<DOC>
[109 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:27026.wais]
S. Hrg. 109-656
BIG TICKET WASTE: ARE EMPTY FEDERAL BUILDINGS EMPTYING THE TAXPAYERS'
WALLETS?
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HEARING
before the
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
FEBRUARY 6, 2006
__________
FIELD HEARING IN CHICAGO, ILLINOIS
__________
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia
Michael D. Bopp, Staff Director and Chief Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
TOM COBURN, Oklahoma, Chairman
TED STEVENS, Alaska THOMAS CARPER, Delaware
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
LINCOLN D. CHAFEE, Rhode Island DANIEL K. AKAKA, Hawaii
ROBERT F. BENNETT, Utah MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia
Katy French, Staff Director
Sheila Murphy, Minority Staff Director
John Kilvington, Minority Deputy Staff Director
Liz Scranton, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Coburn............................................... 1
Senator Carper............................................... 18
WITNESSES
Monday, February 6, 2006
Hon. Barack Obama, a U.S. Senator from the State of Illinois..... 6
Mark L. Goldstein, Director, Physical Infrastructure Team, U.S.
Government Accountability Office............................... 8
William H. Matthews, Assistant Commissioner, Office of Real
Property Asset Management, U.S. General Services Administration 9
James M. Sullivan, Deputy Director, Office of Asset and
Enterprise Management, U.S. Department of Veterans Affairs..... 12
Tom Samra, Vice President, Facilities, U.S. Postal Service....... 13
Dr. Get W. Moy, Director, Installations Requirements and
Management Directorate, Office of the Deputy Under Secretary of
Defense (Installations and Environment), U.S. Department of
Defense........................................................ 16
Alphabetical List of Witnesses
Goldstein, Mark:
Testimony.................................................... 8
Prepared statement........................................... 39
Matthews, William H.:
Testimony.................................................... 9
Prepared statement........................................... 54
Moy, Dr. Get W.:
Testimony.................................................... 16
Prepared statement........................................... 74
Obama, Hon. Barack:
Testimony.................................................... 6
Samra, Tom:
Testimony.................................................... 13
Prepared statement........................................... 70
Sullivan, James M.:
Testimony.................................................... 12
Prepared statement with an attachment........................ 62
APPENDIX
Questions and Responses for the Record from:
Mr. Goldstein................................................ 85
Mr. Matthews................................................. 94
Mr. Sullivan................................................. 106
Mr. Samra.................................................... 113
BIG TICKET WASTE: ARE EMPTY FEDERAL BUILDINGS EMPTYING THE TAXPAYERS'
WALLETS?
----------
MONDAY, FEBRUARY 6, 2006
U.S. Senate,
Subcommittee on Federal Financial Management,
Government Information, and International Security,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10 a.m., in
room 3087, Cardiss Collins Post Office, 433 W. Harrison Street,
Chicago, Illinois, Hon. Tom Coburn, Chairman of the
Subcommittee, presiding.
Present: Senators Coburn and Carper
Also present: Senator Obama.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. I welcome you to this hearing and welcome
Senator Obama, and Senator Carper shall be here shortly. And I
want to especially thank the Postal Service for their help in
both arranging the hearing and also the information that
they've been, and the assistance they've given to my
Subcommittee staff.
Senator Carper and I held 21 Subcommittee hearings last
year. We'll hold about 42 hearings this year in terms of
highlighting the problems of both in terms of inefficiency,
government waste, lack of planning, lack of accountability, and
lack of transparency.
There is a significant problem in terms of Federal
ownership of buildings, both in terms of the costs associated
with those buildings, the maintenance costs, the efficiency
with which we handle them. The long term maintenance costs, and
the decisionmaking process under which those buildings are
managed.
It is also, we discovered in one of our other hearings that
very rarely does the Federal Government now consider lease
purchase arrangements. They don't do that because of the way
CBO scores that in terms of charging the complete lease costs
to the building at the time, even though it's a poor financial
decision, we make a decision that helps make the budget numbers
look well and better, but at the same time in the long term
hurts our children.
Senator Obama and I have worked together on multiple items
in terms of trying to control spending and efficiency in
transparency throughout the Federal Government. The underlying
problem is: Last year the Federal Government spent $500 billion
more than what it took in. The debt increased by $520 billion.
That comes to $1,700 per man, woman, and child in this country.
If you amortize that over 30 years, you're talking about
$30,000 a year that we're adding to our children's debt.
This is just one small hearing among many in the oversight
hearings that the Congress is going to conduct this year to
look at how we get better. How do we do things more
appropriately, more efficiently. How do we utilize the
information that a lot of the agencies know but don't have the
ability to do because Congress has either hamstrung them with
regulation or laws that limit their ability to function in a
proper financial manner that will, in fact, promote efficiency
and save them money.
Our goal through this hearing is to listen, to not make
judgments at this hearing, but also to consider the things that
maybe Congress ought to be trying to do to make this more
efficient. The President issued an executive order in February
2004 that put, for the first time, a demand that Federal real
property be managed. There's a Real Property Council that has
now come forward, and it's our hope that through this process,
and what we can do in terms of oversight, that we can assist in
the management of the real assets.
A couple of problems that we've noticed in looking and
preparing for this hearing: One is the private sector
utilization of square footage is about one third the amount of
the Federal Government's utilization per square footage doing
exactly the same thing. That's a question that raises some very
disturbing problems for us to look at in the long run. The
other thing is that the cost often times is greater, both in
terms of the management cost and the acquisition cost. And that
is even after you discount for the specificity and specialized
characteristics of government buildings.
The one thing we do know is up until December of this year,
the Federal Government had no idea what it really owns, and has
no complete record of the condition of those assets, the
availability of those assets, the efficiency of those assets.
Through the executive order issued in February 2004, that is
starting to come together and the Real Property Council is
starting to put that together. We think that's a good trend,
but we think probably more needs to be done. And it's my hope
that during this hearing that we're enlightened, and the
gentlemen that are going to be testifying before us can help us
in terms of making decisions to ease this or tell us where else
to look to make us better stewards of the taxpayer's money when
it comes to building.
I want to thank Senator Barack Obama for being here. I
thank him also for his friendship and the way he's worked with
me in Congress thus far, and I would like to turn it over to
him. Senator Obama.
[The prepared statement of Senator Coburn follows:]
[GRAPHIC] [TIFF OMITTED] T7026.001
[GRAPHIC] [TIFF OMITTED] T7026.002
[GRAPHIC] [TIFF OMITTED] T7026.003
TESTIMONY OF HON. BARACK OBAMA, A U.S. SENATOR FROM THE STATE
OF ILLINOIS
Senator Obama. Thank you so much. Well, thanks so much to
Chairman Coburn. I want to thank Senator Carper in advance. I
know that he'll be here in a second. And obviously I want to
welcome both of you to Chicago. Having worked with both Senator
Coburn and Senator Carper, I have to say that both of them are
outstanding Senators and both of them operate with great
conviction. And I think this hearing is a testimony to that.
You have to have a lot of conviction to schedule a hearing in
Chicago in February, particularly when it starts off with a
tour of an unheated postal building.
Senator Coburn. We missed you.
Senator Obama. Yes. I've seen it before. Now I'm not a
member of this Subcommittee, but the subject today is of great
importance to me, one that I'm pleased to participate in. I
appreciate the panelists who are going to be taking the time to
enlighten us on some of these issues. I know that you guys have
busy schedules, and I appreciate you recognizing the gravity of
the problem.
I think Senator Coburn outlined the problem well.
Regardless of what side of the aisle you're on, whether you're
a Republican, Democrat, Conservative, or a Liberal, one thing
that's clear is that this country is in dire financial straits.
We've got a Federal budget deficit that will exceed $400
billion this year. By the end of 2006, we will have spent the
same amount of money on the wars in Iraq and Afghanistan. The
cost of reconstruction in the gulf coast as a consequence of
Hurricane Katrina and Rita will easily exceed at least $100
billion.
At the same time, we in Congress face a whole host of
difficult choices about how we're going to fund important
domestic programs that are important to average Americans,
programs like Medicare, Medicaid, and Student Aid. Today we
know that the President will release his budget for next year.
We have no doubt that we will probably see additional cuts in
these important programs, even as we're going to be continuing
to ask taxpayers to spend additional monies to deal with the
war in Iraq and Afghanistan.
So, given the financial crisis facing our country, I think
it's incumbent upon our government agencies to function as
effectively and as efficiently as possible with limited
resources at its disposal. Which brings us to the subject of
today's hearing. Insuring that the Federal Government manages
its assets in the most cost effective way is a critical goal.
Clearly, it's not going to close a $400 billion budget
shortfall. It's not going to address some of the structural
imbalances between revenues and expenditures. I think Senator
Coburn and I both agree on that. But it's an important step in
the right direction.
A more efficient property management system would get
unneeded and underutilized properties off the government books
more rapidly. It would provide Federal agencies with much
needed funds that could be used to provide direct services to
the American people. And it certainly doesn't make sense for
taxpayers to continue spending money on holding costs for
vacant buildings, like the one that Senator Coburn and Senator
Carper just took a tour of, buildings that the government
doesn't need or doesn't want. Particularly as is the case here
where there are private interests involved, and we're talking
about prime real estate.
Selling unneeded Federal property also has the additional
benefit of spurring economic development especially in places
like Chicago where commercial real estate in downtown areas is
always at a premium.
So what I hope we can accomplish today is to learn a little
more about the process of how the government determines which
properties to keep and which properties to sell, and in doing
so maybe we can identify some of the pitfalls that exist and
figure out how we can improve the system overall. This is just
the start of an undertaking that's going to require a sustained
commitment by all branches of government. And I'm very
appreciative that Senator Coburn and Senator Carper should be
commended for conducting this oversight process.
Just one last note. Senator Coburn mentioned that he and I
have been working on quite a few issues. We joined together to
see if we could encourage better oversight of the process of
spending for gulf coast reconstruction. He and I have been
concerned about no-bid contracts, and we're working on a
variety of other fronts to see if we can improve the fiscal
management in Washington.
Maybe it's because we're both new that we're naive enough
to think that the process can change. But people often are
curious how is it that a Democrat from Chicago and a Republican
from Oklahoma see eye to eye on this stuff. A lot of times the
media portrays Republicans and Democrats as opposed when it
comes to budget battles.
Here would be my argument; that if you are progressive and
you care about government helping out the vulnerable, and you
are concerned with the government's ability to provide
services, then you should be more conservative when it comes to
how a government spends its money than just about anybody. We
can't afford to waste money. We don't have enough money right
now to provide enough student loans for the students who need
it. We don't have enough money to provide health care to all
the people who need it. And so from my perspective at least, I
think it makes perfect sense to be a fiscal hawk because every
dollar that's wasted on a building that's not being used, is a
dollar that could have been sent to somebody who really needs
help. And I think Senator Coburn agrees with me on that.
So with that, I appreciate very much your time.
