U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

55–669 PDF 2010

CAPITAL ASSETS CRISIS: 

MAINTAINING FEDERAL REAL 

ESTATE WITH THE DWINDLING 

FEDERAL BUILDING FUND 

(111–99) 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

ECONOMIC DEVELOPMENT, PUBLIC BUILDINGS, AND 

EMERGENCY MANAGEMENT 

OF THE

COMMITTEE ON 

TRANSPORTATION AND 

INFRASTRUCTURE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

March 24, 2010 

Printed for the use of the 

Committee on Transportation and Infrastructure 

( 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE 

JAMES L. OBERSTAR, Minnesota, Chairman 

NICK J. RAHALL, II, West Virginia, Vice 

Chair 

PETER A. DEFAZIO, Oregon 

JERRY F. COSTELLO, Illinois 

ELEANOR HOLMES NORTON, District of 

Columbia 

JERROLD NADLER, New York 

CORRINE BROWN, Florida 

BOB FILNER, California 

EDDIE BERNICE JOHNSON, Texas 

GENE TAYLOR, Mississippi 

ELIJAH E. CUMMINGS, Maryland 

LEONARD L. BOSWELL, Iowa 

TIM HOLDEN, Pennsylvania 

BRIAN BAIRD, Washington 

RICK LARSEN, Washington 

MICHAEL E. CAPUANO, Massachusetts 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

RUSS CARNAHAN, Missouri 

GRACE F. NAPOLITANO, California 

DANIEL LIPINSKI, Illinois 

MAZIE K. HIRONO, Hawaii 

JASON ALTMIRE, Pennsylvania 

TIMOTHY J. WALZ, Minnesota 

HEATH SHULER, North Carolina 

MICHAEL A. ARCURI, New York 

HARRY E. MITCHELL, Arizona 

CHRISTOPHER P. CARNEY, Pennsylvania 

JOHN J. HALL, New York 

STEVE KAGEN, Wisconsin 

STEVE COHEN, Tennessee 

LAURA A. RICHARDSON, California 

ALBIO SIRES, New Jersey 

DONNA F. EDWARDS, Maryland 

SOLOMON P. ORTIZ, Texas 

PHIL HARE, Illinois 

JOHN A. BOCCIERI, Ohio 

MARK H. SCHAUER, Michigan 

BETSY MARKEY, Colorado 

MICHAEL E. MCMAHON, New York 

THOMAS S. P. PERRIELLO, Virginia 

DINA TITUS, Nevada 

HARRY TEAGUE, New Mexico 

JOHN GARAMENDI, California 

VACANCY 

JOHN L. MICA, Florida 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

JOHN J. DUNCAN, JR., Tennessee 

VERNON J. EHLERS, Michigan 

FRANK A. LOBIONDO, New Jersey 

JERRY MORAN, Kansas 

GARY G. MILLER, California 

HENRY E. BROWN, JR., South Carolina 

TIMOTHY V. JOHNSON, Illinois 

TODD RUSSELL PLATTS, Pennsylvania 

SAM GRAVES, Missouri 

BILL SHUSTER, Pennsylvania 

JOHN BOOZMAN, Arkansas 

SHELLEY MOORE CAPITO, West Virginia 

JIM GERLACH, Pennsylvania 

MARIO DIAZ-BALART, Florida 

CHARLES W. DENT, Pennsylvania 

CONNIE MACK, Florida 

LYNN A WESTMORELAND, Georgia 

JEAN SCHMIDT, Ohio 

CANDICE S. MILLER, Michigan 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

ROBERT E. LATTA, Ohio 

BRETT GUTHRIE, Kentucky 

ANH ‘‘JOSEPH’’ CAO, Louisiana 

AARON SCHOCK, Illinois 

PETE OLSON, Texas 

(II) 

SUBCOMMITTEE ON ECONOMIC DEVELOPMENT, PUBLIC BUILDINGS, AND EMERGENCY

MANAGEMENT

ELEANOR HOLMES NORTON, District of Columbia, Chair 

BETSY MARKEY, Colorado 

MICHAEL H. MICHAUD, Maine 

HEATH SHULER, North Carolina 

RUSS CARNAHAN, Missouri 

TIMOTHY J. WALZ, Minnesota 

MICHAEL A. ARCURI, New York 

CHRISTOPHER P. CARNEY, Pennsylvania 

DONNA F. EDWARDS, Maryland 

THOMAS S. P. PERRIELLO, Virginia, Vice 

Chair 

VACANCY 

JAMES L. OBERSTAR, Minnesota 

(Ex Officio) 

MARIO DIAZ-BALART, Florida 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

MARY FALLIN, Oklahoma 

BRETT GUTHRIE, Kentucky 

ANH ‘‘JOSEPH’’ CAO, Louisiana 

PETE OLSON, Texas 

VACANCY 

(III) 

(V) 

CONTENTS Page 

Summary of Subject Matter .................................................................................... vi 

TESTIMONY 

Greninger, Richard, Managing Partner, Carr Services ........................................ 23 

Hentschel, John, President, Hentschel Real Estate Services, Member, Counselors of Real Estate ............................................................................................ 23 

Nash, David, President, Dave Nash & Associates, One Perimeter South, National Academy of Science ................................................................................... 23 

Peck, Robert, Public Buildings Service Commissioner, General Services Administration .......................................................................................................... 5 

Stoklosa, Kevin, Assistant Technical Director, Financial Accounting Standards Board ............................................................................................................ 23 

PREPARED STATEMENT SUBMITTED BY MEMBERS OF CONGRESS 

Carnahan, Hon. Russ, of Missouri ......................................................................... 42 

Norton, Hon. Eleanor Holmes, of the District of Columbia ................................. 43 

PREPARED STATEMENTS SUBMITTED BY WITNESSES 

Greninger, Richard .................................................................................................. 46 

Hentschel, John ....................................................................................................... 54 

Nash, David .............................................................................................................. 58 

Peck, Robert ............................................................................................................. 67 

Stoklosa, Kevin ........................................................................................................ 81 

SUBMISSIONS FOR THE RECORD 

Peck, Robert, Public Buildings Service Commissioner, General Services Administration, response to request for information from the Subcommittee .... 73 

vi 


Insert offset folio 52 here 55669.052
vii 


Insert offset folio 53 here 55669.053
viii 


Insert offset folio 54 here 55669.054
ix 


Insert offset folio 55 here 55669.055
x 


Insert offset folio 56 here 55669.056
(1) 

CAPITAL ASSETS CRISIS: MAINTAINING FEDERAL REAL ESTATE WITH THE DWINDLING 

FEDERALBUILDING FUND 

Wednesday, March 24, 2010 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON ECONOMIC DEVELOPMENT, PUBLIC

BUILDINGS AND EMERGENCY MANAGEMENT, 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 2:05 p.m., in Room 

2167, Rayburn House Office Building, Hon. Eleanor Holmes Norton 

[Chair of the Subcommittee] presiding. 

Ms. NORTON. Good afternoon, and welcome to today’s hearing on 

the Federal Buildings Fund, or FBF. 

Today we will examine whether the FBF offers the General Services Administration Public Buildings Service a viable tool for meeting its mandate of optimizing the use of Federal office space and 

providing a source of revenue to maintain existing buildings and to 

fund new construction. 

The GSA owns more than 1,500 Federal buildings, totaling 176.5 

million rentable square feet of space. It leases 177.5 million rentable square feet of space in almost 7,100 leased properties. However, in recent years the GSA construction program has essentially 

been reduced to land ports of entry and to courthouses, with few 

exceptions, and GSA increasingly relies on private commercial office space to meet its needs, straining the building fund and creating a growing crisis in meeting GSA’s vital function. 

The FBF was created in 1975 by Public Law 92-313 to provide 

a revolving fund that required agencies to pay for the space they 

occupied and to provide a revenue source for new Federal construction and upkeep of existing Federal buildings. 

Today we will hear from witnesses across the spectrum to help 

us evaluate GSA’s capital investment management strategies and 

to evaluate how GSA can manage Federal assets more effectively. 

Our witnesses include two private sector witnesses with experience in maintaining and repairing buildings, from whom we hope 

to learn, and an expert on capital asset management. We also will 

hear from an official from the Financial Accounting Standards 

Board, who will discuss how new accounting rules may affect how 

the Federal Government will evaluate the Public Buildings Service’s Capital Investment and Leasing Program. 

The current guidelines for the budgetary treatment of leases require the full cost of a capital lease or lease purchase to be scored 

2 

up front rather than at only the first year’s annual rent and the 

value of any cancellation provision as in the case of operating 

leases. 

Of course, we will hear from Robert Peck, the PBS Commissioner, currently in his second tour of duty with GSA as the PBS 

Commissioner. We will want to focus on what it takes to properly 

maintain a capital assets portfolio and on the true costs of leasing 

versus owning Federal office space. 

Since its inception, the building fund has struggled to meet its 

original mission. As early as 1981, the Government Accountability 

Office, or GAO, found that there was no evidence that the FBF had 

promoted a more efficient use of space or produced enough funds 

for new construction. Periodically since then the GAO has noted 

the inability of the FBF to fund the repair and maintenance of existing Federal assets. More importantly, the current head of the 

PBS has indicated that the Federal Buildings Fund is on an 

unsustainable course and will be unable to fund the proper maintenance of its Federal capital assets in the near future. 

The Federal Buildings Fund recently received a much-needed infusion of cash of $5.5 billion provided by the American Recovery 

and Reinvestment Act. Even with this investment, there are public 

reports of a maintenance and repair backlog of almost $8.8 billion. 

Yet the PBS building portfolio has a replacement value of nearly 

$42 billion, which makes mandatory the development of a more effective approach for generating funds necessary to maintain our 

capital assets. 

Two examples show that the government is beginning to recognize that it must right-size its Capital Investment and Leasing 

Program. The administration’s fiscal year 2010 budget request included $100 million for the GSA to exercise the purchase option for 

the Columbia Plaza building located in Washington, D.C. In addition, the fiscal year 2011 Capital Investment and Leasing Program 

also includes a proposal to purchase an IRS building in Martinsburg, West Virginia, for $25 million. 

We continue to applaud the efforts of the agency to parse 

through the purchase opportunities available to GSA and to exercise them whenever it is prudent to do so. The GSA had long leased 

the Columbia Plaza building, but finally purchased this much-needed asset housing State Department employees at nearly 50 percent 

of its 2006 appraised value. The building, close to the State Department headquarters, would otherwise have required another round 

of leasing and lost dollars to the building fund and to Federal taxpayers. 

The Committee on Transportation and Infrastructure and this 

Subcommittee have repeatedly expressed concern about the expensive trend toward providing Federal office space through leasing 

and not Federal ownership, to the point that, for the first time, the 

Federal Government is now occupying more lease space than 

owned space in fiscal year 2008, according to a July 2009 GAO report. In almost every case, over the long term, leasing is more expensive than Federal ownership and deprives the Federal Buildings Fund of direct payments from agencies occupying governmentowned space, which instead goes to developers. 

3 

The intended purpose of the FBF was to provide the resources 

to enable GSA to construct, maintain and repair buildings in the 

Federal inventory. That purpose is undermined by the steady 

shrinking of available funds to maintain Federal assets, much less 

to generate funds for new Federal construction. This skewed leaseto-own ratio trend presents a distressing portrait of the condition 

of Federal asset management, which is an essential function of government. We need to determine if the financial and managerial 

systems are in place for GSA to properly administer the FBF and 

maintain existing assets. We plan to address the assumptions used 

to justify the current capital asset management strategies. 

Finally, and perhaps most importantly, this Subcommittee will 

examine whether GSA has existing statutory authority to address 

its needs and to maintain its own capital assets. We have pressed 

GSA to use all of the authority available to it, including section 412 

of Public Law 108, which grants GSA the authority to enter into 

agreements that include selling, leasing, the exchanging of capital 

assets, and retaining the proceeds within the Federal Buildings 

Fund. When Congress granted this authority, it was contemplated 

that GSA would have a powerful tool at its disposal to enhance its 

ability to properly manage its capital assets portfolio and the Federal Buildings Fund as well. Instead, this authority has not been 

exercised as yet, and we are facing, perhaps, a looming crisis in 

managing our Nation’s public buildings. 

I very much look forward to hearing from today’s witnesses, and 

I am pleased at this time to ask the full Ranking Member, shall 

we call him, of the Committee if he has any opening remarks. Mr. 

Mica. 

Mr. MICA. Thank you. 

I ask unanimous consent to participate in the Subcommittee 

hearing. I serve on all six Subcommittees, but I have to ask unanimous consent to fully participate. It is just a technical matter. 

Ms. NORTON. So granted. 

Mr. MICA. Thank you. 

I am pleased to join you today, and I regret Mr. Diaz-Balart is 

delayed at another obligation and should be here later. But I appreciate the Chair’s attention to this important matter of capital 

assets and maintaining Federal real estate with our dwindling Federal Buildings Fund and Federal resources. 

I admire Ms. Norton not only for her tenacity on a number of 

issues and for her fine representation of the District, but she also 

gets into the weeds, which I think we need to do as Members of 

Congress, particularly when it comes to getting the best return for 

the taxpayers. Certainly GSA has an important responsibility, and 

so does she. 

So it is a pleasure for me to be here. I have a personal interest, 

as she knows. Years ago I was in real estate development, and I 

enjoy making certain, as I tell some folks—the Federal Government 

has a great deal of public assets, and I always say we shouldn’t be 

sitting on our assets, and that we should utilize them to the fullest 

and get the return, and that is what this hearing is about. So, 

again, thank you for convening it. 

Let me just make a couple of points. 

4 

There is no better time than now, as you have heard me say before, to act. Now is the time we can lease and get the best deals 

for the Federal Government. This is the time when a wise real estate investor looks at acquiring properties, and certainly the Federal Government has one of the highest inventories. 

You also have to look at the assets that we have within our inventories. Many of these assets—in fact, Mr. Nash, who, I think, 

is a later witness, is going to testify today that over half of the Federal buildings are more than 50 years old. Now, think about that. 

