U.S. COMMODITY FUTURES TRADING COMMISSION 

Three Lafayette Centre 


1155 21st Street, NW, Washington , DC 20581 


Telephone: (202) 418-5110 


Facsimile: (202) 418-5522 


www.c ft c.gov 

Office of the June 4, 20 14 

Inspector General 

TO: 	 Acting Chairman Mark P. Wetjen 


Commissioner Scott D. O' Malia 


FROM: 	 A. Roy Lavik, Inspector Genera!O.. R-.£_ 

SUBJECT: 	 Review of Leasing and Occupancy Levels in Kansas City at the Commodi ty 

Futures Trading Commission 

The CFTC presently utilizes approximately one-third of its Kansas C ity Regional office space; it 

has 25 staffworking in office space that acco mmodates 78. Rental payments average 

approximately $44,000/month, meaning the CFTC will pay $5.3 million over the life of the 10 

yea r lease. At current utilization rates, two-thirds of that amount- approximately $3.6 million ­

will be paid for vacant office space. 

Our primary recommendation is that the CFTC take imm ediate steps to dispose ofthe excess 

space. Our secondary recommendation is for the CFTC to review its underutilized space in other 

regional offices and headquarters. Though not the focus of this review, we note that the problem 

ofunderutilization is not limited to Kansas City. Over the life of its leases the CFTC will spend 

over $200 million; assuming a goa l of95% occupancy' and absent remediation, approximately 

32%- or $64,000,000 - will be spent to lease vacant offices. 

On March 31, 20 14, our Office issued a draft report to CFTC Management for comm ent; we 

rece ived their respon se on May 14, 2014. 2 We disagreed with CFTC Management's views, but 

CFTC Management subsequently informed our Office that it had approached the landlord in 

Kansas City in an effort to return space. We view this as a positive step. We also thank CFTC 

Management for its effo rts in its May 14 response to correct what it perceived as factua l errors 

and omissions, and we have addressed many of the comments in our final review. 

CFTC Management acknowledged in its May 14 response that there is excess vacant space in the 

Kansas City Office; however, it stated that the lease ofso many vacant offices had been and 

remained a justifiable expense on the basis that CFTC 's requested budgets since 2011- if only 

they were appropriated - would be suffi cient to fi ll the vacant space. CFTC Management 

intended to maintain the vacant space for the "foreseeable future" so long as future funding 

1 Whi le there are apparently no occupancy requirements for federal leased space, we believe the goa l of95% 

occupancy wi ll res ult in the greatest efficiency. 

2 Attached as Appendix 2. 
increases are not "eliminate[ d) ... from the realm ofpossibility." 

We believe this is an instance of hope trumping experience. Over each ofthe last three fiscal 

years, Congress has given the CFTC approximately 66% of its budget requests, which represents, 

for example, a FY 2014 budget of $2 15 mil where CFTC requested $315 mil, and FY 20 13 and 

2012 budgets of$205 mil where CFTC requested $308 mit ? Given the shortfa ll between CFTC 

budget requests and Congress-approved budgets since FY 2012, we do not believe that the 

" realm of possibility" is the appropriate metric by wh ich CFTC Management should base its 

decision to spend taxpayer dollars on vacant offices. As we express in our review: 

It may be that immediately after downsizing, the CFTC will receive an 

appropriation sufficient to comp letely fill the space that it no longer has. This 

would not change our reasoning; we believe that the CFTC and public are better 

served by the risk of a temporary shortage of space, than a 100% certainty of 

spending substantial taxpayer dollars on the lease of vacant offices. 

CFTC Management also suggested that " if it appears no additional funding w ill be forthcom ing 

in our FY 2015 Budget request, we will pursue alternati ves as suggested in the OIG Study." 

This seemed positive, but CFTC Management maintained throughout our fieldwork that the 

"next" appropriation would intluence its strategy with regard to the maintenance ofthis Jease.

4 

We appreciate CFTC Management's subsequent decis ion to approach the Kansas City landlord 

in an e1Tort to reduce excess space and approve of this apparent shift in management response to 

our rev iew, but we have no fu rther details at this time. We intend to moni tor the s ituation 

moving forward . 

Attachment: 	 Review of Leasi ng and Occupancy Levels in Kansas City at the Commod ity 

Futures Trading Commi ssion 

cc (w/att.): 	 Tony Thompson, Executi ve Director 

3 CFTC's budget requests are available at http://www.cfkgov/About/CFT CReports/cft:creports historical. CFTC 

appropriations are at: 11 3 P.L. 76, 128 STAT. 5 (FY 2014), 11 3 P.L. 6, 127 STAT. 198 (FY 201 3), 11 2 P.L. 55, 

12 5 STAT. 552 (FY 20 12). 

4 Prior to appropriation ofthe FY 20 14 CFTC budget, and during our fie ldwork for thi s re view, CFTC Management 

stated , " [i] fCFTC receives the requested amount in the FY20 14 President' s Budget there wi ll be no excess space," 

and stated, " [i] f it appears the CFTC will not achie ve the anticipated staff leve ls in the near fut ure, we w ill 

reconsider all options." CFTC Space Acquisition and Utilization Plan, December 30, 20 13 (Appendix I). 
U.S. Commodity Futures Trading Commission REDACTED

Office byCFTC ofthe Inspector General 

A Review ofLeasing and Occupancy Levels ofthe Kansas City 

Regional Office ofthe Commodity Futures Trading Commission 

Prepared by the 

Office ofthe Inspector General 

Commodity Futures Trading Commission 

June 4, 2014 

This CFTC OIG Report is subject to the provisions of the 

Privacy Act of 1974, 5 USC § 552a, and has been redacted as 

determined by the Commodity Futures Trading Commission. 

The redactions are not determined by the CFTC OIG. 
U.S. Commodity Futures Trading Commission REDACTED 


Office ofthe Inspector General byCFTC 


Executive Summary 

In September of 2010, the CFTC signed a new lease in Kansas City, relocating to offices 

adjacent to the Kansas City Board ofTrade and expanding the CFTC's Kansas City office space 

by 300%. As ofthe date ofthis review, the Kansas City office has 25 staff in a space that 

comprises 78 offices and cubicles, six large rooms dedicated to other uses such as conferences, 

and 15 rooms labeled as "non-occupiable," which include various support rooms such as storage 

and filing. This level of utilization has been broadly steady since the lease commenced. With 

rental payments averaging approximately $44,000/month, the CFTC will pay $5.3 million over 

the life ofthe ten-year lease. At current utilization rates, 68% of the total lease cost ­

approximately $3.6 million- will be paid for vacant office space. 

Planning for this expansion began in 2009, and the decision to move forward was predicated on 

the expectation of additional appropriations from Congress. 1 That same expectation apparently 

underlies the CFTC's decision each year to decline to take steps to minimize its expenditures on 

empty offices. Beginning in 20 12, about a year after the lease commenced, we expressed our 

concerns to the Chairman's office and relevant staff and raised the issue in a report, urging "the 

Agency to monitor staffing levels in the Kansas City field office in the future and to address 

space issues on its own initiative."2 We reiterated our concerns in early 2013, when the Kansas 

City Board ofTrade was scheduled to be closed. 3 In March of20 13, seeing no progress, we 

formally noted our concerns in our semi-annual report to Congress.4 In September 2013, we 

conducted an on-site inspection of the Kansas City office and observed that the underutilization 

of office space remained unchanged. Accordingly, we initiated this review. 

This review concludes that underutilized space in Kansas City is an expense that should not be 

maintained. We make two recommendations. We'recommend that the CFTC take immediate 

steps to dispose ofunderutilized property in Kansas City. We also recommend that the CFTC 

initiate a review of underutilized space in the other regional offices and at headquarters, to 

determine if similar actions are warranted. 

1 This expectation was based at least in part on the anticipation of financial regulatory reform. Dodd-Frank Wall 

Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (2010) ("Dodd-Frank Act" or 

"Dodd-Frank") (http://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm). All internet addresses cited in this 

report were last visited on June 3, 2014. 

2 A Review of75 Purchases by the Commodity Futures Trading Commission: March 2011-March 2012, page 9, 

fn.24 (http://www.cftc.gov/ucm/groups/public/@aboutcftc/documents/file/oig finalreview 122112.pdf). 

3 See CME Will Put Kansas City Board ofTrade Building Up for Sale, March 21, 2013, Kansas City Business 

Journal. Available at: http://www.bizjournals.com/kansascitv/news/20 13/03/21 /cme-will-put-kansas-city-boardof.html. 

4 CFTC Semiannual Report ofthe Office ofthe Inspector General for the Period Ending March 31, 2013, at page 9 

(http://www.cftc.gov/ucrnlgroups/public/@aboutcftc/documents/file/oigsar033113.pdf). 

11 
U.S. Commodity Futures Trading Commission 	 REDACTED 

Office ofthe Inspector General byCFTC

Table Of Contents 


Executive Summary ........................................................................................................................ ii 


CFTC Management States That There Are No Circumstances Under Which The CFTC Would 


APPENDIX 1 ................................................................................................................................... . 


CFTC Space Acquisition and Utilization Plan ............................................................................ . 


APPENDIX2................................................................................................................................... . 


OED Response to the March 31, 2014, OIG Review ofLeasing and Occupancy Levels ofthe 


Kansas City Regional Office ofthe CFTC- Discussion Draft .................................................... . 


Introduction, Scope, and Methodology ........................................................................................... 1 


Background ..................................................................................................................................... 2 


Legal Background ....................................................................................................................... 2 


Factual Background .................................................................................................................... 4 


The CFTC's Expansion In Kansas City ...................................................................................... 5 


Findings .......................................................................................................................................... 6 


CFTC Management Believes Its Leasing Decisions Are Justified ............................................. 6 


CFTC Management States That Its Leases Are Justified By Its Requests For Higher Budgets 6 


Benefit From Subleasing Or Returning Space To The Landlord ............................................... 7 


The CFTC Could Not Keep The Proceeds From A Sublease ................................................. 7 


The CFTC's Up-Front Costs To Sublease Would Be $1.3 Million ........................................ 8 


It Would Not Be Cost Effective To Return Space To The Landlord ...................................... 8 


CFTC Management States That It Is Inadvisable To Open An Office On The West Coast .... 10 


The CFTC's Recent Actions With Respect To The Kansas City Lease ................................... 11 


Conclusion .................................................................................................................................... 13 


Recommendations......................................................................................................................... 13 


APPENDIX 3 ................................................................................................................................... . 


Maps ............................................................................................................................................. . 


111 
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Office byCFTC ofthe Inspector General 

Introduction, Scope, and Methodology 

This review focuses on occupancy rates in the CFTC's western-most office ofKansas City. Our 

objectives were: ( 1) to rev iew the current occupancy rates in the Kansas City Regional Office; 

and (2) to review th e efforts the CFTC has made to minimize the cost to taxpayers of lease 

payments for vacant offices. We chose to focus on Kansas City because its occupancy rates are 

the lowest ofany CFTC office by a substantial margin, and because the potential remedies there 

appear to be the clearest. However, we may consider a more expansive review over the coming 

months that includes the other offices. 