Senator Coburn. Thank you Senator Obama. I'm going to
introduce our panel and we will recognize you, and then after
we have heard from all the panel, then we'll go through
questions.
First is Mark Goldstein of the Government Accountability
Office. Mr. Goldstein is Director of Physical Infrastructure
Issues at the U.S. Government Accountability Office. He is
responsible for the agency's reviews, audits, and
investigations in Federal property, telecommunications, and
special projects. He has done a great deal of work in recent
years on the government's management of real property assets.
Mr. Goldstein.
TESTIMONY OF MARK L. GOLDSTEIN,\1\ DIRECTOR, PHYSICAL
INFRASTRUCTURE TEAM, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Goldstein. Good morning. Thank you very much, Mr.
Chairman, Senator Obama.
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\1\ The prepared statement of Mr. Goldstein appears in the Appendix
on page 39.
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Senator Obama. How are you sir?
Mr. Goldstein. Good, thank you. I thank you for the
opportunity to testify today on our work related to Federal
real property and, in particular, the problems with excess and
underutilized property.
As you know, at the start of each new Congress since 1999,
we have issued a special series of reports entitled the
Performance and Accountability Series: Major Management
Challenges and Program Risks. In January 2003, we designated
Federal real property as a high-risk area as part of this
series, and we issued an update on this area in January 2005.
We identified excess and underutilized property as one of the
major reasons for the high-risk designation.
Other reasons included deteriorated property, unreliable
real property data, over-reliance on costly leasing, which you,
Mr. Chairman, held a hearing last fall, and the challenges
associated with protecting these assets from terrorism. My
testimony today will discuss one, our designation of Federal
real property as a high-risk area, focusing on excess and
underutilized property, and two, describe various efforts to
address the problem and what more needs to be done. My
testimony highlights the following points.
The condition that led to our January 2003 high-risk
designation still exists. Many of the assets in the
government's vast and diverse portfolio of real property are
not effectively aligned with, or responsive to, agencies'
changing missions and are therefore no longer needed.
Furthermore, many assets are in an alarming state of
deterioration. Agencies have estimated restoration and repair
needs to be in the tens of billions of dollars. Additionally, a
heavy reliance on costly leasing, instead of ownership, to meet
new needs is a pervasive and ongoing problem. These problems
have been exacerbated by underlying obstacles that include
competing stakeholder interests in real property decisions,
various legal and budgetary related disincentives to
businesslike outcomes, and the need for better capital planning
by real property-holding agencies.
The Administration has acknowledged the problems in this
area. In February 2004, the President added the Federal Asset
Management Initiative to the President's Management Agenda and
signed an executive order on real property management reform.
These and other efforts at the agency level are positive steps.
However, the breadth and complexity of the issues involved and
the long-standing nature of the problems and their underlying
causes will likely continue to hamper agencies' efforts to
realign their real property assets to their missions. As a
result, we continue to believe that a comprehensive and
integrated transformation strategy is needed to address the
aforementioned underlying obstacles. As an example, the Office
of Management and Budget and other stakeholders could look to
the U.S. Postal Service Transformation Plan and related
progress reports, which GAO has supported for guiding postal
reform.
In summary, the excess and underutilized property problem
was, and continues to be, a major reason the real property area
remains high risk. In the last decade alone, the Federal
Government has reduced its workforce by several hundred
thousand personnel, and several Federal agencies have had major
mission changes. With these personnel reductions and mission
changes, the need for existing space, including general purpose
office space, has declined overall and necessitated the need
for different kinds of space. At the same time, technological
advances have changed workplace needs, and many of the older
buildings are not configured to accommodate new technologies.
The advent of electronic government is starting to change how
the public interacts with the Federal Government. These changes
will have significant implications for the type and location of
property needed in the 21st Century. Furthermore, changes in
the overall domestic security environment have presented an
additional range of challenges to real property management that
must be addressed.
Mr. Chairman, this concludes my prepared statement. I'll be
happy to respond to any questions that you or Members have.
Senator Coburn. Thank you very much, Mr. Goldstein. Next is
Bill Matthews of the U.S. General Services Administration. Mr.
Matthews is the Assistant Commissioner of the Office of Real
Property Asset Management at the U.S. General Services
Administration. He is responsible for asset management and
continuous financial improvement for a nationwide portfolio of
over 1,500 federally owned properties which generate almost
$7.3 billion per year in revenue. He is also responsible for
capital planning and investment, portfolio strategy, policy and
analysis, and disposal. Mr. Matthews.
TESTIMONY OF WILLIAM H. MATTHEWS,\1\ ASSISTANT COMMISSIONER,
OFFICE OF REAL PROPERTY ASSET MANAGEMENT, U.S. GENERAL SERVICES
ADMINISTRATION
Mr. Matthews. Thank you, and good morning Dr. Coburn,
Senator Obama.
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\1\ The prepared statement of Mr. Matthews appears in the Appendix
on page 54.
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Senator Coburn. Good morning.
Mr. Matthews. I'm pleased to have an opportunity to talk
about GSA's Real Property Asset Management Program. GSA is one
of the largest public portfolios of buildings in the world. Our
portfolio's diverse, consisting primarily of office buildings,
but also courthouses, laboratories, border stations, and
warehouses.
GSA has an inventory system that is capable of accurately
and consistently reporting real property data that meets the
Federal Real Property Council's new inventory reporting
requirements. Using the FRPC government-wide standards and
criteria, our current inventory would consist of over 8,932
assets, leased and owned, totaling just short of 388 million
square feet.
GSA captures the inventory information in our System for
Tracking and Administering Real Property. It is the primary
tool by which GSA manages our real property assets to store
inventory data, building data, customer assignment data, lease
information and related data for over 20,000 assignments of
space for all three branches of government.
Over 4 years ago, GSA implemented a PBS portfolio strategy
to restructure our portfolio of owned assets to consist
primarily of financially performing assets for which there is a
long-term continuing Federal need to reinvest first in these
assets to optimize and preserve their value for customer
agencies and the taxpayer. Thus far, following this strategy,
we have been able to reduce the percentage of underutilized
properties from 42 percent to 26 percent within our inventory,
to reduce vacant space from 9.2 percent to 6.8 percent. We have
reported in excess of 204 assets and demolished 50 buildings,
eliminating 3 million square feet of space and outwitting
reinvestment cost of over $400 million.
Applying the FRPC definition of asset utilization, 96
percent of GSA's leased and owned assets are utilized. Only 376
assets are considered not utilized or underutilized. As a
result of GSA's efforts to restructure, we have developed
strategies for non-performing government owned assets ranging
from cost containment, outleasing of excess space, exchanging
assets, conveying assets to tenant agencies and disposal. One-
third of our underutilized and unutilized assets have already
been reported excess and accepted into the disposal process.
Eighty-nine leased facilities in 2005 were determined to be
underutilized. In cases like this, GSA uses backfill of other
competing customer requirements, terminating the lease or
buying out, when it's possible, the remaining term of the
lease. At the end of fiscal year 2005, GSA's lease vacancy rate
was for us a record low level of below 1.5 percent.
At any given time with an aging inventory it's imperative
to reinvest, and at any given time some of the buildings in our
inventory will be vacant, or partially vacant, as a result of
modernization. Again, in 2005 we had 21 assets in this category
that were temporarily vacant. Of the remaining underutilized
assets, space is vacant and available for assignment for
tenants, however, this group accounts for less than 1.5 percent
of our total. Now 76 of these buildings are embedded in
facilities where they cannot be easily separated and sold.
Eighteen of the buildings are active courthouses. Sixteen
buildings are vacated because of the Hurricane Katrina and will
soon be reoccupied. And for the remainder, we're working on
strategies for reinvestment.
When it comes time to dispose of an asset, GSA conducts a
thorough retention disposal asset management and utilization
kind of study. And for decisions to dispose of them, we would
do a report of access and turn the properties over to our
office of disposal, which not only disposes of GSA's
properties, but any other land holding agency using our own
authorities or the authorities of the agency that wishes us to
help them with the disposal.
We follow a four step process. First, we screen our
properties for other Federal use that might be continuing
outside of GSA's needs. We screen for opportunities for Public
Benefit Conveyance opportunities. We negotiate with local
community stakeholders to promote highest and best future reuse
of the property in the context of the community. And finally,
for properties that for which have not been claimed during that
screening process, we take them to market using sealed bid,
public outcry auctions, and internet sales.
We're particularly pleased with our success in conducting
internet auctions. Last year we were able to sell a 75-year-old
warehouse of 55,000 square feet in Portland, Oregon, for almost
$2 million, and 17 percent over our expected fair market value.
And the transaction cost was less than one half percent of the
sale price.
GSA also makes use of exchange authorities, exchanging
properties with other Federal agencies and public entities.
Two of the significant challenges we face in doing
disposals; the first involves funding required by our customers
in underutilized assets where there's partial occupancy that
continues. When we dispose of the asset, those people have to
be relocated and the obligation for moving costs,
telecommunications and related soft costs are borne by the
tenant, who's often challenged budgetarily in their own right.
GSA also struggles with limited reinvestment capital to
choose between investing in buildings we know we want to keep,
backfilling vacant space, replacing important pieces of
infrastructure, versus the cost of disposal, remediation of
environmental issues, due diligence, and occasionally,
demolition costs.
GSA's portfolio strategy calls for retention of assets for
which there's a continuing Federal need first, and which
generates sufficient rental income to cover their cost. With
the exception of a few historic assets, the opposite of that is
we divest of what's left. That divestiture has resulted in cost
savings and holding cost and reduced the amount of vacant space
in our inventory. GSA uses performance measures and commercial
benchmarks such as vacant space disposal cycle time, and
operating costs to monitor our performance.
Unless there is the use of a special retention of proceeds
authority, the net proceeds generated from the sale of GSA
properties are directed for deposit into the Department of
Interior Land and Water Conservation Fund rather than our own
Federal Buildings Fund. We believe that retention of proceeds
is one of the most powerful incentives available for vigorous
asset management and prompt decisions on disposal.
A specific example of this financial incentive is GSA's
pending sale of a two million square foot facility at Middle
River in Baltimore County, Maryland. In fiscal year 2005,
Congress specifically granted GSA the authority to dispose of
the property and retain the proceeds for sale in the Federal
Buildings Fund. These funds will then be used for real property
capital investment needs.
GSA is in a unique position with customer agency
requirements driving the composition of our real property
inventory. We experience a dynamic real estate environment with
customer agencies changing their mission, growing programs,
shrinking programs, and adjusting to market conditions. Despite
record levels of disposal in the last few years, GSA's
portfolio's continued to be relatively stable with modest
growth.
Mr. Chairman, that concludes my statement. I would be
pleased to respond to any questions you may have.
Senator Coburn. Thank you, Mr. Matthews. Next is Jim
Sullivan, the Department of Veterans Affairs. Mr. Sullivan
serves as Director of the Office of Asset and Enterprise
Management at the Department of Veterans Affairs. Mr. Sullivan
helped create this relatively new department level office that
serves as the principal policy office and business advisor
regarding acquisition management and disposal of all department
capital assets. Mr. Sullivan.