An old building, first of all, is going to be very costly to maintain. 

Anyone who has dealt with any property knows that an aging 

building is one of your highest assets to maintain. So we have this 

huge inventory of ancient buildings that are very costly to operate. 

This is the time to change out those properties to make the best 

deal. 

Possibly, too, we could look at selling some of those assets and 

reinvesting that in properties that are less costly to own and to 

maintain, and we could probably get more net usable space for the 

taxpayers and increase our inventory. Again, it is aged just by having newer units. 

The other thing that is so important today is when you have a 

50-year old building, it isn’t very friendly to the environment or 

very efficient. 

So, on those two accounts, it is wise to acquire newer buildings 

and buildings that also have been built with more efficient systems. One of the most costly things to operate is energy utilization 

in those buildings, not to mention the high maintenance, but it is 

the high energy costs and low consideration and a high negative 

impact to the environment. 

So, with every one of these deals that we are able to put forward 

at this time, again, we get greater value than we have ever gotten 

because the cost is down. We get greater efficiency in the operation 

as far as energy, and I think we do a big plus in helping the environment. Again, I think this is a very worthwhile hearing. 

I think it is also important, as a leader of this T&I Committee, 

to look at the Federal Government’s commitment to locating these 

properties, these new properties in particular, that we acquire close 

to public transportation. It is so important that that be a consideration because we do need to move people more efficiently. Again, 

the high amount of negative contamination to the atmosphere is 

done by transportation—by one person and one inefficient vehicle 

when one is getting to work or around the community. So I think 

we have an obligation to lead as far as also supporting transit-oriented development and acquisition as we move forward. 

So I look forward to hearing from Mr. Peck. I think part of the 

problem that he deals with—and he has done a good job. First, he 

has to deal with the laws that Congress has already passed, and 

some of those may need some flexibility. Some of them, just like 

our capital assets inventory, may need some updating. Give him 

the flexibility to make these investments at this critical time when 

we have the money that is going to be spent—some stimulus, some 

other capital improvements—and give him the ability to be flexible 

in changing out aged assets. Maybe you could get more for the location. The building may not be that good, but in acquiring more enVerDate Aug 31 2005 12:46 Oct 25, 2010 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 P:\DOCS\55669.0 KAYLA
5 

ergy-efficient transportation and an environmentally friendly property, we end up with a net plus for the taxpayer and the Federal 

Government. 

So I look forward to hearing responses, commentary and also 

constructive suggestions from the witnesses today as to what laws 

or what approaches may be needed for the future, because we need 

to give them the tools to get this job done. 

This is probably more than you wanted to hear, Ms. Norton, but 

since you have got me, those are my comments. 

I yield back. 

Ms. NORTON. I thank the Ranking Member for, really, very 

thoughtful comments, and I appreciate very much that he thinks 

deeply about this subject, too. This is a subject in need of leadership and in need of new ideas and new approaches, and I am sure 

we are going to get some of that from Mr. Peck, who I am pleased 

to welcome as our first witness. 

TESTIMONY OF ROBERT PECK, PUBLIC BUILDINGS SERVICE 

COMMISSIONER, GENERAL SERVICES ADMINISTRATION 

Mr. PECK. Thank you, Madam Chairperson and Ranking Member 

Mica. Thank you for inviting me here. 

If I can step out of protocol a bit, I would also like to welcome 

both counsels, with whom we work very closely, and one who is 

new with you, Ms. Norton, who is a distinguished GSA alum, Mr. 

Kendall. 

Actually, Madam Chair and Mr. Mica, you have pretty much 

made my statement. You have summarized, for the most part, how 

the fund is supposed to work, how it has worked, and some of the 

issues that I face, but I will go into a little bit of detail. 

As you noted, the Federal Buildings Fund, which was established 

in 1972, was designed to provide a stable source of funding for both 

the operating needs of the building inventory and its capital needs. 

Rent revenues, which we get from Federal agencies whether we 

lease or own the buildings, are deposited into the fund and are 

made available to cover our activities, though, of course, we have 

to get an appropriation every year to spend them. 

What is important to remember about the fund is that it is a revolving fund, which means that, not unlike some trust funds that 

we have in the government, we use current revenues to pay off liabilities that have accumulated over time, and that means that the 

age of our fund and the relative ratio of new buildings to old buildings is incredibly important. 

I should also note while the initial intent was that the rent revenues going into the fund would cover both operating costs and capital needs, both new construction and renovation needs, within a 

very few years after the fund was set up, it was pretty clear that 

that was not going to be the case. The fund started collecting rent 

in 1975. By 1979, we were already receiving appropriated funds. 

We have in 8 of the last 10 years received appropriated funds to 

cover our capital needs. 

As early as 1981, as you noted, the GAO reported that the fund 

was generating not enough revenues. In fact, they reported in 1981 

that the fund was generating less revenue for new construction and 

other capital needs than Congress had been appropriating annually 

6 

into the fund before the fund was created. The GAO identified a 

number of factors contributing to that, including an increase in 

leased space, the high repair and alteration needs of an old building inventory, and a reduction in rental income due to administrative and legislative actions. It is interesting to note that, nearly 30 

years later, we could say exactly the same thing. 

From time to time, the administration and Congress have provided funding for a significant number of new buildings, including 

in 1983, partly in response to that GAO report of 1981, an opportunity purchase program under which GSA did go out and buy a 

number of existing buildings which were added to the inventory. 

The most recent example of a significant boost in funding is, of 

course, the American Recovery and Reinvestment Act of 2009, 

which provided us with $5.5 billion for capital projects. Unlike previous building programs—and this is not a bad thing—not all of 

that money was directed to our direct capital needs for repairs and 

alterations, but rather a significant amount of it was intended to 

green our inventory. That is clearly a benefit to our inventory as 

a whole because it will, in the end, reduce our operating costs. It 

will also help us provide examples to the American building industry in general of what technologies and practices work. 

I can also report, in response to Mr. Mica’s note about the favorable investment climate, we are, in the Recovery Act, getting pretty 

low bids on construction. That is a good thing for us in a way. It 

is sort of a discouraging commentary in a way, however, on how 

soft the real estate market is out there, so we don’t take undue satisfaction from that. 

This infusion of capital from the Recovery Act will allow us to reduce the liability we have on some of our aging assets, and it will 

reduce the liability that we had which we had estimated a couple 

of years ago at about $7.3 billion in capital needs for significant alterations in our fund. I should note that the average age of our inventory, if you weight the square footage, is 46 years, and 31 percent of our square footage is older than GSA itself, which was 

founded in 1949. 

In recent years we have met new space needs primarily through 

leasing buildings. There is nothing wrong with leasing per se, except that the income and outflow are exactly the same. We get rent 

from our agencies, and then we send it out a revolving door in 

lease payments to a private owner. It does not, in other words, contribute to the investment fund that we need to keep up our buildings. Without new government-owned facilities keeping up our income on the front end, because new facilities don’t need repair and 

alterations and investments, funding for our reinvestment needs is 

reduced. 

We will continue to look for ways to increase revenue and to reduce expenses. We are looking at ways to maximize utilization in 

our buildings, seeing if we can squeeze more people into less space. 

Our vacancy rate in our own buildings is already at around 2 percent, and the inventory as a whole, including the leased space, is 

only about 4 percent, but there still are ways, clearly, that we could 

get more people into less square footage. 

I do want to note that Congress did give us the authority, under 

section 412 in an appropriations bill in fiscal 2005, I believe it was, 

7 

or in 2004, and the opportunity to retain the proceeds when we dispose of surplus properties, and we have, in fact, used that authority. We have in the previous 3 years earned about $198 million 

from selling off old properties. 

We will also make sure that we collect rents in a timely way 

from our customer agencies, and we are looking at ways to reduce 

our own overhead, because with that, too, if we don’t have the lowest possible overhead, we are eating into the net income that we 

need to maintain our buildings. 

I should note that under section 412, we have from time to time, 

as I think you know, considered other financial mechanisms that 

would provide the means to own buildings, and we will continue to 

do so. Beginning this year also, I should note, just on the topic of 

trying to do better with the space we have, we will work with three 

major customer agencies to produce overall national strategic portfolio plans in an attempt to see if we can reduce the amount of 

space they need. 

Finally, in response to Mr. Mica’s comments about transit-oriented development, for which I thank you, I would note that, in October, President Obama signed Executive Order 13514, which, in 

ordering Federal agencies to pay much more attention to sustainable facilities, does say that, to the maximum extent we can, we 

should locate new Federal facilities in transit-oriented developmental locations, and we are developing guidance with the Department of Housing and Urban Development, the Department of 

Transportation and EPA to make that a reality. 

That concludes my statement. I will say I look forward to hearing 

also from the other witnesses, but, of course, I am happy to answer 

your questions. 

Ms. NORTON. Thank you very much, Mr. Peck. 

Now, I think you said, for the record, something that is very important for this Subcommittee to note, which is that essentially— 

and correct me if I do not understand you—very soon after the Federal Buildings Fund was established, its premises appeared to be 

faulty in as much as it was assumed that the so-called ′′rent′′ from 

Federal agencies could cover new the construction and upkeep of 

the buildings. 

So, this premise, was this a theoretical premise? Although you 

would have thought that somebody would have done some numbers 

on it. Was it shortly seen to be a flawed premise, and it is all you 

can do with inflow and outflow, simply with a diminishing building 

fund, to simply keep the fund going, and that it is not an investment fund? 

Mr. PECK. Right. 

Well, I want to say there were a couple of premises in the fund, 

and we are focused on one. There are a couple that are good. One: 

Still having agencies pay rent so that they realize the cost of occupying space and don’t accept it as a free good, that is good. 

Second: We do have a regular stream of income to do minor repairs and some of our capital expenses, and I think, compared to 

some other Federal agencies, we may even do better than they do 

in having some money to cover our capital investment needs. 

However, you are absolutely right. I don’t know what numbers 

they were looking at back then, given the age of the inventory, 

8 

which was an older inventory than most private investors would 

ever consider putting money into as an investment. If you consider 

the age of the fund, we just don’t generate enough income. You are 

right. It seems that that was the case from the beginning. 

Ms. NORTON. So, of course, I would add to this. This revolving 

fund notion, you say the agencies, you know, now understand there 

is nothing free in this world, and therefore, they are paying rent. 

But actually, the theory also is that the revolving fund is helping 

with the upkeep of the very buildings in which they are located. 

So the revolving fund notion is they really do get back the investment that comes from their so-called ′′lease payments′′; is that not 

the case? 

Mr. PECK. That is. I always say I think I have the best job in 

American real estate. However, on a day-to-day basis, we get complaints, legitimate complaints, from the agencies we house that 

they are paying us fair market rents and are often not getting back 

the quality of building, if they are in an older building, that they 

would expect from those rents. 

Ms. NORTON. Although the courts get more out of the fund than 

any other part of the Federal Government, they actually tried to 

get a waiver from their contribution to the Federal building. We 

could not believe the gall of any part of government believing that 

somehow somebody else—the taxpayers—ought to carry them, and 

that they should have nothing whatsoever to do with it. We were 

able to put that down, but there was a very concerted attempt to 

get that waiver in the last few years. 

Now, you have got to make us understand the Department of Agriculture and its waiver. Would you describe its waiver and indicate what you have done to make sure that they are like every 

other agency of the Federal Government? 

Mr. PECK. Well, at some point, I think it was—I have forgotten 

the number of years back, but I can provide that for the record. 

Within the last 10 years or so, we agreed to waiving all but operating expense rent for the Department of Agriculture. In other 

words, the basic rent was forgiven. 

Ms. NORTON. They were supposed to keep the buildings up. 

Mr. PECK. Correct, in return for, it seemed like, a reasonable arrangement, I have to say, that the Department of Agriculture 

would take that rent money and use it to renovate their buildings, 

which are also Depression-era buildings and need a lot of work. My 

understanding on the numbers to date is that the waived rent 

amounts to about $400 million, and Agriculture to date has put 

about $200 million into the buildings. We have had a discussion 

within—— 

Ms. NORTON. Just let me ask you: Since you are the leasing and 

construction arm of the Federal Government, one way to have controlled this would simply have been for you to take the money out 

of their appropriation and do the repairs as you would do for any 

other building. I mean, did you just say to them, You who have to 

do with Agriculture, you who are not in the construction and leasing building, you take your own money, and you fix your own building up? 

Mr. PECK. That is it in essence. I mean, that is, in essence, what 

we said. We took the building out of the Federal Buildings Fund, 

9 

for all intents and purposes, and we said to Agriculture, You fix it 

up out of your own funding. That is the way that it was supposed 

to work, and they have put significant money into the building, although it looks like not as much as we have waived. 

Ms. NORTON. How long is that arrangement supposed to last? Is 

there a letter from OMB that the Federal—we would like to see 

this letter from OMB. This says that the Federal Buildings Fund 

is not disadvantaged by the Department’s not paying any rent. 

What is the theory of that? 

Mr. PECK. I am just checking to make sure. I think we did provide a letter to you either from OMB or—— 

Ms. NORTON. Would you describe to us the reasoning of OMB in 

that score? 

Mr. PECK. Yes, ma’am. 

Their view is that, while we no longer have the funds in the Federal Buildings Fund to fix up the building, neither do we anymore 

have the liability to fix up the building, and that that liability is 

on the Department of Agriculture. 

Ms. NORTON. What did they say about the fact that they have 

only come up with $200 million of the $400 million they were supposed to come up with? I mean, I wish OMB were as forgiving in 

other respects as they seem to be here. How would they go and get 

the other money that has not come forward? 

Mr. PECK. I think that—I can’t really speak for them, but I believe that the view may be that eventually the Department of Agriculture will get around to fixing up the building. 

Ms. NORTON. What have been your discussions with them, Mr. 

Peck? I mean, they are not going to eventually spend any money 

they don’t have to spend, let us face it. But there are other things 

if you are the Department of Agriculture—that is why we make 

you, not the Department of Agriculture or HSS, the leasing and 

construction arm of the Federal Government. So they are not going 

to do it unless somehow the GSA Public Buildings Service comes 

forward with a formula that gives them an offer they can’t refuse. 

Mr. PECK. Well, thank you, because I obviously do have a concern, because if this established a precedent, eventually the Federal Buildings Fund would fall apart. We wouldn’t have a revolving 

fund anymore. We would, in essence, have to create what people 

do in the private sector, which is to create a sinking fund. Every 

building would stand on its own and have a sinking fund. Somehow 

they would have to save money to fix up the building. 

We have had some conversation with Agriculture. I know that 

they do intend to fix up the building. 

Ms. NORTON. I am at a loss. Did Agriculture request this letter 

from OMB, or did you request the letter that came from OMB? 

Mr. PECK. We requested the letter. It was partly in response, I 

believe, to yours and Mr. Oberstar’s questions at a hearing sometime last year. 

Ms. NORTON. Well, we are going to have—you know, as to the notion that OMB would not take into account past practice, whether 

or not, in fact, Agriculture had complied with its part of the agreement, was that addressed in the letter? If the agreement were a 

quid pro quo, the agreement is in violation. 

10 

Mr. PECK. I suspect if you—you know, again, I have spoken to 

the officials at the Department of Agriculture. Let me just say I 

think that the origin of this arrangement may have been, if memory serves me well, that Agriculture felt that they had waited a 

long time for their turn to come around in the revolving fund to 

get their building fixed up. So I think the argument was, I will tell 

you what. Forgive the rent. We will use the money, and we will 

start the project ourselves. We will step out of the queue for building renovations. At the time we were way behind on fixing up any 

of the 1930s-era buildings in Washington. I think that is the history of it. 

The question of when they will finish the project I honestly can’t 

address today. I can find out and provide it for you. 

Ms. NORTON. I am going to have to ask you, Mr. Peck, if you 

would within 30 days get to the Committee a plan for assuring that 

the Department of Agriculture meet its agreement under—you 

don’t sign an agreement and then go in violation and have nobody 

do anything about it. So, since you are the agency that is involved, 

the Committee is impatient with hearing about this, and even more 

impatient if OMB wants to let them off the hook since they rarely 

let anybody off the hook. We don’t mind them saying there was 

originally a quid pro quo; we do mind them not saying that one 

party is in violation of the contract. 

We ask you to submit within 30 days a plan for making sure that 

the Department of Agriculture meets its agreement under the contract. 

Mr. PECK. I will be happy to do that. 

Ms. NORTON. I very much would appreciate that. 

I have a number questions, and I will ask one before I go to the 

Ranking Member, who is very practiced in this area. 

I was interested in this 4 percent vacancy rate—that is the rate 

that we understood—compared to 16 percent in the private sector. 

I wondered if you were comparing the GSA rate to owner-occupied 

real estate portfolios or to general market vacancy rates. 

Mr. PECK. It is to general market vacancy rates. 

Ms. NORTON. So that is the appropriate comparison? 

Mr. PECK. Not exactly, no. I just wanted to—we have not highlighted that in our testimony. 

My point is as a benchmark, it is hard to get occupancy rates 

from owner-occupied inventories, but it is just by way of showing 

that a 2 percent rate in the owned inventory, for example, is about 

what you would want to hold because you have needs. If you need 

to shift people around in buildings, you need to keep a little bit of 

vacancy. 

When people ask me that who are private sector owners, they 

say, Well, you know, we do, in the first instance, have the authority to order people to occupy our space. So it is not really a very 

fair comparison. On the other hand, we are very proud of the fact 

that even in the space where we lease, where agencies sometimes 

do move around, we manage to keep a pretty tight rate on inventory. 

Ms. NORTON. Do you out-lease any federally owned space? 

Mr. PECK. Do we out-lease? 

Ms. NORTON. Yes. 

11 

Mr. PECK. We do some, but not very much. 

Ms. NORTON. What kind of circumstance, given your needs, 

would be—do you have a building that is partially filled? 

Mr. PECK. We have some authorities to occasionally—and I am 

not sure it is true anymore. We had buildings that were occupied 

by the VA in which veterans’ organizations could lease space. We 

do have the ability under the Public Buildings Cooperative Use Act 

to lease ground floor and other space for retail purposes where that 

is appropriate. 

In some cases, for example, the Hotel Monaco here is an outleased building because it no longer served very efficiently as an 

office building, and we leased it to a hotel group that renovated it 

and turned it into a hotel, and we do get some rent back from that, 

but rarely do we lease out space otherwise. Section 412 did give us 

much more flexible authority to do that. It used to be we had to 

declare space surplus and go through a long process before we 

could lease it out to anyone else. 

There was one case I know of in which we out-leased to a State 

court when we no longer needed a Federal building, but it is the 

exception. 

Ms. NORTON. Mr. Mica. 

Mr. MICA. Thank you for yielding. 

Just a couple of quick questions. 

As far as your funds to—right now, you know, everyone is talking about acquiring buildings and also about getting rid of, say, 

some buildings that are inefficient, and getting them off the rolls 

and replacing them with more efficient government-owned buildings. As far as dollars to accomplish that, what do you have on 

hand? 

Mr. PECK. Well, as you know, and as, I think, Ms. Norton noted, 

we did in the President’s budget this year propose acquiring two 

buildings that we already have under lease, the Columbia Plaza 

building here and the IRS building in Martinsburg, West Virginia, 

but we don’t have any available funding at the moment—— 

Mr. MICA. Okay. 

Mr. PECK. —to acquire existing buildings that are—— 

Mr. MICA. Out of this stimulus money, you can’t acquire buildings, but could you build a building? 

Mr. PECK. We are taking a couple of buildings that were already 

designed but had not been funded and are building them; for example, a new courthouse in Austin, Texas. The Recovery Act money 

was not allowed—— 

Mr. MICA. To acquire buildings? 

Mr. PECK. It did not allow to us acquire buildings because it 

doesn’t create jobs. 

Mr. MICA. Is there any money available, or is all of that spoken 

for? 

Mr. PECK. The Recovery Act money, all of it is committed to 

projects. We have a project list of more than 250 projects that are 

getting funding. Even, I have to say, we have realized some savings, as I noted, in some of our bids. Even those have been—because the Recovery Act funding said we had to put them into renovation projects or construction, we have clearly not allocated any 

of that to opportunity purchases either. 

12 

Mr. MICA. So, if you wanted to acquire new buildings, basically 

you are out of cash and out of authority? 

Mr. PECK. That is correct. 

Mr. MICA. Okay. So you would need that cash or authority by 

Congress, right? 

Mr. PECK. That is correct. Of course, you can authorize via prospectus, obviously, but we would need to find the appropriations 

funding. 

Mr. MICA. What about your legislative flexibility to accomplish 

some of these deals and maybe sell some properties that are inefficient, replace them, take those moneys and put them into other 

projects? Do you have enough authority to do that? 

Mr. PECK. I think we do have the authority to do that at the moment. The one thing that sometimes gets in the way, which people 

forget, is that we rarely find that we have a building that is totally 

vacant. I mean, we manage better than that. 

Where we find buildings that are only underutilized because they 

are inefficient or partially vacant, you need money up front to be 

able to move people out of those and put them into another space. 

It is kind of like what we discovered in the BRAC process. You 

need to put a lot more construction in Fort Belvoir, for example, 

to move out the people you are moving from other military bases 

that you are able to close down. 

Mr. MICA. Do you keep an inventory of partially occupied Federal 

buildings? 

Mr. PECK. We do. We have an inventory of what we call—the 

term of art in government is ′′underutilized property,′′ and we actually maintain that—— 

Mr. MICA. Right. If possible, could you share a copy with our 

staff? I would appreciate that. I would like to look at that. 

If there are any impediments or lack of flexibility that would 

allow you to acquire properties, exchange properties, dispose of inefficient properties, again, with taking on newer, maybe more efficient, environmentally friendly, transit-located properties—if there 

is anything missing or lacking, I would like to know what authority 

you need. 

Mr. PECK. I will. 

We are, in fact, ourselves taking a look at our surplus property 

procedures because, as you know, there are a number of screening 

requirements that we have to go through once we have declared a 

property surplused before we can take it all the way to sale. There 

are certain procedures that we think we can do faster. On the other 

hand, some of the statutory requirements do make it more timeconsuming than, I think, we might want. We may have some suggestions that we could send up to you. 

Mr. MICA. All right. The only final thing would be if any of those 

deals that you said you have been obligated to fall through, could 

you also let us know on that account? 

Mr. PECK. Yes, sir. 

Mr. MICA. Thank you. 

Mr. PECK. Can I add one other thing? 

We were able with some of our Recovery Act funding to turn a 

couple of projects that would have been long-term leases for longterm government needs into constructed projects. I could just name 

13 

two. One Mr. Diaz-Balart may know as the FBI project in Miami. 

The second was a courthouse in Yuma, Arizona, both of which we 

changed from long-term leases, built-to-suit leases basically, into 

owned buildings. 

Mr. MICA. Thank you. 

I yield back, Madam Chair. 

Ms. NORTON. Mr. Diaz-Balart. 

Mr. DIAZ-BALART. Just one question. Thank you, Madam Chair. 

With the stimulus money, obviously there were projects that 

went forward, or they had to be on the drawing board really quickly. So didn’t that potentially free up some funding for you? I understand you can’t use it for purchasing, but didn’t it free up some 

money that you were looking for that you were already scheduled 

to do something else with? 

Mr. PECK. The only money it would have freed up would have 

been the first-year lease cost of those buildings, and we do not actually have to pay the lease until the building is built. So, theoretically it is freed-up lease costs, say, 2 years from now that we won’t 

have to pay in return for an upfront payment now to build the 

buildings. 

Mr. DIAZ-BALART. It is not cash on hand? 

Mr. PECK. Not significant, no. It would not be significant, but it 

is not cash on hand either. Yes, sir. 

Mr. DIAZ-BALART. Thank you. 

Ms. NORTON. Thank you, Mr. Diaz-Balart. 

Now, I want to get at some of the efficiencies of the way you 

manage the portfolio. What is the industry pricing standard for 

managing a real estate portfolio expressed as a percentage of the 

value of the managed portfolio? 

Mr. PECK. Do you mean the amount of money that one should 

spend every year on your maintaining your capital inventory? 

Ms. NORTON. Yes. 

Mr. PECK. The benchmark which we have used in the past is the 

one from the National Research Council, which recommends that 

2 to 4 percent of the replacement value of an inventory be reinvested every year as a capital upgrade. We have discovered that 

there is a similar benchmark used by the association of the University Business Administrators, so somewhere in between 2 and 4 

percent, and I think the range suggests that if you have an older 

inventory, you go toward the top of that range. 

Ms. NORTON. I was going to make sure I was not being misunderstood. I am really interested in your overhead costs, costs 

which, I think, you testify in your testimony need to be reduced. 

Mr. PECK. Right. I do not have a good benchmark on those because, you know, again, speculative real estate owners typically 

don’t have large workforces. They contract everything out. The only 

thing I can say is I think, you know, in the Public Buildings Service budget, about 95 percent of what we spend is already contracted 

out and is, I think, managed pretty efficiently. On the remaining 

5 percent, which is what we spend on our own salaries, I honestly 

don’t know what a good benchmark is. We are really good at 

benchmarking our utility costs and cleaning costs. 

Ms. NORTON. Well, wouldn’t what you contract out have to be figured into your overhead costs as well? 

14 

Mr. PECK. Well—— 

Ms. NORTON. There must be some way in which you would have 

to capture that. 

Mr. PECK. No. Most of what we contract out is building operations, cleaning, maintenance, architecture services, construction 

services, those kinds of things. 

Ms. NORTON. Leasing you contract out a lot. 

Mr. PECK. Correct. Although that presumably does not cost us, 

because we at least pay those brokers who are doing that work out 

of the lease cost—— 

Ms. NORTON. True. 

Mr. PECK. —but I will have to get you a number. The one 

thing—— 

Ms. NORTON. But you believe that those costs exceed what industry costs generally are, and that they should be better controlled? 

You don’t have a handle on that? 

Mr. PECK. Let me answer it two ways. One is I think they could 

always be better controlled, although I think we are pretty good. 

I don’t want to go farther than that at the moment because we are 

doing a pretty serious review. 

The other thing I will just note is because we are the government, and we have procedures for letting contracts and doing leasing that are much more time-consuming than the private sector 

has, most of the time for good reason, and requiring that we get 

competition and fairness in a way that private sector people don’t 

always have to do, I think it would be hard to benchmark the overhead costs. I am not trying to evade it. I just think overhead costs 

can always be reduced if you get serious about it. 

Ms. NORTON. Well, I think you have got to find some way to compare yourself to the private sector to see how much and whether, 

for that matter. We agree that there is room to reduce overhead 

costs in what you do. 

I was in a quandary to understand why a couple of years ago 

PBS reduced the fee it charges to customers, its agencies—to the 

agencies for leasing services. Why was that done? What was the 

impact on the profitability of this? 

Mr. PECK. We reduced the—I will have to get you the number. 

I believe it was a year and a half or 2 years ago that we reduced 

the leasing fee from 8 percent to 7 percent. The rationale for that 

was that as we used private sector broker services for some of the 

work, we felt that we needed to—it was before my time, but we felt 

that there should be a commensurate reduction in how much work 

the Public Buildings Service employees had to do. But we only reduced by 1 percent, in part because a large percentage of that leasing fee is what is required for us to administer the lease during its 

term, which is after the brokers go away. 

Second, it is an insurance fund, in a way, against the fact that 

agencies can give us 120 days’ notice and walk away from their 

space, leaving us with rent on vacant space, but I don’t know how 

much that 1 percent reduction has cost us. 

Ms. NORTON. They can do what? 

Mr. PECK. You know, one of the fundamental precepts of GSA’s 

being a government-wide real estate organization is that we bear 

the risk in the government that somebody on short notice might 

15 

not need the space that they occupy because we have the opportunity—theoretically, if agency X decides they don’t need space, we 

can invite agency Y, which may be looking for space, to reoccupy 

it. So agencies can give us 120-days’ notice that they have a marketable block of space, and we will take it back. 

Ms. NORTON. But you are not left holding the bag very often, are 

you, Mr. Peck? 

Mr. PECK. No, we are not. 

The only time we have been we have solved this issue. Notice I 

said they have to give us a marketable block of space. There have 

been times when people have said, Okay. I no longer need this office. You can give it to somebody else, and we say, You know, we 

are not quite sure that the Department of Defense really wants to 

occupy one office in the middle of the Park Service space, so we 

don’t let them do that. 

Ms. NORTON. Mr. Peck, we don’t know any way to look at GSA, 

which, after all, is in the marketplace along with everybody else in 

the real estate market, except by comparing you with others in the 

market. So I wonder how you would respond to these facts and figures. 

You control Federal properties, according to your estimates, of 

something like $24 billion to $30 billion. Now, just think of it. This 

is debt free. You don’t pay any real estate taxes. However, you collect equivalent rent, which is inclusive of real estate taxes. Using— 

your own parlance—funds from the operation, you are supposed to 

be netting in the vicinity of $1.5 billion a year, which equates to 

about 5 to 6 percent, but one would expect an investment on income, since GSA does charge commercially equivalent rents, to be 

at least 7 or 8 percent and possibly more when the real estate market is robust. 

Why can’t the Federal Buildings Fund over, the long term at 

least, produce returns in the range of the commercial rates? 

Mr. PECK. You know, we produce a pretty good return. If you 

take a look at our—let me approach it this way. 

Of our $8.5 billion or so of rental income this year, about $5 billion immediately goes out as lease payments, and that is on about 

half of the square footage. So, of the rent that we collect on the 

rest, we have about $3.5 billion left to maintain operations—overhead, utilities, cleaning, all those things, and minor and major alterations on our buildings. 

The way it works out when all is said and done and over the last 

several years on an annual basis, we are at about $700 million, 

$800 million worth of major and minor repairs, and given the age 

of our inventory, that is less than we probably need to stay even 

with the needs. That is the way our budgeting looks. 

Ms. NORTON. So you are blaming it on the fact that you don’t 

produce the same percentage return on your investment as—you 

are blaming that on the fact that you increasingly lease so much, 

and that so much of what you get goes into the leasing market and 

not—— 

Mr. PECK. Well, let me put it a different way. I mean, leasing 

is pretty much a wash, but when you look at this huge rent roll 

we have got—and $8.5 billion is serious money—it looks like you 

16 

should have a lot of money left over to work on your buildings, but 

that $5 billion is kind of gone. You know, the $3.5 billion that we collect on the rest of the inventory in part is relatively low because in old buildings—and this, 

again, goes back to what a revolving fund is all about—on an old 

building, we charge a relatively low rent, because, in real estate 

parlance, it is often a class C building. So when you compare it to 

other buildings in the market—you know, when you look at law 

firms renting class A space, they are renting a much better building for a much better price. Our class C buildings, in essence, don’t 

make enough money, clearly, to fix them up, and we rely on new 

buildings that are charging higher rents and are having less real 

estate need to make the profit. 

Basically what is happening is we don’t have enough of those to 

clear a really good profit to make up for ones that get low rents, 

that don’t make much profit, but that have the needs. So we are 

a little bit upside down on our income and our needs. 

I have to say, lest anybody take this to mean that our buildings 

are just in terrible shape, you know, you can look around here. We 

have now, but in some measure with appropriated funds, been able 

to fix up almost all of the Federal Triangle buildings. The Commerce Department and the FTC still need significant work. 

Ms. NORTON. But that goes back to how we are doing it. 

Mr. PECK. Right. 

Ms. NORTON. That goes back to the fact that this has nothing to 

do with the Federal Buildings Fund. This has nothing to do with 

the original concept or theory of how we would do this upkeep or 

how we would build buildings. 

One of the things that I hope we get out of this hearing is what 

do we do next. This ain’t working, people. This is not functioning 

well. This is not the way to do it, to continue to operate off of a 

faulty theory. 

You know, Congress does this all the time. This doesn’t have 

anything to do with GSA. Congress hides the ball all the time and 

just hopes for the best. Clearly, that is what was happening here. 

But it really does mean, Mr. Peck, that we need to face up and say, 

for example, that the Federal Buildings Fund will no longer have 

to do with one of these functions, possibly construction, because it 

doesn’t do it anyway, and then consider what else we should do. 

You talk about—you know, you look around and you say, But we 

have been able to do X, Y and Z, but then you put in the right caveat ′′with appropriated funds.′′ It is appropriated funds that are 

helping you to fix up buildings all over the United States as I 

speak, precisely because the Federal Buildings Fund could do nothing about it, and we had a deteriorating set of assets. 

Mr. PECK. Right. That is right. 

Ms. NORTON. I want to know, have you and GSA thought about 

how to eliminate what amounts to a structural imbalance built 

into, inherent in, the Federal Buildings Fund? Have you given any 

thought to another formula or to another way to manage your capital assets? 

Mr. PECK. We have certainly had ideas over the years. I was just 

reflecting that had someone offered the Federal building inventory 

to private investors in 1972, they probably would have taken a look 

17 

at the numbers and said, I can only do this if you capitalize a renovation fund, because I need to bring these buildings up to a certain standard so I can charge enough rent to have this revolving 

fund get the running start it needs to keep going over time. And 

that clearly didn’t happen. 

To bring it forward and to answer your question more directly, 

we have certainly over the years considered a number of other 

things. One is—and again, this requires an upfront infusion of appropriated dollars—going out and buying new assets so that we can 

trade in old assets or fix up old assets. 

Ms. NORTON. See, that would mean, of course, we go to appropriated funds. I don’t need to tell you, Mr. Peck—you worked in the 

Senate—that the hardest money to come by is bricks and mortar 

money. 

Mr. PECK. Correct. I am clearly not here to suggest, and would 

be in some hot water if I did, that I will see those funds on the 

horizon any time soon. 

Ms. NORTON. So why don’t we just write that off, Mr. Peck, and 

come up with a real formula. 

Mr. PECK. Well, every once in a while we get infusion funds. 

Ms. NORTON. No. Your own administration has shown—for example, if the administration—let us try to work out a way to deal with 

this. 

If the administration said, We—in 1 year in office and with our 

first budget, we bought a building—a building, I might add, that 

we had bought several times over—but that we bought a building 

because we weren’t going to do that anymore, and in the second 

year in office, with our newest budget, we are buying another 

building, and if this President spent 8 years—and I am hoping for 

8—buying a building, he would have done more in the purchasing 

of real estate than any administration in the history of the United 

States with only eight buildings. 

If we don’t have a goal like that, the whole notion of, well, we 

could always buy buildings—Mr. Mica talked about buying a building, and he asked you how much money was there in your portfolio 

to buy a building, and you ran down where the money goes. We 

know that the money isn’t there, and we know that Congress isn’t 

going to come up with the money except in a circumstance like the 

one we are in now where you are trying to stimulate the economy, 

so I am not sure we should even put that on the table unless we 

put a goal on the table as well. 

Mr. PECK. Well, one other thing I will just note, and you certainly know, is that funding the Coast Guard headquarters building is also getting us out of a—will put us in a good position for 

a long time in the Federal Buildings Fund, as will the rest of the 

Department of Homeland Security’s consolidation of St. Elizabeth’s, 

which will get us out of—— 

Ms. NORTON. By the way, Mr. Peck, have you done any analysis 

of just how much in the Federal Buildings Fund will be generated 

by those moves alone? Could you get within 30 days to this? I 

mean, would it get us some distance toward making the case that 

building does matter? 

Mr. PECK. We can get you that. We have actually done the analysis on the leases that will be vacating for DHS. 

18 

Ms. NORTON. We know that there are as many as 60 different 

locations. I don’t know if all will be vacated, but we do know a fair 

number of them not only will be vacated with what is going up now 

but the RFP that is out on the streets now. 

Mr. PECK. The number is—I have to be careful, because I am 

recused from talking about that lease. But I do know DHS will go 

from something like 43 leased locations down to 3 or 4 leased locations when it is all done. 

Let me just note one other mechanism that is really important 

to put on the table and that is, since we have so much leased 

space—and, as you know, over the years we have talked about this 

a number of times—to the extent that we can turn some of our 

leased locations into government-owned locations, either by buying 

them up front now or purchasing them over time is probably—— 

Ms. NORTON. Funny you should bring up 412 authority. 

Mr. PECK.—probably the most significant way to make a change 

in the profile of the inventory. 

As you know, that has been proposed. We have looked at it any 

number of times. We have had some limited success, but only limited success. And partly for legitimate government accounting reasons, many of those if they are regarded as installment purposes, 

the government scores them as a capital lease. 

Ms. NORTON. This leads to the 412 authority to increase government ownership, and it may be the only thing on the table that is 

realistic at this point. Although I would ask you in your discussions 

with OMB to consider keeping up the pace of at least buying some 

building that you keep paying for if you don’t buy it. That may be 

the criterion to set. You have at least an option to buy most or 

many. 

I should ask that question. Do you often have an option to purchase? 

Mr. PECK. Not that often. We do have some. 

Ms. NORTON. What determines if you are leasing a whole building, in the course of the negotiations would you normally want to 

have—and you don’t anticipate moving out of the location—would 

you normally want to have an option to buy? 

Mr. PECK. Yes and no. Yes, it is a nice thing to have. But I think 

since the scoring rules were written the way they have been, we 

can no longer write a purchase option that allows us to purchase 

at a below-market rate, which means, in essence, that you 

come—— 

Ms. NORTON. How did you do the State Department or the Columbia Pike—— 

Mr. PECK. That purchase option was written before the scoring 

rules were put into effect, so we have an incredibly favorable 

below-market purchase option. 

Where we are left today if we write a purchase option, we get 

to the end of the lease and we can go to the owner and say, we 

would like to buy the building; and he or she says, sure, for market 

value; I will put it out to bid. And so, whether we have a purchase 

option or not, we don’t have any different situation than we would 

have if we would just sort of go to them at the end of the lease. 

Ms. NORTON. Oh, my, I didn’t even know that. 

19 

Could you within 30 days tell—write to this Committee about 

how many below-market purchase options you have outstanding 

now, recognizing that you couldn’t do that scoring. Every time I 

find a new way in which scoring costs the taxpayers money. 

Mr. PECK. We can get you that. 

Ms. NORTON. Appreciate that. 

On 412 authority—we have had this dialogue over and over 

again—you were to go to OMB to say, can we use what Congress 

told us to use? We, of course, were insulted by that. We thought 

we were the ones who got to tell you what to do. 

But, in any case, let me ask you, if you have had a conversation 

with OMB, did you have it around specific 412 projects? If you have 

it in the abstract, of course, I can imagine what they would say. 

Has that conversation been taken—been had about projects on 

which 412 authority could be used? 

Mr. PECK. We have had—at least since I have been back at GSA, 

we have had that conversation with OMB about their openness to 

looking at some 412 projects; and they have said, as you suggest, 

on a project-by-project basis they are open to it. 

We have brought one or two projects to them within the last year 

that are potential that we don’t yet have—we have not yet done all 

the analysis we need to go to them and talk about how it might 

be done in a way that will conform to those—we haven’t gotten the 

numbers to the point where we can say with assurance to them or 

to ourselves that they don’t violate the scoring rules. But we do 

have a couple in the pipeline. 

Ms. NORTON. Mr. Peck, I am going to have to ask you, because 

the Subcommittee believes it has to advance the conversation every 

time we meet, to submit to us fact sheets for five projects. Theoretical, we are not asking you to commit to them, where at least 

theoretically you believe GSA believes 412 authority would be appropriate to use, the numbers and all of what would be appropriate 

turned out; and if you would include in the fact sheets all the information that would be included in a prospectus. We need to judge 

this against something realistic so we don’t keep asking questions 

in the abstract. 

Could you get that? I will give you 60 days on that one. 

One more question. This comes from your testimony. You indicated PBS has sold unneeded assets totaling $198 million and I 

think that you testified about that as an indication of your use of 

412 authority. 

Mr. PECK. What I meant was, before section 412, when we sold 

the property we certainly had the authority to sell a property, but 

the revenue from that went into either the general treasury or the 

landlord conservation fund. But now we have the opportunity to 

put it back into the Federal Buildings Fund—— 

Ms. NORTON. That’s it. This is why 412 authority is just so valuable. If I were in your position I would spend all my waking hours 

trying to find ways to use 412 authority. There are so many avenues that it opens for a creative real estate developer to try to take 

advantage of it, even within scoring rules, we believe. But you found $198 million. Does that mean $198 million went 

into the Federal Buildings Fund? 

Mr. PECK. Yes, yes. 

20 

Ms. NORTON. Were these under-performing assets? Give us an 

idea of what kinds of properties and over what period of time are 

we talking. 

Mr. PECK. This was going back to fiscal 2005 through I think the 

middle of 2009—or the end of fiscal year 2009. So over 4 years. 

We had one—for example, the Thaddeus Dulski Federal Building 

in Buffalo, New York, which we were able to vacate in its entirety 

and sell, I think was one of the bigger sales. I would be happy to 

provide you a list of the others. 

Ms. NORTON. I wish you would. 

Mr. PECK. There were a couple of large sales that usually happens. 

Ms. NORTON. They were under performing? I mean, why did you 

decide—on what basis did GSA decide to sell an asset? 

Mr. PECK. Typically, where we are building a new building or 

new courthouse. 

Ms. NORTON. Is that what happened here? 

Mr. PECK. I think we just reached a point in Buffalo where we 

didn’t need as much space anymore, and it wasn’t worth putting 

money back into it. We were able to move enough people out to vacate it in its entirety. 

Ms. NORTON. Do you have a goal for looking for under-performing assets and selling assets? And, if so, how is that done and 

what do you expect for this coming fiscal year. 

