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THE USE OF PUBLIC-PRIVATE PARTNERSHIPS AS A

MANAGEMENT TOOL FOR FEDERAL REAL

PROPERTY

HEARING

BEFORE THE

SUBCOMMITTEE ON TECHNOLOGY AND

PROCUREMENT POLICY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

OCTOBER 1, 2001

Serial No. 107–92

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

BOB BARR, Georgia

DAN MILLER, Florida

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

DAVE WELDON, Florida

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

C.L. ‘‘BUTCH’’ OTTER, Idaho

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

JANICE D. SCHAKOWSKY, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

——— ———

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JAMES C. WILSON, Chief Counsel

ROBERT A. BRIGGS, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT POLICY

THOMAS M. DAVIS, Virginia, Chairman

JO ANN DAVIS, Virginia

STEPHEN HORN, California

DOUG OSE, California

EDWARD L. SCHROCK, Virginia

JIM TURNER, Texas

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

MELISSA WOJCIAK, Staff Director

VICTORIA PROCTOR, Professional Staff Member

JAMES DECHENE, Clerk

MARK STEPHENSON, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on October 1, 2001 ............................................................................ 1

Statement of:

Sessions, Hon. Pete, a Representative in Congress from the State of

Texas .............................................................................................................. 10

Ungar, Bernard L., Director, Physical Infrastructure Issues, U.S. Government Accounting Office, accompanied by Ron King, Maria Edelstein,

and Lisa Wright Solomon, project team members, and Steve Warner,

Signet Partners; Stephen A. Perry, Administrator, U.S. General Services Administration, accompanied by Joe Moravec, Commissioner of

the Public Building Service, and David Bibb, Deputy Associate Administrator for Real Property, Office of Governmentwide Policy; Raymond

F. DuBois, Jr., Deputy Under Secretary of Defense, Installations and

Environment, U.S. Department of Defense; Anatolij Kushnir, Director,

Office of Asset Enterprise Management, U.S. Department of Veterans

Affairs, accompanied by Michael Simmons, Senior Counsel, Office of

the General Counsel; Kim H. Burke, principal, Ernst & Young; and

Sherwood Johnston III, designated broker-Arizona, CarrAmerica Realty

Corp., Building Managers Association ........................................................ 15

Letters, statements, etc., submitted for the record by:

Burke, Kim H., principal, Ernst & Young, prepared statement of .............. 61

Davis, Hon. Thomas M., a Representative in Congress from the State

of Virginia, prepared statement of .............................................................. 3

DuBois, Raymond F. Jr., Deputy Under Secretary of Defense, Installations and Environment, U.S. Department of Defense, prepared statement of ........................................................................................................... 42

Johnston, Sherwood, III, designated broker-Arizona, CarrAmerica Realty

Corp., Building Managers Association, prepared statement of ................. 72

Kushnir, Anatolij, Director, Office of Asset Enterprise Management, U.S.

Department of Veterans Affairs, prepared statement of ........................... 53

Perry, Stephen A., Administrator, U.S. General Services Administration,

prepared statement of ................................................................................... 34

Sessions, Hon. Pete, a Representative in Congress from the State of

Texas, prepared statement of ....................................................................... 12

Turner, Hon. Jim, a Representative in Congress from the State of Texas,

prepared statement of ................................................................................... 7

Ungar, Bernard L., Director, Physical Infrastructure Issues, U.S. Government Accounting Office, prepared statement of ......................................... 18

(1)

THE USE OF PUBLIC-PRIVATE PARTNERSHIPS

AS A MANAGEMENT TOOL FOR FEDERAL

REAL PROPERTY

MONDAY, OCTOBER 1, 2001

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT

POLICY,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 3:45 p.m., in room

2154, Rayburn House Office Building, Hon. Thomas M. Davis

(chairman of the subcommittee) presiding.

Present: Representatives Davis, Horn, and Turner.

Staff present: Melissa Wojciak, staff director; Victoria Proctor,

professional staff member; Amy Heerink, chief counsel; George

Rogers, counsel; David Marin, communications director; James

DeChene, clerk; Mark Stephenson, minority professional staff

member; and Jean Gosa, minority assistant clerk.

Mr. TOM DAVIS OF VIRGINIA. Good morning, or good afternoon I

should say. Welcome to the subcommittee’s oversight hearing on

the benefits of public-private partnerships for Federal real property

management.

I think, as most of you know, the Federal Government is among

the world’s largest property owners and spends billions of dollars

annually to maintain properties. The GSA is one of the primary

agencies that controls these assets. Its portfolio is characterized by

aging buildings that lack the capability to accommodate new technology and sometime pose health and safety concerns. Agencies

often vacate Federal properties and lease costly office space to compensate for the lack of adequate federally owned space.

While hundreds of millions of dollars are spent each year to

maintain its buildings, GSA indicates that it still lacks sufficient

funds to reduce its deferred maintenance backlog. Furthermore

GSA has many buildings with negative net cash-flows.

Currently, GSA has several property management tools that it

can employ, including outleasing authorities, disposal of buildings

representing a net loss to the Federal Buildings Fund, special pricing and a refocused repair and authorization program. But these

management tools can’t eliminate the underlying cause of the repair and authorization backlog, which is a lack of funding from

Congress.

GSA seeks creative alternatives to improve its Federal property

managers’ ability to effectively manage its multibillion dollar inVerDate 11-MAY-2000 10:59 Oct 31, 2002 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\DOCS\81425.TXT HGOVREF1 PsN: HGOVREF1
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ventory and address the growing challenges created by deteriorating properties. This will be a daunting task without reforms that

will allow the agency to operate in a more modern and businesslike

fashion. Therefore, GSA needs broader management authorities in

order to efficiently and cost effectively manage its property portfolio. GSA must have the ability to upgrade its properties to their

highest and best uses but lacks the capital to do so.

For some properties, the public-private partnerships would be a

solution, allowing GSA to leverage its property assets. That’s why

I cosponsored H.R. 2710 with my good friend, Representative Pete

Sessions, a former member of this subcommittee. This bill would

allow GSA to enter into public-private partnerships and extend the

authority to other agencies in order to facilitate government reform.

Since we have started late, I’m going to ask unanimous consent

to put the rest of my remarks in the record and yield to Congressman Turner for his opening statement.

[The prepared statement of Hon. Thomas M. Davis follows:]

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Mr. TURNER. Thank you Mr. Chairman. I appreciate the fact

you’ve held this hearing. Obviously, over the last few years, we

have had an accumulation of deferred maintenance and underutilized Federal properties and we need to look at new and innovative

ways to deal with the limited funding that we’ve had available for

repairs and renovations and alterations of Federal property.

I want to commend my colleague from Texas, Mr. Sessions, for

his particular interest and leadership in delving into this area and

to offer a piece of legislation that he believes would allow us to

move forward by incorporating public-private partnerships through

the General Services Administration. I know there was another

bill, last Congress, also introduced on the subject that perhaps

dealt with it in a little broader way.

Having served with Chairman Steve Horn on the committee that

had jurisdiction of this last year, we did have one good hearing, as

I recall, on the subject, and Mr. Sessions testified at that hearing.

And so I really appreciate the good work that my colleague from

Texas has done.

I do recall, Mr. Chairman, last Congress when we had a hearing

on the issue, there were two groups that wanted to be heard. One

of them was the National Association of State Agencies for Surplus

Property, and the other was the National Law Center on Homelessness and Poverty. And I think, for completeness of the record, it

might be good for us to incorporate in our record the record of testimony from that earlier hearing in the last Congress, from those

two groups who are not able to be here today.

Mr. TOM DAVIS OF VIRGINIA. Without objection, we’ll do that.

Mr. TURNER. Thank you, Mr. Chairman. I look forward to hearing from all our witnesses.

Mr. TOM DAVIS OF VIRGINIA. Thank you.

[The prepared statement of Hon. Jim Turner follows:]

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Mr. TOM DAVIS OF VIRGINIA. Let me recognize now, if I may, the

gentleman from Texas, Mr. Sessions, who introduced this legislation in previous Congresses. I think he is going to be a successful

author this time, and I just want to remind everyone he has a sore

throat, so bear with him. Thank you.