TESTIMONY OF JAMES M. SULLIVAN,\1\ DEPUTY DIRECTOR, OFFICE OF
ASSET AND ENTERPRISE MANAGEMENT, U.S. DEPARTMENT OF VETERANS
AFFAIRS
Mr. Sullivan. Mr. Chairman and Members of the Subcommittee,
I am pleased to appear this morning to provide you with an
overview of the Department of Veterans Affairs ongoing efforts
and processes to strategically manage underutilized and vacant
space within the VA system. VA is the owner, tenant, and
operator of one of the largest healthcare related real estate
portfolios in the Nation. Our inventory consists of a large
assortment of lands, building, and facilities such as
hospitals, clinics, office buildings and cemeteries. In total,
we own more than 32,000 acres of land and 5,300 buildings
spread across 300 sites across the Nation.
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\1\ The prepared statement of Mr. Sullivan appears in the Appendix
on page 62.
---------------------------------------------------------------------------
At the close of 2005, VA owned approximately 148 million
square feet of space. Of this total, VA generated revenue from
about 5 million square feet of underutilized space. This
represents a million square foot reduction in non-productive,
underutilized space from the previous fiscal year. Nationwide,
the cost per square foot to operate and maintain VA properties
was the equivalent of $4.98 per square foot, or about $750
million a year.
VA does, however, have a significant number of properties
in its inventory in locations that do not coincide with where
veterans currently live and receive services, and many of these
buildings are more than 50 or 60 years old. Nationwide, we have
approximately seven million square feet of vacant space, or a
little less than 5 percent of our total inventory, scattered
across the country. As modern trends in healthcare move away
from large inpatient units and more toward outpatient care, VA
may see areas of vacant space at one facility, while another
facility may have a need for significantly more space.
In 2003, VA launched the Capital Asset for the Realignment
for Enhanced Services for veterans, or CARES initiative. This
was to conduct a comprehensive, system-wide approach,
identifying the demand for VA care and projecting into the
future the appropriate function, size and location of VA
facilities. The Secretary of Veterans Affairs announced his
decision on May 7, 2004, and this became and is VA's roadmap
for the future.
I'm excited to share with the Subcommittee the success VA
has had with public private ventures to leverage VA's
underutilized assets. VA has put in place transitional homeless
housing units, affordable housing, hospice facilities, in
formerly underutilized properties and provide these services
for our Nation's veterans.
VA has a unique authority, its Enhanced-Use Lease
authority, which was authorized in 1991 providing a proven
method to leverage VA's diverse real estate portfolio and
market position. From underutilized assets, revenue is
redirected back to the healthcare and capital operations of our
medical centers, cemeteries, and benefit offices that serve our
Nation's veterans every day.
VA partners with private or nonprofit entities who in turn
provide as consideration such things as low-cost senior
housing, cogeneration or energy facilities, homeless shelters,
childcare centers, mental health centers, office buildings, and
parking facilities. In 2005, VA received over $900,000 in cash,
in-kind considerations such as homeless housing, space parking,
and discounted energy services, and $28 million in a one-time
payment from these efforts.
In fact, here in Chicago is the first site whereby VA used
its Enhanced-Use Leasing authority to implement a CARES
realignment decision. Specifically, on January 2005, VA signed
a 75-year Enhanced-Use Lease with Northwestern Memorial to
outlease an unneeded VA hospital in downtown Chicago at the
Lakeside facility, providing VA $28 million in outlease
revenue. And eventually we disposed of that facility, about 3
months ago, for an additional $22 million which came back to VA
to provide additional services.
In addition, VA has recently signed several agreements at
the Hines facility here in Chicago. VA signed a 32-year lease
of land in exchange for the renovation of existing VA
facilities to provide for preferential residential transitional
housing for veterans. It also signed a 75-year lease in
exchange for the renovation of an existing VA building for
senior housing at the Hines facility.
Similarly, in Minneapolis, VA, we signed a 60-year lease
for five acres of property in exchange for affordable housing
facility for needed services for veterans.
There are many initiatives here that we could speak of, and
my testimony that is submitted for the record. I would be happy
to answer any questions, and thank you for your support in our
commitment to our Nation's veterans. Thank you.
Senator Coburn. Thank you, Mr. Sullivan. Next is Tom Samra.
Mr. Samra was named Vice President, Facilities, at the U.S.
Postal Service in November 2005. He is responsible for one of
the largest civilian construction programs in the United
States. He oversees all Postal Service properties, including
over 8,000 owned and 26,000 leased facilities valued at more
than $10 billion. He is also responsible for the disposition or
redevelopment of excess properties. Mr. Samra.
TESTIMONY OF TOM SAMRA,\1\ VICE PRESIDENT, FACILITIES, U.S.
POSTAL SERVICE
Mr. Samra. Good morning, Chairman Coburn, Senator Carper
and Senator Obama. I'm pleased to discuss the Postal Service's
continuing and aggressive efforts to dispose of surplus
buildings and real estate. We are particularly pleased to host
today's hearing. While I will limit my remarks, I have
submitted a written statement and ask that it be included in
the record.
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\1\ The prepared statement of Mr. Samra appears in the Appendix on
page 70.
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I'm relatively new to the Postal Service. I have been at my
job for 2 months, however, having spent 12 years at UPS and 9
years at the American Red Cross, I have been impressed with the
efforts of our people to adjust our network of properties to
meet the changing demands of our customers and their
communities. We assume, considering the pace of change today,
that the process of change will be constant going forward. It
is our intention to remain flexible, responsive and to keep a
sharp eye on the bottom line. Because the Postal Service
operates like a business, recovering our operational costs
through the sale of our product and services, not through
appropriations, we must maintain our focus on minimizing excess
costs and optimizing revenues. We remain focused on maximizing
customer value.
Many communities are growing, while others are not. Our
population centers are shifting and modern technology is
offering constant improvements to our operations. In order to
maintain our efficiency, we must continually adjust our network
to accommodate these changes. These adjustments and
accommodations often result in turning perfectly useful
components of our network into surplus properties.
Since 1997, we have been guided by a focused asset
management program intended to maximize the return on
underutilized and surplus facilities through sales and leases.
This program has allowed us to remove more than 500 properties
from our portfolio, and has generated more than $1 billion in
gross revenues. Last year we sold 50 unneeded buildings.
When a property is no longer needed by our operation, it is
immediately added to our sale property database and we begin
the disposing process. Normally, this happens a considerable
time before the facility is actually vacated. This is the key
to keeping our inventory of unneeded facilities as low as
possible. Today fewer than one-tenth of one percent of our
properties are considered surplus, only 44 out of more than
34,000. Of these, 27 have been offered for sale, 13 are under
contract, and 4 are in active negotiations.
Even with our best efforts, the sale of some properties can
be extremely challenging. Let me explain more about one such
property, the former Chicago mail processing center, which we
just visited. It served us well for many years, but it could
not accommodate the space requirements of today's automated
equipment and mail flows. This is an industrial building on
which construction began in 1922. It is the largest building
that the Postal Service has ever owned. It is essentially three
buildings combined into one. Floor elevations do not align. The
window to floor ratio is extremely low, and the ten floors,
each of 250,000 square feet, have proved nearly impossible to
divide into smaller uses. Because of the configuration and
sheer size, at 2.5 million square feet, it has been proven
impossible to identify a single use purchaser.
We have considered mixed use projects, such as a mix of
office, hotel and residential. These require a very long
development time and are very dependent on market cycles for
each use. The high vacancy rate for Chicago area office space
has made this facility a much less attractive option for
potential office tenants. It requires extraordinary repairs and
alterations, and it competes with more modern space. I should
add that efforts to comply with historic landmark regulations
have also limited our redevelopment options for this property.
We have pursued redevelopment approaches for this very
unique site over the course of the last 7 years. I emphasize
that each development proposal requires a great deal of time.
The first was to keep the building intact, with a significant
residential component. Unfortunately, the market downturn
following September 11 has all but eliminated the feasibility
of this plan.
We have explored the telecommunication hotel concept, which
appeared at first to be an ideal use for the property. But the
dot-com crash in 2000 and the changes in banking regulations
requiring financial institutions to locate operation centers
away from downtown areas, has rendered this use no longer
possible. In addition, the fact that this property straddles
both a major expressway and an active rail operation reduces
interest in the site.
Our third and most recent proposal involves modifying the
site in hope of reviving the mixed use concept. We believe we
now have a plan that preserves the special historic
considerations, while making the building more attractive to
users. We are guardedly optimistic about the prospect for this
concept, and we are working vigorously with other stakeholders
in pursuit of this use.
We are working with appropriate Federal, State, and local
government agencies to satisfy a wide range of requirements and
obtain needed support. We have identified a developer who has
made a significant investment in pursuit of a profitable use
for the site. We are also continuing our active dialogue with
the City of Chicago and addressing their concern. I should
point out that this process, though not typical of most sites,
is in line with projects of this magnitude and complexity. This
site's urban location, its proximity to highways and rail
lines, its historic value, some of the material used in its
construction that are now considered to be hazardous material,
and its pure magnitude and scale all combine to demand
extraordinary due diligence on the part of all who are
involved.
We also recognize that this building has become a local
landmark for Chicago residents. They too have an interest in
the future of this site. We want to be certain that the final
use, design, and construction of the ultimate concept will
optimize the value for each of the stakeholders while
respecting the need for the Postal Service to minimize expenses
and deliver value to our customers as a matter of course.
I want to assure you that this project remains a top
priority for us. I also would like to thank you for your time
and interest in this particular project. This hearing will help
us--the interests of all stakeholders and ultimately your
support will be instrumental in helping us dispose of this
quite unique surplus property.
Regarding our overall program, we continue to diligently
whittle away at our surplus properties. Other successes you may
find of interest include the sale of our historic Memphis,
Tennessee property. This building was sold for $5.3 million
last month, and because this sale satisfies an immediate need
on the part of the buyer, we will avoid the cost of carrying it
as a vacant property. The day we vacate the site, we will turn
the keys over to the new owner. The sale of an interest in the
income from a ground lease on our New York Lexington Avenue has
resulted in revenue of $130 million. And over the last several
years, the sale of major mail processing facilities in Los
Angeles and Denver contributed to more than $60 million in
revenues.
In conclusion, I can assure you that the Postal Service
fully recognizes the need to maintain a facility network that
provides maximum efficiency in a constantly changing business
environment. This is critical to our mission of providing
affordable, universal mail service for our Nation and its
citizens. In a network the size of the Postal Service, surplus
properties are part of providing the best business solution for
our operations. The expense related to disposing of these
properties will remain a necessary business expense that must
be managed with the same attention to detail and due diligence
as our other major expenses. We remain open to any suggestions
you might have on how we might improve our approach. I will now
be pleased to answer any questions you may have.
Senator Coburn. Thank you, Mr. Samra. Our next guest is Dr.
Get Moy. He's the Director of Installations Requirements and
Management at the Department of Defense. He's responsible for
the stewardship of the Department of Defense installations
nationwide. As Director, Dr. Moy supports military readiness in
life, appropriate sizing of domestic and overseas based
structures, and improved installation management, while
ensuring that energy and environmental mandates are met. Among
other duties, Dr. Moy oversees real property accountability at
the Department of Defense. Dr. Moy.
TESTIMONY OF DR. GET W. MOY,\1\ DIRECTOR, INSTALLATIONS
REQUIREMENTS AND MANAGEMENT DIRECTORATE, OFFICE OF THE DEPUTY
UNDER SECRETARY OF DEFENSE (INSTALLATIONS AND ENVIRONMENT),
U.S. DEPARTMENT OF DEFENSE
Dr. Moy. Good morning, Mr. Chairman.
---------------------------------------------------------------------------
\1\ The prepared statement of Dr. Moy appears in the Appendix on
page 74.
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Senator Coburn. Good morning.
Dr. Moy. I appreciate the opportunity to brief you and the
other Members of the Subcommittee on how the Department of
Defense goes about managing its disposal of underutilized and
vacant space. I have a prepared statement which, with your
permission, I'll submit for the written record.
Senator Coburn. All prepared statements will be made a part
of the record without objection.
Dr. Moy. Sir, the first thing I would like to start off
with is the statistics. From the Department's standpoint, the
Department currently owns and manages 570,000 buildings with a
plant replacement value of over $650 billion and over 46,000
square feet. Of the 570,000 buildings and structures, we own
about 480,000 of those facilities. We lease about 11,000, and
we manage about 81,000 that are owned by others, such as NATO,
such as the State governments for National Guard facilities.
From a perspective of the real property inventory, since
1997 the Department set out to build a corporate-wide inventory
management system of its assets. And it's been extremely
important, because we use that as a forecast as to what our
requirements are to support operation and maintenance,
sustainment and recapitalization of its facilities. So it's
extremely important to keep an accurate inventory system.
From a management standpoint, what you have in front of you
in the red colored document, is a document that we issued in
September 2004. It's a capabilities-based, performance-based
Defense Installation Strategic Plan that we use to manage our
assets in the Department of Defense. It incorporates
recommendations that the General Accountability Office has
recommended, and has been approved by the Office of Management
Budget as a mechanism for the Department to manage its assets
in accordance with the executive order on asset management and
the Federal Real Property Council's requirements.
With regards to the specific matters at hand, at today's
hearing, there are four points I'd like to cover. One is that
one of our identified weaknesses in real property inventory, is
the reporting of, the ability to report accurately, with
confidence, vacant and underutilized spaces. We found that last
year during our Base Realignment and Closure (BRAC) process,
commonly known as BRAC, we had to go out and make special data
calls to make sure that we had current information on
underutilized and vacant space at the corporate level.
Learning our deficiency in that area, we initiated a
reporting process that by September 30, 2006, we at the
corporate level of the Department of Defense, will be able to
receive data from our military departments on the exact
information on underutilized and vacant space and will be able
to answer specific questions. At least be better to answer
specific questions on vacant or underutilized spaces.
The second point is that the management of the Department's
real property is the responsibility of the Military Department
that owns that underlying real property, that real estate--the
Army, Navy or the Air Force. In accordance with the Federal
Property and Administrative Services Act of 1949, when that
Military Department has determined that property no longer has
a need, a military need in the Department, we turn that over to
the General Services Administration for disposal, which goes
through its protocols. However, before we actually do that
there is a very rigorous process to make sure that there is no
military need for that property.
The third point is that in 1998 the Department set out on a
6-year program to eliminate 80 million square feet of obsolete
and excess facilities. Six years later we had concluded that
effort by exceeding our target, removing a total of 86 million
square feet. As part of a continuing effort to dispose of
unneeded facilities, the Department recently completed a new
survey of demolition requirements and established a goal of an
additional 66 million square feet to be eliminated, which we
are in the process of pursuing.
The fourth point is that since 1988, the Department has had
the statutory authority to restructure its land and facilities
commensurate with changing missions in accordance with the
legislative mandated BRAC process. The Secretary of Defense has
mandated that BRAC should be used to rationalize our
infrastructure and make sure it supports the force
infrastructure, that joint capabilities are used in joint
utilization and that we eliminate any excess capacities.
The previous four BRAC commissions, 1988, 1991, 1993 and
1995 resulted in closure or realignment of 152 major
installations and 235 smaller installations. The recently
completed 2005 BRAC round recommendations affect over 800
locations, 25 major closures, 24 major realignments and about
765 lesser actions. The prior BRAC rounds, the General
Accountability Office has reviewed those and has been very
supportive of our way of methods of accounting for the savings,
but the net present value as well as our annual savings.
I would say that the most successful example of the BRAC
disposal process has been the Navy's sale of the former Marine
Corps Air Station property at El Toro, which consisted of about
3,700 acres and netted about $649 million, which was done in
partnership with our GSA colleagues and the local governments.
Along with transforming our military forces, the Department
has been transforming its installations and business practices
to include the management and disposal of vacant and unutilized
space through a comprehensive asset management strategy, and
we're beginning to see the results of that transformation.
Mr. Chairman, I appreciate the opportunity for addressing
and appearing before this Subcommittee this morning. Thank you.
Senator Coburn. Thank you, Dr. Moy. Let me recognize
Senator Carper. He's been a great partner this past year as we
both try to work hard to identify waste and inefficiency within
the Federal Government, recognize what it does well and give
kudos to that, but also ask questions so that we can see more
visibly the areas that need attending to. And I recognize him
now for both a statement and to start our questioning.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. Good. Thanks very much. Mr. Chairman, it's
a pleasure being your partner in this effort, and I thank you
for the chance to join you here today for a home game in the
turf of Senator Obama. And Senator Obama, for those of you here
in Chicago, is a great addition to the U.S. Senate. And I've
only been there 5 years. In my experience, I've not seen
anybody who hit the deck running and began making an impact, a
very positive impact on both sides of the aisle, any more than
Senator Obama. So we're just really pleased to be here in his
home State that he represents.
Mr. Chairman, I have a statement for the record that I
would like to offer. But I also want to make some comments in
general first before I ask a few questions.
[The prepared statement of Senator Carper follows:]
Thank you, Mr. Chairman, for continuing this Subcommittee's efforts
to examine the way in which agencies are managing their property.
Our constituents expect the Federal Government to have a presence
where they live. They need access to a post office, to a VA hospital,
or to an IRS help center. Communities change, however, and the way in
which Federal agencies serve those communities changes as well. It's
vitally important that agencies are able to adapt to these changes.
It's clear from the evidence before us, Mr. Chairman, that the poor
management of the property controlled by the Federal Government is
preventing agencies from serving the American people in the best, most
efficient way possible. It's also wasting billions of dollars.
Today, as GAO will point out this morning, we have Federal agencies
in many case working, and I quote, with ``an infrastructure based on
the business model and technological environment of the 1950s.'' This
is unacceptable.
I don't know how much we spend in total each year to maintain
vacant or under-used Federal buildings, but I do know that every dollar
the Postal Service spend to keep the building across the street
standing is one dollar they can't spend to expand or improve service in
growing parts of the country.
And when an employee in another agency goes to work every day in a
old, dilapidated building without the technology he or she needs to be
effective, I think we lose a little bit of the trust and confidence the
people we serve place in our government.
I know all of the agencies here today will be testifying about
steps they've taken to rid themselves of un-needed property and
modernize the facilities they truly need. Addressing this problem piece
by piece, however, is difficult. That's why it's important that the
President and OMB continue their efforts to establish government-wide
guidelines for the management of Federal property and help agencies
develop the expertise necessary to achieve goals.
I believe our witnesses today represent the agencies that hold a
majority of the vacant or under-used Federal property out there. I look
forward to hearing more from them about what they're doing to address
the Federal Government's property management challenges and what
lessons we can apply to other agencies.
Thank you again, Mr. Chairman.
Senator Carper. I'm going to go ahead and telegraph my
questions now so that our witnesses, and we thank you each for
being here, but I want to tell you what I'm going to start off
by asking.
I'm going to start off by asking you to, really sort of a,
each of you a three-part question. Mr. Goldstein, you may not
be asked a three-part question given the fact that you're not
with one of the agencies that's before us, but we appreciate
very much the work that you and your colleagues at GAO do. But
I'm interested in some of you sort of giving us some examples
of, maybe a model that you think is worth emulating, something
you've done particularly well in terms of managing or disposing
of unused properties, underutilized properties in a way that
enabled you to recapture some money for the Federal Government,
for your agency. But I'm interested in best practices and I'm
going to ask you to hold up a couple of examples. It could be,
as Dr. Moy's talked about, El Toro, that sort of thing, but I'd
be interested in that.
Second, some of the practices you're not so proud of, or
situations that you feel that are really problematic, and that
you are trying to get your arms around and trying to figure how
to dispose of or better utilize an underutilized asset.
The third thing I'm going to ask you to do is to tell us
what we can do. Not just the three of us, but the Senate, the
House, and the executive branches. What can we do in terms of
enabling you to better manage the properties that you're
responsible for? To sell those which need to be sold, and to
upgrade those which need to be upgraded, but just some good
practical solutions if you will.
My colleagues, Senator Coburn and Senator Obama may have
already mentioned this, but today is the day that the President
submits his budget to the Congress. We expect a budget deficit
to be forecast there, to be somewhere in the range of $300 to
$400 billion. We are, in my view, we're swimming in a sea of
red ink in this country. And what the combination of an
enormous Federal budget deficits coupled with trade deficits
almost twice as large, roughly $700 to $800 billion, it's just
not sustainable.
The President calls for cutting the deficit in half, I
think by 2009, but I believe that inherent in that forecast is
a couple of assumptions which I'm not sure are credible. One is
that we are not going to be spending any money in Iraq then,
we're not going to be spending any money in Afghanistan then,
and three is that I don't think that we will have fixed the
problems that we have with the alternative minimum tax, which
is going to be an expensive fix as we all know.
I think the truth of the matter is if we are going to begin
making real progress on reducing our deficits, it has to be a
broad, comprehensive approach. It just can't be surplus
property or underutilized property, although that's important.
It's got to include collecting the taxes that are owed. And
Senator Coburn and I have had the first of a series of hearings
that focus on all the money out there that's owed to the
Federal Government, a couple hundred billion dollars, that's
just not being collected.
We've had some hearings also on something called improper
payments, and there's been a fair amount of focus on monies
that are improperly paid with respect to the war in Iraq, with
respect to Katrina and on the heels of Katrina. But it turns
out there's probably $50 billion on top of that of improper
payments. Mostly overpayments that some of us, GAO's been very
helpful in this, our inspector generals are helpful in this, in
trying to figure out where we are improperly paying money and
how can we reduce that.
