it is about 360,000 square feet. In
    general, it depends on the building, and I say that with
    respect to what we own and what we lease and what activities
    are going on in the building so that it is difficult for us to
    use the GSA office number across the board because not all of
    our activities and actually a majority of the space that we
    need is devoted to non-office or administrative functions.
        However, in the end, staff-wise, FTE-wise, we are in the
    ballpark with respect to the GSA number. In preparing for this
    hearing, we were looking at that and anticipating a question
    like this. We have 6,300 employees, and we also have 6,500
    volunteers and interns who are also using those spaces. We do
    not have the numbers with us yet but we would be happy to share
    it with the committee once we have collected the information.
        So that when we make the calculations with regard to the
    GSA number, we are looking only at staff, but those interns and
    those volunteers, whom we could not run the Smithsonian
    without, are not in that calculation.
        So we are actually very confident, even under a very
    conservative calculation, that we meet or are under the GSA
    number.
        Mr. Barletta. I recognize Ranking Member Carson.
        Mr. Carson. Thank you, Chairman.
        Mr. Wise, how can Federal real property leasing practices
    be better developed and shared across the entire community of
    Federal leases?
        Mr. Wise. Mr. Carson, we recommended in our report that the
    FRPC, the Federal Real Property Council, is a good vehicle for
    doing this because they meet monthly. They discuss exactly the
    kinds of issues that are of interest to all real property
    managers. It acts like a clearing house, a forum for discussing
    the issues of the day for all senior Federal real property
    managers.
        That said, we understand that, you know, putting a lot of
    small entities into the Federal Real Property Council could
    make it a little bit more unwieldy, but there is another
    potential vehicle we identified and have discussed during the
    course of our work, and that is the Small Business Council,
    which acts as sort of a subsidiary group to the FRPC.
        We feel that the framework is actually in place to do that,
    and that is why we recommended that this would be, we think, an
    excellent idea in order to bring everybody into the tent, so to
    speak, and would help in terms of being able to implement
    leading practices and more efficiencies, thus enabling agencies
    to do a better job.
        Mr. Carson. Thank you.
        Mr. Lapiana, the GAO found that many agencies with
    independent leasing authority often lease twice as much office
    space that GSA usually allows for office space. How does the
    Smithsonian allotment of office space per employee compare with
    the GSA standard of 150 square feet of office space per person?
        Mr. Lapiana. I think we reflect well against the GSA
    standard. As I mentioned, a smaller portion of our staff is
    administrative and in traditional offices. We have a lot of
    curators with collections who are in with the collections. In
    our number we have exhibit design and fabrication, and we have
    some museum space.
        We have research laboratories, and we also have volunteers
    who actually turn out to be about half of our workforce.
        Taking that all into account, we are very confident that we
    are at or better than the GSA number. However, it does come
    with these caveats of it is not just office space in the
    calculation. It is laboratories; it is libraries; it is
    exhibitions; it is exhibit fabrication and research.
        Mr. Carson. Thank you.
        I yield back, Mr. Chairman.
        Mr. Barletta. Thank you.
        Mr. Wisner, as you know, the committee has been pushing GSA
    hard to increase your average lease terms to 10 years or more,
    and to increase your use of brokers to get better deals, and to
    work through your expiring leases while the market is still
    favorable for the Government.
        Can you update us on those two efforts?
        Mr. Wisner. Yes, sir. Internally we have established a
    policy for longer term leases. The goal here is 10-year leases
    or longer. Exceptions to a 10-year deal must be escalated
    through our management program.
        So I have policies in place and I have approvals in place.
    We are executing longer term leases in markets where it does
    make sense, and that revolves around escalating markets,
    markets there were are opportunities to lock in now.
        The second part of your question, excuse me. Do you mind
    repeating it?
        Mr. Barletta. Sure.
        Mr. Wisner. The broker?
        Mr. Barletta. Yes.
        Mr. Wisner. Yes, sir. So we established a new broker
    contract in September of this last year. We have nine new
    brokers across the country. We split the country into zones so
    we could give an opportunity for small businesses to compete on
    that contract.