Mr. PECK. Well, in fact, we organized this morning a task force 

to look at vacant surplus property because we want to put more 

emphasis on that as well. We are trying to scrub our inventory to 

see what realistically we might sell in a realistic time frame. 

Ms. NORTON. Recognizing this is not the market where you have 

many people trying to buy except us, we should be trying to buy, 

but it is a very good thing to be doing, and we applaud it and encourage it. 

I am going to ask you a last question about courthouses, the 

bane of our existence. Are you building any courthouses as I speak? 

Mr. PECK. Oh, yes, ma’am. 

Ms. NORTON. Where are the courthouses being built? 

Mr. PECK. Under construction as we speak—Austin, Texas—I am 

trying to think. I know of courthouses in design. I believe we have 

just let a design-built contract in Bakersfield, California. I don’t 

know exactly where it is in the process. San Diego is under construction again. 

Ms. NORTON. I am asking you this question really to make sure 

about any new courthouses, and I must ask you straight up: Will 

each and every new courthouse you are building comply with the 

sharing standards established in this Subcommittee’s San Diego 

resolution? And those are: two magistrates for one courtroom, two 

senior judges for one courtroom. 

Mr. PECK. As far as I know. Needless to say, I have had conversations about this. The information that I have from the courts, 

at least on all the conversations I have had with them on 

projects—and so I am want to issue a caveat in a moment—they 

have said that they are meeting the sharing guidelines—— 

Ms. NORTON. It is not up to them. 

21 

Mr. PECK. No, I know that. But the courts have agreed to a set 

of sharing guidelines which we are, in fact, enforcing. In San Diego 

specifically, I know that the Committee put a standard in the resolution, and we are following that in the San Diego project. 

Ms. NORTON. Those standards were not for San Diego alone. I 

mean, we would not do to San Diego what we would not do to every 

courthouse. We have found scandalous inventory unused in courthouses, and that is now a well-known fact that will be documented 

in a GAO report that is going to come out soon. We found courtrooms that nobody was using for long periods of time, because the 

judges said so. The judges are no more in charge of building their 

own premises than any Federal agency is. The fact that they took 

control of what is your province was a reflection on GSA and much 

to the detriment of the courthouse. 

They were found, as you know, Mr. Peck—I am not sure you 

were here or not when really scandalous stuff was found in the 

courthouses. Like they were building as if they were CEOs of some 

Fortune 500 company. Building extra kitchens and bathrooms and 

thinking of things. What else can we do? It was particularly inappropriate behavior for a judge, because it bordered on the kind of 

stuff people go to jail for, using taxpayers’ money beyond what anybody could possibly have expected. And we talked to GSA. GSA 

said, well, the judge did it. What does a judge know? 

Mr. PECK. Madam Chair, when I was at GSA before, we established a design guide with the courts; and after a lot of—— 

Ms. NORTON. —are going to put that guide exclusively under the 

control of GSA. We have had a hard enough time with GSA keeping control of its own function when it comes to sister agencies, but 

with respect to the courts GSA gave it up, and they became essentially their own GSA. 

Mr. PECK. What I think happened—well, one of the issues that 

I think you and we and the courts have been concerned with—because I wanted to describe my conversations recently with the 

courts—is a question aside from the issue you raise, which is legitimate, about how much we are using existing courtrooms—is the 

projection of how many judicial officers will there be in a district 

or a circuit in a given amount of time. Because some of what we 

are doing is building for expansion needs, some of which has clearly not come about. 

Ms. NORTON. Let’s stop right there. The judges and GSA bought 

it, had insisted on building courtrooms for judges that Congress 

had never even authorized on the theory that one day we will have 

bigger courts. The outrage of assuming for us that we are going to 

somehow authorize increasing numbers of district and Court of Appeals judges is a way of getting one courtroom per judge, nothing 

more and nothing less; and we are not falling for it anymore. 

Mr. PECK. Well, let me say I don’t think—except for meetings on 

security, I don’t think I have had any more meetings since I have 

been back at GSA with anyone other than the courts. 

I will say I think there has been a change in the judicial conference in the administrative office. I think their leadership on the 

space committee of the judges and the leadership at the top of the 

AOC, I think they have recognized that the courthouse building 

program—which I have to say we have been fortunate to be a part 

22 

of just because we are building great courthouses and I think they 

are an important function for our democracy—I think that there is 

a realization that if we don’t get pretty tight about space utilization 

that the program is in jeopardy. And I think there is much more 

of a recognition that they really have to take a look at what the 

projections are for judgeships and build to a more realistic expectation. And I have to say they are working in a much more cooperative manner with us than they were when I was here before. 

I feel like I need to say that. I am not sure we are at the perfect 

balance yet, but I think we are working pretty hard at it. And the 

courthouses that we are designing now, I think—and I would be 

happy to talk to you about this—meet the standard that I understand has been one agreed to about what senior judges get and 

what magistrates get and at least they are sharing there. 

Ms. NORTON. That is very good news. The judges have only a 

right to inform us of courthouses in terms of vacancies, not they 

anticipate that Congress will authorize new judges and to leave us 

with courthouses, courtrooms standing. But, again, this will become more apparent when the GAO report comes out. 

Mr. Peck, your testimony has been very helpful. We look forward 

to getting the list of potential—and we understand it to be only 

highly potential—but potential of 412 authorities. Frankly, we are 

at a loss. That is why this hearing is so important, to fill in what 

we appreciate you candidly told us in your testimony, that the 

present formula doesn’t work, and we think it is important for the 

Subcommittee working with GSA to come forward with a new formula. 

That is why you see me trying out things—can we get the administration, I wish you would have a conversation with OMB, recognizing that there is—we are certainly not going to cure this problem by building a whole bunch of new buildings. 

Can we get at least the goal of purchasing a building on the 

order of Columbia Plaza where you keep buying the building? That 

could be one standard you could put. Can we carve out 412 authorities that stay within scoring where the return for the government 

is so great that it becomes, particularly in this market, almost irresistible? Are there parties who could cooperate with the Federal 

Government in this economy to do so? If we begin to do the planning, we will see, the more we flesh it out, whether we are talking 

about anything realistic. 

Thank you very much, Mr. Peck. 

Mr. PECK. Thank you for the opportunity. 

Ms. NORTON. I ask for the second panel to come forward, please. 

I ask you to testify in the order in which you are seated. 

Panel II, David Nash, the President of David Nash & Associates, 

testifying for the National Academy of Sciences. 

23 

STATEMENTS OF DAVID NASH, PRESIDENT, DAVE NASH & ASSOCIATES, ONE PERIMETER SOUTH, NATIONAL ACADEMY 

OF SCIENCE; JOHN HENTSCHEL, PRESIDENT, HENTSCHEL 

REAL ESTATE SERVICES, MEMBER, COUNSELORS OF REAL 

ESTATE; RICHARD GRENINGER, MANAGING PARTNER, CARR 

SERVICES; AND KEVIN STOKLOSA, ASSISTANT TECHNICAL 

DIRECTOR, FINANCIAL ACCOUNTING STANDARDS BOARD 

Mr. NASH. Thank you, Madam Chair. 

As you said, my name is David Nash; and I am the President of 

Dave Nash & Associates. It is a firm that provides project and program management consulting. 

I am on about my third retirement now, so I have had a lot of 

action over the 45 years I have been in this business. I have been 

involved with buildings and infrastructure for, as I said, 45 years 

in various places, from the U.S. Navy shore establishment around 

the world to, most recently, the reconstruction of Iraq’s infrastructure. 

I am here today as a member of the National Academy of Engineering and the Chair of the National Research Council’s Board on 

Infrastructure and the Constructed Environment. My primary message here today is that, although we may have a crisis in Federal 

capital assets, we also have a tremendous opportunity to change 

how we invest in Federal facilities so we can operate them more 

cost effectively and more sustainability. Change is both necessary 

and possible, in my opinion. 

In 2004, I was Vice Chair of the National Research Council’s 

Committee on Business Strategies for Public Capital Investment. 

The committee’s task was to develop guidelines for making better 

decisions about investments in Federal facilities based on best 

practices from private-sector organizations. 

From the start, our committee recognized that there are inherent 

differences between the mission’s goals and operating environments 

of the private-sector organizations and those in the Federal Government. Nonetheless, we identified a number of best practices 

from the private sector that we thought could be adapted through 

the Federal Government and could result in a better and more 

cost-effective management of our Federal facilities. Such practices 

include life-cycle costing, approaches for acquiring facilities, determining when to own and when to lease, and, finally, disposal of excess facilities. Our committee found that the Federal budget practice provide few if any incentives for Federal agencies to use these 

procedures. 

Although your hearing today is focused on the General Services 

Administration’s building fund, in our research we found that there 

are 30 other Federal agencies that are also responsible for investing and operating and maintaining facilities. In total, those agencies own more than 400,000 facilities worldwide. Many of these 

agencies are reporting billions of dollars in deferred maintenance. 

Obviously, one of the reasons is lack of funding. Another reason 

is that all of the buildings are at least 50 years old and much older 

in DOD and are deteriorating due to wear and tear. 

In the last 50 years, the missions and programs of some of these 

Federal agencies have changed, although their buildings haven’t, 

for the most part. The result is that many departments and agenVerDate Aug 31 2005 12:46 Oct 25, 2010 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 P:\DOCS\55669.0 KAYLA
24 

cies have excess, underutilized and obsolete facilities that are still 

operating and they are still operating and maintaining. 

So what can we do to change this situation? One important step, 

in our opinion, would be the change to require life-cycle costing for 

major facilities proposals. Life-cycle costing considers not only what 

it will cost to build a facility but also what it will cost to operate 

and maintain it for 20 or more years. 

Private-sector organizations use life-cycle costing to calculate 

what a building will cost and what it will cost for equipment and 

furniture and staff. This process provides transparency about the 

total commitment of the resources that they—and the ′′they′′ are 

the boards and the leadership of these various companies—are 

making. They intend to determine what the total impacts will be 

on the organization and what trade-offs that will have to be made. 

In the Federal Government, the budget process and the scoring 

rules are structured not only to look at design and construction 

costs but facility which—the first cost, which may be only 10 percent of the life-cycle cost. In other words, the rest of the cost of 

owning a building occurs over the years it is in use. So when the 

funding is approved to acquire a new Federal building, what it will 

actually cost to operate the building for 20 or more years is not 

transparent to decisionmakers or the public. 

The NRC has recommended that agencies should use life-cycle 

costing for all significant facilities investment decisions to better 

inform decisionmakers about the full cost for a proposed investment. 

Best practice private sector organizations also use life-cycle costing when they are deciding whether to own or lease facilities. 

Large private-sector corporations typically own those facilities that 

are most important to their business success and for which they 

want to exert maximum control for a long period of time. They 

lease those facilities that are less critical to their operations for 

which they may need only for a short time. This allows private-sector firms to divest facilities they no longer need. 

For Federal agencies, the own versus lease decision is not as 

clear-cut. Again, the budget process focuses on design and construction costs and focuses only on the next fiscal year. These budget 

practices create an incentive to lease space, because the 1-year cost 

is much lower than the cost of designing and constructing a new 

building. However, over those 20 or 30 years the building is in use 

the cost of leasing may be greater than the cost of owning. 

The budget process also encourages agencies to continue to use 

old and obsolete facilities, which may cost more to operate and 

maintain but where costs are not transparent to the decisionmakers. 

Our committee did find that some Federal agencies were able to 

use some alternative approaches for acquiring, operating, and 

maintaining facilities in order to leverage available funding. These 

approaches included some public-private partnerships, out leasing 

arrangements. However, all these approaches were used on a caseby-case basis under an agency specific legislation. 

Our committee recognized that using alternative approaches on 

a more widespread basis does carry some risk and raises concern 

about transparency. Nonetheless, the NRC has recommended that 

25 

more widespread use of such approaches be allowed in order to leverage funding. 

We also recommended that pilot programs be used to test the effectiveness of various approaches and to evaluate the outcome of 

national, State, and local perspectives. Making this happen will require a collaborative effort on the part of Congress, the administration, Federal agencies, including the Office of Management Budget 

and Congressional Budget Office. 

Finally, I would like to address the issue of excess, underutilized, 

and obsolete facilities. Significant amounts of available funding for 

maintenance and repair are invested in such facilities, just to keep 

them up and running. Potentially significant amounts of taxpayer 

dollars can be saved over the long term if greater emphasis was 

placed on divesting the government of unneeded but still viable 

properties. Under current procedures, agencies have few incentives 

and significant disincentives to dispose of excess facilities. 

The National Research Council has recommended long-term requirements for maintenance and repair expenditures should be 

managed by reducing the size of the Federal facilities portfolio. The 

Council has also recommended that Congress and the administration lead an effort to streamline government-wide policies, regulations, and processes related to facilities disposal. 

This concludes my remarks. Thank you for the opportunity to 

testify. 

Ms. NORTON. Thank you very much, Mr. Nash. 

John Hentschel, who is President of Hentschel Real Estate Services, Counselors of Real Estate. 

Mr. HENTSCHEL. Good afternoon, Madam Chairwoman and Members of the Committee. Thank you for the opportunity to testify before you today. 

My name is John Hentschel. I am a member of the Counselors 

of Real Estate and President of Hentschel Real Estate Services, a 

real estate consulting and advisory firm that, among other things, 

advises government leaders in the U.S. and abroad about real estate valuation and asset and portfolio management issues. 

I can also empathize with Mr. Peck because in a former portion 

of my career I also had to manage a government portfolio of real 

estate for the city of Baltimore. 

The testimony that I am presenting today is based on the findings of a 2001 CRE Consulting Corps assignment commissioned by 

the Public Building Service. It was designed to independently assess PBS’s portfolio management policies and procedures and compare its newly devised asset management strategy at the time with 

best practices employed in the private sector. 

PBS’s new strategy sought to shift its capital decision-making 

process from a tactical to a strategic one. It envisioned that only 

self-sufficient properties that would be capable of producing revenues greater than operating expenses for the Federal buildings 

fund would be retained and allotted funding for repairs, alterations, and replacements. Those properties that failed to meet that 

criteria would be targeted for disposal. 