Mr. Sessions, good to have you with us.

STATEMENT OF HON. PETE SESSIONS, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF TEXAS

Mr. SESSIONS. Mr. Chairman, thank you so much, and my friend

and colleague, the gentleman from Texas, Mr. Turner. I appreciate

you both taking time to be here today.

Thank you for noticing my sore throat. I hope my voice lasts. I

think that you consider that an opportunity for me to be very brief.

With that said, Mr. Chairman, I’m going to try and read my

statement and then see if you’ve got any questions.

I want to thank both of you for inviting me to testify today concerning my legislation, H.R. 2710, the Federal Asset Management

Improvement Act, and other legislation related to the reforming of

activities of the General Services Administration.

GSA is a very large enterprise. GSA, like any other government

organization, continues to change with time. Today is a great day

to address some of those changes that I believe are necessary and

prudent. Due to the GSA being largely funded through agency fees,

rather than direct appropriations, congressional oversight tends to

focus on the crisis of the moment. I believe that it’s time for this

committee to take a fundamental look at the GSA and the responsibilities exercised by their wonderful Administrator, Steve Perry.

GSA has evolved greatly since 1949 but many of GSA’s management tools are based on archaic laws and rules. They need to be

updated to reflect modern practices.

Before I get too deeply into my statement, I also want everyone

to remember the last weeks, 2 weeks ago, terrorist attack on the

large urban center that took place in New York City. This same

type of attack took place also in 1995 when the Alfred P. Murrah

Building was destroyed in Oklahoma City. And that was a GSA

building filled with Federal tenants. The terrible disaster in Oklahoma has been reemphasized by the disaster in New York and the

Pentagon. The GSA is on the front line when it comes to protecting

Federal buildings all over the United States, and I certainly want

Administrator Perry to know that every Member of Congress

stands ready to assist him as he makes needed adjustments to improve security in our Federal buildings.

Modern property management requires a range of tools in the

GSA tool kit. A significant gap in this tool kit is GSA’s inability to

enter into a public-private partnership with a private entity to further the public purposes for which the GSA was created.

According to GSA’s own estimates at the end of 1998, GSA deferred maintenance requirements by almost $5 billion. In other

words, GSA needed $5 billion to maintain its inventory of aging

buildings and to bring them up to current standards for energy efficiency, Internet connectivity and rentability. If GSA’s properties

continue to deteriorate, Federal customers will explore their options. A scenario will be created in which more Federal customers

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will be driven to pay rent to private landlords. If this happens,

GSA will continue to be stuck with more and more deteriorating

properties that lose money for the Federal Government, a scenario

that wastes taxpayer money.

My answer to this problem is a public-private partnership. In

such a public-private partnership, the private sector will be responsible for making the needed improvements, including paying for

them. This is an attractive offer to a private investor because if the

Federal Government does not want to take occupancy due to changing needs, it does not have to utilize this option. The private sector

will then be free to rent the space to another tenant. The private

sector is subject to the market and financial risk while the government acquires simply the space it needs.

The public-private partnership addresses: Aging and deteriorating buildings; underperforming properties; and, creates demand for

economic performance and accountability.

The government gains, as it will share in net cash-flow and retains proceeds for use as directed.

The private sector receives a corresponding financial reward in

terms of a preferred return.

The government provides no financial or space use guarantees.

By contributing investment capital, the private sector assumes the

risks.

H.R. 2710 will authorize the administrator to enter into such arrangements. The authority also may be delegated to other Federal

agencies. In looking at the feasibility of such public-private partnerships, the General Accounting Office concluded that the concept

shows great merit to help taxpayers and the agencies that will

serve taxpayers to save money and to become more efficient.

I know that GAO is on the next panel, and they will thoroughly

describe their findings. They have come to the same conclusion as

many who have studied this issue, and that is that public-private

partnerships can be a valuable component of modernizing the GSA

Federal office buildings.

I know that GSA has a lengthy list of other reforms related to

property management generally, and the Federal Property and Administrative Services Act of 1949 in particular. Most of these

changes appear both beneficial and uncontroversial. They were proposed by the previous administration and are supported by the current one. I would urge this committee to carefully consider these

changes in the law.

Our goals must be simple and clear, to permit the GSA additional tools to improve its inventory of public buildings for the furtherance of its public purposes of providing space for Federal agencies. A workable version of public-private partnership is certainly

within our grasp.

I want to thank each of you who is here today and this subcommittee for the heavy lifting that they will do to get this on the

floor.

I appreciate your help, Mr. Chairman.

Mr. TOM DAVIS OF VIRGINIA. Mr. Sessions, thank you very much.

Thank you.

[The prepared statement of Hon. Pete Sessions follows:]

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Mr. TOM DAVIS OF VIRGINIA. Now I’m going to call our witnesses,

Mr. Ungar, Mr. Perry, Mr. DuBois, Mr. Kushnir, Ms. Burke and

Mr. Johnston.

As you know, it is the policy of this committee that all witnesses

be sworn before they testify. So if you’d rise with me and raise your

right hands.

[Witnesses sworn.]

Mr. TOM DAVIS OF VIRGINIA. Please be seated.

To afford sufficient time for questions if you’d limit your comments to 5 minutes. There are some lights in front of you. The

green will go on, you’ll get 5 minutes. After 4 minutes, it will turn

orange. That gives you 1 minute to sum up. And try to stay within

5 minutes.

Your total testimony is part of the record. We’ve read that and

are basing questions on the totality of the testimony. But it helps

us for you to sum up.

We’ll start with Mr. Ungar, we’ll move with you; and then Mr.

Perry, and then straight on down the line. Please go ahead.

STATEMENTS OF BERNARD L. UNGAR, DIRECTOR, PHYSICAL

INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTING

OFFICE, ACCOMPANIED BY RON KING, MARIA EDELSTEIN,

AND LISA WRIGHT SOLOMON, PROJECT TEAM MEMBERS,

AND STEVE WARNER, SIGNET PARTNERS; STEPHEN A.

PERRY, ADMINISTRATOR, U.S. GENERAL SERVICES ADMINISTRATION, ACCOMPANIED BY JOE MORAVEC, COMMISSIONER

OF THE PUBLIC BUILDING SERVICE, AND DAVID BIBB, DEPUTY ASSOCIATE ADMINISTRATOR FOR REAL PROPERTY, OFFICE OF GOVERNMENTWIDE POLICY; RAYMOND F. DuBOIS,

JR., DEPUTY UNDER SECRETARY OF DEFENSE, INSTALLATIONS AND ENVIRONMENT, U.S. DEPARTMENT OF DEFENSE;

ANATOLIJ KUSHNIR, DIRECTOR, OFFICE OF ASSET ENTERPRISE MANAGEMENT, U.S. DEPARTMENT OF VETERANS AFFAIRS, ACCOMPANIED BY MICHAEL SIMMONS, SENIOR

COUNSEL, OFFICE OF THE GENERAL COUNSEL; KIM H.

BURKE, PRINCIPAL, ERNST & YOUNG; AND SHERWOOD

JOHNSTON III, DESIGNATED BROKER-ARIZONA,

CarrAMERICA REALTY CORP., BUILDING MANAGERS ASSOCIATION

Mr. UNGAR. Thank you, Mr. Chairman, Mr. Turner, Mr. Sessions. We are certainly pleased to be here today to discuss the work

that we have done at your request, as well as from other Members

of Congress with respect to public-private partnerships.

Before I begin my summary, I would like to mention that I am

accompanied today by our project team, Ron King, Maria Edelstein

and Lisa Wright Solomon. In addition, we did have contract support. Kim Burke from Ernst & Young is a member of the panel,

and Steve Warner from Signet Partners is also here, and we appreciate their help in this particularly complex effort.

For many years, as you all have indicated, the General Services

Administration [GSA], has experienced significant problems with

aged and deteriorating buildings; and I think that can be very easily demonstrated by two projects that we worked on—one in 1991

and one in 2000—almost 10 years apart. And you could take the

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1991 report, just change the date on it, and the findings would be

the same, which are that GSA does have numerous buildings which

are in disrepair and has not had the funding necessary to adequately deal with these problems.

These are problems that the Department of Defense and the Veterans Administration have also faced with their physical infrastructure; and I might note that they do already have authority for

enhanced-use leasing.

As a result of the problems that GSA faces and has faced with

these buildings, Federal employees and visitors face situations of

being in buildings that aren’t in the best of condition with respect

to, particularly, health and safety problems. Taxpayers end up paying higher costs for operating expenses such as fuel and energy

costs. And GSA is losing money on a number of buildings because

of either low occupancy or no occupancy, and is at risk of losing

money on other buildings in which the tenants are not happy with

the conditions that they are in.

In our view, GSA needs to take more aggressive action to deal

with this range of problems; and it does not have all the tools necessary to do that. Public-private partnerships provide one tool

which could be very useful to GSA.

As has already been indicated, in our review, with the help of our

contractors, we did lay out a structure over here on the chart which

is also an attachment to our testimony in which a partnership

could take place.

In summary, the Federal Government would contribute a property in the form of a lease to a private partner. The private partner

would provide cash and/or financing ability to redevelop or renovate the property. That would form the partnership.

Once the partnership began, there would be a cash-flow from the

rental payments. There would be operating expenses. You’d be left

with a net income after that. After that, we would take out funds

for the master ground lease which would go to GSA. Debt service

would be repaid.

It would be a replacement reserve to avoid the problem of aged

and deteriorating buildings, and the private sector partner would

get a preferred return off the remainder for the risk that the private sector partner undertakes. And then the remainder would be

shared, an agreed-upon percent between GSA and the private sector partner.

In our review, with the help of our contractors, we looked at 10

properties and found that 8 of them had potential viability as a

partnership. There are two reasons for this. Primarily, one, they

were in very good locations, locations in which there was a strong

Federal and non-Federal demand for the space. And having a nonFederal demand is critical since the government would not guarantee occupancy. In all these locations, fortunately, there was a

strong demand in terms of the eight.

Second, the condition of the properties was such that, on a very

general and a very quick review, it appeared as though the cost

would be—on the order of magnitude, there would be left a sufficient financial return to attract a private sector investor. Now, in

our case, we did this quite quickly with the help of our contractors,

and we weren’t able to do an in-depth study. But we did find that—

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at least on the surface, the information would suggest that the

projects would be viable; and we suggest that GSA do more study

and more in-depth study, particularly on the financial viability of

the projects that we did look at.

In sum, we believe that GSA does need to have more tools in its

tool kit. It does need to have legislative authority to enter into public-private partnerships. We suggest that this be done on a pilot

basis, primarily because this is a very complex undertaking. There

are a lot of risks.

While other agencies have had the authority, GSA has not had

it in a general sense, and we thought it would be helpful to get

some lessons learned and to see what actually happens compared

to what’s expected to happen under these types of arrangements.

And before entering into these partnerships, we think, again,

that GSA would need to further explore the financial viability of

them and then use other—look at all the tools that it has at its disposal to assure that appropriate action is taken to the properties

that may not be appropriate for a public-private partnership.

Mr. Chairman, that ends my summary. I’d be happy to answer

questions at the appropriate time.

Mr. TOM DAVIS OF VIRGINIA. Thank you much.

[The prepared statement of Mr. Ungar follows:]

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Mr. TOM DAVIS OF VIRGINIA. Mr. Perry.

Mr. PERRY. Chairman Davis, Congressman Turner, thank you

very much for inviting me to this hearing today to discuss GSA’s

views on ways to promote efficient and effective stewardship and

property management.

If I may, I’ll just divert for a moment to thank Congressman Sessions not only for his leadership in this area, but for his public acknowledgment of the good work that GSA people did in the aftermath of the attacks on America and the ongoing work of our security efforts.

I’m pleased to be with you to discuss various reform processes to

improve the more than 50-year-old statute under which Federal

agencies manage and dispose of their real and personal property

assets. GSA believes that agencies should be provided with the

freedom to manage their assets, more effectively through the use

of appropriate and up-to-date management practices and incentives. Accordingly, we believe that these changes—that certain

changes to the property management statutes are necessary to reflect the current needs of the government, as well as current needs

of the commercial marketplace; and this will help agencies achieve

their missions and goals by reducing the amount of deteriorated

vacant or underutilized space in the existing inventory of Federal

buildings.

I will submit a longer document for the record as well as this

booklet entitled, ‘‘Our Federal Buildings,’’ which gives some pictorial indications of some of the more egregious situations that we

have today.

Before I begin the rest of my testimony, I’d like to introduce the

GSA team that’s with me today. It includes Joe Moravec, who is

the Commissioner of the Public Building Service; and Mr. David

Bibb, the Deputy Associate Administrator for Real Property in

GSA’s Office of Governmentwide Policy.

Mr. Chairman, first of all, I would applaud the committee and

its predecessor for their concern and efforts to improve Federal

property management as a priority management reform issue. During the past 2 years, the subcommittee has provided GSA and

other Federal agencies the unique opportunity to discuss the problems, policies and procedures surrounding the management and

disposal of Federal assets.

As we know, Representative Sessions took the lead on this issue

in the House by introducing H.R. 3285, the Federal Asset Management Improvement Act of 1999. In the Senate, Senators Thompson

and Lieberman introduced, by request, S. 2805, the Federal Property Asset Management Reform Act of 2000. The bill was developed

by GSA in consultation with Federal landholding agencies for the

purpose of improving the management of the Federal Government’s

billions of dollars’ worth of real and personal property.

At this hearing, GSA would like to discuss a number of the provisions included in these bills that we believe should be a part of any

final legislative package concerned by Congress. Specifically, we believe that the bill should include the following four goals.

Goal No. 1, establish effective property management processes

and procedures. GSA would collaborate with other Federal landholding agencies, and OMB to develop what we call asset manageVerDate 11-MAY-2000 10:59 Oct 31, 2002 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 C:\DOCS\81425.TXT HGOVREF1 PsN: HGOVREF1
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ment principles. In addition, each landholding agency would prepare a strategic real property management plan. They would appoint a senior real property officer, and they would contribute to

the development and upgrading of GSA’s governmentwide real

property information data base. And I would emphasize that all of

the discussions we’re having today apply not only to GSA’s role, but

to a governmentwide role in this area.

Goal No. 2 would be to help agencies maintain the good physical

condition of assets needed to accomplish their agency’s mission requirements. GSA believes that the current property act should be

amended to provide agencies with common-sense, businesslike

practices and techniques to manage their property holdings strategically. The existing act is very limited in helping agencies manage

their real and personal property assets. GSA would suggest that

agencies have new authorities to address these limitations.

Those authorities would include exchange/sale of real property,

subleasing and outleasing, including outleasing to public-private

partnerships; and fourth, expanding the exchange/sale of personal

property.

On the subject of public-private partnerships, as you know, the

L. Mendel Rivers Federal Building in Charleston, SC, which this

hearing was originally scheduled to take place at, was favorably reviewed as a pilot for public-private partnership in the General Accounting Office report of July 2001, entitled, ‘‘Public-Private Partnerships: Pilot Program Needed to Demonstrate the Actual Benefits of Using Partnerships’’ and Mr. Ungar just referred to that.

There were several other buildings which were also favorably reviewed in that report. Public-private partnerships could have

worked in Charleston, according to the report by GAO, and GSA

certainly concurs in that.

GSA strongly supports appropriate use of public-private partnership authority to enable agencies to use private sector resources

and the expertise that they could bring to repair and renovate Federal facilities. Any legislative proposal to amend the property act

should include criteria that would assure agencies would use public-private partnerships and other tools only in cases where it was

economically advantageous to the government to do so.

Public-private partnership authority also should require pretransaction notices to Congress, we believe, in all cases over $2 million.

Goal No. 3 would be to provide incentives to dispose of assets

which are not needed for agency mission requirements. GSA recognizes that most agencies simply don’t have the opportunity to make

such disposals under today’s rules. Agencies are not allowed to sell,

exchange, sublease or utilize capital assets that may no longer support their agency missions. Consequently, they divert resources to

hold these underused and unproductive property that have little or

no functional value with respect to their mission.

I’ll go to goal No. 4, which is to streamline and enhance existing

processes. GSA believes that changing certain sections of the property act could increase efficiency, deliver savings, reduce administrative burdens and streamline Federal asset management processes in a number of areas.

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In closing, Mr. Chairman, I would conclude that I would like to

say that improving Federal asset management is critical to improving each agency’s ability to meet its mission goals and improving

governmentwide performance results. At GSA, we have adopted the

issue of having this change in legislation completed as our No. 1

priority; it’s that important to our operation. We believe that any

legislation considered by this subcommittee and the Congress

should incorporate life cycle property management practices which

we’ve outlined to provide the asset management principles, incentives and flexibilities needed by agencies to effectively manage

their portfolio of assets.

Mr. Chairman, that concludes my statement, and I’m happy to

answer questions at the appropriate time.

Mr. TOM DAVIS OF VIRGINIA. Thank you very much.

[NOTE.—The report entitled, ‘‘Our Federal Buildings, a Pictorial

Report on the Condition of our Federal Buildings and an Update

on Their Repair and Alterations Nees,’’ may be found in subcommittee files.]

[The prepared statement of Mr. Perry follows:]

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Mr. TOM DAVIS OF VIRGINIA. Mr. DuBois.

Mr. DUBOIS. Thank you, Mr. Chairman, Congressmen Turner,

Sessions, Horn, again for giving me this opportunity to address

unique DOD legislative authorities contained in Title 10 that permit the Department to pursue public-private ventures for military

housing, base utilities and our newest authority for enhanced-use

leasing.

As you know, for years the Department has allowed our installations and facilities to deteriorate due to competing budget priorities

and underfunded requirements. Much of our infrastructure is old

in various stages of decline. The average age of facilities across the

Department is over 41 years.

Without adequate sustained recapitalization, the facility performance degenerates. It also impacts negatively our operational readiness, and mission support suffers. Service life is lost and total costs

rise. But we understand that appropriating more money for these

efforts will not, by itself, bring us up to the state of readiness we

aspire to in a timely manner.

Secretary of Defense Rumsfeld has made it quite clear that he

intends to significantly change how we do business in the Department, and we believe that public-private partnerships and enhanced-use leasing can be effective tools in this effort.

As you know, through the diligent efforts several years ago— 1996, I believe—Congressman Joel Hefley of Colorado and Solomon

Ortiz of Texas aided us and worked with Congress to provide the

Department with significant new authorities to use private sector

expertise and capital to eliminate a serious shortage in quality, affordable housing for our military families. Using the housing privatization authorities, we developed projects that provide higherquality housing, faster and at less cost than traditional methods.

Our policy requires, however, that privatization for the sake of

privatization is not the appropriate answer. It must yield at least

three times the amount of traditional MILCON, or military construction, for the same amount of appropriated dollars.

The 11 most recent military family housing privatization

projects, which are described in my written statement, leveraged

appropriated military construction dollars at a rate of almost seven

to one. We have 16 projects currently in solicitation, and an additional 43 projects have been identified to Congress as privatization

candidates.

We have in the Department over 1,600 utility systems. By ‘‘utility,’’ I mean water or water treatment, gas and electric which are

available for privatization. The sooner we get out of the business

of running utility systems and turn them over to public-private or

private sector professionals, the sooner we can focus our attention

and dedicate our assets and resources to our core missions.

The 2001 National Defense Authorization Act also enacted

amendments to the Department’s leasing statute that gives us

broad authority to outlease real property and facilities on military

installations in exchange for cash payments and in-kind services.

These public-private partnerships can come in different forms.

There’s no cookie cutter or one-type-fits-all. A base commander

could share an office building on the base with a company willing

to renovate and maintain that building in lieu of a lease, in lieu

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of lease payments, a scenario very similar to that being envisioned

for a GSA building in Congressman Sessions’ bill.

Or an installation may outlease land to a company for the construction of a commercial hotel that can also be used to house overnight travelers on government business, a concept that is already

in place via special legislation at Wright-Pat Air Force Base in

Ohio, home to our friend Dave Hobson.

A third example involves the construction of a private office park

and a warehouse operation on military land whereby the base gets

the use of part of the warehouse space and the entrepreneur also

agrees to pay for the renovation and repair of certain on-base properties to include historic structures greatly in need of rehabilitation. A project of this nature is being developed at Fort Leonard

Wood in Missouri at this time.

There are many other examples at the Defense Department to include Fort Sam Houston in San Antonio, TX, where it recently announced a partnership with local real estate and environmental

firms to redevelop and lease over 465,000 square feet of unused

buildings that comprise the old Brooke Army Medical Center and

the Beach Pavilion Complex.

Another San Antonio, TX, example is the Brooks Air Force Base

so-called City Base Project, again, a demonstration project enabled

by legislation passed by Congress known as the Base Efficiency

Project, here again, a transaction which includes transferring 1,310

acres of land and all the facilities comprising Brooks Air Force

Base to the city of San Antonio, wherein will evolve a high-technology business park. But unlike a traditional real estate transaction, where there is an exchange of land for money or other consideration with no continuing relationship between the parties, the

Brooks City Base transaction establishes a partnership between

the city of San Antonio and the U.S. Air Force.

Out in Honolulu, HI, a 450-acre part of the Pearl Harbor Naval

Base called Ford Island is another example of where we will

outlease land for commercial use.

In conclusion, Mr. Chairman, we are particularly appreciative of

H.R. 2710, wherein both you and Congressman Sessions provide us

with new authority that complements and enhances our existing

Title 10 authorities, providing the Department with additional

tools to derive more value from our real property assets.

Thank you very much, Mr. Chairman. I’m happy to answer questions.

Mr. TOM DAVIS OF VIRGINIA. Thank you very much.

[The prepared statement of Mr. DuBois follows:]

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Mr. KUSHNIR. Good afternoon, Chairman Davis, Congressmen

Turner, Sessions and Horn. Thank you for inviting me to this hearing on the benefits of public-private partnerships as real property

management tools and to discuss the Department of Veterans Affairs’ experience in this area.

Before I begin my testimony, I would like to introduce Mr. Michael Simmons, who is with me today. Michael is Senior Legal

Counsel in the Department’s Office of General Counsel. Michael’s

considerable experience in VA’s loan privatization sales program

provided the legal expertise necessary to successfully undertake

these transactions and to further develop the enhanced-use leasing

program within the Department.

Since the enactment of the Department’s enhanced-use leasing

authority in 1991, over $250 million worth of private investment

has been secured in VA facilities and properties. This investment

has resulted in positive, tangible enhancements to the VA mission

and program. Through the enhanced-use leasing program we have

secured office space for veterans’ benefit centers, upgrades to our

health care facilities, transitional housing for our homeless veterans, electricity and other energy products through cogeneration

plants for our medical centers, high-tech medical equipment for our

veterans, onsite child care centers for our employees, as well as

parking for our patients and veterans having business at VA hospitals and facilities. We have been able to obtain these services and

upgrades without increasing our capital budget.

More importantly, these projects have resulted in actually reducing operational expenses without having to undertake long-term

obligations or commitments of VA resources.

Briefly, VA is the second largest department in the Federal Government in terms of employees. It has a unique mission, the delivery of comprehensive assistance and benefits to the Nation’s veterans and their families. VA is the major landholding agency, as

well, with an extensive and diverse portfolio of properties, including over 23,000 acres of land, over 46,000 buildings at approximately 270 locations, in addition to over 550 leased spaces nationwide.

To manage its property, VA uses all the traditional authorities

available to Federal agencies. However, in many instances, these

authorities do not adequately address the needs of a specific mission or development issue. Because of these limitations, exacerbated by ongoing budgetary constraints, privatization and income

generation programs have become increasingly important to the

Department’s efforts. To obtain significant operating cost reductions and pursue alternative funding sources for veterans’ programs, VA is constantly developing and implementing new programs, such as enhanced-use leasing program.

An enhanced-use leasing program is, in essence, a cooperative arrangement for the development of VA property under which VA

property is made available to the public or to a private entity

through a long-term lease. The leased property may be developed

for non-VA and/or VA uses, and in return for the lease, the Department obtains fair consideration in the form of revenue, facilities,

space, services, money or other in-kind consideration.

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In implementing the enhanced-use leasing authority, VA has discovered several key points to developing a successful private-public

development program. The single most important is the enabling

statute itself. This authority must provide sufficient flexibility to

allow the agency to be innovative in its approach to secure private

investment into its facilities.

While preserving the integrity of the governmental process, that

agency implementation procedure must be tempered so as to be responsive to the broad span of market, environmental political and

legal issues that arise in any large-scale development of property.

Agency officials involved in the process must be committed to the

effort’s success, and while attempting to be responsive to the legitimate demands of the private sector, they must remain committed

to structuring each transaction in a manner that will not impact

future operational decisions nor commit the agency to long-term financial obligations.

Finally, these transactions can succeed only if they’re founded on

sound business decisions from both the public and the private sector perspectives.

To accomplish these objectives, the agencies must participate

fully as equals with the developer lessee in the project’s development, financing and in the local community review.

Finally, in stovepiping project development, investing control

over any particular program development within a single office

really ignores the multiple legal, fiscal and program issues that

arise from such a development. Our experience has been, successful

implementation of this type of authority is dependent upon developing a coordinated approach that not only includes all the various

offices and disciplines involved, that is, the legal, the contracting,

the facility development, but also has a strong link to our agencies’, our Department’s strategic objectives.

That concludes my oral remarks. Thank you very much.

Mr. TOM DAVIS OF VIRGINIA. Thank you very much.

[The prepared statement of Mr. Kushnir follows:]

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Mr. TOM DAVIS OF VIRGINIA. Ms. Burke.

Ms. BURKE. Thank you, Mr. Chairman and members of the subcommittee, for allowing me the opportunity to share my views regarding the potential benefits of these partnerships. I stand united

with the rest of the panel in support of the benefits of these partnerships.

My name is Kim Burke. I’m a principal with Ernst & Young in

the real estate advisory services group, advising both Federal and

private sector clients. Prior to that I served at both OMB and CBO.

This February, GAO selected Ernst & Young, together with Signet Partners, to evaluate and quantify the benefits that might be

obtained if public-private partnership authority were granted to

GSA. I served as the manager for this project and have served on

similar projects for DOD and GSA.

Since the other panel members have discussed the existing programs and partnership structures, I’d like to focus my testimony

and share with you lessons learned from our study and from Ernst

& Young’s prior work with private entities, as well as State and

local governments in two areas.

First, considering different types of partnerships, and second,

considerations for the implementation in partnership authority. For

types of partnerships, what conditions would the private sector look

for? First, financial attractiveness, including the ability of the partnership to generate a sufficient return on investments. Second, control of the project and other ground lease terms. Third, the risk

level of the investment. Fourth, the potential for multiple uses.

Fifth, condition and size of the property. And sixth, market demand.

They would also look at such factors as adding diversity to their

own portfolio and whether such a partnership would enhance or

maintain an existing business relationship that they had with a

Federal Government.

What would the government look for? One criterion is getting the

project done faster than it might otherwise be possible, or a quick

infusion of private sector capital to maintain Federal infrastructure, and tapping into the private sector experience to leverage and

enhance Federal service delivery.

Which type of deal is best? The form of each partnership must

be carefully evaluated on a case-by-case basis to determine the best

economic value and mission enhancement for the Federal Government and how to best leverage both the government and the private sector resources and expertise.

Let’s consider three options: first, joint ventures where the partners share in the future project returns. These might be considered

when a property is undervalued under current market conditions,

and the government could then share in appreciation in the value

of the site; or if a property is considered high risk by the private

sector, thus requiring a higher return, then such a venture would

allow the government to also share in the higher return.

Second, a ground lease might be considered when the cash proceeds from a transaction are not available for retention by the

agency, or if the partner in the transaction brings special expertise

or services considered by the government to have high value for

mission enhancement.

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Third, creation of a special purpose entity might be considered

when shared space would result in the sharing of knowledge to enhance the Federal missions such as shared resources for a hospital

and lab or research space.

The questions from the committee asked for issues for GSA to

consider in implementation. Some of the examples are consistent

program implementation, including consistent guidance to field offices and other agencies. This is particularly important in cases

such as H.R. 2710, where the GSA Administrator could delegate

the authority to other agencies. Consistency is also needed to identify potential sites and in developing standardized partnership proposal evaluation process; taking time to complete property-specific

market research to identify the best target use and potential users

of the property and the true expected development costs, including

remediation and other land use costs, is also important.

The government must also navigate Federal requirements including compliance with the Historic Property Act, Environmental Protection Act, OMB scoring rules and circulars and congressional notifications and public hearings.

Finally, fair and open competition to select qualified partners, attracting partners through identification of properties with high

market appeal, ensuring deal terms are eligible for private sector

financing and securitization; and of course, controls must be designated for monitoring and protecting the Federal interests.

In closing, we’ve seen partnerships work to the benefit of State

and local entities. We’ve seen them on the Federal level at RTC,

at HUD, DOD and VA. They’re good for the government. They’re

good for business and they’re a way to provide a low-cost economic

stimulus for communities across America.

This concludes my prepared remarks. I’d be pleased to answer

any questions. Thank you.

Mr. TOM DAVIS OF VIRGINIA. Thank you very much.

[The prepared statement of Ms. Burke follows:]

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Mr. TOM DAVIS OF VIRGINIA. Mr. Johnston, you’re clean-up.

Mr. JOHNSTON. Good afternoon, Chairman Davis and members of

the committee. My name is Sherwood Johnson III, president of the

Building Owners and Managers Association International and a

real estate professional with CarrAmerica. Thank you for the opportunity to address the issue of the Federal Government entering

into public-private partnerships for real property.

First, let me start by telling you a little about BOMA. Founded

in 1907, BOMA International is a dynamic federation of more than

100 local associations with over 18,000 members who own or manage over 8.5 billion square feet of commercial properties in North

America. Our mission is to advance the performance of commercial

real estate through advocacy, professional competency standards

and research. The General Services Administration, along with

other Federal agencies in State and local building departments are

a valued segment of BOMA’s membership.

Managers of public and private property alike face the constraints of tight budgets for funding repairs and alterations. However, owners and managers of private property have at their disposal a wide array of asset management and financing tools to assist them. It is our belief that the managers of government-owned

buildings must be given similar tools and be allowed more flexibility.

To this end, BOMA International is pleased that the committee

is considering legislation that would allow the GSA to enter into

public-private partnerships. However, these public-private partnerships are just one of the many tools that the Federal Government

property professionals should have at their disposal. We encourage

you to go a step further and take into consideration all of the asset

management tools that would allow the GSA and other agencies to

do their jobs more effectively.

As Congress explores the opportunity to encourage public-private

partnerships, it is critical to understand that the main thing the

private sector will look for in any partnership is a return on invested capital. No one will enter into any arrangement with the

government unless there is an expectation of economic benefit. So

the primary question must be, how could the private sector make

a return on any joint venture arrangement?

BOMA International generally supports the lease-back concept of

public-private partnership arrangements. Here the government

would have a private entity take over economic control of a building and renovate it. The government would have a first refusal option to lease the building back for a rent that includes a return on

the building improvements.

Please keep in mind that absent the guarantee that the government would lease back the building, there would have to be a

strong private sector demand for the space, based on location or

physical attributes. The private developer would need a reasonable

expectation that the building could be leased at a rate that would

allow for the investments to be recouped.

This type of arrangement becomes much more problematic if the

property is a special purpose building that did not have private sector demand. Separately, there might be some building that the govVerDate 11-MAY-2000 10:59 Oct 31, 2002 Jkt 000000 PO 00000 Frm 00074 Fmt 6633 Sfmt 6633 C:\DOCS\81425.TXT HGOVREF1 PsN: HGOVREF1
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ernment owns that would be profitable to lease outright to the public sector—excuse me, to the private sector.

In those cases, the government could lease to a private real estate company under a long-term lease. These companies would

then invest in the repairs, lease the space to private sector companies and make money in the usual way. After the expiration of the

lease, the building would revert to the government, who would inherit the improved property.

The benefits to all parties are obvious. A private sector company

undertakes the management of the building, filling it with tenants

for the benefit of both the private sector partner and the taxpayer.

The government would retain ownership rights to a structure that

it could bring back into its operational portfolio in enhanced condition. The risk of cost overruns is born by the private sector or could

be shared with the Federal Government. As a result, the GSA

would be better able to direct their scarce capital upgrade funds toward buildings that are not involved in the public-private partnership arrangements.

Finally, the private sector would appreciate having access to the

public sector tenants who have previously not been part of the commercial real estate market.

While BOMA supports congressional action on this issue, we

must once again caution that the GSA and the private sector will

need flexibility in crafting these types of arrangements. Every

building is different. Every real estate market is different. Every

real estate transaction is different. The GSA and private sector

partners must have the ability to enter into arrangements that are

mutually beneficial; otherwise nothing will be accomplished.

BOMA International knows firsthand the GSA and other Federal

agencies have highly educated and capable property professionals

on their staffs. The Federal Government’s property managers actively participate in BOMA’s education and training opportunities.

They hire top-notch people who are capable of using sound business

and asset management principles to make educated decisions. I’ve

personally had the pleasure of working with many of them.

While Congress has a role to play in overseeing this function of

government, it will never be done effectively until the property professionals are allowed the flexibility to use all the tools available.

I thank the committee for its time. I would urge the committee

to refer to BOMA’s written comments, which are more extensive

than my own testimony. BOMA International would welcome the

opportunity to work with the committee and provide additional expertise as you proceed on these issues. And I’m also happy to answer any questions.

Mr. TOM DAVIS OF VIRGINIA. Thank you very much.

[The prepared statement of Mr. Johnston follows:]

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Mr. TOM DAVIS OF VIRGINIA. I appreciate the questions from the

panel.

Let me start with a question to BOMA and GSA, everyone. I

wonder if you could elaborate a little bit on the potential budget

effects of these partnerships in the bill at hand, H.R. 2710. And

what are the specific scoring triggers that could bar successful implementation of the public-private partnerships? Who wants to

start on that?

Mr. JOHNSTON. Well, the GSA is probably the most qualified to

answer the question about the scoring issues that they have.

Mr. TOM DAVIS OF VIRGINIA. All right.

Mr. PERRY. Let me begin on that, and I’ll invite my colleague,

Joe Moravec, to maybe respond as well.

But specifically, with respect to scoring, it really relates to the

last part of Mr. Johnston’s testimony. Since these will not be onesize-fits-all kinds of transactions, there will be the need to consider

each transaction separately. The scoring rules need to have consistency.

We believe, as we have looked at a number of projects which may

well fit under this public-private partnership approach, that the

scoring rulings, as they are currently interpreted and used, would

result in our being able to go forward with those kinds of projects.

We are working closely with OMB with respect to this to make

sure that is the case.

Joe, would you care to elaborate?

Mr. MORAVEC. The specific things that would score, that would

cause a scoring convention to be violated, would be if the government were, in fact, leasing back from itself.

The way this H.R. 2710 has been written is that the government

would not guarantee a lease-back. In other words, the lease-back

of the space by a government agency would be separate and apart

from the creation of the public-private partnership, so that the public entity leasing back would be, in effect, an arm’s-length lessee of

the property.

Second, the way the legislation is crafted, there would be no subordination of the government interests. The government would

have an unsubordinated senior interest in the property and it could

never, in effect, be foreclosed on, so that its actual equity in the

property and the partnership would never be at risk.

And finally, the way the legislation is crafted, there would be—

the government’s liability in the partnership would be no greater

than the value of the equity that it’s contributed. So the government would have no indebtedness.

And as Administrator Perry has said, as long as those three conditions are present in the creation of a public-private partnership,

we believe that we will be well within scoring conventions.

Mr. TOM DAVIS OF VIRGINIA. So this legislation suffices, you

think? It doesn’t need to be tweaked any?

Mr. MORAVEC. We do.

Mr. TOM DAVIS OF VIRGINIA. OK. Thanks.

Let me ask GAO, if the administrator of GSA is given the authority to proceed with the public-private partnership program,

what controls, both internal to GSA and external, do you think

should be in place to ensure proper management of the property?

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Mr. UNGAR. Mr. Chairman, I think there are a number. First of

all, I think it would be appropriate for GSA to have a real good,

solid business plan which lays out the business case and the financial issues, the risks, who’s going to assume those risks and how

the project would, you know, be operated.

Second, GSA, in our view, would come up—or, you know, would

be wise to come up—with some criteria that it would use in terms

of deciding whether to go forward or not, what factors, what conditions ought to be present or should not be there in order to proceed

on a public-private partnership.

Third, we think there ought to be some sort of review and approval process that is systematic within GSA to make sure all the

bases are covered, the i’s dotted, t’s crossed. That would include

some form of congressional notification of the intent to proceed, as

well as probably some effort to work with the local community involved to assure that there aren’t any pitfalls or unforeseen issues

there.

And finally, some sort of an evaluation process that would be— a plan and process that would lay out how GSA intends to measure

the success of the effort once it gets going.

In addition to that, we would suggest that Congress also certainly review the proposal of the relevant committees, the subcommittees, as they currently do for large projects that GSA proposes, and that there would be some congressional oversight of the

process and, particularly, the use of funds that would be retained

as a result of these projects.

Mr. TOM DAVIS OF VIRGINIA. Thank you.

Let me ask Mr.—— Mr. PERRY. Mr. Chairman, may I just quickly elaborate on Mr.

Ungar’s response?

First of all, I’d just like to say that we fully agree with every single point he made, and in the proposal that we have submitted,

each of those points is addressed, starting with the strategic plan

to the overall process, to the review and approval, including review

by Congress, the evaluation is there, as well as making a final review to renew the legislation after a 10-year sunset.

Mr. TOM DAVIS OF VIRGINIA. OK.

Let me ask Ernst & Young, Ms. Burke, do you know any examples of private-public partnerships at the State or local government

level that could be used as a guide in crafting a workable program

here at the national level?

Ms. BURKE. We do. One example is Penn Station in New York.

Another example is the Seventh Regiment Armory in New York.

Another example is Arizona State University.

A lot of the construction State and local governments have done,

and cities of athletic facilities, like stadiums, take the form of partnerships that are very similar to this. And so those would be examples.

Mr. TOM DAVIS OF VIRGINIA. I think there is tremendous potential. This allows private businesses to do this kind of thing every

day. They do it because it is in their financial advantage to do it.

Let me ask any—my minutes are up.

Mr. Turner.

Mr. TURNER. Thank you, Mr. Chairman.

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Mr. Perry, the proposal that you have been referring to I understand is being reviewed by OMB currently for their comments.

Mr. PERRY. Yes, sir. That’s correct.

Mr. TURNER. What are the areas of concern that have arisen out

of that review, or have you yet to hear regarding what their view

is on this proposal?

Mr. PERRY. We have heard what their view is on the proposal.

We are in lock-step agreement with respect to the proposal. We

have worked very closely with Shawn O’Keefe and others on his

staff to discuss the objectives. And the legislation has been circulated among the other agencies to get feedback for the proposed

legislation.

And to my knowledge there was nothing adverse that has come.

So my understanding would be that we are in agreement with respect to the objective of this legislation.

Mr. TURNER. But they are also looking at the actual bill itself

that you had last year with regard to the specific details of it; is

that correct?

Mr. PERRY. All of that was a part of the input; that is, where we

were last year at the end of that session of Congress was a starting

point. We recognized that there were shortcomings in last year’s

proposal, and so we worked on eliminating these items that would

have been items that could have rendered the use of last year’s bill

to be fairly difficult, and we have gotten those things to be addressed, partly by, as was mentioned, the strategic plan and the

process that we have outlined.

Mr. TURNER. This suggestion, I believe, that was in the bill, that

if the value of the property is not over $2 million, then there is no

congressional review, as I understand that process, it is just basically a notification to basically the staff of this committee that a

sale is proposed. Currently I guess it is any sale over $100,000; is

that correct?