        The required tasking and measure within GSA is 50 percent
    of all of our leases that are commissionable events will be
    tasked to the broker contract. We have currently met our
    minimum obligation under the contract this year. We will
    continue to do that tasking. This contract runs for 5 years,
    and it is my expectation we will continue to task at that rate.
        So the goal is 50 percent of all of our leases that are
    commissionable events will go to the brokers.
        Mr. Barletta. Thank you.
        Mr. Wise, GAO is issuing two reports today. One of them is
    purchase options and lease agreements. I was able to visit one
    of the buildings you highlighted in that report, the IRS
    building in Detroit. We were able to purchase that building for
    $1. Can you talk briefly about your findings and the potential
    financial benefits of the purchase option?
        Mr. Wise. Mr. Chairman, yes. There are really three key
    points to the report that we issued today that you referred to.
    As I had mentioned a little bit earlier, one key point is the
    scoring rules that have virtually kind of done away with the
    lease-purchase options and especially the discount purchase
    options.
        As I had mentioned earlier, of the over 18,000 leases we
    looked at, we only found a handful, 17 or so, that tried to
    exercise that option.
        And I would say that, you know, something else that we have
    been talking about during the course of this hearing is it
    certainly can be advantageous to the Government to be able to
    eventually acquire a building. I think Mr. DeFazio was alluding
    to that in his remarks.
        The IRS building in Detroit was a good example. While the
    Government did pay rent for 20 years, at the end of the day,
    the Government acquired the building. So you have a long-term
    solution to housing the IRS office in Detroit. In that case it
    is, I think, one in the win column for the Government.
        And as we talked about a little bit earlier, if that can be
    even as an option for the Government going forward, then there
    is a potential for additional savings.
        We saw in the course of our work there are two other
    buildings that also saved substantial money. One was Columbia
    Plaza, which is about a block or so from the State Department,
    which the Government managed to come up with a savings of about
    $50 million from that exercise in the lease-purchase.
        And another one was a USDA facility in Riverdale, nearby in
    Maryland here, which also saved about $14 million.
        Then there are two other buildings during the course of our
    review we found that looked like they could have potential to
    save money going forward exercising an option. One is the
    Federal Energy Regulatory Commission building, which is located
    not far from Union Station, and that will have a lease-purchase
    option that will be open in 2025. The building has been
    appraised at $133 million and the option is for $20 million. So
    there is a potential savings there.
        Again, as I mentioned earlier, these things have to be
    looked at in totality, once you get to that point, you know,
    looking at security issues, looking at seismic issues and other
    kinds of regulations that go into the Federal building
    regulations.
        Another building that may have a potential savings is a
    National Oceanic and Atmospheric Administration facility out in
    College Park, Maryland, which also has a 2025 option. It has
    been assessed for $86 million with a $27 million option.
        One can conclude that lease-purchase is simply another
    potential tool in the toolkit to try to help the Government
    rationalize its real property portfolio and end up with a
    situation where you are not just paying rent in perpetuity.
        Mr. Barletta. Thank you.
        I have no further questions. Ranking Member Carson?
        Mr. Carson. No, sir.
        Mr. Barletta. I did not see Ms. Norton. The Chair
    recognizes Ms. Norton.
        Ms. Norton. Thank you very much, Chairman Barletta.
        Indeed, I thank you for holding this hearing because I have
    had a long-term issue with independent leases apart from the
    expert agency that Congress said should do the leasing, and we
    have had some terrible mishaps when that was not done and
    agencies essentially acted like the world was theirs. They say
    let us see if we can find the best opportunity for us, not
    necessarily the best opportunity for the Government.
        But in light of the fact that I have long been critical of
    agencies independently doing their own leasing, Mr. Wise, I was
    interested that you looked at 37 independent leases. It says
    ``selected independent leases,'' but I assume that they were
    randomly selected, and found comparable to or lower than the
    GSA rates.
        How do you account for that?
        Mr. Wise. Ms. Norton, thanks for the question.