The Counselors of Real Estate, an affiliate of the National Association of Realtors, is a professional society whose approximately 

1,100 members are among the world’s most respected and highly 

26 

qualified advisors on real estate matters. As a public service, the 

Counselors organized a Consulting Corps which provides strategic 

advice to government agencies and non-profit organizations who 

seek strategies to resolve real estate problems. 

The Consulting Corps employs a collaborative process for which 

CREs volunteer their time and effort on a pro bono basis. For this 

assignment, I chaired a panel of CREs that also included Mahlon 

Apgar, Howie Gelbtuch, Barbara Hampton, and Frank Livingston. 

After reviewing relevant documents and briefing materials and 

conducting 5 days of intensive interviews and thoughtful deliberations, the panel presented its findings and recommendations to the 

PBS Commissioner in a verbal report entitled An Agenda for Strategic Change on September 14th, 2001, followed by the panel 

Chair’s address to a conference of PBS regional administrators in 

Kansas City on November 6th, 2001. 

With respect to the PBS portfolio, the CRE panel observed that: 

In terms of age, the building inventory was old, with an average 

building age of more than 50 years, and was below average in quality and physical condition. 

In terms of productivity, the income produced by the building inventory for the Federal Buildings Fund was highly stratified and 

concentrated, with 55 percent of the square footage generating 95 

percent of the funds from operations. 

The capital needs of the building inventory for RAR—repairs, alterations, and replacements—were excessive, estimated by the 

GAO at that time to be in excess of $4 billion, with many repairs 

having been deferred repeatedly and indefinitely. 

The availability of and access to investment capital to address 

the portfolio’s RAR needs was extremely limited, well beyond the 

FBF funding capacity, with little prospect with direct congressional 

appropriation and few other identifiable sources. 

Unlike the private sector, the legal and budgetary environment 

within PBS operated was highly structured, rigid, unsympathetic, 

and not amenable to change, modification, or exception. 

In comparison to private-sector standards, PBS’s allocate of administrative overhead to each building within the portfolio was exorbitant, counteracting any benefits associated with self insurance 

and local property tax exemption. 

PBS at the time lacked a strategic mind-set. Its narrow caretaker 

focus and preference for long-term property ownership conflicted 

with PBS’s stated mission and the Federal Government’s inherent 

budgetary and accounting bias against capital investment reflected 

in its ′′scoring′′ rules, the absence of a capital budgeting process, 

and PBS’s inability to retain disposition proceeds for other uses at 

the time. 

Unlike prior studies commissioned by PBS, the CRE panel approached the issue from a much broader perspective that considered PBS’s mission, funding, structure, systems, and skill sets. 

In addition to endorsing the adoption of PBS’s more strategic approach to allocating its limited resources, the panel also recommended that PBS assume and demonstrate its capacity to perform a strategic leadership role as an advisor to help Congress, the 

OMB, and client agencies make informed real estate decisions. The 

panel further suggested that PBS should define and develop cost, 

27 

efficiency, and performance standards to guide real estate decisions 

of the Federal Government. 

Organizationally, the panel believed that PBS should reduce redundancy and streamline regional entities, intensify management 

controls and institute uniformity and universal application of all 

processes, procedures, and decisions which were lacking at the 

time. 

Procedurally, the panel felt that PBS should instill more discipline in its decision-making process and introduce more rigor and 

uniformity in its analytical procedures. Among the panel’s many 

suggestions were that PBS should compare and contrast the cost 

and benefits of leasing versus ownership—including the cost of repairs, alterations, and replacements—on a net present value basis 

as well as calculating the cost of inertia—that is, the cost of doing 

nothing for every property related decision. 

The panel also thought that adopting a 5-year capital budget 

process which compared and contrasted portfolio results with and 

without the expenditure of the needed RAR investments, even if 

performed internally for information purposes, would impose a 

level of fiscal discipline then lacking at the PBS analytical process. 

In the panel’s view, opportunities for outsourcing, especially the 

management of small, remote, or isolated facilities, should be examined and encouraged whenever possible to save money. 

The panel encouraged PBS to seek the authority to not only negotiate cancellation rights and purchase options in its lease agreements but also the ability to segregate maintenance from new construction funds and retain property sale proceeds within the Federal Buildings Fund to fund RAR requirements, which was subsequently done. 

In closing, the panel commended PBS’s foresight and its commitment to adopt contemporary asset management procedures. The 

panel exhorted PBS to continually strive to achieve the efficient 

and balanced deployment of Federal real estate assets by periodically evaluating portfolio contents and electing to dispose of those 

properties that under perform established benchmarks to yield the 

most benefits at the least cost. 

Thank you very much for your time and attention. 

Ms. NORTON. Thank you very much. 

Mr. Greninger, Managing Partner, Carr Services. Mr. Greninger. 

Mr. GRENINGER. Good afternoon. I am Richard Greninger, Managing Partner, Carr Services; and I am here today on behalf of the 

Building Owners and Managers Association International. Thank 

you for the opportunity to share BOMA’s perspective on best practices in managing building maintenance programs. 

To begin, I could like to clarify that my comments are limited to 

general industry practices and are not intended to infer that GSA 

does or doesn’t follow these practices. 

According to BOMA’s annual income and expense benchmarking 

report, the Experience Exchange Report, private-sector commercial 

office buildings in 2008 spent $1.80 per square foot on repair and 

maintenance and an additional $0.23 per square foot on the maintenance of roads and grounds. This represents approximately 25 

percent of a building’s operating expenses. 

28 

For government buildings, the amount spent on repairs and maintenance is quite a bit higher, $2.43 per square foot. The combined expense of repairs, maintenance, roads, and grounds for government buildings accounts for approximately 28 percent of the operating budget. 

For the building as well as the building systems to remain fully 

operational as designed, the property manager and the engineering 

team need to develop a maintenance program. Most properties’ programs include three basic types of maintenance: reactive, preventive, and predictive maintenance. The degree to which the property 

dedicates its resources to each form of maintenance depends greatly on the owner’s objective for the property, the staffing level and 

skill set of the engineering employees assigned to the property, and 

many other factors. 

Reactive maintenance occurs when the building system has already broken and needs repairing or requires calibration. This type 

of maintenance typically bothers tenants the most because they 

have no warning that the system will be out of service. Examples 

of reactive maintenance include replacing light tubes and bulbs 

when they burn out, fixing a motor when it fails, or repairing a 

pump when it seizes up. 

All buildings employ some degree of reactive maintenance. No 

maintenance system can predict or prevent failures with 100 percent certainty. Even if such a system existed, it would be too expensive to manage in a commercial building. In the long term, however, reactive maintenance programs tend to be expensive. Equipment that is not maintained proactively often fails earlier and costs 

more to operate than equipment that is maintained aggressively 

ahead of time. 

In some cases, reactive maintenance may actually be the preferred strategy. If, for example, the owner is preparing to perform 

extensive renovations of a vacant building, he may choose to contain costs before construction begins by fixing only the critical components that malfunction. 

Preventive maintenance strives to prevent the system components from ever breaking. Preventive maintenance lowers operating costs and utility costs and, in many cases, extends the useful 

life of systems components. In addition, evidence of a good preventive maintenance program improves the value of the property at 

sale because the purchaser believes the systems are in good condition and won’t need to be replaced in the near future. Plus tenant 

satisfaction and retention levels may improve because tenants are 

inconvenienced less when maintenance is done on a time-based 

schedule. 

Preventive maintenance is based upon visual inspections of 

equipment and regular maintenance schedules. The centerpiece of 

the preventive maintenance program is a schedule listing of all the 

preventive maintenance tasks and a plan to achieve them during 

the year. 

The third type of maintenance, which is growing in popularity 

among high-performance organizations, is predictive maintenance. 

Predictive maintenance is a program that uses approved nondestructive testing procedures to analyze the condition of building 

equipment and relies on statistics, measurement, and experience to 

29 

predict equipment service and maintenance requirements. Like 

preventive maintenance, predictive maintenance is proactive. 

Where preventive maintenance relies upon a time-based schedule, 

predictive maintenance uses statistics, measurements, and experience to determine the service interval for a particular piece of 

equipment. 

Predictive maintenance is based upon the fact that, before a 

piece of equipment fails, certain measurements will start to change. 

In a typical predictive maintenance program, the time intervals between preventive maintenance operations are based not on the calendar but on when the equipment actually needs maintenance to 

continue to optimize performance. 

Major equipment manufacturers have begun to embrace the concept of predictive maintenance. Preventive maintenance may call 

for a part to be replaced every year, regardless of the amount of 

use the equipment received. With predictive maintenance, the specific use pattern of each piece of equipment and the measurement 

taken to show how the equipment is working are used in the decision process. 

In conclusion, building owners and managers must look at both 

short-term and long-term costs when developing a maintenance 

plan and budget for their buildings. The General Services Administration has done a good job with the tools they have been given. 

However, to most effectively manage a diverse range of facility design, construction, rehabilitation, restoration, renovation, and operations projects, they must be given sufficient funding. 

Thank you. I welcome any questions you may have. 

Ms. NORTON. Thank you, Mr. Greninger. 

Finally, Kevin Stoklosa, Assistant Technical Director, Financial 

Accounting Standards Board. 

Mr. STOKLOSA. Thank you, Madam Chairperson. 

My name is Kevin Stoklosa. I am Assistant Director of Technical 

Activities at the Financial Accounting Standards Board. 

The FASB is an independent private-sector organization that establishes standards for financial accounting and reporting for private-sector entities, including businesses and not-for-profit organizations. Those standards are officially regarded as generally accepted and authoritative. 

The Subcommittee has identified the challenge of maintaining a 

dwindling Federal Buildings Fund. As the Subcommittee considers 

ways in which to address these challenges, I would like to focus my 

remarks on the FASB’s Statement 13, Accounting for Leases, and 

how the expected revisions to the standard could impact the Federal Buildings Fund. 

The primary reason for the FASB’s current joint leasing project 

with the International Accounting Standards Board is the SEC’s 

report from June, 2005, entitled Report and Recommendations Pursuant to Section 401(c) of the Sarbanes-Oxley Act of 2002, and arrangements with off-balance-sheet implications, special purpose entities, and transparency of filings by issuers. A link to this report 

is provided in my written testimony. 

The SEC report included several standard-setting recommendations, including reconsideration of the accounting guidance for 

30 

leases, noting that the current accounting for leases take an all-ornothing approach to recognizing leases on the balance sheet. 

Today, lease accounting standards require lessees to classify 

their lease contracts as either finance leases or operating leases. 

Finance leases are defined as those leases that transfer to the lessee substantially all the risks and rewards incidental to ownership 

to the leased asset. All other leases are deemed operating leases. 

Detailed rules and bright-line tests are used to differentiate between whether a lease is classified as a finance lease or as an operating lease. 

Leases classified as finance leases are treated similarly to the 

purchase of an asset such as purchasing office furniture or a copy 

machine. Consequently, lessees recognize in the statement of financial position the leased item and an obligation to pay rentals. The 

lessee depreciates the leased items in a portion of lease payments 

between a finance charge and reduction of the outstanding liability. 

The lessor treats the leased item as a sale and removes its from 

its balance sheet. 

For leases classified as operating leases, no similar assets or liabilities are recognized by the lessee; and the lessor does not remove the asset from its balance sheet. Other than rental expense 

being reported in the income statement each reporting period, operating lease accounting lacks transparency around the assets and liabilities inherent in the lease. Given this lack of transparency, the 

existing lease accounting model has been criticized by users of financial statements for failing to meet their needs. 

Preparers and auditors also have criticized the existing leased 

accounting model for its complexity. In particular, the detailed 

rules and bright-line tests for differentiating between financed 

leases versus operating leases have proven difficult to implement. 

After much analysis, the FASB and the IASB are developing a 

new approach to accounting for leases that would require all leases 

to be counted for similarly. Rather than treating some leases like 

the purchase of a leased item, which would be financed leases, and 

others as operating leases, the new, more transparent proposed approach would treat all these contracts as the acquisition of a right 

to use the leased item for the lease term. Under this approach, the 

lessee would recognize an asset representing its right to use the 

leased item for the lease term, also known as a right-to-use asset, 

and a liability for its obligation to pay rentals. 

For lessors, the Board has decided to adopt a performance obligation approach. Under that approach, a lessor would recognize an 

asset representing its right to receive rental payments, which 

would be a lease receivable, and the liability representing its performance obligation under the lease, that being its obligation to 

permit the lessee to use one of its assets. The lessor would recognize revenue as the performance obligation to satisfy over the lease 

term. 

This new approach to lease accounting also would be applied to 

sale leaseback type transactions whereby the owner of an asset 

such as a building sells the building to a third party and leases it 

back for an agreed-upon period of time. In those situations, the 

seller would derecognize—that is, remove—the building from its 

balance sheet, record any profits associated with the sale, and then 

31 

recognize an asset representing its right to use the leased building 

for the lease term and a liability for its obligation to pay rentals. 

The FASB and the IASB have noted that this new approach to 

lease accounting would address many of the criticisms of the existing standards. 

Madam Chairperson, that concludes my prepared remarks. I 

would like to thank you and the Subcommittee for the opportunity 

to testify this afternoon. I would be happy to answer any questions. 

Ms. NORTON. Thank you, Mr. Stoklosa. 

While we have you here, particularly in light of our discussion 

with Mr. Peck, would the proposed changes of the Board of FASB 

13 make a material difference in the owned versus leased decision 

for real estate users? 

Mr. STOKLOSA. The proposed changes would not make a major 

difference. 

Currently, under current accounting guidance, there is a difference. Because if you have an operating lease, then you don’t 

record an asset or liability. But under the new approach, regardless 

of whether you lease or you buy, you would record an asset and a 

liability, assuming you financed the purchase of it if you bought it. 

Ms. NORTON. Has there been any response from OMB on the proposed new accounting standards? 

Mr. STOKLOSA. There has been no response yet. 

Ms. NORTON. When were these issued again, please? 