To complete our review, we interviewed 17 individuals in Enforcement, the Division of Swap 

Dealer and Intermediary Oversight, the Office of Data and Technology, and the Office ofthe 

Executive Director, including individuals within the sub-offices ofFinancial Management, 

Logistics and Operations, and Procurement. Some witnesses were interviewed on multiple 

occasions. We requested and reviewed the relevant leasing documents, procurement documents, 

and architectural drawings, as well as other documents and CFTC communications concerning 

the Kansas City expansion. We researched pertinent legal principals including federal leasing 

rules and standards, independent leasing authority, Government Accountability Office ("GAO") 

reports and testimony, and government-wide efforts to increase agency efficiency with respect to 

real estate. Finally, we reviewed the recent history ofCFTC leasing. 

We note that Gary Gensler, former chairman ofthe CFTC and perhaps the most important 

witness5 with respect to leasing and staffin g decisions over this period, did not respond to our 

requests for an interview made to him directly by email, and indirectly through his former Chief 

..........~,,·,... Officer · and current Executive Director (Tony Thompson).

6 We note 

that former the Office ofthe Executive Director, and a key 

witness with respect to leas decisions in this period, declined to be interviewed.8 

Lacking subpoena authority, we cannot compel a statement; consequently, this and possible 

supplemental reviews ofCFTC leasing will be incomplete. We note that Madge BolingerGazzola, the CFTC's former Executive Director who presided during the period when the 

Kansas City lease was negotiated, cooperated fully. OED has fully cooperated with our review. 

s Numerous witnesses infonned that Chainnan Gensler was involved in the leasing process and was the ultimate 

decision maker with respect to the entry and maintenance ofthe Kansas City lease. 

6 Fonner Chainnan Gary Gensler's last day with the CFTC was January 4, 2014. Our Office emailed a request for 

an interview on Jan 30, 2014, to Mr. Gensler's personal email address. Mr. Gensler did not respond. Mr. Gensler's 

fonner chiefofstaffstated in February that he had spoken with Mr. Gens ler by phone, but opined that he did not 

think he was the right point ofcontact for releasing personal contact infonnation, and we continued to receive no 

response. On March 8, 2014, the current Executive Director conveyed that to d!ate, he had received no reply from 

the Chainnan per his attempts to communicate with him on this matter. 

7 Numerous witnesses infonned that as heavily involved in the leasing process, helping to 

coordinate the teams of employees who gathered and presented infonnation to the Chainnan. 

8 - retired while fie ldwork for this review was ongoing. We emailed-requests for an 

interview on January 30, 20 14, and again on March 8, 2014. On each occasion, she declined. 
U.S. Commodity Futures Trading Commission REDACTED

Office ofthe Inspector General byCFTC

We therefore address, but do not make findings on, the decision-making process that led the 

CFTC to enter into the Kansas City lease.9 We decline to address, for now, the occupancy rates 

in other CFTC offices. However, we note that over the ten-year life ofthe CFTC's four current 

leases we estimate that CFTC will spend over 200 million dollars, and that the nationwide 

' 10

occupancy rate at the CFTC appears to be just 63%. 

Background 

Legal Background 

The problem ofempty and underutilized office space is by no means limited to the CFTC. 11 

Congressional inquiries, committee hearings, as well as numerous articles in the press have 

discussed this issue; indeed, some agencies are apparently not aware ofall ofthe real estate they 

own or lease. 12 

In January 2003, the GAO designated federal real property as a high-risk area, citin~ the 

government's overreliance on costly, long-term leasing as one ofthe major reasons. 

3 More 

recently, GAO declared that, "[t]he federal government faces long-standing problems in 

managing real property, including an overreliance on leasing, and excess and underutilized 

property."14 With regard to excess and underutilized space, GAO stated that "agencies often do 

not have a strong understanding ofthe real property held by other agencies and may lack the 

authority or expertise to lease their own underutilized property to other federal agencies." 15 

GAO noted that the agencies it reviewed "have taken some actions to dispose of and better 

manage these properties, including using excess and underutilized property to meet space needs, 

9 However, we will consider examining this issue in a supplemental review. 

10 Assuming current staffing levels and no remedial action, over $74,000,000 will be spent to lease vacant offices. 

Occupancy percentages throughout this review come directly from the electronic database used by the CFTC to 

manage its space. Our visual inspection ofthe Kansas City office space was in line with the CFTC database. 

11 See GAO report, Federal Real Property: Excess and Underutilized Property Is an Ongoing Challenge 

(http://www.gao.gov/products/GA0-13-573T). 

12 E.g., U.S. House Committee on Oversight and Government Reform, Subcommittee on Government Operations, 

Government Operations Oversight: Addressing Unused and Vacant Federal Property, Hearing 

(http://oversight.house.gov/hearinglgovernment-operations-oversight-addressing-unused-and-vacant-federalpropertvO Article: http://www. whitehouse.gov /blog/20 11I 1 0/20/sale-cutting-waste-getting-rid-excess-real-estate, 

Article: http://cagw .orglmedia/wastewatcher/time-get -real-federal-property, 

13 Federal Real Property: Strategy Needed to Address Agencies' Long-standing Reliance on Costly Leasing, GA0­

08-197 (January 2008) (http://www.gao.gov/assets/280/271449.pdt). 

14 Federal Real Property: High-Risk Designation Remains due to Persistent Management Challenges, GA0-13­

422T (February 20 13) (http://www.gao.gov/products/GA0-13-422T). 

15 ld. 

2 

U.S. Commodity Futures Trading Commission REDACTED

Office ofthe Inspector General byCFTC

consolidating offices to use space efficiently, and reducing employee workspace to use space 

more efficiently."16 

The General Services Administration ("GSA") is responsible for creating rules and standards 

governing federal leasing, and it assists agencies by negotiating leases on their behalf. 17 Some 

agencies, like the CFTC, have independent leasing authority and negotiate their own leases 

without reference to GSA. 18 But independent leasing authority is more than the ability to 

separately negotiate leases; it also includes independence from GSA rules and regulations 

designed to, for instance, minimize government waste. Exercising that independence, the CFTC 

declined until February of2011 to develop any written leasing standards or procedures of its 

own. Consequently, there appear to have been no CFTC or other written rules that directly 

governed the CFTC's leasing process. 

19 

Over the years, however, Presidents ofthe United States have issued executive orders to reform 

and improve federal leasing standards. In general, these require government agencies to 

efficiently utilize space.2° Some are more specific, requiring agencies to reduce the amount of 

work space to that which is essential for known agency missions, and ensuring that the amount 

16 !d. 

17 The Comptroller General has described the process by which the government leases real property as follows: 

Congress has centralized in GSA the authority to lease real property and facilities for the use of federal 

agencies. The Federal Property and Administrative Services Act of 1949 (FPASA) transferred to GSA the 

authority to lease real property and facilities on behalf ofthe federal government, subject to several 

exceptions not relevant here. FPASA, ch. 288, § 3, 63 Stat. 377,378 (June 30, 1949), as amended, codified 

in 40 U.S.C. § 585. As presently written, this authority allows GSA, on behalfof all federal agencies, to 

enter into leases ofreal property and facilities to meet the government's needs for periods ofup to 20 years 

and to obligate fiscal year funds without violating the Antideficiency Act, 31 U.S.C. § 1341(a)(1)(B). 40 

U.S.C. § 585. See B-309181, Aug. 17,2007. 

Matter of: National Transportation Safety Board--Application ofSection I 072 ofthe Federal Acquisition 

Streamlining Act (41 U.S.C. § 254c) to Real Property Leases, B-316860, 2009 U.S. Comp. Gen. LEXIS 89, April 

29, 2009 (http://www.gao.gov/decisions/appro/316860.htm). 

18 Without specific statutory authority and absent a delegation of authority from GSA, a federal agency may not 

lease real property or facilities for its own use or on behalf ofany other government entity. Matter of: Interagency 

Agreements-- Use of an Interagency Agreement between the Counterintelligence Field Activity, Department of 

Defense, and GovWorks to Obtain Office Space, B-309181, 2007 U.S. Comp. Gen. LEXIS 143, Aug. 17,2007, 

(http://www.gao.gov/decisions/appro/30918l.htm). 

19 The lease in Kansas City was negotiated prior to February of2011. CFTC Management states that it followed the 

same standards prior to 2011, but had not reduced them to writing. We note that the written standards focus on the 

initial leasing process, and do not address any circumstances under which the CFTC should reassess its space needs 

- due, for instance, to underutilization or changed budgetary circumstances. 

20 Executive Order 13576--Delivering an Efficient, Effective, and Accountable Government, June 13, 2011, 

(requiring "frequent data driven reviews" of, among other things, "improving the management of Federal real 

estate"). Available at: http://www. whitehouse.gov/the-press-office/20 11 /06/13/executive-order-13 576-deliveringefficient-effective-and-accountable-gov; Executive Order 13589-- Promoting Efficient Spending, November 9, 

2011, (requiring agencies to "act in a fiscally responsible manner, including by minimizing their costs ..."). 

Available at: http://www. whitehouse.gov/the-press-office/20 11 I 11109/executive-order-13 5 89-promoting-efficientspending. 

3 

REDACTED U.S. Commodity Futures Trading Commission 

byCFTC Office ofthe Inspector General 

of office space per person is the minimum necessary to accomplish the task. 21 For instance, in 

February of 2004, the President signed Executive Order 13327 (EO 13327) which, among other 

things, established a Federal Real Property Council to address issues in property acquisition and 

management, including adding as a performance measure for covered Agencies "changes in the 

amounts of vacant Federal space."22 Similar in purpose to the Executive Orders, President 

Obama issued a Presidential Memorandum on June 10, 2010, requiring agencies to dispose of 

unneeded federal real estate.23 This included a specific directive to "take immediate steps to 

make better use ofremaining property assets as measured by utilization and occupancy 

rates...."

24 

Finally, we have the OIG's own regulatory mandate to detect and prevent waste and abuse, and 

to recommend policies designed to promote economy, efficiency, and effectiveness in 

connection with programs and operations ofthe Agency.25 In sum, despite the absence of 

written rules requiring minimum levels ofutilization or reassessment of leases in light of 

changed budgetary assumptions, the CFTC must still strive to limit waste in this area. 

Factual Background 

CFTC staffing levels reached a relative peak of 560 full-time employee equivalents in 1998. At 

that time, the CFTC had regional offices in Los Angeles, Minneapolis, Kansas City, Chicago, 

and New York, along with its headquarters in Washington D.C. By 2008, the CFTC looked 

markedly different. The Los Angeles office closed in June of2003,26 while the Minneapolis 

office closed just a few years later in 2007. Ofthe remaining four offices, the farthest West was 

in Kansas City, Missouri, leaving the CFTC without an office in the westerly two time-zones in 

the continental United States. Also during this period, staffing levels decreased by more than 

20%, to a low of437 in 2007. By 2008, staffing levels had recovered to 449. 