Mr. PERRY. I think that is the correct number. We haven’t

worked out the details of that, but the objective of this is—that is

to say, if there is a project under consideration that has a value

of $2 million or more, that we would effectively notify the Congress,

not just something that would be perfunctory, but effectively inform the Congress what our intentions were before moving ahead.

Mr. TURNER. Under the current process for congressional oversight, if you have notified the Congress, and this committee has reviewed it and doesn’t approve of it, does this committee or this

Congress have any control over that decision, or it is merely a notification process that we are talking about here?

Mr. PERRY. I am going to ask Joe to respond to that. My belief

is that we would adhere to the direction that we get from congressional moods on this. It is done through the budget process where

we name the specific project that is under consideration and get

budget authority for it.

Mr. MORAVEC. Right now it is—prospective level for projects that

require congressional authorization is about $2 million. So this is

totally consistent with the process that we subscribe to now with

regard to all of our capital investment submissions to Congress.

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Mr. TURNER. But as I understood it, we—there is a provision that talks about a $100,000 value and above, and does that relate

to disposal of property? Is that what that relates to?

Mr. MORAVEC. That is related to disposal.

Mr. TURNER. Is there a proposal in this legislation to change that

as well?

Mr. PERRY. Yes. That is in the section having to deal with

streamlining the disposal process. Yes.

Mr. TURNER. All right. Now, if I understood that provision, if the Congress is notified that a piece of property worth $150,000 is

going to be sold, and this committee reviews that and has some objection, is there any procedure where we actually have any role of

changing your mind, or is that simply a notification procedure?

Mr. MORAVEC. I think as a practical matter we wouldn’t move

until we had resolved that with the committee.

Mr. TURNER. Even though there is no statutory authority in the

Congress to block the sale of a property at that level?

Mr. MORAVEC. Even though there is no statutory authority.

Mr. TURNER. Has that been particularly burdensome to give such

notice to this committee regarding disposal of property in excess of

$100,000?

Mr. MORAVEC. It is not particularly burdensome, it is just that

the dollar threshold, we believe, is a little low. We would like a little more latitude in terms of the dollar amount involved.

Mr. TURNER. But I mean as a practical matter, does it really represent any significant impediment to the process of disposal just to

notify this committee that the properties—— Mr. PERRY. It would be a case of—we haven’t encountered any

difficulty with respect to those items. Many of the properties that

we do dispose of are in excess of that previous limit. We think it

is a matter of administrative efficiency to not send that many requests over.

As it turns out, there hasn’t been a burden. It is more of a case

of low value kind of work, both on the part of GSA and on the part

of the Congress, to review them.

Mr. TURNER. How many times would this committee ever see notice, say over the last year, that property was going to be disposed

of?

Mr. MORAVEC. I am sorry. We will have to get back to you for

the record on that.

Mr. TURNER. I want—I only make the inquiry—it strikes me if

this is just a notification procedure, and it is not too extremely burdensome, then it is probably a good thing for the Congress to know;

particularly if it involves a piece of property in, you know, my district, I would like to know.

And I don’t have much in my district that you could dispose of

that would be over $2 million, so it might be a provision that would

be nice to keep in the law, at least as some lower limit than $2

million.

That is all the questions I have.

Mr. TOM DAVIS OF VIRGINIA. Thank you.

Mr. Horn.

Mr. HORN. Thank you, Mr. Chairman. This is a very worthwhile

hearing. And it does have effects across the country. And I am glad

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to see the Administrator of GSA here, Mr. Perry. I hope will you

enjoy the way we do business. You had a fine record in Ohio.

And I would like to ask a question about Deputy Under Secretary DuBois. How long has the environmental portion of your

rank—was that earlier in the Office of the Secretary of Defense,

but not with the Under Secretary, or Deputy Under Secretary?

When did that move?

Mr. DUBOIS. Under the prior administration, the Clinton administration, there was established the Deputy Under Secretary of Defense for Environmental Security, I believe, in 1993.

When Mr. Rumsfeld became Secretary and was confirmed on

January 20th, we discussed various ways to streamline the management and the procedures of the Office of the Secretary of Defense.

It was considered a good idea at that time, and I think it continues to be a good idea, to combine both installations and environment, because one impacted the other in both positive and negative

ways, as you well know, given the hearing that you held in California, sir. Therefore, on April 29th, when I was appointed to this position as Deputy Under Secretary for Installations and Environment, it so was established.

Mr. HORN. I think that makes a lot of sense, personally, and I

had been griped the other way that this—it never was going anywhere in 1994, 1995. They just sort of sat on the money was my

feeling.

And in my Subcommittee on Government Efficiency we took a

hearing a few weeks ago at Fort Ord, and that is—we appreciate

the help that is there from a lot of you there. But we have a little

problem still there, which is live artillery. And there has been, I

think, the one heavily hospitalized, and I am told one died there.

And I just would like to see if we can help on that, because that

was under the Army to put the money out.

And another one I am going to take here was from the Navy.

And I think you are absolutely right to have that under the Office

of the Secretary with somebody with some clout, and you are the

one with clout I am looking at.

So let me go down the line on a few questions I want to have

Administrator Perry—I am sorry, I came in late because I had the

usual 15 people in our office.

What is the length on the contract that GSA feels on land use?

Have you picked a number? Is it 20? Is it 25? 30? 50? What?

Mr. PERRY. The proposed legislation would allow as long as 50

years for that. We would expect that the individual leases would

be of a shorter term, but 50 is a general maximum.

Mr. HORN. Well, I am glad to see that, because some end at 5

years, 10 years, 20, just wasn’t working.

Mr. PERRY. Right.

Mr. HORN. In our case I want to thank you for the GSA working

with NASA in the town of Downey. Now, that was the Rockwell

plant that built the space lab, the Apollo, the one that now sends

it up and back, that one, but Boeing now takes that over. And it

was already going because we couldn’t keep the repairs going since

it was just—they were not needed at that point.

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So in Downey you have got a plant that, when I came to that

area in 1970 that had 35,000 workers, now have none. I don’t think

there is even a maintenance person to keep that property, because

it is a patch system where the old committee on—at Goddard was

on way back in the 1930’s. And the—obviously NASA is now in it,

and Administrator Goldin has been very helpful, and we appreciate

that.

And so that is another one there that I would hope it has worked

out, and I think it is supposed to be worked out, Mr. Perry, because

there is a lot of other agencies, EPA, so forth, besides GSA, and

we would appreciate it if we could just finish that one up.

Now, another one is on the west side of Long Beach. In the

1930’s, Long Beach was the headquarters of the Pacific Fleet. And

one chief executive of the—Chief Operating Officer of the Navy, he

said that was the stupidest decision that they ever had was to go

to Hawaii. You saw what happened. By accident we had our aircraft, people out there, but thousands died December 7th. And on

that land on the west side, it was naval housing for about 38 ships.

That was under my predecessor Mr. Anderson.

What we turned that into is something that gets economic development, and one—there is three things here. We have a technical

high school being built. I was able to get out of the President a Job

Corps situation back in about 1995. And then there is—besides the

Job Corps, the technical high school. We had there 30 acres for the

College of Engineering at California State University Long Beach.

That is very needed because Orange County has now had a good

Silicon Valley-type approach, just like Fairfax County and San

Diego, but southern Los Angeles County have not had the development that they should have. And, of course, the land that went to

the Port of Long Beach is very helpful. But we could do better in

terms of biological and Silicon Valley-type firms.

Then we have on the east side of town, which is coming along, there were two patches there given to the Navy, $1 apiece, in the

beginning of the Second World War. And that—unfortunately the

city attorney missed one, and they gave them the dollar and

thought, well, if they ever leave, they will give us the property

back.

And the fact was that they went—when the split came, where

the city attorney had put that in, we easily got that property to revert back to the city of Long Beach. And they are still in a situation, or were with the Navy, of, well, you owe us $8 million. Good

heavens, you know, that is a pretty good property for the dollar

that we asked them to give us back in the—oh, probably 15 years

ago that they closed that naval hospital, which was about 5,000

people with patients and all of that.

So those are the examples I have lived with in a way, and I

would appreciate it if we could take a look at that, and I would like

to sit down with you, Mr. DuBois, and see if we can’t work it out

and finish it forever and get the economic side of that part of Los

Angeles County—it would be very helpful.

So I thank you all for your testimony. And, as I said, Fort Ord

it is coming along. It has got a wonderful campus of the California

State University system at Monterey Bay. They had 5,000 applicants the first year they opened there. And there is space there for

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economic development, more of it, and we appreciate anything you

can do on that. Thank you.

Mr. TOM DAVIS OF VIRGINIA. Thank you very much. I didn’t mind

it, I did my basic training at Fort Ord 100 years ago.

Mr. HORN. No fooling. Well, you should have come up and seen

me. I was at Fort Ord, too, in terms of shooting off rifles, but I

didn’t shoot off the artillery.

Mr. TOM DAVIS OF VIRGINIA. It is amazing what they have done

with that. When I was driving through recently, I dropped by to

see some of the construction that they have had.

Let me ask a few more questions before we wind this up.

I will start, Mr. Perry, with you. What are the major barriers to

effective asset management that you see right now at the Federal

level?

Mr. PERRY. Well, there are a number of major things. First of all,

there is not at this point in time a—sort of a global standard as

to what the process should be for what we call life cycle management, not only to apply good practices in the case of acquisition,

but to also apply good property management practices throughout

the asset’s life and to apply good processes to its subsequent disposal.

So those are among them. There are some other things that you

might cite among those, that is—for example, making sure that

agency acquisition and use of real property assets are consistent

with the agency’s mission. Now, some of that would sound pretty

straightforward. You know, you decide whether you need the asset

for a long term, in which case owning it might make sense, or is

it a short-term need, in which case leasing would make much more

sense.

We don’t think that all of the agencies have people on their staffs

who are skilled at thinking through those. What we would propose

to do, therefore, is to provide this list of management principles

and standards that we would help to ensure that each agency follows.

Mr. TOM DAVIS OF VIRGINIA. Do you have any idea how many

pieces of property GSA owns right now that aren’t being utilized,

for one reason or another, and are either boarded up and are just

sitting there?

Mr. PERRY. We don’t know how many complete facilities would

fall in that category. I do know that we have over 100 buildings

that we have documented that have what we have called egregious

conditions with respect to the need for upkeep. Many of those

buildings are nevertheless still occupied, or at least partially occupied. We do have some where Federal agencies have moved out and

refused to use the space based upon condition.

But there is this 100 or so that are in a deteriorated state, and

then within that group of 100 we have identified 20 that would be

sort of on the top list that need immediate attention.

Mr. TOM DAVIS OF VIRGINIA. OK, let me ask you another question. What would be the benefit of broader legislation? Are you familiar with S. 2805 introduced by Senators Thompson, Lieberman?

Mr. PERRY. Yes.

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Mr. TOM DAVIS OF VIRGINIA. How would the provisions of this

bill enhance the management of Federal property; how would that

be effective for you?

Mr. PERRY. Well, first of all, it—that bill would have had some

limited or some restrictions on the use of the public-private partnership approach, and we would propose that those limitations be

eliminated.

Additionally, the bill may not have addressed the issue of disposal. I think it did address disposal, maybe not as comprehensively as we are. It did include both the use of outleasing and subleasing, which, by the way, are not as comprehensive in the Sessions bill.

So when you take those bills together, I think it generates a

package. As long as you take the best of both, that would make it

workable.

Mr. TOM DAVIS OF VIRGINIA. OK, let me ask the representatives

from DOD and VA, what are the cost savings to the government

that you have demonstrated through the use of public-private partnerships?

Mr. DUBOIS. As you know, in the Department of Defense military

housing privatization alone has probably saved, will through the

end of this fiscal year, that is to say 2002, probably—and ‘‘savings,’’

again, is a difficult term. Leveragewise we may be dealing with

nearly $1 billion.

You asked a few minutes ago about asset management, what

would help us manage our assets better. Clearly until the Defense

Department—and I think, no question, we concur in GSA’s proposal, which is, as we read it, more far-reaching than the Sessions

bill, those authorities given to us ought to be given elsewhere in

the Federal Government, utility privatization and enhanced use of

leasing, military housing privatization.

But the most important asset management authority that Congress could give us at this time is for a further round of base closures and realignment, which we hope will come out of the conference. As you know, the Senate did vote essentially for it last

week 53 to 47. That in and of itself could save the Department of

Defense, i.e., the American taxpayer, anywhere from $3 to $6 billion more.

Mr. TOM DAVIS OF VIRGINIA. I am in support of that. I mean, Mr.

Turner is on the committee in the House. It is very controversial

with a lot of the districts that would be impacted from that, but

I agree with you.

Mr. KUSHNIR. From the Department of Veterans Affairs perspective, we saved a considerable amount of money. I think I mentioned in my testimony, we have achieved over $250 million worth

of value that was invested into VA properties. This included energy

plants, and it included parking facilities, medical facilities, and also

resulted in significant savings to VA operational dollars, which are

really paid out of its medical care funds. So it results in more of

those funds directly being used for veterans’ health care.

So we have found this enhanced use leasing, which is essentially

a public-private partnership vehicle, as being very helpful to us in

achieving our mission requirements.

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Mr. TOM DAVIS OF VIRGINIA. I think sometimes we just pass too

many rules and regulations that centrally drive things that we try

to keep open, public, and keep people from stealing money, but we

don’t allow you to do a lot of other things, too, in the process.

We ought to let you manage this and give you the tools. And we

see this done every day in the private sector where they are driven

by a bottom line. I just think it makes everything more efficient.

I think you agree as well.

Mr. KUSHNIR. Yes, sir.

There was a question earlier, comments about stakeholder involvement. Our legislation provides for public hearings at the site

where we are contemplating doing an enhanced use lease, and our

enhanced use leasing goes from a sort of a lease, lease-back arrangement, to more of your outlease arrangement that was talked

about earlier in deriving revenues from it.

But we believe in public hearings. We also have congressional notification to our oversight committees for each and every one of our

proposed enhanced use leases.

Mr. TOM DAVIS OF VIRGINIA. Thank you.

Anyone have anything else that they want to add?

Mr. PERRY. Yes, Mr. Chairman. I think what we are really looking at here is a decision to decide to apply what I would call very

prudent good management practices. And as I have listened to today’s testimony and the other information that I have been able to

be a part of as we have worked on this project, it would appear to

me that the evidence is pretty conclusive that this prudent good

management practice is tried and tested and proven in the commercial sector. And we heard that again today from Ms. Burke of

Ernst & Young, and from. Mr. Johnston on BOMA.

I think we are very fortunate to have Joe Moravec as our Commissioner of Public Service, having done this himself personally for

30 years. So we are not speculating with respect to whether this

is something that can work.

Second, we also heard from representatives of DOD and VA that

this, in fact, even works in the public sector, has been working in

terms of the demonstration projects. And then we have had the

General Accounting Office do a thorough review and also endorse

the fact that this can work.

So I hope there is no further concern as to whether or not we

are embarking upon something which is not tried and tested.

The other issue is we have, as we sit here, a large and growing

inventory of deteriorating Federal buildings, not a livable situation.

There is—on my way of looking at it—no other alternative solution

on the horizon. And each day we wait, each year we wait, and we

have waited a year since this was introduced in the last session,

that inventory and backlog of repair and alterations work which is

continuing to grow does grow.

So I commend the committee for taking a serious look at this so

that we don’t leave a legacy of further deteriorated Federal buildings, and, in fact, we take the bold step to be the group that provides the answer to the problem that we have been living with for

a number of years now.

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Mr. TOM DAVIS OF VIRGINIA. Thank you very much. I want to

thank all of you, for attending the hearing. We have had some

great testimonies today.

I want to thank Congressman Turner, Representative Horn and

Representative Sessions for participating.

I want to thank my staff and Mr. Turner’s staff for organizing

this. I think it has been very, very productive. I’m going to enter

into the record the briefing memo distributed to subcommittee

members.

We will hold the record open for 2 weeks from this date for those

who may wish to forward submissions for possible inclusion.

These proceedings are closed. Thank you.

[Whereupon, at 5:10 p.m., the subcommittee was adjourned.]

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