        It could be any number of reasons for that. There are cases
    where they are looking at various properties. There may be they
    are willing to take property with fewer tenant improvements
    than, say, a Government property, or there could be a
    possibility that they will take it as is, which means that they
    are willing to shoulder some of the burden themselves or not
    get involved in big, expanded kinds of improvements. Location
    could also make a difference.
        Ms. Norton. But some of these may have been opportunities
    that perhaps anybody could have seen, and the agencies saw them
    and took advantage of them, and the kind of expertise that GSA
    is purported to have might not have been necessary to see these
    opportunities.
        Mr. Wise. We learned in talking to GSA and others that
    there are somewhat more stringent requirements in GSA-related
    leases that have to do with security, that have to do with
    things like seismic requirements that may not be relevant for
    the independent leasing authority which may not necessarily get
    engaged in those kinds of things, and from what we understood--
    --
        Ms. Norton. At least I would have thought security and all
    of that sort of thing was relevant for every leasing authority,
    particularly anywhere near the Nation's capital or the national
    capital region.
        Mr. Wise. Well, there can be, but at least according to the
    GSA officials, the GSA standards can be somewhat higher for
    some of these things depending on the type of building and the
    location, as well as the environmental aspects of the building,
    like seismic and energy saving requirements and this sort of
    thing.
        So those were reasons that we found during the course of
    our work, ma'am.
        Ms. Norton. This question would be, I suppose, both for Mr.
    Wisner and Mr. Wise.
        I recall that in fact--this is an ongoing event--there is
    going to be development taking place at the old soldiers' home
    here in the District of Columbia. I believe that the DOD wants
    that to take place as a way to support the soldiers' home and
    the soldiers who are there.
        And it is interesting that they reached out to GSA and
    essentially gave GSA the authority. Now, this is DOD. DOD does
    some--some?--a great deal of construction of its own, but I
    believe, recognizing that this construction was occurring in an
    urban neighborhood, they might have felt that GSA was the best
    actor in this case.
        So my question is: does GSA offer; do agencies come to GSA
    to seek their advice or should an agency which is not in the
    business of construction not seek their advice and perhaps ask
    GSA to, in fact, do the construction or the leasing for them?
        I do not see the advantage to the Government of the SEC
    saying, ``We are going to build ourselves a building,'' for
    example, to name an agency that did that in recent years.
        Mr. Wisner. Yes, Ms. Norton. Thank you for the question.
        GSA is happy to partner with our customer agencies and
    agencies that have their own leasing authority to provide
    expertise on market rates, to provide expertise on construction
    build-out and other things.
        I am not familiar with the particular project that you are
    talking about because it is construction, but we are happy and
    willing to work with any agency out there.
        On expertise, I would suggest that if we are using GSA
    authority, they must follow GSA regulations. We are the experts
    in real estate and that is our core mission. So this is the job
    of GSA or one of the jobs of GSA.
        We are happy to support other real estate programs or other
    leasing organizations. We are also happy to work----
        Ms. Norton. Let me ask you this, Commissioner Wisner.
        Mr. Wisner. Yes, ma'am.
        Ms. Norton. Suppose an agency does have the authority. You
    know who they are. Is there guidance form GSA available to
    agencies who have their own leasing authority? Surely they
    could do with some advice even if they do not ask for it.
        Mr. Wisner. There is not guidance to use GSA. However,
    there are leasing----
        Ms. Norton. No, I do not mean use GSA. I am talking about
    agencies, none of whom are in the business of leasing or
    construction, who might never even think of GSA. All they think
    about is they have the authority. So let me go willy-nilly at
    it.
        If they had a piece of paper that said let us see what the
    expert agency says is the way to approach this, would that not
    be useful to agencies who have such authority?
        Mr. Wisner. Available to the public and available online--
    --
        Ms. Norton. Say it again.
        Mr. Wisner. Available to the public and available online
    are all of our leasing desk guides and our pricing policy
    guidance, yes, ma'am.
        Ms. Norton. All right. I just want to say that is not what
    I am talking about. I am talking about leasing authority, the
    kinds of issues to look for. The issues that, for example, Mr.
    Wise said some found apparently on their own and got comparable
    or rates that were even better.
        One more question if I might. I had a roundtable last year
    because I have been concerned over a number of years with
    holdover and short-term leases, and there was, if anything, a
    backlog of such leases.
        Actually the GSA did a report. I thought it was an
    excellent report. It showed very substantial progress being
    made in the elimination of holdover leases and a commitment to
    finding long-term solutions for all of the outstanding leases
    in this region, which is perhaps the most heavily leased region
    in the country, to find long-term solutions for leases expiring
    before September 30, 2017.
        So Assistant Commissioner Wisner, I would like to ask you:
    are you on track to find long-term solutions? That means no
    short-term or holdover leases by September 30 of 2017.
        And what strategy are you using to avoid a holdover or
    short-term leases in the future?
        Mr. Wisner. Thank you, Ms. Norton.
        So I will address the facts to start off with. We have
    reduced the number of holdovers by at least 50 percent in our
    portfolio. We are down to around 50 holdovers total. That does
    vary. It goes up a bit, and every month we watch it diligently.
        Ms. Norton. Is that where you expected it to be by this
    time, Mr. Wisner?
        Mr. Wisner. I expect it to be lower than that. The internal
    goal for holdovers is zero. So we do have puts and takes in
    that list. We calculate number of months in holdover, which is
    extremely critical for us. That being said, a short-term
    holdover, 1 or 2 months to get us through a negotiation as
    opposed to an 18-month holdover where we are at a standstill.
    We are focused on the long-term holdovers, the critical issues
    around that. So we are focused around that as a metric across
    our entire portfolio.
        As far as extensions, we have reduced the number of
    extensions that we have in place currently and led by our
    commissioner, every action that we have as far as an expiring
    lease will have a plan 3 years prior to its expiration. We will
    be reaching out to the customer agencies to put a replacement
    competitive action in place for each of those projects that we
    are currently considered.
        We have increased the number of long-term solutions. I
    believe we are up to about 83 percent of all of our portfolio
    has long-term solutions in place or have long-term planning in
    place.
        Ms. Norton. What does it mean, a ``long-term solution''?
        Mr. Wisner. Long-term solutions means that we will have a
    competitive action that takes us to a new procurement that
    leads us to a longer term solution in the market. So it may be
    a 5-year solution in some cases where we only want to occupy
    the space for 5 years. It may be a 10-year firm solution or it
    may be even longer up to the level of our scoring requirements,
    but not to exceed.
        So we have a very good plan in place, a very robust plan in
    place, and I am happy to share the documents with you.
        Ms. Norton. Does the new footprint, the reduced footprint
    help or hurt your timetable to get rid of short-term leasing?
        Mr. Wisner. No, ma'am. I think this actually helps us. We
    work with customer agencies which can often be a protracted
    period of time to work on reducing the square footage, but
    overall we are reducing the amount of leases that we have in
    our portfolio. It has gone down. We have reduced the amount of
    square footage that we have in our portfolio now.
        That is reducing the stay in place option with customers.
    We must run a procurement. We must run a competitive
    procurement, and that oftentimes with the new square footage
    reduction drives us to new facilities or drives existing
    lessors to reduce the amount of square footage that they are
    offering to us.
        So it is not precluding staying in place, but there is a
    competitive action that drives down the square footage and
    potentially can drive down cost or at least control cost.
        Ms. Norton. Thank you very much for your indulgence, Mr.
    Chairman.
        Mr. Barletta. Thank you.
        If there are no further questions?
        Mr. Carson. No.
        Mr. Barletta. I would like to thank you for your testimony.
    Your comments have been helpful to today's discussion.
        I would ask unanimous consent that the record of today's
    hearing remain open until such time as our witnesses have
    provided answers to any questions that may be submitted to them
    in writing, and unanimous consent that the record remain open
    for 15 days for any additional comments and information
    submitted by Members or witnesses to be included in the record
    of today's hearing.
        Without objection, so ordered.
        I would like to thank our witnesses again for their
    testimony today.
        If no other Members have anything to add, this subcommittee
    stands adjourned.
        [Whereupon, at 11:48 a.m., the subcommittee was adjourned.]

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