Mr. STOKLOSA. We haven’t issued yet. We are going to issue an 

exposure draft probably in June of this year, and we will issue an 

exposure draft for a comment period of about 4 months. During 

that time, we will solicit comments both in writing and we will 

reach to different constituents who have a lot of leasing activities 

and talk to them about the proposals. 

Ms. NORTON. Do you think government and private for-profit entities should be governed by the same accounting standards? 

Mr. STOKLOSA. In my opinion, I think if you buy or lease something, regardless if you are a government or private entity, I think 

you should account for the assets and the liabilities that you have. 

Ms. NORTON. What do you think is the major contribution of 

these new standards? For example, are they going to make transactions more transparent? 

Mr. STOKLOSA. That is correct. They will put on the balance 

sheet the assets and the liabilities that exist within a leased contract for investors to be able to analyze all the assets and all the 

liabilities that an entity may have, as well as the income statement 

impacts of those assets and liabilities. 

Ms. NORTON. Have any private parties voluntarily adopted the 

standards that the Board is proposing? 

Mr. STOKLOSA. They can’t be voluntarily adopted until they become official, and then at that point they would have to become 

mandatorily adopted. 

Ms. NORTON. What is the view of the private sector on what you 

have been doing? I am sure you have been having hearings of the 

kind we have been having. 

Mr. STOKLOSA. The general view of the private sector is that they 

believe putting these assets and liabilities on the balance sheet is 

a good thing, and now they have some concerns about how the inVerDate Aug 31 2005 12:46 Oct 25, 2010 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 P:\DOCS\55669.0 KAYLA
32 

come statement will be impacted by putting those assets and liabilities on the balance sheet. So we have to work through those 

issues. 

Ms. NORTON. Mr. Hentschel, I was stunned by the statistic in 

your testimony that 55 percent of the buildings, I believe you said, 

in the GSA portfolio produced 95 percent of the funds. 

Mr. HENTSCHEL. Yes, ma’am. 

Ms. NORTON. I wonder what you think should be—with that kind 

of imbalance, does that relate to the age of some of the buildings 

versus others? 

Mr. HENTSCHEL. Whenever you are dealing with an aging portfolio of properties, the other properties are probably going to require more maintenance, more repairs. But over time what it basically says and what our panel found was there is an inclination to, 

in this custodial function, what we found in terms of our paneled 

discussions, sometimes when you are managing assets you have to 

take a look from a strategic rather than a tactical standpoint. 

The first thing you do when you say the roof is leaking is you 

say oh, gee, we should fix the roof; and that is not the first thing 

you should think. The first thing you should think is should we fix 

the roof? Because just because it is leaking doesn’t necessarily 

mean you automatically spend precious resources to repair it. 

Ms. NORTON. What would go into the decision not to fix a leaking 

roof? 

Mr. HENTSCHEL. I had a similar circumstance when I was running real estate for Baltimore city with our police headquarters 

building. In that particular case, we had asbestos problems and we 

had systems failures. 

The first inclination of the city was to say, let’s move everybody 

out, and let’s fix the building, and we will move everybody back in. 

At that point in time, I said, from an asset management perspective, we should step back for a second in this one particular building and now let’s start looking at are there other alternatives. 

Should we be thinking about leasing property instead of owning it. 

Should we be thinking about building a new building? Should we 

be thinking about other options, buying another existing building 

and moving our personnel in there, and making a cost comparison 

on a strategic decision-making process to then say, of the alternatives available to us, which of those alternatives on a net present 

value basis yields us the highest possible present value? 

Ms. NORTON. If it has asbestos, I take it one of those alternatives 

would be simply abandoning the building. Who else is going to 

want to buy—if you don’t take care of the asbestos, I can’t imagine 

who else would want to do it. So was abandoning the building part 

of your—— 

Mr. HENTSCHEL. That was one of the circumstances. The other 

circumstance was build a new building, lease a new building, acquiring an existing building, move into it, but then either leave the 

building in its contaminated state and see what value we can obtain from the property in that state versus trying to mitigate the 

contamination, which would have been cheaper mitigating it without people in it than mitigating with people in it. And then saying 

using that as part of the decision-making process as a residual 

value to say, in a strategic decision, which of all of these alterVerDate Aug 31 2005 12:46 Oct 25, 2010 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 P:\DOCS\55669.0 KAYLA
33 

natives, including remediating with people in place versus remediating with people someplace else in a vacant building, which of all 

these alternatives yields the best benefit and bang for the buck to 

the government—in that case, the city. 

What we found as a panel and what we made recommendation 

to PBS at the time was and what we found their proposed strategic 

policy to be was let’s start looking at these decisions strategically 

rather than tactically. Let’s stop just responding and saying, the 

building is leaking, the roof is leaking, let’s fix the roof. To start 

stepping back in advance. 

And this is why one of our recommendations was, even if only 

on an informational basis, put together a capital budgeting process 

that goes out 5 years and then take a look. If you spend the RAR 

on these buildings, what happens to the value of the portfolio? If 

you don’t spend it, what happens to the value of the portfolio? And 

always performing a cost-of-inertia analysis. What happens if we 

don’t do anything both in the short run and in the long run? 

Ms. NORTON. Did you find that PBS responded by going through 

that exercise? 

Mr. HENTSCHEL. We didn’t follow it over time. Obviously, Madam 

Chairwoman, it has been 8 and a half years. We didn’t follow it 

over time. It was our understanding that they had intended to implement that procedure. 

Ms. NORTON. They could go through the exercise and discover a 

great deal, even if strictures—Federal Government strictures kept 

them from acting on much of what they would want to do. At least 

they would be able to capture those strategies they ought to focus 

on, given the requirements we place on them. 

Mr. HENTSCHEL. One of the things that we had advised PBS at 

the time was we recognized—in our report, which I provided a copy 

to your Subcommittee, in our report, we recognized that certain 

recommendations we were making we called it inside the box. And 

what we referred to was these are things you could implement immediately versus those decisions which would require long-term 

change, either in terms of policies, procedures, and sometimes loss. 

But you have to start with data. You have to start with empirical 

information. And this is one of the things you recall in my testimony that we suggested, that PBS take a strategic advisory role, 

to advise Congress, to advise OMB; and to advise you have to have 

empirical data to back up what you are saying. 

So what we were saying was go through the processes, go 

through the procedures that Mr. Nash also referred to inhis comments. Go through these procedures not just for the sake of conducting procedures but in building a database of information so 

that when you come to a Committee such as yours you have empirical data to show here is what we are doing, here is what we 

should be doing, here is how we can make things better, and here 

is the end result of that process. 

Ms. NORTON. Well, this advice role to Congress and to OMB 

seems to be precisely the role that an expert real estate agency 

could and should play. 

For example, we cannot account for the response of OMB to 412 

authority or, for that matter, other ways of dealing with Federal 

real estate, except that they don’t deal in real estate. In fact, if you 

34 

look at the business they are in, it is precisely the opposite. The 

whole notion of capital budgets and mortgages and the rest is simply not what their portfolio is all about. 

So if GSA doesn’t work up these issues—they do understand 

numbers. They do understand what costs and what does not. If you 

don’t work it up as an exercise, then they never learn. We don’t believe there are people at OMB who have a particular interest in 

real estate. That doesn’t have much to do with what they are called 

upon to do every day. So we and GSA are always in a mode of, essentially—it is not educating. The word is in dispute with GSA, 

who throws back the government rules that seem perfectly in order 

for commodities, for example, but have nothing to do with real estate. 

When you speak about work up the options, it does seem to me 

you make a valuable contribution. It may seem to a government 

agency that working of the options is a futile exercise. Because 

they begin from the outset saying, OMB would never do that or we 

could never sell this building or we could never lease to purchase 

so what is the use. And the result is that OMB and, for that matter, the Congress does not get educated as to what is in the best 

interest of the Federal taxpayers. 

So it is important to hear you say that you work them up anyway. That is why I gave you the example: abandon the building. 

Put that right on the table along with everything else. 

And, you know, if you say most of the time they do asbestos 

when people are in the building, okay, we do swing space. Maybe 

it makes sense. The real estate is so valuable. So move them out 

for a year and move them back in. Yeah, it costs moving costs in 

and out. But if somebody doesn’t work that up, you don’t know 

what in hell—excuse me—you do not know what you are talking 

about. And, increasingly, we are talking about matters of this kind 

as if they were theoretical matters that we couldn’t put numbers 

to, and we are making our decisions on that basis. 

Ms. NORTON. I feel we are stuck in the Federal Building Fund 

exercise in that way, and as a formula it doesn’t work. One has to 

almost take it apart and say, If you were starting from scratch, 

now knowing what you know, what would you do? In fact, I think 

that is the question I would like to put to all of you. 

For example, Mr. Nash, you say that current Federal budget 

processes and procedures provide few, if any, incentives for Federal 

agencies to use more innovative and more cost-effective management practices. 

Well, they certainly do, and they build on one another endlessly 

into absolutely predictable results. So I would like to ask you, given 

what I regard to be wholesale and needed criticism: If you had your 

way, recognizing that there are some practical realities, what kinds 

of incentives would you put in place to drive this more innovative 

and cost-effective behavior? 

I suppose it would be some analogy to what Mr. Hentschel is saying, working up all of the scenarios and putting those before the 

decisionmakers so that they know what they are talking about before they tell you that you can’t do something or you can do something else. 

35 

Mr. NASH. Well, I am entering my 33 years in the Navy. I tried 

to be an innovator, and that is not without its penalty. 

Our committee’s advice was let’s put together some of the best 

minds, both inside government and outside government, and look 

at things that we can try. Take some chances. Understand that 

there is risk associated with it. 

I think what you did with the building program in terms of turning it into sort of a revolving fund, which I ran one of those for a 

while, is really intelligent. A lot of folks inside the government do 

not like those because they feel like they have lost control of those 

who allocate scarce resources. 

So I think it is going to take a little bravery on the part of Congress and also on the part of the administration to say let’s try 

some of these things, because I believe it is not a crisis of GSA’s. 

I think it is a crisis of the Federal facilities in total, and we need 

to find something else to do because we are going to run out of airspeed and ideas pretty soon. 

Ms. NORTON. We certainly ran out of that idea very quickly, but 

I love the revolving fund idea. It is perfect. You have an appropriations process, and you have an oversight committee and the agencies responsible. You have rules about how a revolving fund works. 

I think we are perfectly capable of keeping control of such a fund, 

and if we could keep that part in place—and I don’t see that going 

anywhere—that would be fine, except that it is meant to do, from 

the beginning or almost the beginning, what they knew it could not 

do. 

But since nobody—if I may venture this—wanted to find a way 

to get the money for construction, and since we can’t get the money 

for construction the way the private sector does, borrow it even 

from a Federal bank, you pretend as though somehow this revolving fund will create enough funds for upkeep and for construction. 

The pretense wore out almost from the beginning. 

Mr. NASH. I would suggest, Madam Chairman, that the way to 

do this is not just do it once and put something in place. It is to 

manage it over time and to keep checking on it, and whoever has 

that control—because there are always people, in my experience, 

who you will find who will want to hijack what is going on and will 

want to turn it back to the old way. 

So I think it is exactly what you are doing;,and that is checking 

on how it is going and, you know, why it isn’t working, and then 

tweaking it until it does work. Otherwise, it will just die on the 

vine. 

So that is my recommendation, and I think there are a lot of people who want to help. The National Research Council has done a 

series of studies on how could the Federal Government do better 

in the facilities world. Some of them have been greeted with excitement. Others have been just turned into things you throw in front 

of the door to keep it from blowing shut. I think there is a body 

of knowledge, a body of people who want to help, and I think there 

are some real positive things you can do. 

I have been in the private sector for 15 years, and I was in the 

government for 34 years, so I think there are some things on both 

sides that can be put together and used. 

36 

Ms. NORTON. Well, you described that it had a process of invention and reinvention. I can see how lots of that could take place in 

practice within GSA and real estate generally. I do believe that, 

when you start with a formula or an approach and when you, at 

the beginning, expect it to do more than any theoretical examination of it to show what it could do, then you are stuck with a false 

formula in the first place. 

Now, Mr. Greninger, I was interested in your report of BOMA’s 

experience with private sector commercial office buildings. I am 

looking at page 1 of your testimony. You spent $1.80 per square 

foot for repair, maintenance and some additional funds. Anyway, it 

adds up to 25 percent of the building’s operating expenses. We go 

to, not $1.80 as in the private sector, but to a much higher rate 

of $2.43 per square foot for government buildings. When you combine the repairs and other features, it is 28 percent, not 25.5 percent, of the operating costs. 

I did not know whether this had to do with use categories, if this 

was because the Federal Government engages in what you are 

terming ′′reactive maintenance.′′ 

Why is the cost per square foot so much greater for the public 

sector? 

Mr. GRENINGER. I am not exactly sure why there is a disparity. 

It could be that all of the categories are identical and that the compensation figures in the private sector for engineers may be less 

than those in the public sector; or it could be that less predictive 

maintenance is being performed and that more reactive maintenance is being performed. 

So it could be that the private sector’s balance of those three 

types of maintenance methodologies is providing a more efficient 

approach than is the GSA; but why or if that is true, I am not sure. 

Ms. NORTON. For example, it says that the Federal Government 

builds a Department of Transportation headquarters building. It 

leases it. Well, let’s take something that it is building now. It is 

really building a state-of-the-art building for the Department of 

Homeland Security—I mean, platinum. They think, given how important this facility is and because the state of the art keeps changing and becoming less expensive, that they could actually reach a 

goal. 

I was in a gold building in the District of Columbia yesterday. 

If you are building gold, wouldn’t there be every incentive to do 

your so-called ′′predictive maintenance′′ on the theory that this 

building is here for a very long time? It has already been built to 

the highest state of the art, yet it will get higher. But this would 

be in terms of how you plan for the maintenance and upkeep of 

that building, as opposed, for that matter, of a building that was 

built 15 years ago. 

Mr. GRENINGER. Well, absolutely. 

In commissioning the building from development and construction into operations, those types of maintenance strategies are put 

in place. Then, of course, the LEED certification program, after a 

relatively short period of time, has to be upgraded to the existing 

building terms and certification requirements, and that likewise 

causes a need to incorporate new and more efficient maintenance 

practices. Absolutely. 

37 

Ms. NORTON. Mr. Hentschel, how do you expect the private sector is going to react to these new accounting standards that we 

have heard discussed here today? 

Mr. HENTSCHEL. I have to agree. I mean it will be a more transparent process because there will be an asset with a corresponding 

liability. So, from that standpoint, you know, it will present more 

transparency in the decision-making process. 

At the same time, if all of a sudden the lease now is at the same 

par as a purchase, you may start seeing more net present value 

analyses, comparing the difference between ownership and leasing. 

I am speaking personally now. You know, if I were looking at it 

myself, I mean, at that point, capital is capital whether I am sending my payment to a lender or whether I am sending my payment 

to a lessor. It then becomes more of a present-value decision because at the end, with ownership, I will have a residual value. 

At the same time, if I have an asset that I have to maintain, I 

mean, I think part of this is going to be how the definition comes 

down because, you know, right now we have a financing lease and 

we have an operating lease. Well, if I have an operating lease and 

that operating lease mandates that I maintain it, versus an operating lease where the landlord maintains it, I am going to be looking at those kinds of circumstances in an entirely different fashion. 

But with everything being equal and the tenant is maintaining it 

in the same capacity as an owner, then the net present value of 

that residual value will be important. 

The reason I say that is because, if you do not maintain the 

building properly, the residual value will be diminished at the end. 

So it is imperative that in the financial analysis being performed, 

whether you are in government or whether you are in private sector, that you reflect whether or not you intend to maintain the 

building; because if you do not maintain the building as it needs 

to be, the residual value will diminish, and the present value of 

your investment will go down. 

Ms. NORTON. Mr. Stoklosa, I take it you agree with his analysis? 

Mr. STOKLOSA. I do. 

Ms. NORTON. Mr. Nash, I only have a few more questions, but 

I was delighted to see—I think it was on page 3 or 4 of your testimony—the recognition that the full costs are not reflected in government facilities investments and that often short-term, expensive 

decisions are made. This is the bane of our existence, indeed. 

I wonder if you have any suggestions or would submit further information that might be included in a prospectus which would enable the Subcommittee to see the full costs of a GSA prospectus. 

Mr. NASH. We did about three or four reports of this nature that 

talked about life-cycle costing and how to do it. We can provide 

more information. 

Your point about we make sometimes in Federal Government 

bad decisions, normally they are different than you would make in 

the industry, because the industry—when they invest in a facility, 

it has something to do with something they are manufacturing or 

whatever their business is. It aligns with their mission, and it is 

easy to see what this investment is going to return for them. 

38 

In the United States Government, that is very hard to do since 

the government provides service. It doesn’t make a profit. So I 

think that is one of the problems of trying to compare the two. 

We will provide, and we will be happy to work with your staff 

to try to help wherever we can with the various and sundry things 

we have, plus our experts who are available to help you. 

Ms. NORTON. That would be very useful. 

I want to ask whether any of you are familiar—and perhaps you, 

Mr. Hentschel particularly—with this number that we keep throwing out, this so-called ′′412 authority′′ that this Committee or the 

Congress itself provided, which allows GSA to retain funds from 

the sale, lease, or exchange of real property instead of its going 

back to the Treasury. 

Is this the type of authority, Mr. Hentschel, that the Counselors 

of Real Estate recommend being provided to GSA or has recommended in this report you cited earlier? 

Mr. HENTSCHEL. Madam Chairwoman, that was one of our principal findings, and that is not just applying to the Federal Government. In my practice over the years, both as a public official as 

well as a private sector consultant and as a real estate practitioner, 

there was the fact that you cannot retain the money that is realized from proceeds of a sale to utilize that with regard to maintenance, repairs, and replacements of other properties. 

You know, one of the big problems I had when I was running 

government portfolios is we constantly would look to fair market 

rent and fair market value and compare ourselves to private sector 

operations. The problem is, when you are operating in a public sector environment, you are not totally the same as when you are operating in the private sector, especially with respect to rates of return on investment, reinvestment funds, the way you can reinvest 

things. 

I mean, if I am a private sector investor and I run into a situation where I have become cash poor and I need to maintain my 

portfolio and my buildings, I can make a decision to analyze which 

is my least likely performer or my least best performer, and liquidate it and take that money and then maintain the balance of 

my portfolio or use some of those proceeds to maintain the balance 

of my portfolio. 

As a government operator, whether it is the Federal Government 

or local governments or State governments, most governments did 

not have or do not have the ability, or government real estate practitioners do not have the ability to do that because, with the 412 

authority, it gives you that authority. 

So my direct answer to you is that that is a very important tool 

in a government real estate decisionmaker’s and practitioner’s 

quiver of arrows to be able to perform his job. 

Ms. NORTON. If one looks at what is available to us now and if 

you see that lying dormant on the books, you don’t see almost any 

other way to proceed, and you see some breakthroughs here that, 

it seems to me, would begin to make the government understand 

real estate and understand how to operate in a real estate market. 

We don’t see that the government operates as if it is in a real estate market. 

39 

I agree with you that we compare ourselves to the private sector. 

That is because we operate in the private sector. But when it 

comes to comparing the leases to commercial rents, that searches 

for something to compare it to that is a hard number; and if not 

that, the question becomes: What? That is how you get to that. 

That is really the only way I can see that we get to that number, 

because we don’t have any other number, and it more closely approximates who the GSA is. 

The GSA is a big player in the real estate market. We don’t 

think it plays big, however, in that market because of these limits 

that we have placed on it and that sometimes it has placed on 

itself. We don’t regard it as a very innovative real estate developer. 

Mr. HENTSCHEL. Madam Chairwoman, you know, I will take this 

opportunity. I mean this panel that we convened is now 8-1/2 years 

old. I would take this opportunity publicly to offer the services, 

again, of this panel to the General Services Administration Public 

Building Service to revisit this issue. I would volunteer again to 

chair such a panel and to compare and contrast what has happened 

in that 8-1/2-year difference—— 

Ms. NORTON. Since that time. 

Mr. HENTSCHEL. —and see if our recommendations, A, you know, 

had any effect. B, you know, we could see how, perhaps, we could 

make additional recommendations. 

Ms. NORTON. You know, I am almost inclined to swear Mr. Peck 

in again. It was done, apparently, by one of his predecessors. I 

would ask you to consider, and very much appreciate that Mr. Peck 

has remained. I think it shows the respect he has for this panel 

and his own search for ways around some of the obstacles he has 

found. 

I ask you to consider what Mr. Hentschel has said, and I think 

such a panel would also enhance our standing and yours with 

OMB’s to review what has been done 7 or 8 years ago. 

I would also like to ask Mr. Nash—I think it is Mr. Nash who 

spoke about something that is also close to our hearts, if you will 

allow, and that is enhanced lease authority, because you mentioned 

that several agencies have this authority. 

Would you describe the kinds of authority you speak of and what 

your impression is of agencies with this authority and whether you 

think it would help the GSA to better fulfill its mission? 

Mr. NASH. The only one that I am most familiar with is DOD 

and their enhanced use leasing. They have done things like in 

terms of public partners, public-private partnerships, plus in energy. They have provided land, and entrepreneurs come in and put 

in solar panels or they put in wind turbines, and then that allows 

the base to have a good source of power, and it is reasonable. 

To me, it was really a significant move forward when enhanced 

use leasing was allowed, where the government is allowed to deal 

with the private sector and where both benefit. You use the government land, but you use the ability of the private sector to provide 

things that the government needs. 

So I think an enhanced use lease is one of the best things that 

has happened in the Federal Government for a long time. It has 

to be watched, obviously. You know, there are always opportunities 

40 

for people to go off into the ditch, but I think those kinds of things 

are the kinds of innovative things that I am recommending. 

I would say one other thing. When I was on Active Duty, Bob 

Peck was in GSA, and I considered him one of our finest innovators 

in the Federal Government. And I enjoyed working with him when 

we were both swimming upstream in heavy tides. So I think he is 

the right man to be able to do what you would like to have done. 

Ms. NORTON. Well, I am glad he is here so he can hear the standard to which we are going to hold him, the standard of innovation. 

Mr. NASH. And he didn’t pay me, and I am not related to him. 

Ms. NORTON. No. He couldn’t have paid you enough for that, but 

I know he appreciates it and so do we. 

It is interesting that you mentioned enhanced leasing and energy, because much of what the government is about is just that 

kind of quid pro quo, because we are very much about reducing our 

enormous energy costs. And to look at enhanced leasing that way 

very much fits where the administration is and where, frankly, the 

country and the globe is today with respect to where the savings 

are to be made and where the growth in industry is. 

We think, for example, that the government is in the position to 

drive down markedly the cost of energy simply because of its holdings across the country and across the world, and we are trying to 

make those kinds of decisions now. GSA has done a fairly good job 

in real estate, in making those decisions. 

The entire stimulus package, interestingly this time, had nothing 

the do with simply repairing the inventory. To be sure, it is going 

to do that, but there has got to be a strong component of energy 

conservation and every bit of that $5.5 billion that we are spending 

in the stimulus package. 

I have a final question for Mr. Greninger that I did not get a 

chance to ask. 

I wonder whether or not there is any industry standard you are 

aware of, at least using current best practices, for how long a new 

building should go without major capital repair investment, with 

the emphasis on ′′major,′′ or do you think that what you call predictive maintenance can mean that you don’t get to that point? 

Mr. GRENINGER. Well, no. We do a 20-year projection on all of 

our investments. 

Ms. NORTON. That means you are going to need to do something 

with, for example, the energy system. 

Mr. GRENINGER. Absolutely. Yes. 

As buildings are developed or purchased during a commissioning 

effort, if the age is zero, then there is going to be a certain manufacturer recommendation on when certain elements of major maintenance and/or replacement are going to take place, and you put 

that into action. But the predictive index—I mean indexing and 

maintenance inspections are becoming vitally beneficial to our industry. 

Ms. NORTON. So would you think that predictive maintenance is 

becoming an industry standard? 

Mr. GRENINGER. Yes. 

Ms. NORTON. Maybe you could predict what Mr. Hentschel used 

as his example in which you have a building where, some years 

from now, you find out that asbestos is a threat to the health of 

41 

anybody in the building. Maybe you can’t predict that, but there 

are many, many factors, elements, that make up the maintenance 

of a building that are perfectly predictive today, and there are 

enough of them. 

Mr. GRENINGER. Well, in that particular case, we inspect on a 

regular basis the air quality inside of our buildings, capturing particles of many different types that could, in fact, when the concentration gets too high, predict that something dramatic needs to 

change. 

Ms. NORTON. Here, the prediction perhaps could not be—I don’t 

know—50 years ago, that it would cause cancer. You don’t want to 

get it too high, but you don’t want to get it at all if it is asbestos. 

I mean I am allowing for that. I am allowing for things that nobody 

could predict because you seem to say that there are many, many 

things that are predictable that are built into how maintenance is 

done today as a matter of best practices. 

Mr. GRENINGER. Correct. 

Ms. NORTON. I want to thank this panel very much. This has 

been a very important panel for educating us about something that 

has been truly perplexing to the Subcommittee and even to GSA. 

I very much appreciate the testimony that all four of you have presented. It has been very helpful to the Subcommittee. 

The hearing is adjourned. 

[Whereupon, at 4:30 p.m., the Subcommittee was adjourned.] 

42 


Insert offset folio 1 here 55669.001
43 


Insert offset folio 2 here 55669.002
44 


Insert offset folio 3 here 55669.003
45 


Insert offset folio 4 here 55669.004
46 


Insert offset folio 5 here 55669.005
47 


Insert offset folio 6 here 55669.006
48 


Insert offset folio 7 here 55669.007
49 


Insert offset folio 8 here 55669.008
50 


Insert offset folio 9 here 55669.009
51 


Insert offset folio 10 here 55669.010
52 


Insert offset folio 11 here 55669.011
53 


Insert offset folio 12 here 55669.012
54 


Insert offset folio 13 here 55669.013
55 


Insert offset folio 14 here 55669.014
56 


Insert offset folio 15 here 55669.015
57 


Insert offset folio 16 here 55669.016
58 


Insert offset folio 17 here 55669.017
59 


Insert offset folio 18 here 55669.018
60 


Insert offset folio 19 here 55669.019
61 


Insert offset folio 20 here 55669.020
62 


Insert offset folio 21 here 55669.021
63 


Insert offset folio 22 here 55669.022
64 


Insert offset folio 23 here 55669.023
65 


Insert offset folio 24 here 55669.024
66 


Insert offset folio 25 here 55669.025
67 


Insert offset folio 26 here 55669.026
68 


Insert offset folio 27 here 55669.027
69 


Insert offset folio 28 here 55669.028
70 


Insert offset folio 29 here 55669.029
71 


Insert offset folio 30 here 55669.030
72 


Insert offset folio 31 here 55669.031
73 


Insert offset folio 32 here 55669.032
74 


Insert offset folio 33 here 55669.033
75 


Insert offset folio 34 here 55669.034
76 


Insert offset folio 35 here 55669.035
77 


Insert offset folio 36 here 55669.036
78 


Insert offset folio 37 here 55669.037
79 


Insert offset folio 38 here 55669.038
80 


Insert offset folio 39 here 55669.039
81 


Insert offset folio 40 here 55669.040
82 


Insert offset folio 41 here 55669.041
83 


Insert offset folio 42 here 55669.042
84 


Insert offset folio 43 here 55669.043
85 


Insert offset folio 44 here 55669.044
86 


Insert offset folio 45 here 55669.045
87 


Insert offset folio 46 here 55669.046
88 


Insert offset folio 47 here 55669.047
89 


Insert offset folio 48 here 55669.048
90 


Insert offset folio 49 here 55669.049
91 


Insert offset folio 50 here 55669.050
92 

Æ 


Insert offset folio 51 here 55669.051