[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




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  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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