Beginning in 2008, a number of events occurred in U.S. markets that increased attention on the 

CFTC and other financial regulatory agencies by Congress and the public?7 In 2009, the Dodd21 Executive Order 12411 --Government work space management reforms, March 28, 1983, (requiring agencies "to 

institute fundamental changes in the manner in which Federal work space is managed to ensure its efficient 

utilization.") A vail able at: http://www .archives.gov/federal-register/codification/executive-order/12411.html. 

22 EO 13327 is available here: http://www.gpo.gov/fdsys/pkg/FR-2004-02-06/pdf/04-2773.pdf. EO 13327 did not 

apply to CFTC. The other Executive Orders cited in this paper did apply to CFTC. 

23 Presidential Memorandum--Disposing of Unneeded Federal Real Estate, June 10,2010, available at: 

http://www.whitehouse.gov/the-press-office/presidential-memorandum-disposing-unneeded-federal-real-estate. 

This memorandum applied to CFTC. 

24 !d. 

25 5 USC App. 3, § 2(1). 

26 See Review ofthe Need for Western Regional Office in Los Angeles, CFTC OIG, June 19, 2006. 

27 Among others, oil prices reached an all-time high of$147.27 per barrel, Bear Stearns and Lehman Brothers 

collapsed, numerous bailouts totaling hundreds of billions ofdollars occurred due to the failure ofmortgage-backed 

securities, and the U.S. economy entered into the so-called Great Recession. 

4 

REDACTED U.S. Commodity Futures Trading Commission 

Office ofthe Inspector General byCFfC

Frank Wall Street Reform and Consumer Protection Act was ftrst introduced; it proposed an 

expansion ofthe CFTC's jurisdiction into swaps and derivatives markets. At the same time, the 

CFTC began to experience budget increases. For instance, in FY 2009, the CFTC budget 

increased from $112 million to $146 million28 and increased again to $168.8 million in FY 

2010?9 

It was in this setting that the CFTC ftrst discussed an expansion to accommodate the new and 

· · hires. The Office ofthe Executive Director, Jed by Madge Bolinger-Gazzola and. 

determined that there would be inadequate office space across the CFTC 

, and substantial shortfalls ifthe CFTC's hiring goals were met for FY 

2010. Accordingly, in March of2009, CFTC Management began a planning, acquisition and 

construction project to increase available space.

30 

The CFTC's Expansion In Kansas City 

In 2009, the CFTC Kansas City office had approximately 27 staff in a space measuring 8066 

SF.

3 1 All interviewed agreed that that the space had been overcrowded. The CFTC initially 

planned to expand by approximately 8,000 SF, to a total of 16,000 SF. 

32 Sometime later, this 

changed to a range between 17,000- 22,000 SF.33 The CFTC eventually signed a lease for 

approximately 24,000 SF; included in the lease were a right offtrst refusal on an additional 

estimated 7,500 SF and an option on an additional estimated 16,000 SF.34 

As ofthe date ofthis review, the CFTC employs 25 staff in Kansas City. The space comprises 

one and one half floors, with 78 offices and cubicles, six large rooms dedicated to other uses,

35 

and 15 rooms labeled as "non-occupiable," which include various support rooms such as storage 

21 Public Law 111-8 [H.R. II 05] MAR. II, 2009, Omnibus Appropriations Act, 2009. 

29 Public Law 111-80 [H.R. 2997] OCT. 21, 2009, Agriculture Rural Development Food And Drug Administration 

And Related Agencies Appropriations Act, 2010. 

3

°CFTC Management Memorandum dated March 5, 2009, signed OMO. 

31 CFTC Kansas City Lease from Board ofTrade Building, Inc., dated September 2010. 

32 CFTC Management Memorandum dated January 27, 2009, signed by Madge Bolinger-Gazzola, titled "Extension 

ofCFTC's DC Office Space Lease," at 6. 

33 CFTC Solicitation Number: CFFM-1-S0-0144, posted April26, 2010, at I. 

34 CFTC Kansas City Lease from Board ofTrade Building, Inc., dated September 2010. While beyond the scope of 

this review, we note that no witness who agreed to be interviewed was able to explain the origin ofthe initial 

estimate of 16,000 SF, the change to 17,000 - 22,000 SF, or why the CFTC ended up with a property ofmore than 

24,000 SF, plus a right offirst refusal and an option totaling an additional estimated 24,000 SF. 

35 On the floor maps, there are six large rooms that are not offices, in which groups of people may meet to discuss 

CFTC issues. Two are labeled as conference rooms; the others are labeled as follows: a training room, a VTC 

(video teleconferencing) room, a "war room" and a "break room ." CFTC Management recently informed our Office 

that the conference rooms are heavily utilized. We thank CFTC management for this information, but did not verify 

the assertion due to time limitations. 

5 

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Office ofthe Inspector General byCFTC

and filing_36 The half floor comprises 17 window offices, eight inner offices, four cubicles, and 

two conference rooms, as well as a copy room, a pantry/kitchen, a storage room, and a filing 

room. 

Findings 

CFTC Management Believes Its Leasing Decisions Are Justified 

In the second half of 2013, we notified the Executive Director, Tony Thompson, 37 that we had 

initiated a review. On December 30, Tony Thompson sent to our office a memorandum titled 

"Space Acquisition and Utilization Plan."38 This memorandum provided CFTC Management's 

reasons for (1) initially entering into the lease for expanded space in Kansas City, (2) retaining 

the excess space in Kansas City over the last three years, and (3) not opening an office West of 

Kansas City, specifically in Los Angeles. 

The December 30 Memorandum addressed topics that go beyond the scope ofthis review. Our 

focus remains on the current excess space in Kansas City. However, CFTC Management's 

discussion ofthe three points listed above are to some extent intertwined; consequently, we will 

to the extent necessary address all three topics. 

We note that the December 30 Memorandum contains a number of assumptions that we do not 

share. It bases its calculations, conclusions and recommendations on these assumptions, limiting 

its value for purposes ofthis review. Nevertheless, this memorandum was apparently CFTC 

Management's only official work-product that addressed these issues at the time; accordingly, 

we have chosen to focus on it by addressing the points that we can. Where CFTC Management's 

assumptions differ enough so as to prevent reasonable analysis, we simply note the fact and 

move on. 

CFTC Management States That Its Leases Are Justified By Its Requests For Higher 

Budgets 

CFTC Management explains that in every year since 2008, it has requested progressively higher 

budgets, which correspond to progressively higher requests for staff. 39 For instance, in Januafl 

2010, there were "planned increases to 799 staff by January 2011, and 982 in January 2012."4 

36 We thank CFTC Management for pointing out an error. We had written that there were 15 storage and filing 

rooms, when in fact there are 15 rooms labeled as "non-occupiable" which include storage, filing, and other rooms. 

37 Tony Thompson became Executive Director in July of2011, replacing Madge Bolinger-Gazzola. The leasing 

process in Kansas City was complete prior to Tony Thompson's arrival. 

38 Memorandum from Tony Thompson, Executive Director, to Roy Lavik, Inspector General, entitled "Space 

Acquisition and Utilization Plan" (with attachments), dated December 30, 2013 (the "December 30 Memorandum"). 

We have attached this memorandum as Appendix 1. 

39 Appendix 1, at page 3-4. 

40 /d. at 4. 

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Office byCFTC ofthe Inspector General 

CFTC Management then notes that its budget requests increased still further: "FY20 13 and FY 

2014 President's Budgets requested 1,015 staff," including 73 in Kansas City, and that this total 

did not include between 400-450 contractors.41 CFTC Management concludes that "when 

estimated FTEs and contractors are considered, this creates a [nationwide] deficit of about 116 

seats," and that the "CFTC would not be able to house this level of staff and contractors with 

current leased space. ,,4 

2 

CFTC Management's justification is unchanged since the CFTC's initial expansion in 2009, and 

we do not understand the continued focus on comparing hypothetical staffing levels to actual 

expenditures on real empty offices.43 We agree that ifthe CFTC's budget increased, more staff 

would be hired, and that there would be fewer empty offices. But we do not agree that a 

hypothetical budget increase justifies current, actual expenditures on empty offices, or that years 

ofprogressively higher hypothetical budgets justify years ofactual expenditures on empty 

offices. 

CFTC Management States That There Are No Circumstances Under Which The 

CFTC Would Benefit From Subleasing Or Returning Space To The Landlord 

The December 30 Memorandum states that CFTC Management considered subleasing as well as 

a return of space to the landlord. It alleges that these would not be cost effective, and that they 

would not result in financial or other benefits to the CFTC. 44 The memorandum provides 

support for these arguments in an attachment titled "Considerations Associated with Sub-Leasing 

Kansas City Office Space."45 

The CFTC Could Not Keep The Proceeds From A Sublease 

CFTC Management's first consideration is that " ...proceeds from the sub-lease likely cannot be 

used by CFTC to offset its rental obligations, but instead will need to be deposited with Treasury 

as a miscellaneous receipt.'rt6 It goes on to say that "[this] could offset any benefits to the 

Commission associated with subleasing the space."47 In an interview, we asked for clarification 

41 ld. at 5. The contractors were anticipated "mostly in support of information technology." 

42/d. 

43 ldat 3-5. CFTC Management does not address actual staffing levels over the last three years, the number of 

vacant offices, or the expense ofthose empty offices in its justification for maintaining its current leases. We are 

uncertain why. 

44 ld. at 2. 

45 ld. at 12. 

46/d. 

47 Jd. CFTC Management reiterates this point in its response to our Review. (See Appendix 2, page 3.) We believe 

that CFTC Management should attempt to save taxpayer dollars regardless of whether the resulting savings are 

deposited to the General Treasury. 

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whether it was arguing that saving taxpayer dollars was not worthwhile in situations where the 

money reverted to Treasury. CFTC Management emphasized that this was not its purpose, and 

that the return offunds to Treasury was simply a fact to be considered. It agreed that savings 

should be sought regardless ofwhether the CFTC or another part of government received the 

money. 

The CFTC's Up-Front Costs To Sublease Would Be $1.3 Million 

CFTC Management's remaining considerations regard the up-front costs that it estimates a 

sublease would incur.48 CFTC Management calculated an up-front cost of$1.3 million by 

assuming that it would sublease the entire Kansas City office, leaving no space in Kansas City 1 for its staff.49 We do not understand this assumption50 - or others. 5 Since this analysis is 

predicated on fundamental assumptions that we do not share, we decline to further address the 

methodology by which CFTC Management calculated this number. We note, however, that at 

the current level ofutilization - 32% - the cost ofvacant offices in Kansas City over the term of 

the lease will be an estimated 3.6 million. Consequently, even an up-front cost of 1.3 million 

would result in a sublease that would achieve substantial savings; and under more reasonable 

assumptions,52 we believe the true cost would be only a fraction ofthat figure. 

