[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
GSA TENANT AGENCIES: CHALLENGES AND
OPPORTUNITIES IN REDUCING COSTS OF
LEASED SPACE
=======================================================================
(113-80)
HEARING
BEFORE THE
SUBCOMMITTEE ON
ECONOMIC DEVELOPMENT, PUBLIC BUILDINGS, AND EMERGENCY MANAGEMENT
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
JULY 30, 2014
__________
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COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
BILL SHUSTER, Pennsylvania, Chairman
DON YOUNG, Alaska NICK J. RAHALL, II, West Virginia
THOMAS E. PETRI, Wisconsin PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina ELEANOR HOLMES NORTON, District of
JOHN J. DUNCAN, Jr., Tennessee, Columbia
Vice Chair JERROLD NADLER, New York
JOHN L. MICA, Florida CORRINE BROWN, Florida
FRANK A. LoBIONDO, New Jersey EDDIE BERNICE JOHNSON, Texas
GARY G. MILLER, California ELIJAH E. CUMMINGS, Maryland
SAM GRAVES, Missouri RICK LARSEN, Washington
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
CANDICE S. MILLER, Michigan TIMOTHY H. BISHOP, New York
DUNCAN HUNTER, California MICHAEL H. MICHAUD, Maine
ERIC A. ``RICK'' CRAWFORD, Arkansas GRACE F. NAPOLITANO, California
LOU BARLETTA, Pennsylvania DANIEL LIPINSKI, Illinois
BLAKE FARENTHOLD, Texas TIMOTHY J. WALZ, Minnesota
LARRY BUCSHON, Indiana STEVE COHEN, Tennessee
BOB GIBBS, Ohio ALBIO SIRES, New Jersey
PATRICK MEEHAN, Pennsylvania DONNA F. EDWARDS, Maryland
RICHARD L. HANNA, New York JOHN GARAMENDI, California
DANIEL WEBSTER, Florida ANDRE CARSON, Indiana
STEVE SOUTHERLAND, II, Florida JANICE HAHN, California
JEFF DENHAM, California RICHARD M. NOLAN, Minnesota
REID J. RIBBLE, Wisconsin ANN KIRKPATRICK, Arizona
THOMAS MASSIE, Kentucky DINA TITUS, Nevada
STEVE DAINES, Montana SEAN PATRICK MALONEY, New York
TOM RICE, South Carolina ELIZABETH H. ESTY, Connecticut
MARKWAYNE MULLIN, Oklahoma LOIS FRANKEL, Florida
ROGER WILLIAMS, Texas CHERI BUSTOS, Illinois
MARK MEADOWS, North Carolina
SCOTT PERRY, Pennsylvania
RODNEY DAVIS, Illinois
MARK SANFORD, South Carolina
DAVID W. JOLLY, Florida
------
Subcommittee on Economic Development, Public Buildings, and Emergency
Management
LOU BARLETTA, Pennsylvania, Chairman
THOMAS E. PETRI, Wisconsin ANDRE CARSON, Indiana
JOHN L. MICA, Florida ELEANOR HOLMES NORTON, District of
ERIC A. ``RICK'' CRAWFORD, Arkansas Columbia
BLAKE FARENTHOLD, Texas, Vice Chair MICHAEL H. MICHAUD, Maine
MARKWAYNE MULLIN, Oklahoma TIMOTHY J. WALZ, Minnesota
MARK MEADOWS, North Carolina DONNA F. EDWARDS, Maryland
SCOTT PERRY, Pennsylvania RICHARD M. NOLAN, Minnesota
MARK SANFORD, South Carolina DINA TITUS, Nevada
BILL SHUSTER, Pennsylvania (Ex NICK J. RAHALL, II, West Virginia
Officio) (Ex Officio)
CONTENTS
Page
Summary of Subject Matter........................................ iv
TESTIMONY
Norman Dong, Commissioner, Public Buildings Service, U.S. General
Services Administration........................................ 5
Hon. Joyce A. Barr, Assistant Secretary, Bureau of
Administration, U.S. Department of State....................... 5
William E. Brazis, Director, Washington Headquarters Services,
U.S. Department of Defense..................................... 5
Michael H. Allen, Deputy Assistant Attorney General for Policy,
Management, and Planning, Justice Management Division, U.S.
Department of Justice.......................................... 5
E.J. Holland, Jr., Assistant Secretary for Administration, U.S.
Department of Health and Human Services........................ 5
Jeffery Orner, Chief Readiness Support Officer and Agency Senior
Real Property Officer, U.S. Department of Homeland Security.... 5
Peter D. Spencer, Deputy Commissioner, Office of Budget, Finance,
Quality, and Management, Social Security Administration........ 5
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Norman Dong...................................................... 51
Hon. Joyce A. Barr............................................... 56
William E. Brazis................................................ 60
Michael H. Allen................................................. 66
E.J. Holland, Jr................................................. 69
Jeffery Orner.................................................... 75
Peter D. Spencer................................................. 79
SUBMISSIONS FOR THE RECORD
Hon. John L. Mica, a Representative in Congress from the State of
Florida, request to submit a list of vacant properties in the
District of Columbia........................................... 20
Hon. Joyce A. Barr, Assistant Secretary, Bureau of
Administration, U.S. Department of State, response to request
for information from Hon. Andre Carson, a Representative in
Congress from the State of Indiana............................. 43
William E. Brazis, Director, Washington Headquarters Services,
U.S. Department of Defense, response to request for information
from Hon. Lou Barletta, a Representative in Congress from the
State of Pennsylvania.......................................... 48
Jeffery Orner, Chief Readiness Support Officer and Agency Senior
Real Property Officer, U.S. Department of Homeland Security,
response to request for information from Hon. Lou Barletta, a
Representative in Congress from the State of Pennsylvania...... 48
Hon. Lou Barletta, a Representative in Congress from the State of
Pennsylvania, slides referenced during his opening remarks..... 89
[GRAPHIC] [TIFF OMITTED]
GSA TENANT AGENCIES: CHALLENGES AND OPPORTUNITIES IN REDUCING COSTS OF
LEASED SPACE
----------
Wednesday, July 30, 2014
House of Representatives,
Subcommittee on Economic Development,
Public Buildings and Emergency Management,
Committee on Transportation and Infrastructure,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
Room 2167 Rayburn House Office Building, Hon. Lou Barletta
(Chairman of the subcommittee) presiding.
Mr. Barletta. The committee will come to order. First, let
me thank Commissioner Dong and our agency witnesses for all
being here today. Together, your agencies occupy over half of
GSA's expiring leased inventory.
Today's hearing is the second step in our committee's GSA
leasing initiative to save taxpayer dollars through right-
sizing Federal real estate. Step 1 was our July 15th roundtable
where GSA agreed to partner with our committee to improve
office utilization, lock in low rental rates and help agencies
protect their employees from shrinking budgets.
The purpose of today's hearing is threefold: One, to set
expectations for what it will take to approve agency leases.
Two, to learn what challenges agencies face to shrink their
footprint and use long-term leases to get the best prices. And,
three, to learn how Congress can help GSA and the agencies
achieve this goal.
I believe we have a unique opportunity to work together and
save a tremendous amount of taxpayer money. We have the same
objective. The President wants to save money through real
estate and so does Congress. And it is not just me who sees
this opportunity. Private sector tenants are taking advantage
of the market and negotiating good, long-term leases that cut
their costs.
So what are these conditions? One, inventory turnover. Two,
low interest rates. And, three, a buyer's market. Let's take a
closer look at these conditions.
Inventory turnover. If you look at slide 1, you will see
almost 100 million square feet of GSA leases expire in 5 years.
That is half of GSA's leased inventory. It is also the size of
32 of the new World Trade Center buildings in New York.
Low interest rates. Financing costs are near historical
lows. Literally billions of dollars of cheap and abundant
capital are sitting on the sidelines waiting to help reshape
the Government's leased inventory.
A buyer's market. Vacancy rates are high and rental rates
are low in almost every market GSA has a presence.
So what is the key to realizing this potential? Long-term
leases of 10 years or more. Why is the length of the lease so
important? At the most basic level, a longer lease lowers risk,
lowers finance costs and provides certainty for the landlord
who can then offer lower rents.
If you look at slide 2, you will see GSA pays a 20-percent
premium for short-term leases of 3 years or less compared to
longer leases. But long-term leases do much more than just
lower rental rates. They allow the Government and the building
owner to spread out the upfront costs of moving or
reconfiguring space to accommodate more people. You cannot do
this with a short-term lease. For example, slide 3 shows three
recent GSA leases. The 3-year lease has a high rent and no
concessions. The longer leases have lower rents and significant
concessions.
Unfortunately, slide 4 shows a significant amount of GSA
leases are for 3 years or less. And that number is growing
every year. There is clearly room for improving those numbers
and saving taxpayer dollars.
I also believe this is a win/win opportunity for everyone
involved. Agencies can get new office space that better meets
their needs, lowers their rent and allows them to protect their
staff from budget cuts. The taxpayer gets significant savings,
which the President and the committee wants.
In order to get these types of good deals, planning must
start well in advance. In particular, prospectus level leases
require significant time to develop and execute. Tenant
agencies need to embrace the President's savings goals and run
competitive procurements to replace their leases.
Today, I hope to hear how GSA and its tenant agencies are
going to replace 100 million square feet of expiring space with
long-term deals that improve utilization rates and lower costs.
That is a lot of leases and today's market opportunity is not
going to last forever.
What are the challenges or obstacles that prevent agencies
from moving or reducing their real estate footprint? As
chairman of the subcommittee, I am open to suggestions to
simplify and speed up the leasing process so that taxpayers can
benefit from this opportunity.
This Congress, we have already saved $1 billion by simply
reducing the size of prospectus level lease replacements by up
to 20 percent.
Given the larger number of expiring leases, the opportunity
for additional savings is even larger. For example, if the
agencies before us here today lower their lease replacement
costs by 10 percent through a combination of space reduction
and good long-term rates, we can save $3 billion over the next
10 years. That is a goal worth achieving, and I look forward to
working with all of you to get it done.
I now call on the ranking member of the subcommittee, Mr.
Carson, for a brief opening statement.
Mr. Carson. Thank you, Chairman Barletta. And good morning
to you, sir, and to the legendary, the incomparable Madam
Eleanor Holmes Norton and my good friend, Mr. Walz and my other
colleagues, Dr. Shultz, over there, my buddy.
You know, subcommittee members and witnesses, welcome to
today's hearing. We are following up essentially on last year's
hearing when we examined the GSA's implementation of the
administration's freeze on the Federal footprint dealing with
real estate policy.
We heard details from several agencies about their work to
reduce their real estate footprint. The agencies testified
about their efforts to increase utilization rates, release
unneeded property and maintain their fiscal year 2012 real
estate footprint. Today, we hope to get a better understanding
of how agencies have executed their plans to maintain their
baseline and how they plan to tackle expiring leases over the
next 5 years within the ``Freeze the Footprint'' framework.
According to GSA, over the next 5 years, over 100 million
square feet of leases will expire. As Chairman Barletta
mentioned, this is nearly 50 percent of their leases. As the
Federal Government's landlord, GSA has a responsibility to work
with other Federal agencies to make good decisions that reflect
both the will of the administration and Congress. The sheer
volume of expiring leases over the next 5 years present a great
opportunity to accelerate current efforts to reduce the Federal
footprint by cutting existing space requirements.
In the wake of the great recession, we have watched the
private industry downsize and become more efficient in
utilizing space as a result of economic pressure. We expect
Federal agencies to do the same.
Although the ``Freeze the Footprint'' policy currently
applies only to office and warehouse space, we look forward to
an update on broader efforts by GSA and other agencies beyond
those two space classifications. If there is unneeded property
that can be sold or redeveloped, it is very important for the
committee to know about those properties. We also want to know
about any assistance that we can offer these agencies in
disposing of assets in their real estate portfolio. If an
agency has a unique mission that needs to be impacted by your
ability to ``Freeze the Footprint'' policy, we need to hear
about them. We want GSA to help those agencies reduce their
footprint, but we want them to be very smart about it.
So thank you, Mr. Chairman. I look forward to hearing from
our witnesses today.
Mr. Barletta. Thank you, Mr. Carson. At this time, I would
like to recognize the chairman of the full committee, Mr.
Shuster.
Mr. Shuster. Thank you, Mr. Barletta. And I want to thank
the subcommittee chairman for holding this hearing today. And
also to thank Ms. Norton, who has really been a champion for
utilizing these Government spaces, saving money by doing things
smarter, utilizing leases. So thanks to Ms. Norton, not just
for the past couple of years but for over a decade or so, she
has been really pushing the issue. And I appreciate it greatly.
I want to thank all of our panelists for being here today,
especially Mr. Dong. Thank you for coming. And I am very
encouraged by what I hear from Mr. Dong. He has only been on
the job about 4 months, so he cannot fix it basically
overnight. But, again, I have been encouraged in our
discussions, by what I see him doing at the GSA, at the Public
Building Service.
And the time is ripe. I do not want to go all over the
numbers, which Mr. Barletta put out there so well, but this is
a great opportunity for us to save a billion dollars. It is a
great opportunity for us to look at things and do them in a
different way. And it is not something that we want to do, it
is something we have to do.
And just a couple of days ago, I guess last week, the Old
Post Office Building, groundbreaking with the Trumps coming in
and redeveloping it. I understand that this is the first in a
long period of time that we have done that. I guess the Hotel
Monaco was the last one to my knowledge. And so again we need
to be looking and learn from this opportunity. Talking with the
Trumps and their organization, what was good, what was bad.
I know Mr. Barletta had a hearing in New York City on this
issue, and Ivanka Trump testified. And she had some positives,
and she had some negatives. And, again, we really need to learn
from that as we move forward.
And, again, this billion-dollar savings I believe is the
tip of the iceberg. There are many buildings around Washington,
around the country, that we can have the private sector come in
and utilize their money to rehabilitate these buildings and put
them back into use, which I think is something, as former
Chairman Mica always stresses, being a former developer, on the
opportunity we have to do this.
So I am very pleased that everybody is here today. I am
pleased that Mr. Carson and Mr. Barletta are exploring this and
have been for many, many months now. So, again, thank you all
for being here and thank you, Mr. Chairman.
Mr. Barletta. Thank you, Mr. Chairman. Before we begin, I
would like to welcome Mr. Webster. Very happy he is
participating today, he has a big interest in what is going on.
And I ask unanimous consent that Mr. Webster of Florida, who is
a member of the Transportation and Infrastructure Committee, be
permitted to participate in today's subcommittee hearing.
Without objection, so ordered.
On our panel today, we have Mr. Norman Dong, Commissioner,
Public Buildings Service, General Services Administration; the
Honorable Joyce A. