<DOC> [107th Congress House Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:81425.wais] ®MDNM¯F5011 I27G6T1¼K81ÿ09425 PDF I28 I292002 S6598 I85THE USE OF PUBLIC-PRIVATE PARTNERSHIPS AS A MANAGEMENT TOOL FOR FEDERAL REAL PROPERTY Q08 S5011 I26 Q40 I18HEARING Q10 I09before the Q02 I15SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT POLICY Q04 I09of the I20COMMITTEE ON I20GOVERNMENT REFORM Q05 I20HOUSE OF REPRESENTATIVES Q10 I10ONE HUNDRED SEVENTH CONGRESS Q08 I08FIRST SESSION Q08 I25 Q08 I08OCTOBER 1, 2001 Q12 I25 Q08 I14Serial No. 107ÿ0992 Q12 I25 Q08 I08Printed for the use of the Committee on Government Reform Q24 I50S Q34 I08Available via the World Wide Web: http://www.gpo.gov/congress/house I08http://www.house.gov/reform F59047 I74COMMITTEE ON GOVERNMENT REFORM I51DAN BURTON, Indiana, T3Chairman I54BENJAMIN A. GILMAN, New York PCONSTANCE A. MORELLA, Maryland PCHRISTOPHER SHAYS, Connecticut PILEANA ROS-LEHTINEN, Florida PJOHN M. T4McHUGH, T1New York PSTEPHEN HORN, California PJOHN L. MICA, Florida PTHOMAS M. DAVIS, Virginia PMARK E. SOUDER, Indiana PSTEVEN C. T4LaTOURETTE, T1Ohio PBOB BARR, Georgia PDAN MILLER, Florida PDOUG OSE, California PRON LEWIS, Kentucky PJO ANN DAVIS, Virginia PTODD RUSSELL PLATTS, Pennsylvania PDAVE WELDON, Florida PCHRIS CANNON, Utah PADAM H. PUTNAM, Florida PC.L. ``BUTCH'' OTTER, Idaho PEDWARD L. SCHROCK, Virginia PJOHN J. DUNCAN, T4Jr., T1Tennessee P___ ___ I55HENRY A. WAXMAN, California PTOM LANTOS, California PMAJOR R. OWENS, New York PEDOLPHUS TOWNS, New York PPAUL E. KANJORSKI, Pennsylvania PPATSY T. MINK, Hawaii PCAROLYN B. MALONEY, New York PELEANOR HOLMES NORTON, Washington, DC PELIJAH E. CUMMINGS, Maryland PDENNIS J. KUCINICH, Ohio PROD R. BLAGOJEVICH, Illinois PDANNY K. DAVIS, Illinois PJOHN F. TIERNEY, Massachusetts PJIM TURNER, Texas PTHOMAS H. ALLEN, Maine PJANICE D. SCHAKOWSKY, Illinois PWM. LACY CLAY, Missouri PDIANE E. WATSON, California P___ ___ P___ PBERNARD SANDERS, Vermont (Independent) Q04 Q04 I51T4Kevin Binger, T3Staff Director I51T4Daniel R. Moll, T3Deputy Staff Director I51T4James C. Wilson, T3Chief Counsel I51T4Robert A. Briggs, T3Chief Clerk I51T4Phil Schiliro, T3Minority Staff Director I74Subcommittee on Technology and Procurement Policy I51THOMAS M. DAVIS, T1Virginia, T3Chairman I54JO ANN DAVIS, Virginia PSTEPHEN HORN, California PDOUG OSE, California PEDWARD L. SCHROCK, Virginia I55JIM TURNER, Texas PPAUL E. KANJORSKI, Pennsylvania PPATSY T. MINK, Hawaii I74Ex Officio I54DAN BURTON, Indiana I55HENRY A. WAXMAN, California I51T4Melissa Wojciak, T3Staff Director I51T4Victoria Proctor, T3Professional Staff Member I51T4James DeChene, T3Clerk I51T4Mark Stephenson, T3Minority Professional Staff Member F59048 I75C O N T E N T S I83 I79Page I21Hearing held on October 1, 2001I601 I01Statement of: I23Sessions, Hon. Pete, a Representative in Congress from the State of TexasI6010 I23Ungar, Bernard L., Director, Physical Infrastructure Issues, U.S. Government Accounting Office, accompanied by Ron King, Maria Edelstein, and Lisa Wright Solomon, project team members, and Steve Warner, Signet Partners; Stephen A. Perry, Administrator, U.S. General Services Administration, accompanied by Joe Moravec, Commissioner of the Public Building Service, and David Bibb, Deputy Associate Administrator for Real Property, Office of Governmentwide Policy; Raymond F. DuBois, Jr., Deputy Under Secretary of Defense, Installations and Environment, U.S. Department of Defense; Anatolij Kushnir, Director, Office of Asset Enterprise Management, U.S. Department of Veterans Affairs, accompanied by Michael Simmons, Senior Counsel, Office of the General Counsel; Kim H. Burke, principal, Ernst & Young; and Sherwood Johnston III, designated broker-Arizona, CarrAmerica Realty Corp., Building Managers AssociationI6015 I01Letters, statements, etc., submitted for the record by: I23Burke, Kim H., principal, Ernst & Young, prepared statement of I6061 I23Davis, Hon. Thomas M., a Representative in Congress from the State of Virginia, prepared statement of I603 I23DuBois, Raymond F. Jr., Deputy Under Secretary of Defense, Installations and Environment, U.S. Department of Defense, prepared statement of I6042 I23Johnston, Sherwood, III, designated broker-Arizona, CarrAmerica Realty Corp., Building Managers Association, prepared statement of I6072 I23Kushnir, Anatolij, Director, Office of Asset Enterprise Management, U.S. Department of Veterans Affairs, prepared statement of I6053 I23Perry, Stephen A., Administrator, U.S. General Services Administration, prepared statement of I6034 I23Sessions, Hon. Pete, a Representative in Congress from the State of Texas, prepared statement of I6012 I23Turner, Hon. Jim, a Representative in Congress from the State of Texas, prepared statement of I607 I23Ungar, Bernard L., Director, Physical Infrastructure Issues, U.S. Government Accounting Office, prepared statement of I6018 F6633 I01THE USE OF PUBLIC-PRIVATE PARTNERSHIPS AS A MANAGEMENT TOOL FOR FEDERAL REAL PROPERTY I02 I03MONDAY, OCTOBER 1, 2001 I04House of Representatives, I05Subcommittee on Technology and Procurement Policy, I06Committee on Government Reform, I07Washington, DC. I21The subcommittee met, pursuant to notice, at 3:45 p.m., in room 2154, Rayburn House Office Building, Hon. Thomas M. Davis (chairman of the subcommittee) presiding. I21Present: Representatives Davis, Horn, and Turner. I21Staff present: Melissa Wojciak, staff director; Victoria Proctor, professional staff member; Amy Heerink, chief counsel; George Rogers, counsel; David Marin, communications director; James DeChene, clerk; Mark Stephenson, minority professional staff member; and Jean Gosa, minority assistant clerk. I21Mr. T4Tom Davis of Virginia. T1Good morning, or good afternoon I should say. Welcome to the subcommittee's oversight hearing on the benefits of public-private partnerships for Federal real property management. I21I think, as most of you know, the Federal Government is among the world's largest property owners and spends billions of dollars annually to maintain properties. The GSA is one of the primary agencies that controls these assets. Its portfolio is characterized by aging buildings that lack the capability to accommodate new technology and sometime pose health and safety concerns. Agencies often vacate Federal properties and lease costly office space to compensate for the lack of adequate federally owned space. I21While hundreds of millions of dollars are spent each year to maintain its buildings, GSA indicates that it still lacks sufficient funds to reduce its deferred maintenance backlog. Furthermore GSA has many buildings with negative net cash-flows. I21Currently, GSA has several property management tools that it can employ, including outleasing authorities, disposal of buildings representing a net loss to the Federal Buildings Fund, special pricing and a refocused repair and authorization program. But these management tools can't eliminate the underlying cause of the repair and authorization backlog, which is a lack of funding from Congress. I21GSA seeks creative alternatives to improve its Federal property managers' ability to effectively manage its multibillion dollar inventory and address the growing challenges created by deteriorating properties. This will be a daunting task without reforms that will allow the agency to operate in a more modern and businesslike fashion. Therefore, GSA needs broader management authorities in order to efficiently and cost effectively manage its property portfolio. GSA must have the ability to upgrade its properties to their highest and best uses but lacks the capital to do so. I21For some properties, the public-private partnerships would be a solution, allowing GSA to leverage its property assets. That's why I cosponsored H.R. 2710 with my good friend, Representative Pete Sessions, a former member of this subcommittee. This bill would allow GSA to enter into public-private partnerships and extend the authority to other agencies in order to facilitate government reform. I21Since we have started late, I'm going to ask unanimous consent to put the rest of my remarks in the record and yield to Congressman Turner for his opening statement. I21[The prepared statement of Hon. Thomas M. Davis follows:] A gs,d533 I9581425.001 A gs,d533 I9581425.002 A gs,d533 I9581425.003 A I21Mr. T4Turner. T1Thank you Mr. Chairman. I appreciate the fact you've held this hearing. Obviously, over the last few years, we have had an accumulation of deferred maintenance and underutilized Federal properties and we need to look at new and innovative ways to deal with the limited funding that we've had available for repairs and renovations and alterations of Federal property. I21I want to commend my colleague from Texas, Mr. Sessions, for his particular interest and leadership in delving into this area and to offer a piece of legislation that he believes would allow us to move forward by incorporating public-private partnerships through the General Services Administration. I know there was another bill, last Congress, also introduced on the subject that perhaps dealt with it in a little broader way. I21Having served with Chairman Steve Horn on the committee that had jurisdiction of this last year, we did have one good hearing, as I recall, on the subject, and Mr. Sessions testified at that hearing. And so I really appreciate the good work that my colleague from Texas has done. I21I do recall, Mr. Chairman, last Congress when we had a hearing on the issue, there were two groups that wanted to be heard. One of them was the National Association of State Agencies for Surplus Property, and the other was the National Law Center on Homelessness and Poverty. And I think, for completeness of the record, it might be good for us to incorporate in our record the record of testimony from that earlier hearing in the last Congress, from those two groups who are not able to be here today. I21Mr. T4Tom Davis of Virginia. T1Without objection, we'll do that. I21Mr. T4Turner. T1Thank you, Mr. Chairman. I look forward to hearing from all our witnesses. I21Mr. T4Tom Davis of Virginia. T1Thank you. I21[The prepared statement of Hon. Jim Turner follows:] A gs,d533 I9581425.004 A gs,d533 I9581425.005 A gs,d533 I9581425.006 A I21Mr. T4Tom Davis of Virginia. T1Let me recognize now, if I may, the gentleman from Texas, Mr. Sessions, who introduced this legislation in previous Congresses. I think he is going to be a successful author this time, and I just want to remind everyone he has a sore throat, so bear with him. Thank you. I21Mr. Sessions, good to have you with us. I09STATEMENT OF HON. PETE SESSIONS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS I21Mr. T4Sessions. T1Mr. Chairman, thank you so much, and my friend and colleague, the gentleman from Texas, Mr. Turner. I appreciate you both taking time to be here today. I21Thank you for noticing my sore throat. I hope my voice lasts. I think that you consider that an opportunity for me to be very brief. I21With that said, Mr. Chairman, I'm going to try and read my statement and then see if you've got any questions. I21I want to thank both of you for inviting me to testify today concerning my legislation, H.R. 2710, the Federal Asset Management Improvement Act, and other legislation related to the reforming of activities of the General Services Administration. I21GSA is a very large enterprise. GSA, like any other government organization, continues to change with time. Today is a great day to address some of those changes that I believe are necessary and prudent. Due to the GSA being largely funded through agency fees, rather than direct appropriations, congressional oversight tends to focus on the crisis of the moment. I believe that it's time for this committee to take a fundamental look at the GSA and the responsibilities exercised by their wonderful Administrator, Steve Perry. GSA has evolved greatly since 1949 but many of GSA's management tools are based on archaic laws and rules. They need to be updated to reflect modern practices. I21Before I get too deeply into my statement, I also want everyone to remember the last weeks, 2 weeks ago, terrorist attack on the large urban center that took place in New York City. This same type of attack took place also in 1995 when the Alfred P. Murrah Building was destroyed in Oklahoma City. And that was a GSA building filled with Federal tenants. The terrible disaster in Oklahoma has been reemphasized by the disaster in New York and the Pentagon. The GSA is on the front line when it comes to protecting Federal buildings all over the United States, and I certainly want Administrator Perry to know that every Member of Congress stands ready to assist him as he makes needed adjustments to improve security in our Federal buildings. I21Modern property management requires a range of tools in the GSA tool kit. A significant gap in this tool kit is GSA's inability to enter into a public-private partnership with a private entity to further the public purposes for which the GSA was created. I21According to GSA's own estimates at the end of 1998, GSA deferred maintenance requirements by almost $5 billion. In other words, GSA needed $5 billion to maintain its inventory of aging buildings and to bring them up to current standards for energy efficiency, Internet connectivity and rentability. If GSA's properties continue to deteriorate, Federal customers will explore their options. A scenario will be created in which more Federal customers will be driven to pay rent to private landlords. If this happens, GSA will continue to be stuck with more and more deteriorating properties that lose money for the Federal Government, a scenario that wastes taxpayer money. I21My answer to this problem is a public-private partnership. In such a public-private partnership, the private sector will be responsible for making the needed improvements, including paying for them. This is an attractive offer to a private investor because if the Federal Government does not want to take occupancy due to changing needs, it does not have to utilize this option. The private sector will then be free to rent the space to another tenant. The private sector is subject to the market and financial risk while the government acquires simply the space it needs. I21The public-private partnership addresses: Aging and deteriorating buildings; underperforming properties; and, creates demand for economic performance and accountability. I21The government gains, as it will share in net cash-flow and retains proceeds for use as directed. I21The private sector receives a corresponding financial reward in terms of a preferred return. I21The government provides no financial or space use guarantees. By contributing investment capital, the private sector assumes the risks. I21H.R. 2710 will authorize the administrator to enter into such arrangements. The authority also may be delegated to other Federal agencies. In looking at the feasibility of such public-private partnerships, the General Accounting Office concluded that the concept shows great merit to help taxpayers and the agencies that will serve taxpayers to save money and to become more efficient. I21I know that GAO is on the next panel, and they will thoroughly describe their findings. They have come to the same conclusion as many who have studied this issue, and that is that public-private partnerships can be a valuable component of modernizing the GSA Federal office buildings. I21I know that GSA has a lengthy list of other reforms related to property management generally, and the Federal Property and Administrative Services Act of 1949 in particular. Most of these changes appear both beneficial and uncontroversial. They were proposed by the previous administration and are supported by the current one. I would urge this committee to carefully consider these changes in the law. I21Our goals must be simple and clear, to permit the GSA additional tools to improve its inventory of public buildings for the furtherance of its public purposes of providing space for Federal agencies. A workable version of public-private partnership is certainly within our grasp. I21I want to thank each of you who is here today and this subcommittee for the heavy lifting that they will do to get this on the floor. I21I appreciate your help, Mr. Chairman. I21Mr. T4Tom Davis of Virginia. T1Mr. Sessions, thank you very much. Thank you. I21[The prepared statement of Hon. Pete Sessions follows:] A gs,d533 I9581425.007 A gs,d533 I9581425.008 A gs,d533 I9581425.009 A I21Mr. T4Tom Davis of Virginia. T1Now I'm going to call our witnesses, Mr. Ungar, Mr. Perry, Mr. DuBois, Mr. Kushnir, Ms. Burke and Mr. Johnston. I21As you know, it is the policy of this committee that all witnesses be sworn before they testify. So if you'd rise with me and raise your right hands. I21[Witnesses sworn.] I21Mr. T4Tom Davis of Virginia. T1Please be seated. I21To afford sufficient time for questions if you'd limit your comments to 5 minutes. There are some lights in front of you. The green will go on, you'll get 5 minutes. After 4 minutes, it will turn orange. That gives you 1 minute to sum up. And try to stay within 5 minutes. I21Your total testimony is part of the record. We've read that and are basing questions on the totality of the testimony. But it helps us for you to sum up. I21We'll start with Mr. Ungar, we'll move with you; and then Mr. Perry, and then straight on down the line. Please go ahead. I09STATEMENTS OF BERNARD L. UNGAR, DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTING OFFICE, ACCOMPANIED BY RON KING, MARIA EDELSTEIN, AND LISA WRIGHT SOLOMON, PROJECT TEAM MEMBERS, AND STEVE WARNER, SIGNET PARTNERS; STEPHEN A. PERRY, ADMINISTRATOR, U.S. GENERAL SERVICES ADMINISTRATION, ACCOMPANIED BY JOE MORAVEC, COMMISSIONER OF THE PUBLIC BUILDING SERVICE, AND DAVID BIBB, DEPUTY ASSOCIATE ADMINISTRATOR FOR REAL PROPERTY, OFFICE OF GOVERNMENTWIDE POLICY; RAYMOND F. DuBOIS, JR., DEPUTY UNDER SECRETARY OF DEFENSE, INSTALLATIONS AND ENVIRONMENT, U.S. DEPARTMENT OF DEFENSE; ANATOLIJ KUSHNIR, DIRECTOR, OFFICE OF ASSET ENTERPRISE MANAGEMENT, U.S. DEPARTMENT OF VETERANS AFFAIRS, ACCOMPANIED BY MICHAEL SIMMONS, SENIOR COUNSEL, OFFICE OF THE GENERAL COUNSEL; KIM H. BURKE, PRINCIPAL, ERNST & YOUNG; AND SHERWOOD JOHNSTON III, DESIGNATED BROKER-ARIZONA, CarrAMERICA REALTY CORP., BUILDING MANAGERS ASSOCIATION I21Mr. T4Ungar. T1Thank you, Mr. Chairman, Mr. Turner, Mr. Sessions. We are certainly pleased to be here today to discuss the work that we have done at your request, as well as from other Members of Congress with respect to public-private partnerships. I21Before I begin my summary, I would like to mention that I am accompanied today by our project team, Ron King, Maria Edelstein and Lisa Wright Solomon. In addition, we did have contract support. Kim Burke from Ernst & Young is a member of the panel, and Steve Warner from Signet Partners is also here, and we appreciate their help in this particularly complex effort. I21For many years, as you all have indicated, the General Services Administration [GSA], has experienced significant problems with aged and deteriorating buildings; and I think that can be very easily demonstrated by two projects that we worked on_one in 1991 and one in 2000_almost 10 years apart. And you could take the 1991 report, just change the date on it, and the findings would be the same, which are that GSA does have numerous buildings which are in disrepair and has not had the funding necessary to adequately deal with these problems. I21These are problems that the Department of Defense and the Veterans Administration have also faced with their physical infrastructure; and I might note that they do already have authority for enhanced-use leasing. I21As a result of the problems that GSA faces and has faced with these buildings, Federal employees and visitors face situations of being in buildings that aren't in the best of condition with respect to, particularly, health and safety problems. Taxpayers end up paying higher costs for operating expenses such as fuel and energy costs. And GSA is losing money on a number of buildings because of either low occupancy or no occupancy, and is at risk of losing money on other buildings in which the tenants are not happy with the conditions that they are in. I21In our view, GSA needs to take more aggressive action to deal with this range of problems; and it does not have all the tools necessary to do that. Public-private partnerships provide one tool which could be very useful to GSA. I21As has already been indicated, in our review, with the help of our contractors, we did lay out a structure over here on the chart which is also an attachment to our testimony in which a partnership could take place. I21In summary, the Federal Government would contribute a property in the form of a lease to a private partner. The private partner would provide cash and/or financing ability to redevelop or renovate the property. That would form the partnership. I21Once the partnership began, there would be a cash-flow from the rental payments. There would be operating expenses. You'd be left with a net income after that. After that, we would take out funds for the master ground lease which would go to GSA. Debt service would be repaid. I21It would be a replacement reserve to avoid the problem of aged and deteriorating buildings, and the private sector partner would get a preferred return off the remainder for the risk that the private sector partner undertakes. And then the remainder would be shared, an agreed-upon percent between GSA and the private sector partner. I21In our review, with the help of our contractors, we looked at 10 properties and found that 8 of them had potential viability as a partnership. There are two reasons for this. Primarily, one, they were in very good locations, locations in which there was a strong Federal and non-Federal demand for the space. And having a non-Federal demand is critical since the government would not guarantee occupancy. In all these locations, fortunately, there was a strong demand in terms of the eight. I21Second, the condition of the properties was such that, on a very general and a very quick review, it appeared as though the cost would be_on the order of magnitude, there would be left a sufficient financial return to attract a private sector investor. Now, in our case, we did this quite quickly with the help of our contractors, and we weren't able to do an in-depth study. But we did find that_at least on the surface, the information would suggest that the projects would be viable; and we suggest that GSA do more study and more in-depth study, particularly on the financial viability of the projects that we did look at. I21In sum, we believe that GSA does need to have more tools in its tool kit. It does need to have legislative authority to enter into public-private partnerships. We suggest that this be done on a pilot basis, primarily because this is a very complex undertaking. There are a lot of risks. I21While other agencies have had the authority, GSA has not had it in a general sense, and we thought it would be helpful to get some lessons learned and to see what actually happens compared to what's expected to happen under these types of arrangements. I21And before entering into these partnerships, we think, again, that GSA would need to further explore the financial viability of them and then use other_look at all the tools that it has at its disposal to assure that appropriate action is taken to the properties that may not be appropriate for a public-private partnership. I21Mr. Chairman, that ends my summary. I'd be happy to answer questions at the appropriate time. I21Mr. T4Tom Davis of Virginia. T1Thank you much. I21[The prepared statement of Mr. Ungar follows:] A gs,d533 I9581425.010 A gs,d533 I9581425.011 A gs,d533 I9581425.012 A gs,d533 I9581425.013 A gs,d533 I9581425.014 A gs,d533 I9581425.015 A gs,d533 I9581425.016 A gs,d533 I9581425.017 A gs,d533 I9581425.018 A gs,d533 I9581425.019 A gs,d533 I9581425.020 A gs,d533 I9581425.021 A gs,d533 I9581425.022 A I21Mr. T4Tom Davis of Virginia. T1Mr. Perry. I21Mr. T4Perry. T1Chairman Davis, Congressman Turner, thank you very much for inviting me to this hearing today to discuss GSA's views on ways to promote efficient and effective stewardship and property management. I21If I may, I'll just divert for a moment to thank Congressman Sessions not only for his leadership in this area, but for his public acknowledgment of the good work that GSA people did in the aftermath of the attacks on America and the ongoing work of our security efforts. I21I'm pleased to be with you to discuss various reform processes to improve the more than 50-year-old statute under which Federal agencies manage and dispose of their real and personal property assets. GSA believes that agencies should be provided with the freedom to manage their assets, more effectively through the use of appropriate and up-to-date management practices and incentives. Accordingly, we believe that these changes_that certain changes to the property management statutes are necessary to reflect the current needs of the government, as well as current needs of the commercial marketplace; and this will help agencies achieve their missions and goals by reducing the amount of deteriorated vacant or underutilized space in the existing inventory of Federal buildings. I21I will submit a longer document for the record as well as this booklet entitled, ``Our Federal Buildings,'' which gives some pictorial indications of some of the more egregious situations that we have today. I21Before I begin the rest of my testimony, I'd like to introduce the GSA team that's with me today. It includes Joe Moravec, who is the Commissioner of the Public Building Service; and Mr. David Bibb, the Deputy Associate Administrator for Real Property in GSA's Office of Governmentwide Policy. I21Mr. Chairman, first of all, I would applaud the committee and its predecessor for their concern and efforts to improve Federal property management as a priority management reform issue. During the past 2 years, the subcommittee has provided GSA and other Federal agencies the unique opportunity to discuss the problems, policies and procedures surrounding the management and disposal of Federal assets. I21As we know, Representative Sessions took the lead on this issue in the House by introducing H.R. 3285, the Federal Asset Management Improvement Act of 1999. In the Senate, Senators Thompson and Lieberman introduced, by request, S. 2805, the Federal Property Asset Management Reform Act of 2000. The bill was developed by GSA in consultation with Federal landholding agencies for the purpose of improving the management of the Federal Government's billions of dollars' worth of real and personal property. I21At this hearing, GSA would like to discuss a number of the provisions included in these bills that we believe should be a part of any final legislative package concerned by Congress. Specifically, we believe that the bill should include the following four goals. I21Goal No. 1, establish effective property management processes and procedures. GSA would collaborate with other Federal landholding agencies, and OMB to develop what we call asset management principles. In addition, each landholding agency would prepare a strategic real property management plan. They would appoint a senior real property officer, and they would contribute to the development and upgrading of GSA's governmentwide real property information data base. And I would emphasize that all of the discussions we're having today apply not only to GSA's role, but to a governmentwide role in this area. I21Goal No. 2 would be to help agencies maintain the good physical condition of assets needed to accomplish their agency's mission requirements. GSA believes that the current property act should be amended to provide agencies with common-sense, businesslike practices and techniques to manage their property holdings strategically. The existing act is very limited in helping agencies manage their real and personal property assets. GSA would suggest that agencies have new authorities to address these limitations. I21Those authorities would include exchange/sale of real property, subleasing and outleasing, including outleasing to public-private partnerships; and fourth, expanding the exchange/sale of personal property. I21On the subject of public-private partnerships, as you know, the L. Mendel Rivers Federal Building in Charleston, SC, which this hearing was originally scheduled to take place at, was favorably reviewed as a pilot for public-private partnership in the General Accounting Office report of July 2001, entitled, ``Public-Private Partnerships: Pilot Program Needed to Demonstrate the Actual Benefits of Using Partnerships'' and Mr. Ungar just referred to that. I21There were several other buildings which were also favorably reviewed in that report. Public-private partnerships could have worked in Charleston, according to the report by GAO, and GSA certainly concurs in that. I21GSA strongly supports appropriate use of public-private partnership authority to enable agencies to use private sector resources and the expertise that they could bring to repair and renovate Federal facilities. Any legislative proposal to amend the property act should include criteria that would assure agencies would use public-private partnerships and other tools only in cases where it was economically advantageous to the government to do so. I21Public-private partnership authority also should require pre-transaction notices to Congress, we believe, in all cases over $2 million. I21Goal No. 3 would be to provide incentives to dispose of assets which are not needed for agency mission requirements. GSA recognizes that most agencies simply don't have the opportunity to make such disposals under today's rules. Agencies are not allowed to sell, exchange, sublease or utilize capital assets that may no longer support their agency missions. Consequently, they divert resources to hold these underused and unproductive property that have little or no functional value with respect to their mission. I21I'll go to goal No. 4, which is to streamline and enhance existing processes. GSA believes that changing certain sections of the property act could increase efficiency, deliver savings, reduce administrative burdens and streamline Federal asset management processes in a number of areas. I21In closing, Mr. Chairman, I would conclude that I would like to say that improving Federal asset management is critical to improving each agency's ability to meet its mission goals and improving governmentwide performance results. At GSA, we have adopted the issue of having this change in legislation completed as our No. 1 priority; it's that important to our operation. We believe that any legislation considered by this subcommittee and the Congress should incorporate life cycle property management practices which we've outlined to provide the asset management principles, incentives and flexibilities needed by agencies to effectively manage their portfolio of assets. I21Mr. Chairman, that concludes my statement, and I'm happy to answer questions at the appropriate time. I21Mr. T4Tom Davis of Virginia. T1Thank you very much. I21[T4Note._T1The report entitled, ``Our Federal Buildings, a Pictorial Report on the Condition of our Federal Buildings and an Update on Their Repair and Alterations Nees,'' may be found in subcommittee files.] I21[The prepared statement of Mr. Perry follows:] A gs,d533 I9581425.023 A gs,d533 I9581425.024 A gs,d533 I9581425.025 A gs,d533 I9581425.026 A gs,d533 I9581425.027 A gs,d533 I9581425.028 A I21Mr. T4Tom Davis of Virginia. T1Mr. DuBois. I21Mr. T4DuBois. T1Thank you, Mr. Chairman, Congressmen Turner, Sessions, Horn, again for giving me this opportunity to address unique DOD legislative authorities contained in Title 10 that permit the Department to pursue public-private ventures for military housing, base utilities and our newest authority for enhanced-use leasing. I21As you know, for years the Department has allowed our installations and facilities to deteriorate due to competing budget priorities and underfunded requirements. Much of our infrastructure is old in various stages of decline. The average age of facilities across the Department is over 41 years. I21Without adequate sustained recapitalization, the facility performance degenerates. It also impacts negatively our operational readiness, and mission support suffers. Service life is lost and total costs rise. But we understand that appropriating more money for these efforts will not, by itself, bring us up to the state of readiness we aspire to in a timely manner. I21Secretary of Defense Rumsfeld has made it quite clear that he intends to significantly change how we do business in the Department, and we believe that public-private partnerships and enhanced-use leasing can be effective tools in this effort. I21As you know, through the diligent efforts several years ago_1996, I believe_Congressman Joel Hefley of Colorado and Solomon Ortiz of Texas aided us and worked with Congress to provide the Department with significant new authorities to use private sector expertise and capital to eliminate a serious shortage in quality, affordable housing for our military families. Using the housing privatization authorities, we developed projects that provide higher-quality housing, faster and at less cost than traditional methods. I21Our policy requires, however, that privatization for the sake of privatization is not the appropriate answer. It must yield at least three times the amount of traditional MILCON, or military construction, for the same amount of appropriated dollars. I21The 11 most recent military family housing privatization projects, which are described in my written statement, leveraged appropriated military construction dollars at a rate of almost seven to one. We have 16 projects currently in solicitation, and an additional 43 projects have been identified to Congress as privatization candidates. I21We have in the Department over 1,600 utility systems. By ``utility,'' I mean water or water treatment, gas and electric which are available for privatization. The sooner we get out of the business of running utility systems and turn them over to public-private or private sector professionals, the sooner we can focus our attention and dedicate our assets and resources to our core missions. I21The 2001 National Defense Authorization Act also enacted amendments to the Department's leasing statute that gives us broad authority to outlease real property and facilities on military installations in exchange for cash payments and in-kind services. I21These public-private partnerships can come in different forms. There's no cookie cutter or one-type-fits-all. A base commander could share an office building on the base with a company willing to renovate and maintain that building in lieu of a lease, in lieu of lease payments, a scenario very similar to that being envisioned for a GSA building in Congressman Sessions' bill. I21Or an installation may outlease land to a company for the construction of a commercial hotel that can also be used to house overnight travelers on government business, a concept that is already in place via special legislation at Wright-Pat Air Force Base in Ohio, home to our friend Dave Hobson. I21A third example involves the construction of a private office park and a warehouse operation on military land whereby the base gets the use of part of the warehouse space and the entrepreneur also agrees to pay for the renovation and repair of certain on-base properties to include historic structures greatly in need of rehabilitation. A project of this nature is being developed at Fort Leonard Wood in Missouri at this time. I21There are many other examples at the Defense Department to include Fort Sam Houston in San Antonio, TX, where it recently announced a partnership with local real estate and environmental firms to redevelop and lease over 465,000 square feet of unused buildings that comprise the old Brooke Army Medical Center and the Beach Pavilion Complex. I21Another San Antonio, TX, example is the Brooks Air Force Base so-called City Base Project, again, a demonstration project enabled by legislation passed by Congress known as the Base Efficiency Project, here again, a transaction which includes transferring 1,310 acres of land and all the facilities comprising Brooks Air Force Base to the city of San Antonio, wherein will evolve a high-technology business park. But unlike a traditional real estate transaction, where there is an exchange of land for money or other consideration with no continuing relationship between the parties, the Brooks City Base transaction establishes a partnership between the city of San Antonio and the U.S. Air Force. I21Out in Honolulu, HI, a 450-acre part of the Pearl Harbor Naval Base called Ford Island is another example of where we will outlease land for commercial use. I21In conclusion, Mr. Chairman, we are particularly appreciative of H.R. 2710, wherein both you and Congressman Sessions provide us with new authority that complements and enhances our existing Title 10 authorities, providing the Department with additional tools to derive more value from our real property assets. I21Thank you very much, Mr. Chairman. I'm happy to answer questions. I21Mr. T4Tom Davis of Virginia. T1Thank you very much. I21[The prepared statement of Mr. DuBois follows:] A gs,d533 I9581425.029 A gs,d533 I9581425.030 A gs,d533 I9581425.031 A gs,d533 I9581425.032 A gs,d533 I9581425.033 A gs,d533 I9581425.034 A gs,d533 I9581425.035 A gs,d533 I9581425.036 A gs,d533 I9581425.037 A I21Mr. T4Kushnir. T1Good afternoon, Chairman Davis, Congressmen Turner, Sessions and Horn. Thank you for inviting me to this hearing on the benefits of public-private partnerships as real property management tools and to discuss the Department of Veterans Affairs' experience in this area. I21Before I begin my testimony, I would like to introduce Mr. Michael Simmons, who is with me today. Michael is Senior Legal Counsel in the Department's Office of General Counsel. Michael's considerable experience in VA's loan privatization sales program provided the legal expertise necessary to successfully undertake these transactions and to further develop the enhanced-use leasing program within the Department. I21Since the enactment of the Department's enhanced-use leasing authority in 1991, over $250 million worth of private investment has been secured in VA facilities and properties. This investment has resulted in positive, tangible enhancements to the VA mission and program. Through the enhanced-use leasing program we have secured office space for veterans' benefit centers, upgrades to our health care facilities, transitional housing for our homeless veterans, electricity and other energy products through cogeneration plants for our medical centers, high-tech medical equipment for our veterans, onsite child care centers for our employees, as well as parking for our patients and veterans having business at VA hospitals and facilities. We have been able to obtain these services and upgrades without increasing our capital budget. I21More importantly, these projects have resulted in actually reducing operational expenses without having to undertake long-term obligations or commitments of VA resources. I21Briefly, VA is the second largest department in the Federal Government in terms of employees. It has a unique mission, the delivery of comprehensive assistance and benefits to the Nation's veterans and their families. VA is the major landholding agency, as well, with an extensive and diverse portfolio of properties, including over 23,000 acres of land, over 46,000 buildings at approximately 270 locations, in addition to over 550 leased spaces nationwide. I21To manage its property, VA uses all the traditional authorities available to Federal agencies. However, in many instances, these authorities do not adequately address the needs of a specific mission or development issue. Because of these limitations, exacerbated by ongoing budgetary constraints, privatization and income generation programs have become increasingly important to the Department's efforts. To obtain significant operating cost reductions and pursue alternative funding sources for veterans' programs, VA is constantly developing and implementing new programs, such as enhanced-use leasing program. I21An enhanced-use leasing program is, in essence, a cooperative arrangement for the development of VA property under which VA property is made available to the public or to a private entity through a long-term lease. The leased property may be developed for non-VA and/or VA uses, and in return for the lease, the Department obtains fair consideration in the form of revenue, facilities, space, services, money or other in-kind consideration. I21In implementing the enhanced-use leasing authority, VA has discovered several key points to developing a successful private-public development program. The single most important is the enabling statute itself. This authority must provide sufficient flexibility to allow the agency to be innovative in its approach to secure private investment into its facilities. I21While preserving the integrity of the governmental process, that agency implementation procedure must be tempered so as to be responsive to the broad span of market, environmental political and legal issues that arise in any large-scale development of property. Agency officials involved in the process must be committed to the effort's success, and while attempting to be responsive to the legitimate demands of the private sector, they must remain committed to structuring each transaction in a manner that will not impact future operational decisions nor commit the agency to long-term financial obligations. I21Finally, these transactions can succeed only if they're founded on sound business decisions from both the public and the private sector perspectives. I21To accomplish these objectives, the agencies must participate fully as equals with the developer lessee in the project's development, financing and in the local community review. I21Finally, in stovepiping project development, investing control over any particular program development within a single office really ignores the multiple legal, fiscal and program issues that arise from such a development. Our experience has been, successful implementation of this type of authority is dependent upon developing a coordinated approach that not only includes all the various offices and disciplines involved, that is, the legal, the contracting, the facility development, but also has a strong link to our agencies', our Department's strategic objectives. I21That concludes my oral remarks. Thank you very much. I21Mr. T4Tom Davis of Virginia. T1Thank you very much. I21[The prepared statement of Mr. Kushnir follows:] A gs,d533 I9581425.038 A gs,d533 I9581425.039 A gs,d533 I9581425.040 A gs,d533 I9581425.041 A gs,d533 I9581425.042 A gs,d533 I9581425.043 A I21Mr. T4Tom Davis of Virginia. T1Ms. Burke. I21Ms. T4Burke. T1Thank you, Mr. Chairman and members of the subcommittee, for allowing me the opportunity to share my views regarding the potential benefits of these partnerships. I stand united with the rest of the panel in support of the benefits of these partnerships. I21My name is Kim Burke. I'm a principal with Ernst & Young in the real estate advisory services group, advising both Federal and private sector clients. Prior to that I served at both OMB and CBO. I21This February, GAO selected Ernst & Young, together with Signet Partners, to evaluate and quantify the benefits that might be obtained if public-private partnership authority were granted to GSA. I served as the manager for this project and have served on similar projects for DOD and GSA. I21Since the other panel members have discussed the existing programs and partnership structures, I'd like to focus my testimony and share with you lessons learned from our study and from Ernst & Young's prior work with private entities, as well as State and local governments in two areas. I21First, considering different types of partnerships, and second, considerations for the implementation in partnership authority. For types of partnerships, what conditions would the private sector look for? First, financial attractiveness, including the ability of the partnership to generate a sufficient return on investments. Second, control of the project and other ground lease terms. Third, the risk level of the investment. Fourth, the potential for multiple uses. Fifth, condition and size of the property. And sixth, market demand. I21They would also look at such factors as adding diversity to their own portfolio and whether such a partnership would enhance or maintain an existing business relationship that they had with a Federal Government. I21What would the government look for? One criterion is getting the project done faster than it might otherwise be possible, or a quick infusion of private sector capital to maintain Federal infrastructure, and tapping into the private sector experience to leverage and enhance Federal service delivery. I21Which type of deal is best? The form of each partnership must be carefully evaluated on a case-by-case basis to determine the best economic value and mission enhancement for the Federal Government and how to best leverage both the government and the private sector resources and expertise. I21Let's consider three options: first, joint ventures where the partners share in the future project returns. These might be considered when a property is undervalued under current market conditions, and the government could then share in appreciation in the value of the site; or if a property is considered high risk by the private sector, thus requiring a higher return, then such a venture would allow the government to also share in the higher return. I21Second, a ground lease might be considered when the cash proceeds from a transaction are not available for retention by the agency, or if the partner in the transaction brings special expertise or services considered by the government to have high value for mission enhancement. I21Third, creation of a special purpose entity might be considered when shared space would result in the sharing of knowledge to enhance the Federal missions such as shared resources for a hospital and lab or research space. I21The questions from the committee asked for issues for GSA to consider in implementation. Some of the examples are consistent program implementation, including consistent guidance to field offices and other agencies. This is particularly important in cases such as H.R. 2710, where the GSA Administrator could delegate the authority to other agencies. Consistency is also needed to identify potential sites and in developing standardized partnership proposal evaluation process; taking time to complete property-specific market research to identify the best target use and potential users of the property and the true expected development costs, including remediation and other land use costs, is also important. I21The government must also navigate Federal requirements including compliance with the Historic Property Act, Environmental Protection Act, OMB scoring rules and circulars and congressional notifications and public hearings. I21Finally, fair and open competition to select qualified partners, attracting partners through identification of properties with high market appeal, ensuring deal terms are eligible for private sector financing and securitization; and of course, controls must be designated for monitoring and protecting the Federal interests. I21In closing, we've seen partnerships work to the benefit of State and local entities. We've seen them on the Federal level at RTC, at HUD, DOD and VA. They're good for the government. They're good for business and they're a way to provide a low-cost economic stimulus for communities across America. I21This concludes my prepared remarks. I'd be pleased to answer any questions. Thank you. I21Mr. T4Tom Davis of Virginia. T1Thank you very much. I21[The prepared statement of Ms. Burke follows:] A gs,d533 I9581425.044 A gs,d533 I9581425.045 A gs,d533 I9581425.046 A gs,d533 I9581425.047 A gs,d533 I9581425.048 A gs,d533 I9581425.049 A gs,d533 I9581425.050 A gs,d533 I9581425.051 A gs,d533 I9581425.052 A I21Mr. T4Tom Davis of Virginia. T1Mr. Johnston, you're clean-up. I21Mr. T4Johnston. T1Good afternoon, Chairman Davis and members of the committee. My name is Sherwood Johnson III, president of the Building Owners and Managers Association International and a real estate professional with CarrAmerica. Thank you for the opportunity to address the issue of the Federal Government entering into public-private partnerships for real property. I21First, let me start by telling you a little about BOMA. Founded in 1907, BOMA International is a dynamic federation of more than 100 local associations with over 18,000 members who own or manage over 8.5 billion square feet of commercial properties in North America. Our mission is to advance the performance of commercial real estate through advocacy, professional competency standards and research. The General Services Administration, along with other Federal agencies in State and local building departments are a valued segment of BOMA's membership. I21Managers of public and private property alike face the constraints of tight budgets for funding repairs and alterations. However, owners and managers of private property have at their disposal a wide array of asset management and financing tools to assist them. It is our belief that the managers of government-owned buildings must be given similar tools and be allowed more flexibility. I21To this end, BOMA International is pleased that the committee is considering legislation that would allow the GSA to enter into public-private partnerships. However, these public-private partnerships are just one of the many tools that the Federal Government property professionals should have at their disposal. We encourage you to go a step further and take into consideration all of the asset management tools that would allow the GSA and other agencies to do their jobs more effectively. I21As Congress explores the opportunity to encourage public-private partnerships, it is critical to understand that the main thing the private sector will look for in any partnership is a return on invested capital. No one will enter into any arrangement with the government unless there is an expectation of economic benefit. So the primary question must be, how could the private sector make a return on any joint venture arrangement? I21BOMA International generally supports the lease-back concept of public-private partnership arrangements. Here the government would have a private entity take over economic control of a building and renovate it. The government would have a first refusal option to lease the building back for a rent that includes a return on the building improvements. I21Please keep in mind that absent the guarantee that the government would lease back the building, there would have to be a strong private sector demand for the space, based on location or physical attributes. The private developer would need a reasonable expectation that the building could be leased at a rate that would allow for the investments to be recouped. I21This type of arrangement becomes much more problematic if the property is a special purpose building that did not have private sector demand. Separately, there might be some building that the government owns that would be profitable to lease outright to the public sector_excuse me, to the private sector. I21In those cases, the government could lease to a private real estate company under a long-term lease. These companies would then invest in the repairs, lease the space to private sector companies and make money in the usual way. After the expiration of the lease, the building would revert to the government, who would inherit the improved property. I21The benefits to all parties are obvious. A private sector company undertakes the management of the building, filling it with tenants for the benefit of both the private sector partner and the taxpayer. The government would retain ownership rights to a structure that it could bring back into its operational portfolio in enhanced condition. The risk of cost overruns is born by the private sector or could be shared with the Federal Government. As a result, the GSA would be better able to direct their scarce capital upgrade funds toward buildings that are not involved in the public-private partnership arrangements. I21Finally, the private sector would appreciate having access to the public sector tenants who have previously not been part of the commercial real estate market. I21While BOMA supports congressional action on this issue, we must once again caution that the GSA and the private sector will need flexibility in crafting these types of arrangements. Every building is different. Every real estate market is different. Every real estate transaction is different. The GSA and private sector partners must have the ability to enter into arrangements that are mutually beneficial; otherwise nothing will be accomplished. I21BOMA International knows firsthand the GSA and other Federal agencies have highly educated and capable property professionals on their staffs. The Federal Government's property managers actively participate in BOMA's education and training opportunities. They hire top-notch people who are capable of using sound business and asset management principles to make educated decisions. I've personally had the pleasure of working with many of them. I21While Congress has a role to play in overseeing this function of government, it will never be done effectively until the property professionals are allowed the flexibility to use all the tools available. I21I thank the committee for its time. I would urge the committee to refer to BOMA's written comments, which are more extensive than my own testimony. BOMA International would welcome the opportunity to work with the committee and provide additional expertise as you proceed on these issues. And I'm also happy to answer any questions. I21Mr. T4Tom Davis of Virginia. T1Thank you very much. I21[The prepared statement of Mr. Johnston follows:] A gs,d533 I9581425.053 A gs,d533 I9581425.054 A gs,d533 I9581425.055 A gs,d533 I9581425.056 A I21Mr. T4Tom Davis of Virginia. T1I appreciate the questions from the panel. I21Let me start with a question to BOMA and GSA, everyone. I wonder if you could elaborate a little bit on the potential budget effects of these partnerships in the bill at hand, H.R. 2710. And what are the specific scoring triggers that could bar successful implementation of the public-private partnerships? Who wants to start on that? I21Mr. T4Johnston. T1Well, the GSA is probably the most qualified to answer the question about the scoring issues that they have. I21Mr. T4Tom Davis of Virginia. T1All right. I21Mr. T4Perry. T1Let me begin on that, and I'll invite my colleague, Joe Moravec, to maybe respond as well. I21But specifically, with respect to scoring, it really relates to the last part of Mr. Johnston's testimony. Since these will not be one-size-fits-all kinds of transactions, there will be the need to consider each transaction separately. The scoring rules need to have consistency. I21We believe, as we have looked at a number of projects which may well fit under this public-private partnership approach, that the scoring rulings, as they are currently interpreted and used, would result in our being able to go forward with those kinds of projects. We are working closely with OMB with respect to this to make sure that is the case. I21Joe, would you care to elaborate? I21Mr. T4Moravec. T1The specific things that would score, that would cause a scoring convention to be violated, would be if the government were, in fact, leasing back from itself. I21The way this H.R. 2710 has been written is that the government would not guarantee a lease-back. In other words, the lease-back of the space by a government agency would be separate and apart from the creation of the public-private partnership, so that the public entity leasing back would be, in effect, an arm's-length lessee of the property. I21Second, the way the legislation is crafted, there would be no subordination of the government interests. The government would have an unsubordinated senior interest in the property and it could never, in effect, be foreclosed on, so that its actual equity in the property and the partnership would never be at risk. I21And finally, the way the legislation is crafted, there would be_the government's liability in the partnership would be no greater than the value of the equity that it's contributed. So the government would have no indebtedness. I21And as Administrator Perry has said, as long as those three conditions are present in the creation of a public-private partnership, we believe that we will be well within scoring conventions. I21Mr. T4Tom Davis of Virginia. T1So this legislation suffices, you think? It doesn't need to be tweaked any? I21Mr. T4Moravec. T1We do. I21Mr. T4Tom Davis of Virginia. T1OK. Thanks. I21Let me ask GAO, if the administrator of GSA is given the authority to proceed with the public-private partnership program, what controls, both internal to GSA and external, do you think should be in place to ensure proper management of the property? I21Mr. T4Ungar. T1Mr. Chairman, I think there are a number. First of all, I think it would be appropriate for GSA to have a real good, solid business plan which lays out the business case and the financial issues, the risks, who's going to assume those risks and how the project would, you know, be operated. I21Second, GSA, in our view, would come up_or, you know, would be wise to come up_with some criteria that it would use in terms of deciding whether to go forward or not, what factors, what conditions ought to be present or should not be there in order to proceed on a public-private partnership. I21Third, we think there ought to be some sort of review and approval process that is systematic within GSA to make sure all the bases are covered, the i's dotted, t's crossed. That would include some form of congressional notification of the intent to proceed, as well as probably some effort to work with the local community involved to assure that there aren't any pitfalls or unforeseen issues there. I21And finally, some sort of an evaluation process that would be_a plan and process that would lay out how GSA intends to measure the success of the effort once it gets going. I21In addition to that, we would suggest that Congress also certainly review the proposal of the relevant committees, the subcommittees, as they currently do for large projects that GSA proposes, and that there would be some congressional oversight of the process and, particularly, the use of funds that would be retained as a result of these projects. I21Mr. T4Tom Davis of Virginia. T1Thank you. I21Let me ask Mr.__ I21Mr. T4Perry. T1Mr. Chairman, may I just quickly elaborate on Mr. Ungar's response? I21First of all, I'd just like to say that we fully agree with every single point he made, and in the proposal that we have submitted, each of those points is addressed, starting with the strategic plan to the overall process, to the review and approval, including review by Congress, the evaluation is there, as well as making a final review to renew the legislation after a 10-year sunset. I21Mr. T4Tom Davis of Virginia. T1OK. I21Let me ask Ernst & Young, Ms. Burke, do you know any examples of private-public partnerships at the State or local government level that could be used as a guide in crafting a workable program here at the national level? I21Ms. T4Burke. T1We do. One example is Penn Station in New York. Another example is the Seventh Regiment Armory in New York. Another example is Arizona State University. I21A lot of the construction State and local governments have done, and cities of athletic facilities, like stadiums, take the form of partnerships that are very similar to this. And so those would be examples. I21Mr. T4Tom Davis of Virginia. T1I think there is tremendous potential. This allows private businesses to do this kind of thing every day. They do it because it is in their financial advantage to do it. I21Let me ask any_my minutes are up. I21Mr. Turner. I21Mr. T4Turner. T1Thank you, Mr. Chairman. I21Mr. Perry, the proposal that you have been referring to I understand is being reviewed by OMB currently for their comments. I21Mr. T4Perry. T1Yes, sir. That's correct. I21Mr. T4Turner. T1What are the areas of concern that have arisen out of that review, or have you yet to hear regarding what their view is on this proposal? I21Mr. T4Perry. T1We have heard what their view is on the proposal. We are in lock-step agreement with respect to the proposal. We have worked very closely with Shawn O'Keefe and others on his staff to discuss the objectives. And the legislation has been circulated among the other agencies to get feedback for the proposed legislation. I21And to my knowledge there was nothing adverse that has come. So my understanding would be that we are in agreement with respect to the objective of this legislation. I21Mr. T4Turner. T1But they are also looking at the actual bill itself that you had last year with regard to the specific details of it; is that correct? I21Mr. T4Perry. T1All of that was a part of the input; that is, where we were last year at the end of that session of Congress was a starting point. We recognized that there were shortcomings in last year's proposal, and so we worked on eliminating these items that would have been items that could have rendered the use of last year's bill to be fairly difficult, and we have gotten those things to be addressed, partly by, as was mentioned, the strategic plan and the process that we have outlined. I21Mr. T4Turner. T1This suggestion, I believe, that was in the bill, that if the value of the property is not over $2 million, then there is no congressional review, as I understand that process, it is just basically a notification to basically the staff of this committee that a sale is proposed. Currently I guess it is any sale over $100,000; is that correct? I21Mr. T4Perry. T1I think that is the correct number. We haven't worked out the details of that, but the objective of this is_that is to say, if there is a project under consideration that has a value of $2 million or more, that we would effectively notify the Congress, not just something that would be perfunctory, but effectively inform the Congress what our intentions were before moving ahead. I21Mr. T4Turner. T1Under the current process for congressional oversight, if you have notified the Congress, and this committee has reviewed it and doesn't approve of it, does this committee or this Congress have any control over that decision, or it is merely a notification process that we are talking about here? I21Mr. T4Perry. T1I am going to ask Joe to respond to that. My belief is that we would adhere to the direction that we get from congressional moods on this. It is done through the budget process where we name the specific project that is under consideration and get budget authority for it. I21Mr. T4Moravec. T1Right now it is_prospective level for projects that require congressional authorization is about $2 million. So this is totally consistent with the process that we subscribe to now with regard to all of our capital investment submissions to Congress. I21Mr. T4Turner. T1But as I understood it, we_there is a provision that talks about a $100,000 value and above, and does that relate to disposal of property? Is that what that relates to? I21Mr. T4Moravec. T1That is related to disposal. I21Mr. T4Turner. T1Is there a proposal in this legislation to change that as well? I21Mr. T4Perry. T1Yes. That is in the section having to deal with streamlining the disposal process. Yes. I21Mr. T4Turner. T1All right. Now, if I understood that provision, if the Congress is notified that a piece of property worth $150,000 is going to be sold, and this committee reviews that and has some objection, is there any procedure where we actually have any role of changing your mind, or is that simply a notification procedure? I21Mr. T4Moravec. T1I think as a practical matter we wouldn't move until we had resolved that with the committee. I21Mr. T4Turner. T1Even though there is no statutory authority in the Congress to block the sale of a property at that level? I21Mr. T4Moravec. T1Even though there is no statutory authority. I21Mr. T4Turner. T1Has that been particularly burdensome to give such notice to this committee regarding disposal of property in excess of $100,000? I21Mr. T4Moravec. T1It is not particularly burdensome, it is just that the dollar threshold, we believe, is a little low. We would like a little more latitude in terms of the dollar amount involved. I21Mr. T4Turner. T1But I mean as a practical matter, does it really represent any significant impediment to the process of disposal just to notify this committee that the properties__ I21Mr. T4Perry. T1It would be a case of_we haven't encountered any difficulty with respect to those items. Many of the properties that we do dispose of are in excess of that previous limit. We think it is a matter of administrative efficiency to not send that many requests over. I21As it turns out, there hasn't been a burden. It is more of a case of low value kind of work, both on the part of GSA and on the part of the Congress, to review them. I21Mr. T4Turner. T1How many times would this committee ever see notice, say over the last year, that property was going to be disposed of? I21Mr. T4Moravec. T1I am sorry. We will have to get back to you for the record on that. I21Mr. T4Turner. T1I want_I only make the inquiry_it strikes me if this is just a notification procedure, and it is not too extremely burdensome, then it is probably a good thing for the Congress to know; particularly if it involves a piece of property in, you know, my district, I would like to know. I21And I don't have much in my district that you could dispose of that would be over $2 million, so it might be a provision that would be nice to keep in the law, at least as some lower limit than $2 million. I21That is all the questions I have. I21Mr. T4Tom Davis of Virginia. T1Thank you. I21Mr. Horn. I21Mr. T4Horn. T1Thank you, Mr. Chairman. This is a very worthwhile hearing. And it does have effects across the country. And I am glad to see the Administrator of GSA here, Mr. Perry. I hope will you enjoy the way we do business. You had a fine record in Ohio. I21And I would like to ask a question about Deputy Under Secretary DuBois. How long has the environmental portion of your rank_was that earlier in the Office of the Secretary of Defense, but not with the Under Secretary, or Deputy Under Secretary? When did that move? I21Mr. T4DuBois. T1Under the prior administration, the Clinton administration, there was established the Deputy Under Secretary of Defense for Environmental Security, I believe, in 1993. I21When Mr. Rumsfeld became Secretary and was confirmed on January 20th, we discussed various ways to streamline the management and the procedures of the Office of the Secretary of Defense. I21It was considered a good idea at that time, and I think it continues to be a good idea, to combine both installations and environment, because one impacted the other in both positive and negative ways, as you well know, given the hearing that you held in California, sir. Therefore, on April 29th, when I was appointed to this position as Deputy Under Secretary for Installations and Environment, it so was established. I21Mr. T4Horn. T1I think that makes a lot of sense, personally, and I had been griped the other way that this_it never was going anywhere in 1994, 1995. They just sort of sat on the money was my feeling. I21And in my Subcommittee on Government Efficiency we took a hearing a few weeks ago at Fort Ord, and that is_we appreciate the help that is there from a lot of you there. But we have a little problem still there, which is live artillery. And there has been, I think, the one heavily hospitalized, and I am told one died there. And I just would like to see if we can help on that, because that was under the Army to put the money out. I21And another one I am going to take here was from the Navy. And I think you are absolutely right to have that under the Office of the Secretary with somebody with some clout, and you are the one with clout I am looking at. I21So let me go down the line on a few questions I want to have Administrator Perry_I am sorry, I came in late because I had the usual 15 people in our office. I21What is the length on the contract that GSA feels on land use? Have you picked a number? Is it 20? Is it 25? 30? 50? What? I21Mr. T4Perry. T1The proposed legislation would allow as long as 50 years for that. We would expect that the individual leases would be of a shorter term, but 50 is a general maximum. I21Mr. T4Horn. T1Well, I am glad to see that, because some end at 5 years, 10 years, 20, just wasn't working. I21Mr. T4Perry. T1Right. I21Mr. T4Horn. T1In our case I want to thank you for the GSA working with NASA in the town of Downey. Now, that was the Rockwell plant that built the space lab, the Apollo, the one that now sends it up and back, that one, but Boeing now takes that over. And it was already going because we couldn't keep the repairs going since it was just_they were not needed at that point. I21So in Downey you have got a plant that, when I came to that area in 1970 that had 35,000 workers, now have none. I don't think there is even a maintenance person to keep that property, because it is a patch system where the old committee on_at Goddard was on way back in the 1930's. And the_obviously NASA is now in it, and Administrator Goldin has been very helpful, and we appreciate that. I21And so that is another one there that I would hope it has worked out, and I think it is supposed to be worked out, Mr. Perry, because there is a lot of other agencies, EPA, so forth, besides GSA, and we would appreciate it if we could just finish that one up. I21Now, another one is on the west side of Long Beach. In the 1930's, Long Beach was the headquarters of the Pacific Fleet. And one chief executive of the_Chief Operating Officer of the Navy, he said that was the stupidest decision that they ever had was to go to Hawaii. You saw what happened. By accident we had our aircraft, people out there, but thousands died December 7th. And on that land on the west side, it was naval housing for about 38 ships. That was under my predecessor Mr. Anderson. I21What we turned that into is something that gets economic development, and one_there is three things here. We have a technical high school being built. I was able to get out of the President a Job Corps situation back in about 1995. And then there is_besides the Job Corps, the technical high school. We had there 30 acres for the College of Engineering at California State University Long Beach. That is very needed because Orange County has now had a good Silicon Valley-type approach, just like Fairfax County and San Diego, but southern Los Angeles County have not had the development that they should have. And, of course, the land that went to the Port of Long Beach is very helpful. But we could do better in terms of biological and Silicon Valley-type firms. I21Then we have on the east side of town, which is coming along, there were two patches there given to the Navy, $1 apiece, in the beginning of the Second World War. And that_unfortunately the city attorney missed one, and they gave them the dollar and thought, well, if they ever leave, they will give us the property back. I21And the fact was that they went_when the split came, where the city attorney had put that in, we easily got that property to revert back to the city of Long Beach. And they are still in a situation, or were with the Navy, of, well, you owe us $8 million. Good heavens, you know, that is a pretty good property for the dollar that we asked them to give us back in the_oh, probably 15 years ago that they closed that naval hospital, which was about 5,000 people with patients and all of that. I21So those are the examples I have lived with in a way, and I would appreciate it if we could take a look at that, and I would like to sit down with you, Mr. DuBois, and see if we can't work it out and finish it forever and get the economic side of that part of Los Angeles County_it would be very helpful. I21So I thank you all for your testimony. And, as I said, Fort Ord it is coming along. It has got a wonderful campus of the California State University system at Monterey Bay. They had 5,000 applicants the first year they opened there. And there is space there for economic development, more of it, and we appreciate anything you can do on that. Thank you. I21Mr. T4Tom Davis of Virginia. T1Thank you very much. I didn't mind it, I did my basic training at Fort Ord 100 years ago. I21Mr. T4Horn. T1No fooling. Well, you should have come up and seen me. I was at Fort Ord, too, in terms of shooting off rifles, but I didn't shoot off the artillery. I21Mr. T4Tom Davis of Virginia. T1It is amazing what they have done with that. When I was driving through recently, I dropped by to see some of the construction that they have had. I21Let me ask a few more questions before we wind this up. I21I will start, Mr. Perry, with you. What are the major barriers to effective asset management that you see right now at the Federal level? I21Mr. T4Perry. T1Well, there are a number of major things. First of all, there is not at this point in time a_sort of a global standard as to what the process should be for what we call life cycle management, not only to apply good practices in the case of acquisition, but to also apply good property management practices throughout the asset's life and to apply good processes to its subsequent disposal. I21So those are among them. There are some other things that you might cite among those, that is_for example, making sure that agency acquisition and use of real property assets are consistent with the agency's mission. Now, some of that would sound pretty straightforward. You know, you decide whether you need the asset for a long term, in which case owning it might make sense, or is it a short-term need, in which case leasing would make much more sense. I21We don't think that all of the agencies have people on their staffs who are skilled at thinking through those. What we would propose to do, therefore, is to provide this list of management principles and standards that we would help to ensure that each agency follows. I21Mr. T4Tom Davis of Virginia. T1Do you have any idea how many pieces of property GSA owns right now that aren't being utilized, for one reason or another, and are either boarded up and are just sitting there? I21Mr. T4Perry. T1We don't know how many complete facilities would fall in that category. I do know that we have over 100 buildings that we have documented that have what we have called egregious conditions with respect to the need for upkeep. Many of those buildings are nevertheless still occupied, or at least partially occupied. We do have some where Federal agencies have moved out and refused to use the space based upon condition. I21But there is this 100 or so that are in a deteriorated state, and then within that group of 100 we have identified 20 that would be sort of on the top list that need immediate attention. I21Mr. T4Tom Davis of Virginia. T1OK, let me ask you another question. What would be the benefit of broader legislation? Are you familiar with S. 2805 introduced by Senators Thompson, Lieberman? I21Mr. T4Perry. T1Yes. I21Mr. T4Tom Davis of Virginia. T1How would the provisions of this bill enhance the management of Federal property; how would that be effective for you? I21Mr. T4Perry. T1Well, first of all, it_that bill would have had some limited or some restrictions on the use of the public-private partnership approach, and we would propose that those limitations be eliminated. I21Additionally, the bill may not have addressed the issue of disposal. I think it did address disposal, maybe not as comprehensively as we are. It did include both the use of outleasing and subleasing, which, by the way, are not as comprehensive in the Sessions bill. I21So when you take those bills together, I think it generates a package. As long as you take the best of both, that would make it workable. I21Mr. T4Tom Davis of Virginia. T1OK, let me ask the representatives from DOD and VA, what are the cost savings to the government that you have demonstrated through the use of public-private partnerships? I21Mr. T4DuBois. T1As you know, in the Department of Defense military housing privatization alone has probably saved, will through the end of this fiscal year, that is to say 2002, probably_and ``savings,'' again, is a difficult term. Leveragewise we may be dealing with nearly $1 billion. I21You asked a few minutes ago about asset management, what would help us manage our assets better. Clearly until the Defense Department_and I think, no question, we concur in GSA's proposal, which is, as we read it, more far-reaching than the Sessions bill, those authorities given to us ought to be given elsewhere in the Federal Government, utility privatization and enhanced use of leasing, military housing privatization. I21But the most important asset management authority that Congress could give us at this time is for a further round of base closures and realignment, which we hope will come out of the conference. As you know, the Senate did vote essentially for it last week 53 to 47. That in and of itself could save the Department of Defense, i.e., the American taxpayer, anywhere from $3 to $6 billion more. I21Mr. T4Tom Davis of Virginia. T1I am in support of that. I mean, Mr. Turner is on the committee in the House. It is very controversial with a lot of the districts that would be impacted from that, but I agree with you. I21Mr. T4Kushnir. T1From the Department of Veterans Affairs perspective, we saved a considerable amount of money. I think I mentioned in my testimony, we have achieved over $250 million worth of value that was invested into VA properties. This included energy plants, and it included parking facilities, medical facilities, and also resulted in significant savings to VA operational dollars, which are really paid out of its medical care funds. So it results in more of those funds directly being used for veterans' health care. I21So we have found this enhanced use leasing, which is essentially a public-private partnership vehicle, as being very helpful to us in achieving our mission requirements. I21Mr. T4Tom Davis of Virginia. T1I think sometimes we just pass too many rules and regulations that centrally drive things that we try to keep open, public, and keep people from stealing money, but we don't allow you to do a lot of other things, too, in the process. I21We ought to let you manage this and give you the tools. And we see this done every day in the private sector where they are driven by a bottom line. I just think it makes everything more efficient. I think you agree as well. I21Mr. T4Kushnir. T1Yes, sir. I21There was a question earlier, comments about stakeholder involvement. Our legislation provides for public hearings at the site where we are contemplating doing an enhanced use lease, and our enhanced use leasing goes from a sort of a lease, lease-back arrangement, to more of your outlease arrangement that was talked about earlier in deriving revenues from it. I21But we believe in public hearings. We also have congressional notification to our oversight committees for each and every one of our proposed enhanced use leases. I21Mr. T4Tom Davis of Virginia. T1Thank you. I21Anyone have anything else that they want to add? I21Mr. T4Perry. T1Yes, Mr. Chairman. I think what we are really looking at here is a decision to decide to apply what I would call very prudent good management practices. And as I have listened to today's testimony and the other information that I have been able to be a part of as we have worked on this project, it would appear to me that the evidence is pretty conclusive that this prudent good management practice is tried and tested and proven in the commercial sector. And we heard that again today from Ms. Burke of Ernst & Young, and from. Mr. Johnston on BOMA. I21I think we are very fortunate to have Joe Moravec as our Commissioner of Public Service, having done this himself personally for 30 years. So we are not speculating with respect to whether this is something that can work. I21Second, we also heard from representatives of DOD and VA that this, in fact, even works in the public sector, has been working in terms of the demonstration projects. And then we have had the General Accounting Office do a thorough review and also endorse the fact that this can work. I21So I hope there is no further concern as to whether or not we are embarking upon something which is not tried and tested. I21The other issue is we have, as we sit here, a large and growing inventory of deteriorating Federal buildings, not a livable situation. There is_on my way of looking at it_no other alternative solution on the horizon. And each day we wait, each year we wait, and we have waited a year since this was introduced in the last session, that inventory and backlog of repair and alterations work which is continuing to grow does grow. I21So I commend the committee for taking a serious look at this so that we don't leave a legacy of further deteriorated Federal buildings, and, in fact, we take the bold step to be the group that provides the answer to the problem that we have been living with for a number of years now. I21Mr. T4Tom Davis of Virginia. T1Thank you very much. I want to thank all of you, for attending the hearing. We have had some great testimonies today. I21I want to thank Congressman Turner, Representative Horn and Representative Sessions for participating. I21I want to thank my staff and Mr. Turner's staff for organizing this. I think it has been very, very productive. I'm going to enter into the record the briefing memo distributed to subcommittee members. I21We will hold the record open for 2 weeks from this date for those who may wish to forward submissions for possible inclusion. I21These proceedings are closed. Thank you. I21[Whereupon, at 5:10 p.m., the subcommittee was adjourned.] S6011 I18ÿ08