It Would Not Be Cost Effective To Return Space To The Landlord 

The CFTC states that "based on prevailing markets and the anticipated costs, staff does not 

expect that [a return ofspace] would be cost effective."53 We are puzzled by this conclusion, 

since as recently as November of 2013, CFTC Management negotiated a return of its option for 

approximately 16,000 SF to the landlord in exchange for a three-month rental abatement valued 

at approximately $130,000.54 

48 Appendix I, page 12. 

49 /d. CFTC Management estimates $570,000 in costs as an estimate for "12 months ofvacancy prior to collecting 

the sublease rent." $570,000 is the lease cost for one year for the entire office. Similarly, CFTC Management 

discusses the increased costs ofsubletting the space given that the average leasehold in Kansas City is much smaller 

than the CFTC's 24,000 SF. Accordingly, we concluded that the calculation of$1.3 million was reached by 

assuming the abandonment ofthe Kansas City office. 

50 Most ofthe assumptions with which we disagree flow from the initial erroneous assumption that the CFTC would 

abandon the Kansas City office. For instance, CFTC Management estimates a "tenant improvement allowance" and 

a commission to a realtor based on the total lease size of24,000 SF. CFTC Management also assumes a cost for 

"down-time" during which the CFTC would pay rent but be unable to collect proceeds from a sublease. We believe 

this cost should be offset by the current cost of unoccupied space; in other words, CFTC Management should only 

count the 32% ofthe space that is being utilized when estimating the cost ofdowntime for the overall space. 

51 CFTC Management comments that security concerns would have to be taken into account ifwe were to rent a half 

floor. This assertion puzzles us. The CFTC already rents a half floor. Ifthe CFTC gives up the full floor, it would 

be left with the half floor that it already has, and we do not understand why new security concerns would arise. 

52 For instance, the CFTC could sublease either the half floor or full floor. As a result, the commission and tenant 

improvement allowance would be substantially lower. 

53 Appendix I, page 2. 

54 Below, we further discuss the return ofthe option. See infra, p 11, n.67-69. 

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CFTC Management supports its conclusion that a return ofspace would not be cost effective 

with another reference to its "Considerations Associated with Sub-Leasing Kansas City Office 

Space." However, the stated considerations do not appear to consider the costs ofreturning 

space to the landlord. 55 In an interview, CFTC Management stated that it focused on the costs of 

subleasing, and not on the option ofreturning space to the landlord. 

CFTC Management supplemented its December 30 Memorandum with a second memorandum 

dated January 17,2014, which analyses the commercial real estate market in Kansas City. The 

January 17 Memorandum states that "the likely sublease rent would be in the range of$22.00­

$22.50 [/SF]."56 On March 12,2014, Tonl Thompson responded by email to some questions 

that had been raised during an interview. 5 Among them, he explained that the leasing market in 

Kansas City "had not improved." He went on to say that the CFTC was currently paying 

$22/SF, and that rates for a potential sublease were $20·$22.5/SF.58 The fact that the Kansas 

City commercial real estate market had not improved was also raised during the interview; CFTC 

Management reasoned that the lack of improvement meant that a return ofspace to the landlord 

would not be cost effective. 

We believe that CFTC Management should reconsider its stance. Since the CFTC is currently 

paying to lease vacant offices, any rental abatement would be cost effective. However, the 

market price is apparently equivalent to the price the CFTC currently pays for its empty office 

space- approximately $22/SF. Accordingly, a negotiated return ofspace to the landlord would 

appear to be possible that fully realizes the costs ofthat unused space- estimated to be some 3.6 

million over the 1 0-year life ofthe lease. At worst, one would expect any landlord to strongly 

consider an offer to return space in exchange for a rental abatement below the market price- at, 

for instance, $19/SF. 59 And a negotiated return of approximately 16,000 SF, valued at $19/SF, 

for the approximately seven years remaining on the lease, would net the CFTC savings of 

$2,128,000 over that period- minus any up-front costs.60 

55 CFTC Management does discuss the concept ofa "termination for convenience clause" in a lease. Appendix I, 

page 12. It concludes that the CFTC's lease does not contain such a clause, and that such clauses are inappropriate 

for the lease ofreal property. However, CFTC Management does not address cost effectiveness, and in any event 

the lack of a termination for convenience clause does not prevent a negotiated return ofspace to a landlord. 

56 CFTC Management Supplemental Memorandum, dated January 17, 2014, ("January 17 Memorandum") at 5. 

57 Email from Tony Thompson, dated March 12,2014. 

58 Id The estimate of$20-22.5/SF on March 12 differs from the original $22-22.5/SF provided on January 17, but 

the difference is immaterial for purposes ofthis review. 

59 This discounts up-front costs. But up-front costs are a small percentage ofthe total lease value. For instance, 

when the CFTC initially negotiated the Kansas City lease, the up-front costs were only a fraction of the cost ofthe 

lease itself over ten years. Furthermore, returning space to the landlord would likely result in markedly lower upfront costs than a sublease, because it would not include negotiations with a third party. 

6

°CFTC Management states that "OIG offers no facts or logic to support [its] conclusion" that the landlord would be 

expected to consider an offer for a return ofspace in exchange for a below-market rental abatement. We find this 

assertion puzzling, since a hypothetical demands no facts by definition, and the logic is straightforward. In very 

brief, let us suppose the CFTC offers to return the space in exchange for a $19/SF rental abatement. Since the 

current market rate is, according to the CFTC, $22.00-$22.50/SF, then the landlord is incentivized by potential 

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CFTC Management States That It Is Inadvisable To Open An Office On The West 

Coast 

Though not the focus ofthis review, CFTC Management asserts in its memorandum that opening 

a West Coast office would be prohibitively expensive. This appears to be a response to our 

Office's repeated recommendations in our semi-annual reports to Congress that the CFTC reopen 

an office on the West Coast.61 A large portion ofthe United States lies West ofKansas City, 

substantial futures trading occurs West of Kansas City, and we have reasoned that the CFTC, 

like other financial regulatory agencies, should accordingly have a presence there.62 

The December 30 Memorandum and a supplemental spreadsheet emailed to our office on 

January 9, 2014, examine the prospect ofreestablishing an office in Los Angeles. CFTC 

Management concludes therein that reestablishing an office in Los Angeles would cost 

approximately $20,000,000 more than the current Kansas City office over a period of 5 years.

63 

However, like CFTC Management's calculations with respect to subleasing, this figure appears 

to be the product of a series ofunusual assumptions. Once again, the supplemental spreadsheet 

assumes the closure ofthe entire Kansas City office, and adds assumptions to ( 1) pay full-value 

for the remaining seven years ofthe lease,64 (2) pay to relocate all25 employees permanently to 

Los Angeles, and (3) once there, pay to construct and lease enough office space for 78 

employees, even though the present need is for only 25.65 

We have never recommended closing the Kansas City office. We have never recommended 

requiring Kansas City staff to relocate to Los Angeles. Rather, we have consistently 

recommended appropriately-sized offices in Kansas City and the West Coast. In the same vein, 

we also do not recommend entering into a lease in Los Angeles for 300% more space than the 

profits of$3.00-$3.50/SF (for each ofthe remaining seven years ofthe lease) to search for a new tenant willing to 

pay the current market rate. Meanwhile, as explained above, the CFTC realizes savings of approximately 

$2,128,000 over the same period (minus any upfront costs). Indeed, we would be astonished if any two parties 

could not mutually benefit by renegotiating a lease in which one party pays millions ofdollars for vacant offices. 

61 We first recommended this action in our September 2006 Semi-Annual Report to Congress. 

62 CFTC Management comments that it "has analyzed relevant data a number oftimes to determine the most 

effective site for a western regional office (cost and productivity). Kansas City was the best choice." Appendix 2, 

page 16. We can only reiterate our view that Kansas City, Missouri, is not in the "West," and has not been since the 

mid-1800s. Compare "Census Regions and Divisions ofthe United States," U.S. Census Bureau map, available at: 

http://www.census.gov/geo/maps-data/maps/pdfs/reference/us regdiv.pdf, with "Admission ofStates and Territorial 

Acquisition," U.S. Census Bureau map, available at: http://www.lib.utexas.edu/maps/united states/territory.jpg. See 

Appendix 3. 

63 CFTC Management's Supplemental Spreadsheet "Study- Kansas City to Los Angeles Costs" produced to OIG 

via email dated January 9, 2014. 

64 We note that the CFTC paid a penalty ofonly one year's rent when exiting its prior lease in Kansas City in 2011. 

65 This assumption was particularly puzzling, given our concerns about underutilized office space. 

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CFTC presently has the staff to fill. There are additional assumptions that we do not share,66 but 

the assumptions listed above limit the usefulness of further analysis. Accordingly, we decline to 

further examine the methodology by which CFTC Management reached its figure of 

$20,000,000. 

The CFTC's Recent Actions With Respect To The Kansas City Lease 

In November 2013, the CFTC sold its option for 16,000 SF back to the landlord.67 In exchange, 

the landlord agreed to three months of immediate rental abatement, valued at approximately 

$130,000. However, according to our interviews, this decision was not made as the start of an 

effort to reduce the size ofCFTC's lease or the CFTC's lease costs on empty office space. 

Rather, it was initiated during the se~uester as an attempt to eliminate some ofthe Agency-wide 

budget constraints faced at that time. 8 But regardless ofthe CFTC Management's intent,69 the 

effect was to reduce the cost ofthe lease. 70 

We view this as evidence that the landlord places substantial value on the space and is willing to 

negotiate with respect to returns ofspace. It also demonstrates to our satisfaction that the CFTC 

has the ability to reduce its space in a manner that CFTC Management views both as legal and 

not requiring proceeds to be turned over to Treasury.71 

66 All ofthe additional assumptions have the effect ofraising the estimated costs or lowing the estimated benefits of 

establishing an office in Los Angeles. For some, we simply do not understand the basis for the assumption, such as 

CFTC Management's estimate of$2,500,000 for "construction" costs; however, it was beyond the scope ofthis 

report to search for independent estimates. 

When the basis for an assumption was clear, we often did not share the assumption. For instance, CFTC 

Management assumed the CFTC would receive all of its requested funding in 2014, enabling it to increase staffto 

full occupancy. This would raise costs because federal employees in Los Angeles are paid more than in Kansas 

City. We did not share this assumption when it was made, and the CFTC did not in fact receive its requested 

funding for 2014. In another example, CFTC Management calculated travel savings only with respect to Kansas 

City staff. That is, it compared the prices offlights actually taken by Kansas City staffwith the price of a 

hypothetical flight from L.A. to the same destination. This assumption appears faulty for two reasons. First, it 

excludes travel savings from the other 95% ofCFTC staff who do not work out ofthe Kansas City office, who may 

no longer need to fly to the West Coast. Second, it assumes that staff in L.A. would continue to handle cases in the 

regions previously handled by staff in Kansas City. We believe a more reasonable assumption would be for the 

Chicago Regional Office to handle cases in the middle ofthe country in the unlikely - and not recommended - event 

that the CFTC closes the Kansas City office. 

67 The option's value was included in the price ofthe overall lease; the CFTC was not paying for it separately. 

68 The three months ofrental abatement occurred in November, December, and January, effectively lowering the 

CFTC's leasing costs during the remainder of the sequester. 

69 CFTC Management states that this is incorrect, and that it did not initiate the sale ofthe option to save taxpayer 

dollars. Rather, the landlord initiated the transaction and the savings were merely a "side-effect." See Appendix 2, 

page 10. 

70 We note that the CFTC appears to retain its right of first refusal on approximately 7500 additional SF. 

71 See Matter of: Securities and Exchange Commission - Reduction ofObligation ofAppropriated Funds Due to a 

Sublease, B-265727, 1996 U.S. Comp. Gen. LEXIS 374, *6 (July 19, 1996) ("An exception to the general rule 

against augmenting an agency's appropriation includes receipts that qualifY as refunds to an appropriation. Refunds 

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In any event, the documents prepared by CFTC Management during our fieldwork for this 

review appear to be its first attempt to examine the issue ofunderutilized office space in Kansas 

City.72 Though CFTC Management makes some assumptions that we do not understand or 

share, we view CFTC Management's willingness to engage on the issue a positive sign. 

For instance, on March 12, 2014, two days after an interview with Tony Thompson and other 

senior management personnel, the Executive Director responded to some ofthe questions that 

had been raised therein. In pertinent part: 

Q4: You requested CFTC investigate options to reduce its square footage in its 

Kansas City office- specifically, the ability to sublease or return space to the 

building owner. 

A 4: We have previously provided material to you on this subject regarding the 

expected cost effectiveness of both options. A more in-depth review ofthis 

matter will require several critical steps to fully address your inquiry. In the very 

near term, I will request that OGC officially review and provide an opinion on 

CFTC's legal ability to sublease or, return to the building owner part of our leased 

space in Kansas City. This review will hopefully determine within the confines of 

the current lease and applicable appropriation law and other federal regulations, 

our ability to pursue these options. 

Next, based on a favorable OGC review supporting the feasibility ofpursuing 

one, or both of these options, I would, with the Chairman and subsequent 

Commission level concurrence, direct OED staff to engage with the current 

property owner ofthe CFTC leased space in Kansas City. The goal would be to 

ascertain interest, and more importantly attempt to gain the Lessor's agreement 

and ability to execute a revised lease arrangement that would allow us to 

relinquish the unused space in question in a manner advantageous to the CFTC. 73 

We believe these were the most positive steps to date showing that CFTC Management would be 

taking a serious look at the under-occupancy in Kansas City, and we were pleased with the 

efforts in this regard. Unfortunately, the May 14, 2014, response to our discussion draft did not 

expand on the language quoted above, and focused instead on impediments to eliminating the 

excess space. However, we were recently informed that CFTC Management has inquired with 

the Kansas City landlord regarding a possible return of space. We believe this shows that CFTC 

Management is now more focused on this issue, and in a way we consider favorable. 

may be retained to the credit ofthe appropriation and are not required to be deposited into the general fund ofthe 

Treasury") (http://www.gao.gov/assets/330/326345.pdf). 

72 CFTC Management did briefly consider limiting new hires to Kansas City, which may have helped to fix the 

problem of underutilization. However, general budgetary limitations and events like the sequester apparently 

distracted or otherwise prevented pursuit ofthis goal. 

73 Email from Tony Thompson to OIG in response to questions during an interview, dated March 12, 2014. 

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Conclusion 


In September of 2010, the CFTC signed a new lease in Kansas City for approximately 24,000 SF 

with options/rights offirst refusal for an additional 24,000 SF. At present, it has 25 staff in a 

space sufficient for 78. CFTC Management justified entry into the lease with its expectation of 

increased funding and increased staff necessary to implement the Dodd-Frank Act. Over the last 

three years, the extra space has remained, while the extra funding has remained hypothetical. 

Even ifthe initial decision to expand were justifiable- prior to receipt ofthe funding necessary 

to fill the additional space - at some point, management must reassess the situation in light of 

current budget realities. 

We believe that the CFTC should strive to lease only the space that it has the current budget and 

staff to fill. Future appropriations cannot be predicted with certainty. It may be that immediately 

after downsizing, the CFTC will receive an appropriation sufficient to completely fill the space 

that it no longer has. This would not change our reasoning; we believe that the CFTC and public 

are better served by the risk of a temporary shortage ofspace, than a 1 00% certainty ofspending 

substantial taxpayer dollars on the lease of vacant offices. 

Recommendations 

We recommend that the CFTC take immediate steps to dispose ofunderutilized property in 

Kansas City. We also recommend that the CFTC initiate a review ofunderutilized space in the 

other regional offices and at headquarters to determine ifsimilar actions are warranted. We 

leave it to CFTC Management to determine the most expedient method to carry out the 

recommendations. 

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APPENDIX! 

CFTC Space Acquisition and Utilization Plan 


December 30,2013 

U.S. Commodity Futures Trading Commission REDACTED

Office of the Inspector General byCFTC

U.S. COMMODITY FlJTURES TRADING COMMISSION 


Three Lafayette Centre 


1155 21st Street. NW, Washington, DC 20581 


Telephone: (202) 418-5160 


Facsimile: (202) 418-5541 


www.cllc.gov 

MEMORANDUM 

FROM: Anthony C. Thompson, Executive Director 

DATE: December 30, 2013 

SUBJECI': CFTC Space Acquisition and Utilization Plan 

Mr. Lavik, over the past few years several questions have been raised concerning the CFfC 

leases and office locations. CFTC bas responded to those questions as they arose. Here I want 

to provide you with a comprehensive look as to why the Commission made certain decisions and 

recent actions and assumptions. Therefore, as promised, attached is a synopsis report 

(Attachment 1) on the CFTC leases and space utilization. I also understand that you are 

preparing a report on CFTC leasing and space. I would appreciate the opportunity to review that 

report and offer comment before it is finalized. 

This Report addresses the recent CFTC mission expansion and the related budget and staffing 

environment in which the CFTC bas been operating. Existing and near-term internal and 

external factors necessitated CFTC make a number ofleasing decisions over the~ 4 years. As 

you recognized in the "Inspector General's Assessment ofThe Most Serious Management 

Challenges Facing the Commodity Futures Trading Commission" in the FY2010 Perfonnance 

and Accountability report, the implementation ofthe Dodd-Frank Act and the related Human 

Resource expansion and management issues posed significant challenges (see Attachment 2). 

CFTC management has made every effort to anticipate and address these challenges in a 

proactive and efficient manner. 

In order to best present this infonnation to you, I asked staffto prepare the attached Report to 

collectively look at leasing actions taken over the past 4 - S years, the rationale for those actions, 

and our assumptions going forward. 

The following Report shows that: 

Appendix 1, page 1 
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• 	 Pre Dodd-Fnmk Act workload was such that on-board staffexceeded the available Space • 

under lease; 

• 	 CFTC leases were expiring between 2012 and 2015 for DC headquarters, New York 

City, Chicago, and Kansas City; 

• 	 During the time we expanded our leased space there were very :fiworable leasing rates 

and terms in all CFTC office locations; 

• 	 The Dodd-Frank Act (July 2010) created workload that far exceeded the capacity of 

existing staffand. for the past 3 years, the President's Budget has requested Federal staff 

ofaround 1,000 and approximately 300 contractors for the CFTC and increased reliance 

on automation has further increased the number ofIT contraetors (see Attachment 3); 

• 	 To ensure transparency with OMB and Congress, the FY2009 and FY2010 CFTC Spend 

Plans reflected plans for expanding leased space; and 

• 	 lfCFTC receives the requested amo1Dlt in the FY2014 President's Budget there will be 

no excess space. 

AdditionaJly, we recently looked at the possibility ofreestablishing a west coast (Los Angeles) 

office and found that lease and staffcosts would be far more expensive than in Kansas City, with 

very little offsetting savings (travel) and no direct benefits to justify that change (internal staff 

study). 

OBD staffconsidered temporarily subleasing currently under-utilized space, and found that there 

are serious appropriations law and other concerns with this strategy and found no circumstances 

under which CFTC would reap financial or other benefits. Staffalso considered the ability to 

negotiate a return ofspace to the landlord in the event oflong-term excess capacity. Based on 

prevailing markets and the anticipated costs staffdoes not expect this would be cost effective. 

(See Attachment 4) 

Based on these factors, I strongly believe that the CFTC has made reasoned, cost effective, and 

well justified leasing decisions. I also strongly believe that the current leasing/space situation is 

appropriate for CFTC looking forward- at least in the near-term. Ifit appears the CFTC wiD not 

achieve the anticipated stafflevels in the near future, we will reconsider all options. 

cc:: 	 Mark Wetjen, Commissioner 

Eric Juzena.s. COO 

Jonathan Marcus, General Counsel 

Attachments 

Appendix 1, page 2 

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Attachment 1 

Report On 

CFI'C Staflillg and Leasiag Facts, Assumptions, and Strategy 

OVERVIEW 

Over the past few years the Commodity Futures Trading Commission (CFTC) has made a 

number ofmanagement decisions related to space requirements, including the implementation of 

the Dodd-Fnmk Act. Given the growing requirements associated with pre-Dodd-Frank 

workload, and the scope of new Dodd-Frank Act responsibilities, management hired and 

prepared to hire additional staff. To accommodate these staffCFTC needed to provide adequate 

resomees, including office space, for them to work effectively. CFTC reworked its leases in 

Washington DC, Chicago, Kansas City, and New York to expand the size ofits space, extend the 

terms ofthe leases, and renegotiate pricing in its favor in order to accommodate actual and 

anticipated staffincreases. Additionally, CFTC sought to leverage its space configuration to 

enhance its operational capabilities (e.g. market watch rooms, productivi1y and technology hub, 

hearing room with webcasting capability, and video conferencing). The remainder ofthis report 

provides additional background and a detailed explanation ofthe leased space related decisions. 

BACKGROUND 

The CFTC was established as an independent agency by the Commodity Futures Trading Act of 

1974. The CFTC mission consisted ofCommodity Exchange Authori1y (CEA) responsibilities, 

previously housed in the Department ofAgriculture, and additional jurisdictional responsi'bilities 

provided through the Commodity Futures Trading Commission Act. 

Initial CFTC staffing consisted of240 CEA employees and a few additional recruits. The 

transferred CEA staffwas located in Department ofAgriculture space in the District of 

Columbia, New York City, Chicago, Kansas City, Minneapolis, and Los Angeles. These 

locations wae maintained and permanent separate space was achieved by 1976. The Los 

Angeles Office was closed in 2003 to improve the effectiveness ofthe Division ofEnforcement 

and the Division ofClearing and Intermediary Oversight through the increased use ofcrossfunctional teams and by co-locating larger numbers ofstaff. The Minneapolis Office was closed 

in 2006 due to high cost and a lack ofstaff effectiveness as it only had two stafffor the prior 10 

years and one ofthe staff retired. 

CFTC staffgrew to 560 in 1998 and fell over time to 448 in 2008. Owing this same period. 

contract trading volume grew from 625 million to 3.446 trillion- more than a 5-fold increase. 