My own view is if we're going to make progress on the
deficit, we've got to figure out how to, as the Iraqi's stand
up militarily, how do we stand down and how do we realize some
cost savings from doing that. And how do we get the other
nations in the region to come in and backfill for us as we
begin to reduce our presence there.
The President, in his State of the Union address last
Tuesday, talked about entitlement programs, he talked about a
Blue Ribbon commission as the boomers, some of us, get ready to
move toward retirement age. How are we going to--what is the
impact of the boomer retirement on Medicare, Social Security,
Medicaid, and we look forward to the creation of a real
bipartisan commission that will help us to begin to deal with
those.
Another little program that I think has some real promise,
and this is just an example. We've got to look everywhere for
savings. And one of the places we're going to look is flood
insurance. We have in our national flood insurance program some
kind of a perverse incentive that encourages people to build in
the most dangerous places, or are likely to have damage to
their homes and with a program that's $10 to $20 billion in the
red.
And finally, we got a lot of really good ideas out of GAO,
and a lot of good ideas out of the inspector generals, and what
we need to do is to be your partner in taking those good ideas,
putting a spotlight on them, and making sure that we follow up.
And the last thing I would say is I would like to close
before I ask you to respond to my three-part question, I just
want to mention the theory of holes. The theory of holes, which
was offered by Dennis Healy, former Exchequer over in Britain.
Dennis Healy used to say that when you find yourself in a hole,
stop digging. And we are in a hole, big hole, as a country
fiscally. And I think as we consider tax cuts, further tax cuts
to make, we have to keep in mind, particularly as we would
propose to cut the taxes of those who, frankly, are doing
pretty well, that we have to be careful not to dig the hole
much bigger. We have to stop digging. And as we prepare to do
all these other things to try to right our fiscal ship of
state.
I want to go back to my three-part question, if I may. And
I wanted to ask you again, if you'll recall, for each of you to
give us an example or two of the best practices that you're
really proud of what you and your agency have done to better
manage your properties, dispose of your properties, get some
money back for the Treasury.
Two, a couple of examples, just be honest with us where
you're disappointed with the results that you've gotten.
Everything we do, everything I do, I know we can do better. And
I'm sure the same is true for all of you.
And the last piece is what do we need to do, what laws,
what regulations do we, either Congress or the Administration,
need to change to enable you to think outside the box, to be
creative, and end up with better and better results as we
approach this area. And Mr. Matthews, since you are the closest
one to me, I'm going to call on you to go first, and then we'll
just head on down the line.
Mr. Matthews. Thank you. In terms of best practices, there
are a number. I specified one in my statement about the use of
internet auctions and public outcry auctions. We're
consistently having excellent results when we bring the
commercial, our commercial advisors in to help us market. This
is after we've gotten past the public benefit conveyance and
the community involvement, properties we actually sell. We
found consistently that the better we can expose those
properties to the market using the best commercial practices,
the better success we have.
Public outcry auctions work well. Internet auctions work
equally well or better and have a lower cost.
Senator Carper. Explain the difference between the two.
Mr. Matthews. A public outcry auction, for example, using
the building next door you just toured, if they conducted a
public outcry auction we'd have a contract appraiser who would
come in and heavily publicize the sale of the building and
actually conduct a live auction right there on the spot. It
does tend to have fairly high administrative costs, but they're
very effective. And the better they're exposed to the public
and the market, the better the results.
You can do the same thing on the internet by publicizing
and reaching out to actually bigger market than the local
markets. And consistently when that is done and allowed to have
a soft close so that it closes at about this day, but we may
leave it open 24 or 36 hours beyond that point, we're finding
we attract investors from all over the country. Not just from
all over the metropolitan, or geographic area.
Senator Carper. How long have you been doing the internet
auctions?
Mr. Matthews. For about the last 3 years, and there is some
disagreement among our stakeholders as what's the best way to
do that, and whether or not the public outcry auction is better
than internet. I would never advocate that we only do that or
that we never have sealed bid. There are some properties where
it's small properties and it probably is best marketed to local
people in the community. But for the bigger, more commercially
valuable properties, the public outcry, or even better, the
internet auction seems to generate very good returns, well
above what our estimates are.
Senator Carper. Give me an example of a practice or a
procedure, or maybe a property where you're not pleased with
what's going on, maybe disappointed with what's going on, and
maybe it's even something where we ought to be involved
changing rules and regulations or statutes that would enable
you to turn that around. Anything come to mind? It doesn't have
to be one example, it could be like a series of them.
Mr. Matthews. Well, I'll give you a good practical example.
For the last few years, we have, regardless of whether we got
to keep the proceeds, we decided we're going to let go of what
doesn't serve a good Federal continuing need. And the easy
ones, the vacant ones, and the ones that clearly nobody has an
objection to are leaving the inventory fairly rapidly by our
standards. But now we're getting into properties that are still
partially occupied and still serving some degree of Federal
ongoing program need.
For example, in Clearfield, Utah we have two large
warehouses, at one time served a number of Federal agencies.
Right now the primary tenant is the IRS who, in Ogden, Utah,
has a big processing center. And this is their warehouse and
forms distribution operation in these two warehouses. As the
other tenants have left, we found ourselves with half of one
building and a quarter of the other building. Together we could
have about filled up one building, but the costs of moving
everybody out of the other one into the other is pretty
staggering.
And we've allowed that discussion to drag on too long
because we haven't engaged with the customer enough to talk
through their long term needs and whether they're realistic
about what the cost would be, whether they even need to be
engaged in warehousing opportunities anymore. And we've been
reluctant to spend our own limited capital to move and
consolidate. This cost could be as much as a million dollars.
Senator Carper. Now that's not one that we need to fix.
That's one that you all need to fix, right?
Mr. Matthews. That's an example of where lack of compelling
incentives caused us to be slow to make up our mind what's best
to do. And I'm neither picking on the occupant customer, and
I'm not trying to be overly critical on us. They're hard
decisions to make, because they involve alternate----
Senator Carper. Give us an example, if you will, before we
call on Mr. Sullivan, give us an example of something we need
to do differently in order that you can be more successful.
Mr. Matthews. First, I think the most compelling thing that
Congress can do is to make sure that every Federal agency can
retain the net proceeds for continued reinvestment in the
existing inventory. The biggest deterrent I have seen both
within my own agency and with other land holding agencies that
we serve, is the sometimes punitive effect of deciding to do
the right thing. And how taking a property that may have been
in the inventory a long time, it may have environmental
remediation, it may have historic value, it may be of strong
interest to community interest groups or community elected
officials. It takes a lot of money to do the due diligence.
Sometimes it takes a lot of money to clean up the environmental
problems to a level appropriate to satisfy the State
regulators. And then it takes a while to work through the
issues with a community.
If at the end of that all the costs go to the program that
holds the property and none of the benefits, the marginal cost
of holding that property is not very painful to endure as
opposed to taking on all those costs in a long process that
sometimes is painful and difficult. So that positive incentive
is just critical to your success.
Senator Carper. I get you.
Mr. Matthews. There's one other thing, if I may?
Senator Carper. Yes. Sure.
Mr. Matthews. There's a whole web of disposal authorities
and associated environmental and historic preservation and
other laws that were all written for great public purposes. I
wouldn't suggest we repeal any of them, but there are points in
the law where they're not clear. They don't have time limits.
It's not always specified who does what function. And they're
not insuperable obstacles. We can always find a way to dispose
of the property and work our way through the process. But since
there's so many overlapping laws and authorities, it may be
time to re-engineer and look at the whole web of related legal
requirements that we have to contend with that with just minor
tweaks here and there might speed the process for everybody.
Senator Carper. OK, thank you. Mr. Chairman, I'm going to
be mindful of the time, and I'd be happy to hold off until
maybe second round, but I'm going to ask the same question of
each of the other witnesses.
Senator Coburn. OK. Senator Obama.
Senator Obama. Well, thank you very much gentlemen for your
presentations. I found them illuminating. Mr. Samra, let me
start with you. I don't want to get bogged down with the
particular property that was the subject of the tour this
morning. My understanding is that there are some ongoing
negotiations that have been taking place. I am curious to find
out whether there's any time frame whatsoever in terms of
whether the negotiations on the disposal of that property might
be completed.
Mr. Samra. Thank you, Senator. We are really very anxious
to have a very short time line for negotiations, but again, the
magnitude and complexity of this deal and stakeholders that
have interest in this prevent me from giving you an exact time
line. But we are very positive about the third and current
proposal that we have today with this property. I met with the
Planning Commissioner of the City of Chicago 2 weeks ago, and
we're going to have another meeting this week, and I think we
are very close to coming up with the right solution for
everybody.
Senator Obama. Good. Well, I would just emphasize obviously
this has been sitting for a long time. And I think my
constituents, the City of Chicago has a deep concern in making
sure that we're utilizing a property that is admittedly a
little bit outdated, but continues to be on a prime site. And
my hope would be that you working with the city and others can
get this dealt with as quickly as possible. And if you need
help from my office, please let me know. But I think for it to
be sitting there for years and to be spending the amount of
money that's being spent just maintaining it doesn't make too
much sense. So I'd like to emphasize that.
Let me shift to a broader point. And I thought that Senator
Carper asked an excellent question about what laws we might
change to improve all of you doing your tasks. I know that
there has been some question, Mr. Goldstein, I think you
mentioned it, in terms of the difficulty of getting the right
balance between leasing and purchasing. I'm curious as to are
there laws on the books that we could change that would make
sure that you are, that all these offices are operating at an
optimal level when it comes to the right mix of leasing and
purchasing land?
Mr. Goldstein. Senator, I think there are a number of
things. In fact, this Subcommittee held a hearing last fall
that explored these at some length. But it's clear that the
current structure of the budget laws do hamper agencies, and do
hamper the government in being able to effectively and
efficiently deal with its property issues because of the up
front scoring that's required. And I know Senator Coburn
mentioned this this morning. That's one of the biggest issues
that hampers agencies. There are many others, and Mr. Matthews
referred to some of them. I think some combination of
flexibility and greater coordination is needed. Flexibility
with respect to the ability of agencies to retain net proceeds
from its sales and disposals would be helpful.
Senator Obama. How does it currently work? It all just goes
back to, let's say you get net proceeds from one of these
agencies. Let's say one of the agencies that is, Mr. Matthews
from GSA, obtaining property from GSA. How does that work?
Mr. Goldstein. Well, several agencies have the authority to
retain proceeds. VA does. DOD does to some extent. GSA did in
the last fiscal year.
Senator Obama. Is that statutory or is that just internal
policy?
Mr. Goldstein. That is, those are statutory.
Senator Obama. OK.
Mr. Goldstein. And they're able to retain proceeds, net the
cost of disposal itself in order to, and it varies agency by
agency, it doesn't all work exactly the same way. It depends on
the statutes for each. But they're able to retain some of those
proceeds for dealing with other properties, for repairing, for
alteration, and for a variety of other purposes to improve the
properties.
And this is another one of the major issues that the
government has beyond having issues with respect to the leasing
problem that we've mentioned as well as to vacant property, is
the vast backlog in deteriorated property and the amount of
money that agencies have said it will take to fix existing
properties that it wants to retain, and those are in the tens
of billions of dollars.
Senator Obama. And how are we going about sorting through
all that? And I don't know whether that's best directed at you
or Mr. Matthews, or the other agency heads, but what are we
doing about deteriorating properties?
Mr. Goldstein. It's one of the issues that the Federal Real
Property Council is working through. One of the things that GAO
has suggested over the years is that the government, and I
mentioned in my testimony this morning, create a transformation
plan that would bring together a lot of different stakeholders
to deal with a variety of problems, because many of these
problems are interrelated. If you can get rid of some of the
vacant property and use those proceeds to fix properties. If
you could reduce the overall costs from leasing and be able to
own property. If you could find ways to limit problems
associated with the environmental restoration or historic
preservation, all the various things that we have.
The problem in knowing exactly what properties the
government does own, and what condition they are, and how
secure they are in, and having all of this information
available and useful so the government can strategically deal
at an over-arching level with its real property portfolio. That
would be very helpful. It's all interrelated.
Senator Obama. Let me turn to some of the other panelists.
The issue of environmental clean up or containment issues has
come up. You say that's part of the issue that's been holding
up some sort of solution to the Post Office property here in
Chicago. Do all the agencies, as soon as they have identified a
property for disposal, do their own environmental assessment?
In the case of these auctions that you mentioned, whether it's
through the internet or, what was it, public cry auction?
Mr. Matthews. Outcry.
Senator Obama. Outcry auction. Have those environmental
assessments already been done, or are often times you putting
properties up for sale in a caveat emptor, buyer beware
situation? How do the agencies handle that?
Mr. Matthews. We try to find out long before we get to the
point of disposal and document our properties which have
environmental liabilities, which can range from relatively
modest, easily fixed problems to extremely difficult
challenges.
Senator Obama. Right. So it might be lead paint, it might
be asbestos, or it might be storage tanks or----
Mr. Matthews. Right.
Senator Obama [continuing]. Serious ground contamination
that would be much more costly to deal with.
Mr. Matthews. And there are options now that didn't used to
be available. If we have well documented issues sometimes we
can sell them with those disclosed and subject to the State
regulators cleaning it up to whatever level they think that the
new owner will take it to within zoning and land use
restrictions. It's better than it used to be. It's easier.
To go back just a little bit to your previous question
before you got into environmental, I'll give you a good example
of how this comes up is a GSA property in Buffalo, New York.
It's about a 300,000 square foot multi-tenant Federal building.
It's built in the 1960's. It's full of asbestos. It has a huge
reinvestment liability. It passed it's 30-year life cycle for
replacing elevators.
We looked at the continuing customer need, which remained
unchanged, and we looked at the market alternative, which was
leasing. And in the City of Buffalo, there was lots of
excellent space at a very reasonable rate. We decided to sell
that building, move everybody to lease space. Their rent didn't
go up and we avoided a couple hundred million dollars in
reinvestment. And before we've even gotten through the disposal
process, we've found that there's a remarkable degree of
interest in people who want to redevelop that property.
Senator Obama. So that's a good story.
Mr. Matthews. That's a good story and it shows that there
is some flexibility. You don't have to fix every single
environmental issue every time.
Senator Obama. Right. OK. And gentlemen, anything you want
to add on this issue of either environmental clean up or the
broader questions that I posed earlier?
Mr. Samra. First let me thank you for extending the offer
of helping us with the existing building in the Postal Service.
We, at the Postal Service, have a full time department that
deals with environmental issues in our buildings. Any issue
that we determine that we have to deal with it immediately,
deal with it immediately. Everything is done and finished with
it. However, for the facilities or properties that become
surplus, as you know, some of the asbestos and paint, you can
keep them. They're encapsulated. If the new user of the
building can use the building without disturbing that. So we
disclose the information to them, and if, depending on what the
user wants to do with it.
Senator Obama. OK.
Dr. Moy. Senator, there's a couple of ways I want to answer
your question. One is in terms of the environmental clean up,
restoration. Of course, with a process as involved as the Base
Realignment and Closure Act, every time we close a base or
realigning to a new location of major troops, we go through the
National Environmental Policy Act, and the process to determine
what the impact is. So we work in conjunction with the local
regulatory, the local governments to make sure that whatever
new use is taking over that, that what we turn over is
compatible with what's coming up.
I had mentioned we'd gone through some extensive
demolition, forecasting what our demolition requirements are of
vacant underutilized spaces. Those are usually within our
internal, within the fence line, and we make sure that we take
the proper precautions. If we have lead paint or asbestos, that
we are following all the necessary requirements, but we do go
ahead and execute the demolition as program.
In regards to best practices, I think one of the things I
would come back to is we look at the infrastructure management
as a big business in the Department of Defense. You can just
look at our inventory. And so one of the things that we did
early on was look at large companies, private companies, and
see what practices they follow in terms of investments, in
terms of financing, in terms of their disposal, their public
works practices. So what we try to find is what their best
practices we can adopt in the Department of Defense.
One of the things that we have found to be a problem in the
past was we were never able to find out or come to a
conclusion, and in competing with the weapons systems and the
manpower, what was the cost of operating our infrastructure.
Well, based on using industry standards and what our models are
in terms of sustainment, operation and maintenance,
recapitalization for restoration and modernization, we've been
able to come up with pretty clearly what the forecasting
requirements are to support our infrastructure in the
Department of Defense. It's still a leadership decision to
decide what investments to make, but at least the leadership
knows what the requirements are needed to invest to make sure
that we have the assets that are supporting the operational
forces in our mission.
Senator Obama. Well let me, since I'm a guest of this
Subcommittee, let me not overstay my welcome. Mr. Chairman?
Senator Coburn. We'll come back for another round.
Senator Obama. If we have another round, I'll be able to
ask Mr. Goldstein.
Senator Coburn. Yes, we will. Let me ask Mr. Goldstein.
Right now, if the American public wanted to go on line, could
they find anywhere on line, other than security related or
national security related issues, could they find any one place
where they can find every piece of property the Federal
Government owns?
Mr. Goldstein. Not that I'm aware of sir.
Senator Coburn. And could anybody in the Federal Government
find that?
Mr. Goldstein. Not that I'm aware of.
Senator Coburn. And why is that?
Mr. Goldstein. Well, I think there's a couple of reasons.
When GAO issued its first report and put this issue on the
high-risk list several years ago, we said that there had been
no progress. There was no central focus looking at property
management and the portfolio. That has changed obviously, and
you've alluded to some of that. There is work ongoing on trying
to improve the worldwide inventory and to understand what it is
that the government owns, and what condition it's in, how
secure it is, and how old it is and all those kinds of things.
But it takes a while. And as the Defense Department has
indicated when it tried to do the last round of BRAC, it wasn't
able to do as much as it could, or could not do it as quickly
as it wanted to because it lacked some of that central data.
Senator Coburn. So it's going to be 2\1/2\ years for the
Defense Department to even know what they have, essentially.
Correct?
Dr. Moy. Sir, we're hoping to have by September 2006, the
inventory of what underutilized and vacant space we have on
hand. And keep that in a little bit more ongoing basis.
Senator Coburn. Right. But the executive order that was
issued in February 2004 requested that all the agencies by the
end of this last year, fiscal year, report into the Real
Property Committee so that we could get a handle on it. So it's
important for people to know, we don't have transparency within
the Federal Government, so that you all could transfer
information, if you might be able to trade sites. And we
certainly don't have the accountability if we don't have the
information. And those are the things that we're trying to get.
Part of that is because we've set it up.
GSA put this booklet out, and it's very revealing because
it talks about CERCLA and NEPA, and all the different
contaminants and everything that has to go through, all the
different things that have to be looked at just in terms of our
environmental assessment before you can even consider looking
at an excess property.
So I think what one of the things that we want to try to
focus on is when do you think, in terms of your agencies, are
we going to be able to have a consistent, yearly update of what
the real properties are, what the conditions of the real
properties are, what the excess properties are, the
underutilized properties are, and those properties that are at
risk from an environmental standpoint or otherwise. Anybody
want to answer that? Go ahead, Mr. Samra.
Mr. Samra. OK. Thank you. As I mentioned before, the
process that we have at the Postal Service is really very
effective. Having spent 30 years out in the private industry, I
would say this is one of the best programs I've seen. We have a
database for every facility that we own. We have a database
that tells us every facility that we lease, when the lease
expires and when we need to renew it. We also have a database
that keeps track of every surplus property that we own.
Senator Coburn. So the Postal Service knows what it has.
Mr. Samra. Absolutely.
Senator Coburn. It's available.
Mr. Samra. Absolutely.
Senator Coburn. And it can be utilized.
Mr. Samra. Yes.
Senator Coburn. All right. Mr. Sullivan.
Mr. Sullivan. Yes, Mr. Chairman. The Department of Veterans
Affairs has a complete database. We can tell you how many
leases down to the square foot we have anywhere in the country.
As of last week, we had over 1,100 leases. We had 146 million
square feet that we own. We can tell you based upon the latest
guidance from the Federal Real Property Council, not only how
many buildings, acres, how many flagpole structures, and even
in our case, historic properties that have been designated.
What we're trying to move, which is the next step is, now
that we know what we own, how much it's costing us, we have our
strategic plan, if you will, for CARES, which is where we want
to be in 2012 and 2022, is saying here's our current assets.
Here's our plan. What do we do to shift from one to the next.
And that's what we're working on very diligently now.
Senator Coburn. Is anybody surprised that in 2006, that we
have two of the 20 agencies that have land, real property who
really know, GSA knows, and I'll given them credit. They know a
lot about what they have, but it's through multiple agencies.
Is anybody surprised that it's 2006 before we're finding this,
a management practice that should have been instituted long
ago? Is anybody surprised at that? And if you're not surprised,
why aren't you surprised?
Mr. Goldstein. Mr. Chairman, I think it's something that
does take a long time to understand. As we've all said this
morning, the government owns a staggering amount of property in
every major city and many rural parts of the country. And for
many years, the government did not pay terribly close attention
to this problem. There were other pressing problems, I suppose.
I would give the government some credit today. It is moving in
the right direction.
Senator Coburn. Right.
Mr. Goldstein. But probably not fast enough. And as I've
indicated, there is more that needs to be done. GAO this year
will reevaluate whether or not Federal property would still
remain on this high-risk list and we will go out and examine
the implementation of the executive order, and we'll work with
the Federal Real Property Council and really try to determine
whether the kinds of things agencies are doing are sufficiently
successful and what more needs to be done. So we will, in
January, be able to update our work in this area.
Senator Coburn. I think that's a very important point,
because we've seen a tremendous movement in several agencies
and we've seen a tremendous collection of data. The important
thing is to be able to utilize that data to save the American
taxpayer money, and to more efficiently spend the money that
we're going to spend on that. The FRPC, the Federal Real
Property Council, does that meet monthly or quarterly?
Mr. Matthews. There's not an exact requirement. Generally
the full committee meets quarterly, and there are a number of
subcommittees that deal with various aspects of asset
management that meet monthly or every other month.
Senator Coburn. OK. As many of you know, last October the
House Government Reform Committee passed out and improved a
bill called the Federal Real Property Disposal Pilot Program
and Management Improvement Act. And the whole purpose behind
that is to expedite the disposal of Federal excess, surplus,
and underperforming real properties, for 5 years to look at
that. The bill would also codify the Federal Real Property
Council. Is that a good start? Any comments on that, positive,
negatively?
Mr. Goldstein. Mr. Chairman, we testified at that, at the
hearings for that particular legislation. My boss, Controller
General, was GAO's witness. And at that time, we felt that it
would be useful. We supported it. We supported the fact that
any experimentations and pilot projects would probably be very
helpful. It was only dealing with a small portion of the
government's portfolio, but given where we are with property
issues, we felt that it would be helpful. Our sort of one
caveat at the time, was that it obviously would need some
pretty strong Congressional oversight, and then we recommended
that hearings on it be held regularly, because these were sort
of experimental approaches and how proceeds would be
distributed. But we were generally supportive.
Senator Coburn. All right. Senator Carper.
Senator Carper. Thanks, Mr. Chairman. I want to go back and
amend my earlier question just a little bit. And the Chairman
was just asking a question about why is it taking us so long to
put together in a manageable form the data involving property
that we own or lease. And why don't we do a better job of
utilizing that data.
I think part of it, and a couple of our witnesses have
alluded to this, deals with the incentives that we provide for
agencies to dispose of property. And whether or not they
actually dispose of the property, do they actually realize any
benefit from that disposition. I think I heard Mr. Sullivan
mention earlier that the VA has the ability of when you dispose
of a property or assets, that you don't need any more, that you
actually get some benefit from the disposition of those assets.
I see that as maybe a best practice. And I'd like for you to
just take a minute and talk with us about that.
Mr. Sullivan. Sure. We have an authority which is called
the Public Private Venture Authority. And we think we've had a
lot of success in using that to take pieces of unused property
or buildings, working with private or for not-for-profit
developers and coming back with a use for that building which
would provide a service to veterans and provide additional cash
flow back to the VA and put those properties back on the tax
rolls. I think in all of this, we need to find a win-win that's
going to work for the localities and work for the Federal
agencies to provide the incentives and also some incentive for
the locality. And in many cases we have found that to be
particularly helpful.
In Lakeside here in Chicago, we just finished doing a deal
where we had three hospitals in Chicago. We went through all
the processes that says, we don't need three. Everybody knows
that, so when we got it down, we decided to surplus one of the
hospitals. There we entered in an Enhanced-Use Lease with
Northwestern Memorial, which is a local hospital here, to lease
it to them for $22 million. Subsequent to that lease, we then
moved to dispose of it for another $28 million, and we just
signed that this January. So in that case, it works very well
for the people here. It works very well for VA. We're getting
$50 million back in services and in cash to VA.
Another example we're particularly proud of is in
Leavenworth, Kansas. We had about 50 or 60 acres out there that
we had all buildings on it. We were still paying to maintain
them. We needed to get rid of them. We had to deal with the
needs of the historic folks, because all of these properties
had historic designations. It was listed as the No. 1 property
in danger on the National Historic Register. So we worked with
our Public Private Venture and got a non-profit developer to
come in, deal with the historic issues, renovate some of those
facilities which under the lease he is going to. We're going to
provide homeless services, transitional housing. We're also
going to free up about 50 acres of land, because we have a
cemetery next door that is out of land. So it will be a way to
give VA the land, give the developer and some of the folks
locally what they need, and have a significant reduction in the
amount of money VA has to spend.
So I think it has to be not one size fits all here. The
more tools that we can have to find ways, and I would encourage
anything innovative, to bring back, value back to the
government from underutilized properties is what we need to aim
for.
Senator Coburn. Yes. Are there other agencies that are
seeking that same authority that you have at the VA?
Senator Carper. Or, our GSA friends, or GAO may be aware of
this.
Mr. Matthews. GSA has several times sought similar
variations on the authorities available. That gets back to what
I mentioned earlier. There's a whole web of archaic laws and
regulations involving the use of real estate, reinvestment in
real estate, and it would be nice to have a standard that we
could all use. I'd love to have the tools in his toolbox.
Senator Carper. I think there's something to this.
Senator Coburn. The interesting thing is, is why isn't
there the same standard across all the government agencies?
Mr. Matthews. The government's been in the real estate
business since the founding of the republic. And for most of
that first 200 years the emphasis had been on acquiring for
specific purpose, postal, defense, and other public purposes
that have come into being at different points of time with
different rules and regulations.
Only in the last 15 or 20 years has there been a growing
sense that there's so much real estate that we need a more
focused, disciplined attention to asset management. And most
agencies are responding pretty positively to do that for their
own reasons, and with encouragement from stakeholders like
yourself. But we've not had, that I'm aware of, a single
legislative mandate for portfolio and asset management, some
broad governing principles that apply to all of us. It's always
been built around programmatic needs of the particular agencies
that are holding the real estate.
Senator Carper. I think part of it is VA, we know that
traditionally or historically we've underfunded a lot of cases.
VA needed healthcare for veterans. And this is, by virtue of
giving VA the ability to retain the money from the disposal of
the assets it helps them to limit their shortfall.
Mr. Sullivan. One of the best features of it, at least in
our views, is not only money, but you can get in-kind
consideration in terms of services or facilities or space back.
Because in many cases it may be much easier for the private
sector to be able to give us space, or to give us services back
rather than cash. And that flexibility opens many doors on your
ability to get rid of properties if you don't have to have the
cash in hand up front. And in many cases, we provide homeless
services which are a big issue for us, and it allows us to be
able to get those services and facilities there which otherwise
we would have to use appropriated dollars for. And so it's a
win-win for everyone.
Senator Carper. Wouldn't it be amazing, and I say this to
my colleagues, wouldn't it be amazing if the VA not only turned
out to be sort of model here for us in the way that we handle
the disposition or disposal of assets and land and buildings as
it was, but also a model with respect to the way that we handle
the procurement of medications for our veterans, and also a
model for the way we harness information technology to provide
electronic health records for folks. It's just very
interesting. My time's about expired. I'm going to ask Dr. Moy
if you would respond to my earlier question, just for the
record, please. If you would, that would be great.
And I have a somewhat different question for Mr. Samra. I'd
ask you to respond to my first question for the record,
especially looking for what are the things that we're doing we
need to do differently; Congress, the Administration,
regulation, executive action, legislation, that would enable us
to use a little more common sense and get to a better practical
solution.
Mr. Samra, this falls in the category that all politics is
local. And what I want to do is ask you a question, just as
there's interest here in Chicago about the vacant postal
production facility, I have a similar kind of question I'd like
to ask you about that relates to the Delaware Valley,
Philadelphia, and Delaware.
A couple of years ago, President Bush put together a
commission to study the Postal Service. And he found that the
Postal Service had, I believe, more processing capacity than
was believed to be needed. The commission also found that
processing productivity often varies from plant to plant
because the Postal Service is still using some older facilities
that often can't fully accommodate the newest state-of-the-art
processing equipment.
I know that the Postal Service is currently building a
brand new single story processing facility just outside of
Philadelphia, and my question is this. If you can answer it
fine, if you can't just answer it for the record, but if you
can answer it here that would be great. A question about this
processing facility that's being built just outside of
Philadelphia, which we consider a suburb of Wilmington,
Delaware. Is this facility the model for what the Postal
Service would like to do around the country? And second, what
does a facility like the new one in Philadelphia allow the
Postal Service to do with respect to cutting costs and finding
efficiencies?
Mr. Samra. Thank you, Senator. Let me start by answering
the first question. The nature of the Postal Service, which is
run like a private business not like a government agency, our
model that I said before has been very effective. The main
reason for that, because it's a proactive model, it allows us
to know about the property that's coming, to become a surplus
way before it becomes a surplus. So we have the chance to go
out to market it, have our plan together, and the example I
gave you about Memphis where the deal is done and finished 8
months before we even vacate the property, so it will transfer
immediately to the owner without the Postal Service paying a
penny for getting it as a vacant property.
And the other success story that we can tell is out of
34,500 facilities that we own and lease, only 44 properties are
surplus and half of them are already committed.
Senator Carper. That's a pretty good record.
Mr. Samra. Thank you, Senator. As for Philadelphia, I said
before I've been here for 2 months only at the Postal Service.
I'm not familiar with every facility that they have.
Senator Carper. How come?
Mr. Samra. I'm working on it, Senator. But the Postal
Service is moving very efficiently in using technology. And the
real reason of changing facilities in the Postal Service, and
the Postal Service in Chicago is because of the new technology
that we are putting in place. And the new technology is raising
the value of our service very high to levels that we have not
seen before. And they are decreasing our cost. And a good
example of that is 100,000 less people work at the Postal
Service today than it used to be before.
Senator Carper. If you will, Mr. Samra, I appreciate the
fact that you're still pretty new on the job, but I really
would like you to answer on the record the questions. Is the
new facility being built in Philadelphia, is this facility the
model for what the Postal Service wants to do around the
country? And what does a facility like the new one in
Philadelphia allow the Postal Service to do with respect to
cutting costs and dealing with inefficiencies? So, if you could
answer that one for me on the record later on in writing, that
would be much appreciated.
Mr. Samra. I'll be happy to.
Senator Carper. All right. Thanks. Thanks, Mr. Chairman.
Senator Coburn. Senator Obama.
Senator Obama. Thank you, Mr. Chairman. I just want to
finish up on a couple of specifics, just so I get a sense of
how time frames are, what kind of time frames we're talking
about, generally, with some of these properties. Do we keep
track of what the average length of time it takes to dispose of
properties once it's designated for disposal? Is that, Mr.
Samra, you're shaking your head. You want to talk about that
for a second?
Mr. Samra. Yes. We keep track, as I said, from when it
becomes available and when we dispose of it. Our average for
our surplus property from 1997 to now is about 1 year.
Senator Obama. About 1 year.
Mr. Samra. About 1 year on the market.
Senator Obama. OK. And do the other agencies keep track of
it in the same way, and is that about the same time frame for
most of those?
Mr. Matthews. Yes, sir. GSA does, and for the typical
property that's not on the extreme, a year is about right for
us too.
Mr. Sullivan. All of our disposal properties that we've
done recently that haven't been Public Private Ventures are
handled, in most cases, by GSA.
Senator Obama. OK.
Dr. Moy. From the perspective of the Department of Defense,
when we dispose of a property it's not disposing of individual
buildings. In some cases, it's disposing of a large
installation, a small installation, and sometimes it can take
up to 4, 5, or 6 years.
Senator Obama. Right.
Dr. Moy. This current round of BRAC 2005, we have
statutorily mandated 6 years to execute.
Senator Obama. OK. While I was out of the room, did you
have a chance to ask about this statistic which I think is
pretty interesting. Since I'm on the topic, Mr. Moy, on this
graphic, ``Amount DOD Spends per Active Duty Soldier
Annually,'' maintaining buildings it does not need, $2,000 to
$3,000 per active duty soldier. I don't know if you agree with
that statistic or not. If you do, it's pretty powerful and
would suggest that we can do better, since $2,000 to $3,000 per
active soldier conceivably could be used to do a better job
with body armour and so forth.
So first of all, do you agree with a calculation like that.
Second, do you think that this calculation excludes the latest
BRAC rounds, and do you feel like that number would go down
once some of the installations that were identified in BRAC
went forward?
Dr. Moy. Sir, this is the first time I've seen that graphic
and that figure.
Senator Obama. So it would be hard off the top of your head
to know whether it was accurate or not?
Dr. Moy. Yes sir. During this past year we kept a firewall
between my operation, which was supporting the operational
bases, and we considered everything to be operational until the
time the base realignment and closure commission had made their
announcement. It very well may have been a figure that came
from the BRAC side of the House.
Senator Obama. OK.
Senator Coburn. This came from DOD. Last year they
estimated between $3 and $4 billion per year in maintenance of
buildings they don't need.
Dr. Moy. I would say that's probably taken care of. Once we
close those bases down or excess them, or rely on our forces it
will dramatically make a change to that.
Senator Obama. Right. Well, obviously that's a powerful
statistic and I think it's something that would bear looking
at. In between BRAC rounds, I assume that there is still some
process whereby installations or properties may or may not be
disposed of, or does all of it get funneled through BRAC?
Dr. Moy. Sir, the BRAC legislation has a specific threshold
for when it triggers a BRAC action, usually 300 civilians or
more that are being moved or closed.
Senator Obama. OK. So short of that----
Dr. Moy. Short of that, we do have capabilities. As I
mentioned earlier in my testimony, when we have a piece of
property or land or building that we consider as excess or is
vacant, and we have found that there is no military need in the
Department for that, we turn it over, we declare and turn it
over to the General Service Administration for disposal.
Senator Obama. OK. Just two more questions, and I think
that they've already been touched on by Senator Coburn, but I
guess I want to reiterate these. One, can we say with
confidence that each of your agencies, if it doesn't already
possess it, is on track to making information about these
disposable properties available in an easy to use fashion to
the public, through the internet and web sites? And I don't
know if this does or does not apply with respect to DOD, but I
see no reason why it wouldn't.
Dr. Moy. Sir, I would characterize that in two parts. One
is we are, I guess every part of our fiber is focused on
executing the BRAC recommendations. And so as we go through the
process and find out what the best way of that with the local
redevelopment authorities, with the local governments, we will
proceed with that. I think there is an e-government initiative
for the Federal Government in which we're working with GSA, in
terms of where we have excess property or Federal asset sales,
we are working with GSA to put those properties up on the
internet.
Senator Obama. Is GSA coordinating the efforts by these
other agencies? I think Senator Coburn's question was right on
target, which was why there might not be a single site. If I'm
somebody who's interested in real estate, who's a developer and
might be interested in underutilized properties, that I don't
have to wade through reams of paper, but can just go on and
see, OK, here's a list of 3,000 sites that are readily
available. Here are the environmental issues that may be
involved in them, here are historical landmark issues that
might need to be resolved, here is the contact number that can
allow me to get more information.
Mr. Sullivan. So you're talking about properties that are
in the disposal process, that are ones that we want to make
available to developers?
Senator Obama. Right.
Mr. Sullivan. There was a Federal asset sales and e-
government initiative as Dr. Moy referred, that allows you to
come into the FirstGov website to a page that talks about real
estate opportunities, and then you can select commercial
properties and all the properties that GSA has listed can be
found there with a lot of detailed information about each
property. If you choose housing, you can go to the HUD website
and it will list the houses.
Senator Obama. So this does exist, or doesn't? I was
confused.
Mr. Sullivan. This does exist.
Senator Obama. I thought when Senator Coburn asked the
question there was some hesitation.
Mr. Sullivan. These are for properties that have already
been, we've decided to dispose. They've been turned over by the
holding agency for disposal either by GSA, or if they're farms,
agriculture, or housing, HUD.
Senator Obama. OK.
Mr. Sullivan. I would not suggest that is 100 percent.
Senator Coburn. But it's not the U.S. Post Office
Department, and it's not the VA in the same group, unless it's
one they haven't done.
Senator Obama. OK. So it's not consolidated?
Senator Coburn. Yes.
Mr. Sullivan. No. It's a new initiative and it's gradually
increasing to other agencies as they see fit to list----
Senator Obama. It seems like a very simple step to take,
would just be to consolidate them. This doesn't sound like it
would either be particularly--if each of you are already
maintaining these databases separately, just making certain,
particularly given what you're telling me which is, is these
outcry auctions or internet auctions are already working very
well. It seems that there's interest there. That's a tool that
people are going to be using, and to the extent that we can
make it one-stop shopping, I think that would be best.
Senator Coburn. Let me ask a question. Every piece of
property that either the VA or the U.S. Postal Service, the
Defense Department, doesn't trade or barter or negotiate or
something, it goes out for excess. From every other agency,
does it come through GSA?
Mr. Sullivan. No, sir.
Senator Coburn. Every piece of property?
Mr. Sullivan. It does not.
Senator Coburn. No. And there's the problem. We have no one
way that anybody is following all the excess property in this
country. And I believe the executive order that President Bush
issued in February 2004 mandated GSA, in combination with OMB,
to recommend legislative changes that we can make to make this
come into fruition. Is that not correct, Mr. Matthews?
Mr. Matthews. I'm not familiar with the legislative
mandate. We have worked very hard with the worldwide inventory.
Senator Coburn. I promise you that it's in there.
Mr. Matthews. OK.
Senator Coburn. And we're going to be expecting the
recommended legislative changes from GSA in regard to that.
Let me follow up with a couple of other things. Dr. Moy,
you all got rid of 86 million square feet of excess space.
Correct?
Dr. Moy. Yes, sir.
Senator Coburn. How much did you add?
Dr. Moy. Over that time frame, I couldn't give you a
number.
Senator Coburn. Well, I think that's an important question.
Eighty-six million is a lot of square footage, but if you added
100 million, I'm not real impressed with it in terms of whether
or not we're downsizing and becoming more efficient. So it's
important that we see both sides of that.
Mr. Goldstein, are you familiar at all with the number of
square footage that was added by the Defense Department in that
same period of time?
Mr. Goldstein. I'm not, Mr. Chairman. We could certainly
try to add something to the record for you.
Senator Coburn. That would be an interesting thing, because
the other thing, I want to go back for a minute. The American
public deserves better value when it comes to leasing. And part
of the recommendations that come from you at GSA has got to be
budget process change where we have, we can make better
decisions through lease purchase than pure lease. We lose the
appreciation value of the properties and they cost us more when
we purely, on a service lease arrangement. Does anybody know of
any lease purchase agreements in any of your agencies in the
last 2 years?
Mr. Matthews. We have none.
Senator Coburn. None. Isn't that interesting? We've bought
all, we've signed all these new leases, we have hundreds of
thousands of leases, 10,000 to 20,000 new leases a year, and
not one of them is a lease purchase agreement where the
taxpayers of this country get more value? Mr. Samra.
Mr. Samra. Yes. The Postal Service, Senator, every facility
that we acquire we run a lease versus purchase financial study,
and most of the time, anything over 10,000 square feet, we do
own it. We own 80 percent of all square footage. And in the
cases when we lease, most of the time we negotiate the lease
purchase agreements.
Senator Coburn. OK. So the Post Office is one exception
within the Federal Government that is still doing lease
purchase. And part of that has to be is because they have some
business requirements on them now in terms of competitiveness
that they didn't have before. But I think that's an important
thing. We need the recommendations back from you all saying,
you've got to change the budget process because if somebody
makes a good decision for our grandchildren, they can't be
penalized in the year they make that decision by charging the
entire lease against their budget that year. And so that needs
to come back from you. It needs to come from the Defense
Department, GSA and GAO.
A couple other things and then we'll finish up. We will be
submitting to each of you written questions that we'd like for
you to try to get back with us in 2 weeks, if you could, 2 to 3
weeks, so that we can follow this up.
Dr. Moy, I wanted to ask again, what do you think the cost
is per maintenance of these properties that need to be disposed
of are now, per year? Do you have any idea? Was it your
testimony that you didn't know what that cost is now by the
Defense Department?
Dr. Moy. No, sir. I do not.
Senator Coburn. OK. Thank you. And we'll be asking you to
try to look at that. And this is for Mr. Matthews again. Your
testimony, one-third of the GSA assets that have been accepted
for disposal, what's the actual length of time, if you averaged
out, once you put something on the disposal list, what's the
average length of time it takes, from the time it hits the list
to the time it's off and disposed of?
Mr. Matthews. About two-thirds of a year on average. The
really big ones----
Senator Coburn. Take longer.
Mr. Matthews [continuing]. Like the El Toro, where you have
to really work for a while with the community to make sure
everything's in place can take multiple years. And I don't
think that's inappropriate to do it right.
Senator Coburn. Let me just go through this real quick for
a moment, and then we'll close out. This is for Mr. Goldstein.
Has the GAO looked at the net difference in cost to the
American taxpayer from lease versus lease purchase over the
last several years? Have we looked at what that's actually
going to cost us more, cost our kids more in terms of increased
dollar outflow for what's happening in terms of lease versus
lease purchase?
Mr. Goldstein. We don't have a single number, Mr. Chairman.
Over the years, over the last decade we've issued a number of
reports, many of which we talked about last fall, that went
into what it would have cost, taking a look at a selection of
leases versus owned. And those numbers were presented in those
reports. We are about to start work that you've requested from
us, taking a look more holistically over time at the various
costs.
Senator Coburn. Right.
Mr. Goldstein. And we'll be beginning that work shortly.
Senator Coburn. All right. Well, again, Senator Obama, do
you have any other questions?
Senator Obama. No. I very much appreciate all of you taking
the time to be here.
Senator Coburn. Let me once again thank the U.S. Postal
Service. Your staff has been tremendously helpful with this,
and each of you for your cooperation in this. This is a real
issue for us as a Nation. We need to be great stewards of the
physical assets. We need to get rid of the physical assets that
we're not utilizing. We need to get the best value that we can
for them. We need not to buy another square footage of office
space, or space, until we're utilizing what we have today.
There ought to be a moratorium on new expansion of any new
space until we've got this centralized, controlled and know
what our inventory is. Each of you, I know, is a dedicated
professional, and I want to thank you for spending the time to
prepare for this hearing, and also for coming and testifying.
Look forward to working with you in the future. Thank you.
The hearing is adjourned.
(Whereupon, at 11:50 a.m., the Subcommittee was adjourned.)
A P P E N D I X
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