Based on the burgeoning worldoad, the FY 2009 appropriation provided for 572 staff- a 

sizeable increase over prior years. 

In May 2009, CFTC submitted a FY2010 President's Budget based on the appropriation 

providing for 572 staff. In this Budget, CFTC requested 38 additional staff, including 3 auditors 

- 1 each for New York City, Chicago, and Kansas City. This overall increase in staffwas 

Appendix 1, page 3 

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requested due to many factors including: industry growth, growth in traded futures and option 

contracts, increase in number ofregistran~ and increase in derivative clearing organizations. 

In addition_ in July 2009, a year before Dodd-Frank Wall Street Reform and Customer Protection 

Act of2010 (Dodd-Frank Act), the Commission developed a long-term Program of 

Requirements (POR) for staffand space to meet its regulatory mission. The driving forces 

behind this POR were the recent staff gains resulting in very tight space problems and that most 

leases were terminating in the near-term (District ofColumbia- 2015; Kansas City- 2014; 

Chicago-2012; and New York 2012). A POR considers all space regardless oflease expiration 

date and it is a reasonable practice to begin leasing activities 2 years prior to expiration. Aside 

benefit were slow leasing markets in the regional cities, enabling the CFTC to have a prime 

opportunity to expand its space and meet its projected need at much lower leasing rates. 

The Program ofRequirements projected space requirements as follows: 

• District ofColumbia-226 additional seats 

• Chicago -79 additional seats 

• New York City- 6 additional seats 

• Kansas City- 35 additional seats 

The final "Work Space" requirements reflected a growth from 652 to 942 seats. This is based on 

746 staff, and while this addressed needed growth in staff, it did not include estimates for 

contractor growth. 

It should be noted that CFTC inc~uded details ofits expansion plans in its FY2009 and FY2010 

Spend Plans, which were submitted to both OMB and Congress. 

DODD-FRANK ACf EXPANSION . 

In February 2010, the FY2011 President's Budget requested 864 FTB, which was 214 FTE 

above the projected FY2010 usage. The request included an increase of95 FTB for existing 

authorities and 119 FTB for proposed new authorities related to financial regulatory reform. Part 

ofthe increase was tenned a "strategic plan to double the number ofEnforcement staff in the 

Kansas City Office." 

In anticipation ofpassage ofthe Dodd-Frank Act, detailed staffing and space plans were 

developed to enable CFTC to complete its mission. On-board staffwas 588 in January 2010 

with planned increases to 799 by January 2011 and 982 in January 2012. On-site contractor 

staff, mostly IT professionals, was to concomitandy increase from 138 to 248. Detailed 

renovation plans and leasing requirements were also laid out Regional Office increases in staff 

were to be: Chicago-from 106 to 162; New York City-from 75 to 1 06; and Kansas Cityfrom 22 to SO. These numbers do not reflect contractors. (See attached Spreadsheets) 

Passage ofthe Dodd-Frank Act increased the CFI'C's span ofauthority many fold as it 

integrated 1he $400T swaps market into its arena ofresponsibility. After careful review ofthe 

enacted law, it became clear that the Dodd-Frank Act added responsibilities far greater than 

originally anticipated. 

Appendix 1, page 4 

2 
U.S. Commodity Futures Trading Co mmi ss ion REDACTE D 

0 ffice of the In spector General by CFTC 

In the first budget writte n a fter passage o f the Dodd-frank Act, the FY2 012 Pres id ent's Budget 

reques ted 983 FTE, which was I 19 FT E abo ve the FY20 II request. With fu rther proj ected 

reliance on auto mation to meet the workl oad demand s, it is currently es tim ated that there would 

be 400 to 450 contrac to rs. ag ain mos tly in s uppo rt o f info m1atio n tec hn ology. The C FTC would 

no t be able to house this level ofsta ff and co ntracto rs with curre nt leased s pace . 

Both the FY201 3 and FY2014 President' s Budgets reques ted 1,015 stafTbased on mi ssion 

requirements. At this sta f!in g level, on-go ing di sc ussions with the Di visions and Offices indicate 

the followin g headquarte rs and regi o nal di s tributi o ns wo uld occur: 

FY14 

PB FTEs DC CH KC NY 

Market Oversight 

Enforcement 

General Cou nsel 

Clearing and Risk 

Swap Dealer & Inter mediary 

Oversight 

Data & Technology 

Chief Economist 

International Affair s 

Inspector General 

Agency Direct ion 

Execut ive Director 

Total 

177 

215 

69 

115 

154 

122 

25 

17 

6 

29 

86 

1015 

107 27 7 36 

112 34 26 43 

68 1 0 0 

41 43 24 7 

77 23 13 41 

97 14 2 9 

25 0 0 0 

17 0 0 0 

5 1 0 0 

29 0 0 0 

79 3 1 3 

657 146 73 139 

When es tim ated FTEs and con trac to rs arc considered, this crea tes a d e ficit of about 116 seats. 

Thi s da ta come s from the charts and analysis o f the F Y20 14 budget request, auto matio n 

require ments, and CFTC ' s avail ab le seating ca pa city co ntained o n th e fo llowing page. 

It is a lso impo rtant to note that Cf-TC ' s leases re fl ect the requ es ted startin g requirements that 

were su pported and reprod uced in the FY 20 13 and r:Y20 14 Pres ident' s Budgets to Co ngress . 

CONCLUSION 

Based o n thi s Report, C FTC strongly be lieves that the leasin g d ec isions we re we ll reasoned , co st 

effecti ve, and jus tifi ed. 

A ppe ndi x 1, page 5 

3 
U .S. Co mm odity Futures T rading Commi ss ion RE DACTED 


Office ofthe In specto r Gene ral by CFTC 


Fiscal Year 2014 CFTC Real Es ta te Estim a te 

Lo catio n L ease 

Exp i ration 

Rent able 

Square 

Footage 

Seats Rent and 

Occupied 1 Operating2 Utilities FY14 

Estimated2 

W ashi ngton . DC 9130125 288.395 667 $15.037.7 79 

I ncl uded in 

Rent $ 15.037 .779 

Kansas Citv. MO 3131/2 1 24.362 24 $560 .591 

Included in 

Rent $560,591 

Chicago, IL 6130122 60.412 142 $2,245,702 $30.375 $2,276.077 

New York. NY 4130122 61 .510 89 $2.232,820 

Included in 

Rent $2,232 ,820 

434,679 922 $20.076 ,892 $30,375 $20 ,107, 267 

1 As of November 14,201 3 


~ May adjust i n FY2014 based on local taxing authority and operating billings. 


Seats 

FY14 

Program Total Occupied Available Net Budget 

ReC!uest 

DC 966 667 299 1,082 -116 •• 

KCRO 78 24 54 78 0 

CHRO 173 142 31 173 0 

NYRO 135 89 46 135 Q 

Totals 1,352 922 430 1.46 8 . -116 

Thos 1.468 represents 1.0 15 FTEs. 388 1T contractors, and 65 non-IT contractors. 

''This (-1 16) means we are 116 seats shon of fu ll operational status at the FY1 4 President's Budget. These needed seats 

represent contractors. and almost all are IT contractors. Some or all of these can be housed off-site but that will raise lheir hourly 

rate over providing in-house space and may affect effectiveness. 

Cf-TC's c urrent po rtfolio of rea l eslate includes fo ur co mm ereial leased locatio ns. T he CFTC 

has authori ty to en ter into leases independently based on CEA section 12(b)(3) and language in 

CFTC appropriation acts since FY 198 1 authorizing expenditures lo r " the renta l ofspace (to 

include multiple year leases) . ..., T he CFTC a lso negotiates a Tenant Improvement A llowance 

(TIA) fro m its landlords. These allowances are used to cover the costs of space re novatio ns o r 

rent abatement. 

All currently ava ilable space will be fu lly occupied if the CFTC receives its FY201 4 Presiden t's 

Budget request. The estimates for taxes are constantly changing d ue to va rio us local taxin g 

auth orities; as well as the necessa ry uti lities that may be used in a specific locatio n. 

App end ix I , page 6 

4 
U.S. Commod ity Futures Trading Commi ssion REDACTED 


Office of the In spector General by CFTC 


Attachment 2 

U.S. COMMODITY FUTURES TRADI NG COMMISSION 


Three Lafayette Centre 


1155 21st Street, NW, Washing ton, DC 20581 


Telephone: {202) 418·51 10 

Facsimile: {202) 418·5522 

Office of the 

Inspector General 

MEMORANDUM 

TO: 	 Gary Gensler 


Chaim1an 0 


FROM: 	 A. Roy Lavik 0 Rd-


Jnspector General 


DATE: 	 November I 0, 20 II 

SUBJECT: 	 Inspector General's Assess ment ofThe Most Serious Management 

Challenges facing the Commodity futures Trading Commission (CFTC) 

Introduction 

The Reports Consolidati on Act of2000 (RCA) authorizes the CFTC to provide financial and 

performance infonnation in a more meaningful and useful fom1at for Congress, the President, 

and the public. The RCA requires the Inspector General to s ummarize the " most serious" 

management and performance challenges facing the Agency and to assess the Agency's progress 

in add ressing those challenges. This memorandum fulfi lls our duties under the RCA. 

In order to identify and describe the most serious man agement challenges, as well as the 

Agency's progress in addressing th em, we have relied on data contained in th e CITC financial 

statement audit and Annual financial Report, representations by agency management, as well as 

our knowledge of industry trends and CITC operations. Since Congress left the determin ation 

and threshold ofwhat constitutes a most serious challenge to the discretion ofthe Inspecto r 

General, >vve applied the following defini tion in preparing this statement: 

Serious management challenges arc mi ssion critical areas or prog rams th at have th e potential for 

a perennial weakness or v ulnerability that, without substantial management attention, would 

seriously impac t Agency operations or strategic goals. 

This memorandum s ummarizes the results of the CfTC's current financial s tatement audit. 

desc ribes the Agency's progress on last year's management challenges, and finally discuss.es the 

most serious management challenges th at we have identified: 

• Implemen tation ofthe Dodd-frank Act 

• Human Resource Expansion and Management 

Appendix 1, page 7 
U.S. Commodity Futures Trading Commission REDACTED 


Office ofthe Inspector General byCFTC 


e Efficient Deployment ofInformation Technology Resources 

o Expanding Deli~ ofCustomer Protection Resources and Consumer Education 

CFI'C J.i'iDanclal Statement Audit Results 

In accordance with theA.ccountablllty ofTta Dollars.Act, CFTC, along with numerous other 

federal entities, is required to submit to an annual independent financial statement audit by the 

Inspector General, or by an independent external auditor as determined by the Inspector GeneraL 

The results ofthe FJSC81 Year 2011 financial statement audit will be discussed in the Annual 

Financial Report, and the financial statement audit is expected to result in an unqualified audit 

opinion. 

CVfC's Progress oa Last Year's Challenges 

Last year, we identified two ofthe most serious management challenges: 

o Implementation ofthe Dodd-Frank Act; and, 

• Human Resource Expansion and Management. 

CFfC made progress on both cballenges, but due to ongoing implementation ofthe Dodd-Frank 

Act these challenges remain significant. Following is our statement made last year followed by 

an update. 

OIG Stqtemenl 2010 

Implementation ofthe Dodd-:Fnmk Aet 

On July 21, 2010, President Obamasigned tho Dodd-Prank Wall Street Refotm and Consumer 

Protection Act ("Dodd-Fnmk Acf' or "Dodd-Frank"), Pub. L 111-203, 124 Stat. 1376 (201 0). 

Tide vn ofthe Dodd-Frank Act amended the Commodity Exchange Act to establish a 

comprehensive new regulat~ framewOik for swaps and security-based swaps. In order to 

implement the Dodd-Frank Act, the Commission has identified 30 areas where rules will be 

necessaty. Many ofthese rules will require or result in cooperative efforts with the Securities 

and Exchange Commission or other fedeml agencies. In addition, the Dodd-Frank Act calls for 

numerous studies and other undertakings by the Commission, some also with cooperation ii'om 

other agencies. The Commission recognizes that many ofthe new rules required under DoddFrank mustbe adopted within 180 days. The magnitude ofdds undertaking under a compressed 

timeline during FY 2011 presents a serious management challenge. 

2 

Appendix I, page 8 
U.S. Commodity Futures Trading Commission REDACTED

Office ofthe Inspector General byCFTC

During the past year CFfC staffand Commissioners have met more than 1,000 times with 

members ofthe public to discuss rules proposed under Dodd-Frank, and have conducted 14 

public roundtables. Additionally, the Commission bas received more than 25,000 comment 

letters pertaining to Dodd-Frank. The Commission bas held 20 public meetings to vote on 

various Dodd-Frank matters, and more meetings are scheduled this year and into next year. The 

Commission has issued nearly 60 proposed rules, noti~ or other requests seeking public 

comment, as well as 22 final rules, interim final rules, and exemptions, but implementation is not 

yet complete. 

In order to address the new regulatory mandates stated in the Dodd-Frank Act, the Agency has 

reorganized into 4 Divisions and 7 operating offices. Operational challenges associated with 

Dodd-Frank implementation remain, in our view, a serious management challenge. 

DIG Statement 2010 

Humaa Resource Expansion and Maaagemeat 

The Commission's new responsibilities under Dodd-Frank significantly increased its workload. 

By the end ofFiscal Year 2010, the Commission bad on-board 687 employees, which is 58 

below the 745 FTE CFrC requested to carry out our pre-Dodd-Frank authorities. To fully 

implement the Dodd-Frank reforms, the Commission states it requires an additional 398 FTEs. 

Rather than 398, the President's FY 2011 Budget provided for hiring only 238 additional 

positions. CFTC is requesting an additional 160 FTBs for FY 2012 to staffareas ofcritical need. 

However, the current budgetary limits imposed by the government-wide continuing resolution 

will significandy impact the CFfC's ability to hire any additional employees during FY2011. 

Should Congress lift the continuing resolution, the CFfC will need to dramatically expand its 

Human Resource fimction to meet and manage the CFTC's need for additional staffand training 

to address the requirements ofDodd-Frank Act. We view the possibility ofa rapid and dramatic 

increase (35% staffincrease in FYI I) in new employees to address new rules over newly 

regulated markets, such as swaps, a significant JD&Dagement challenge during Fiscal Year 2011. 

llJH!!;B. 

During Fiscal Year 2011 the agency secured additional appropriations and staff. The CFfC's 

2011 spending plan accommodated 717 FTEs. It is our understanding, based on the President's 

Budget Submissio~ that CFrC may increase to 983 staffyears- an increase ofover 200 staff 

years-for FY 2012 and, accordingly. we restate Human Resource Erpansion tmd Management 

as a serious and continuing management challenge in the coming fiscal year. 

3 


Appendix 1, page 9 
U.S. Commodity Futures Trading Commission REDACTED

Office ofthe Inspector General byCFTC 

Most Serious Management ClaaDeages for the comlDg year 

Two new issues that are likely to cballenge CFrC management in the coming year are: 

Eftident Deployment or laf'ormation Teelmology Resources 

Aa:ording to current data, over eighty percent offutures and options trading on the Chicago 

Mercantile Exchange are transacted electronically. We believe that expanded jurisdiction over 

swaps will increase the volwne ofelectronic trading the Agency will monitor. As a result ofthis 

structural shift in futures trading (from floor based open outcry to electronic platfonns), the 

CFTC bas requested from Congress and received additional resources to facilitate electronic 

surveillance. 

Congress in FY 2011 authorized a minimum of$37.2 million for ''the highest priority 

information technology activities ofthe Commission." In response to this congressional 

directive as well as the Agency's added responsibility over the swaps marketpla~ the Agency in 

FY 2011 allocated over $42 million dollars towards technological modernization (21% ofFY 

2011 appropriations). Approximately two thirds ofthis budgeted commitment was targeted 

towards automated data processing systems to modernize the Agency's systems for capturing 

and processing market related data. We identify efficient deployment ofinformation technology 

reso~ as a serious management challenge for the coming year. 

Espanding Delivery orCustomer Protection Resources and Consumer Education 

Section of748(g) ofthe Dodd-Frank Act added section 23(g) to the Commodity Exchange Act to 

establish within the Treasury ofthe United States a revolving fund that will be available to the 

Agency for the payment ofwhistleblower awards and education initiatives. The new Customer 

Protection Fund may be funded - up to $100 million- by civil monetary penalties collected 

through the Commission's enforcement program that are not otherwise distributed to victims. At 

the end ofFY2011 the Customer Protection Fund totaled over $23 million dollars. On October 

24, 2011, an initial Office ofthe Inspector General financial statement audit ofthe Customer 

Protection Fund resulted in an unqualified opinion on the financial statements, which is 

encouraging. 

Increasingly, the Customer Protection Fund's resources and commitments will demand 

significant management attention. This new commitment to wbistleblower protection and 

education will challenge the Agency to effectively manage decisions regarding additions to and 

awards from the CPF, develop its organizational structure, and prudently manage significant 

additional resources. We are encouraged that the agency will soon select management for the 

startup Customer Protection Fund and Consumer Education initiatives, but nevertheless we co1mt 

the creation ofthis new program among the most serious management challenges facing the 

Commission in the coming year. 

4 

Appendix I, page I 0 
U.S. Commodity Futures Trading Commission 	 REDACTED 

Office ofthe Inspector General byCFTC

Attachment 3 

FY2012 President'sBudget &PelfolmaDce P1aa 

APPENDIX 5 

Acquisition of Additional Office Space 

Over thelast two years the CFTC has worked diligently to increase its seating capacity and redesign its 

work spac:e to accommodate newtedmology. Over 230 more employees are on the payroll tbali at the 

end of FY 2007· A significant uptick in contract staff in the information technology area, visiting 

academies, interns. and student volunteers also need tobe housed. 

'l1le CFTC has reworked its leases in Washington, DC, Chicago,ICansas Ci1if, and New York to expand 

the size ofits spaee, extend the terms ofthe leases. and renegotiate priciug in its favor. Additionally. 

CFI'C has sought to leverage its space configuration to enhance its operational capabnities. e.g., 

marlcet watch moms, produetivity and tecltnology hub, hearing room with webcasting capability, and 

video conferendng. 

The result of this wolk has been to bring down leasing costs as a percentage of the annual budget, 

whDe increasing the total space footprint from 249,964 to 406,7'11 square feet. For exam~ in PY 

20071easing costs were 12 percent of the budget whJle in FY 2010 they consumed 7 percent of the 

budget. 

How Much Does Space Cost and How Much Space is CFTC Leasing? 

The display below depicts the CFI'C Budget for space lease costs. The FY 2012 budget request Is for 

$3o8 million and supports an FI'E level of 983 and approximately 28g contractors, the majority of 

whith would support information technology. 

Space Lease Cost (Including Pass-Through and Utilities Where Applicable) 

FY:zo10 FY2011 PY2012 

Adwa1 Ramal 

$(000) $(000) $(000) 

Wosbi~DC $8.370 $ti.57J $14.118 

alb&o $1,66o $1,1!5 $a.S7a 

NewYork $2,331 $1.293 $2.605 

Kaasasaty $188 $188 $721 

CoopSite !!a !2!! !2• 

Total $12,632 $14.297

- $20.507 

Rentable Square Feet Data 

FY:zoao 

.Adwll 

FY:aou FY:zo12 

Request 

WasJdaatoD DC t6J385 274.568 288,395 

~ 40.750 60,412 6o.412 

NewYork S9.s63 39.363 6opoo 

IWasuaty ~ 92428 92428 

'lblal 249.964 4o6.77J 441.135 

ID 

Appendix I, page 11 
U.S. Commodity Futures Trading Commission REDACTED

Office ofthe Inspector General byCFTC

.. t I 

Attachment 4 

Considerations Associated with Sub-Leasing Kansas City Office Space 

CFTC currently leases 24,362 rentable square feet (rsf) ofspaee on the fifth and sixth floors of 

4900 Main Street in Kansas City, MO. There are a nmnber ofconsiderations affecting the 

viability ofany plans to sublease this space, as follows: 

• 	 Prevailing fiscal guidance informs that several appropriations law principles come into 

play. First, proceeds from the sublease likely cannot be used by CFTC to offset its rental 

obligations, but instead will need to be deposited with Treasury as a miscellaneous 

teeeipt. Second, the use ofamounts paid by a lessee under a sublease, even ifpaid 

directly to the landlord, could be interpreted as an augmentation ofCFTC's 

appropriations. These restrictions and prohibitions could offset any benefits to the 

Commission associated with subleasing the space. 

• 	 IfCfTC does sublease its space, its up-front out ofpocket costs prior to receipt ofrent 

from a sublessee are significant, and include: (I) real estate commissions payable to both 

parties' brokers; (2) tenant allowance payable to the sublessee; and (3) legal fees 

associated with documenting the transaction. These costs could easily total $700,000 or 

more, which amo\Dlts to almost 16 months ofbase rent under CfTC's current lease. 

• 	 Additionally, CFTC could expect somewhere in the neighborhood of 12 months of 

vacancy prior to collecting sublease rent This is the period for marketing, space 

construction and rental abatements. Total cost to the Commission in base rent and 

estimated pass-throughs payable is about $570,000, bringing the total cost ofexecuting a 

transaction to approximately $1.3 million or more. 

• 	 CFTC's space is considered a large tenancy in the Kansas City market-the typical 

leasehold is more in the range of8,000 to 10,000. Consequently, CFTC could be 

required to subdivide its space, thereby incurring additional costs, or secure lower rent in 

exchange for convincing a subtenant to take more space than it requires. 

• 	 Although CFTC's lease does not restrict its rights to sublease space, CfTC will remain 

liable to the landlord for payment ofrent and its other lease-related obligations through 

lease expiration in April of2021. 

The question ofCFrC terminating all or a portion ofits lease for the convenience ofthe 

government in lieu ofsubleasing the space bas been raised. However, CfTC leases (and for that 

matter GSA's leases) do not contain Tennination for Convenience ("T for Cj clauses pemrltting 

the Government to do so. The GSA Board ofContract Appeals bas held the T for C clause 

inappropriate for the lease ofreal property. 

10 


Appendix 1, page 12 
U.S. Commodity Futures Trading Commission REDACTED 


Office ofthe Inspector General byCFTC 


APPENDIX2 

OED Response to the March 31, 2014, OIG Review ofLeasing and Occupancy Levels 

ofthe Kansas City Regional Office ofthe CFTC- Discussion Draft 

May 14,2014 
U.S. Commodity Futures Trading Commission REDACTED 


Office ofthe Inspector General byCFTC 


U.S. COMMODITY FtJT1JRES TRADING COMMISSION 


Three LafayeUe Centre 


1155 21st Street. NW, Washington. DC 20581 


Telephone: (202) 418-6160 


Facsimile: (202) 418-6541 


www.cttc.gov 

To: Roy La~ IDspector General Q, ___,.,... 


Date: 

From: 

May 

AuthonyC.Thompso~~veDirector~ 14,2014 
C OfliJJ/11 ~ 

Subject 	 OBD response to ~e March 31,2014, OIG Rwiew of t13ing and Occupancy 


Levels ofthe Kansas City Reglolflll 0./ftce ofthe CFIC-Discussion Draft. 


OED appreciates the opportunity to review and comment on the 010 study titled RIMew of 


Leasing and Occupancy Levels oftlu: Kansas City Regional Office ofthe CFTC-Discussion 


Drqft. We certainly agree that CFrC should strive to efficiently use government space and 


maximize ~yer reso~ and strongly believe we have pursued this objective. 


We~several changes to the Discussion Drqft for which we would appreciate your 


consideration (see attached). The nugority ofour suggestions refer to what we believe to be 


fi1ctual eums in the Review and we explain those errors in the inserted comments in sufficient 


detail We also want to emphasize an important omissi~ contained in several prior OIG's 


·~highlighting the need to consider the need for CFfC expansion as a part ofour planning 


proCesses; we believe is germane to this Review, which I will discuss further in this document 


Based on CFI'C's current situation, we acknowledge there is excess ~tspace in the,!_{ansas 


Ci1y Office. As OED has previously shared with OIG more than a year ago, and in the .. 


December 30, 2013, report that you attached. we hav~ and will continue to m.Onitor the vacancy 


situation as well as review potential optious to address this issue. We are d9iDg 1his, but we must 


also continue to plan, at some level, for the possibility that CFTC will receive all, or a significant 


part ofitS budget request. Ifwe subleased or renegotiated our lease down to zero excess capacity 


inKansas City and elsewhere. o~y to find out that we received our full budget reQuest (or a 


substantial portion thereof), we would have to reacquire space that most likely would; (1) not be 


contiguous or even in the same building, (2) would take more than a year to lease and p~for 


occupancy, (3) potentially be more expensive, (4) wtimately reduce the effectiveness o~~in 

teims ofcontinuity ofopemtions, and (S) be an increase to our cunent "sunk" costs. · 


A number ofour Dilectors that reviewed your Discussion~ also reiterated that they are very 


interested in increasing the staffin Kansas Ciiy, but have.not had the Capacizy to hire due to 


budget constmints. Moreover, the Kansas Cit;y Regional Administrator (RA) stated that since the 


!!all of2010, ofthose vacancies which have occuned, the current RA has reviewed hundreds of 


applications, many with outstanding capability to support the primary missioDS ofexaminations 


and audits as pedimned by the Kansas City stafL The potential pool is substantial Many of 


these individuals ultimately where not hired when CFrC's ability to increase staff was put on 


~ hold last &11. Specifically, the Regional Administrator and Division Directors went on to state 

Appendix 2, page I 
U.S. Commodity Futures Trading Commission REDACTED 


Office ofthe Inspector General byCFTC 


that there is an abundance ofhighly qualified CPAs, auditms, economists, lawyers, etc. 

interested and highly qualified to perfonn the work ofthe CFrC at the Kansas City Regional 

Office. 

The President's Budgets, since FY 2011, support a level ofstaffand con1ractoiS that would fully 

occupy all leased space. The CFfC was transparent about the space it planned t9lease and what 

was leased. CFTC received Congressional inquiry into CI?"C's ability to house staffifit were 

given its requested budget. CFfC believes 1hat it should "prudently'! plan for a resource and 

staffing level as suggested by the administration and oontained inthe President's Budget. This is 

.one ofthe reasons CFfC discussed its leasing plans and accomplishments inits prior year, and 

cuumt FY 2015 budgets, submitted to the Administration, Congress, and the public. 

OIG sbared the same concern with CFI'C and others through its annual Inspector General's 

.AssessmentofThe Most Serious Management Challenges Facing the CFI'C. In November 2009, 

the OIG raised questions about CFfC's ability to address a "40016 increase over existing staffing 

levels-a considerable cball~e for any organization." In November 2010, OIG specifically 

discussed that: "the Commission reguested in the President's FY 2011 Budget 745 FTB for PreDodd..Prank Authorities and 119 FI'B to implement Dodd-Prank authorities, for a total of864 

FrB." This was called a ''serious management cballenge." InNovember 2011, 010 "The 

Commission's new responstOilities under Dodd-Frank significantly increased its workload. By 

the end ofFY 2010, the Commission had on boant 687 emplo~ which is 58 below the 745 

FIE CFI'C requested to cmy out our pro-Dodd-Frank authorities. To fully implement the 

Dodd-Prank reforms, the Co~onstates it requires an additiona1398 FIBs." 010 went on 

to state: "We.(OIG) view the possibility of~rapid and dramatic increase (35% staffincrease in 

PYll) in new employees to· address new rules over newly regtilated markets, such as swaps, a 

significant management challenge during FY 2011." The update from 1he prior year further 

stated: "During PY 2011 the agency secured additional appropriation$ and staff. The CFI'C's 

2011 spending plan accommodated 717 Frns. It is our (010) undemtanding, based on the 

President's Budget Submission that CFTC may~to 983 staffyears- an increase ofover 

200 staff years-for 2012 and, accordingly, we restate Human Resource EXpansion and 

~asa serious and continuing management chall~ in the coming fiscal y~." 

Over time, the clear expectation by both the CFTC and the OIG was that CFTC may expand 

rapidly and significantly in the near-term. When one considers the potential for growth, albeit 

the prospect may have diminished recently from your perspective, since wholesale fUnding 

increases have not occurred to dat~I tbink we mutually agree at some level, the potential for 

growth cohtinues to create a serious management challenge in regan:l to the capacity to hire, 

inake productive, and house a large influx ofstaffover a very short perlod. Our four budget 

since FY2011 have not materialized in full fbndhJg as advocated, but there have been 

incremental increases in CFI'C fbndhJg over this period, to include the most recent increase of 

$20M received in the PY14 Budget. Due to this most recent experience, the potential for 

additional fUnding·in-line with our FYlS Budget request does not eliminate future funding 

increases fiom the realm ofposs1oility. Therefore_ we have to plan and remain p()stured for the 

possibility of:fully utilizing some, ifnot an ofthe excess capacity in which we me contractually 

obligated into the foteSeeable future. I 

2 

Appendix 2, page 2 
U.S. Commodity Futures Trading Commission REDACTED 


Office ofthe Inspector General byCFTC 


ApiD. we aclmowledge CFfC bas excess leased spacethat is unoccupied for c:urreot staffneeds. 

Yet, CFIC does DOt believe that ca1eadar year 2014 is the time to pe:rmaneotJ.y alter the amount 

ofleased space zesulting in an owmigbl Rduction in the apcy's struc:tma1 foot print. 1bisis 

ctuo·in largepartto the need for additiODBI staffto fWfill the CFTC's mission and the unWaverlog 

Administration's support ofthe CFrC expaasion efforts throughthe FY2015 President's 

Budget. It is also important to note that the FY2015 Budget s:equest is tho first budget that is 

based on Deariy all ofthe Dodd-Frank rules being fiDal. This plaa:s the CFTC in a better 

position mr requesting audjustifying resources as we fie no longer specidating about role 

1equinnnmts. 

You inquiied about our ability to give back space, or sublease u an iJ;nrnMiate solution to ~educe 

space and costs. In answer, this would not be a timely oroptimal solution due to severalfitctors. 

The most important being that ifCFTC subleased part ofthe KC leased space, or retumed space 

to the building owner, it would be very difficult ifnot impossibleto get this or other contiguous 

space back. CFrC still adamantly believes it needs additional staffto fulfill its mandated 

mission. It is anticipated that all leased space will be fully occupiedifthe CFTC receives the FY 

2015 Plesident's Budget Request. Onthe subleasing issue, CPTC has received a legal opiDion 

indicating that ithas extJemely limited ability to sublease space and that any return ofspace to 

the landlord WO!lld bave to be done by mutual agreemeot. IfCFTC were able to sublease space, 

it would not be able to Jttain lease payments and would be required to depositthem to the 

Treasury as mi.on:JiaJII'lOus receipts, therebyprovidingno financial Jeliefto the agency. The 

CFI'C bas now laigely completed the rule writing eft'ortand is makiog its best case fur more 

staff on known·as opposed to anticipated rcquiremeats. 

. Inthe interim, and especially ifitappears no additional f\mding will be mrthcoming in our 

FYI5 Budget request, we will pursue alternatives as suggested inthe 010 Study, with fUll 

Owmission ~torestructure the Kansas City Office spaceto "right size" to fit tho current 

staffneeds at that location. 

u,,... II I: ~-youwould like further e~tplanations, please contact me or 

my fBusiness Manapnentand PlanniDg. 

Again, thaDk you for your Review and the opportunity to comment. 

cc: 	 Acting Chainnan Wetjeo 

('.ommis$oner O'Malia 

3 

Appendix 2, page 3 
U.S. Commodity Futures Trading Co mmission REDACTED 


Office of the Inspector General by CFTC 


APPENDIX3 

Maps 

"Census Regions and Divisions ofthe United States," U.S. Census Bureau Map 

(available at: http://www.census.gov/geo/ maps-data/maps/pdfs/ reference/us regdiv.pd:!). 

"Admission of States and Territorial Acquisition," U.S. Census Bureau Map 

(available at: http: //www.lib. utexas.edu/maps/united states/territory .jpg). 
U.S. Co mmodity Futures Trading Commiss ion REDACTE D 


Offi ce o f the Inspector G eneral by CFTC 


"Census Regions and Divisions of the United States" 

U.S. Census Bureau Map 

(availabl e at: http://www.census .gov/ geo/maps-data/ maps/ pdfs/reference/ us regdiv.pd:l). 

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Appendi x 3, page 1 
REDACTED 

by CFTC 

U.S. Commodity Futures Trading Commission 

Office of the Inspector General 

"Admission of States and Territorial Acquisition" 

U.S. Census Bureau Map 

(available at: http://www. lib.utexas.edu/ maps/united states/territory.jpg). 

Appendix 3, page 2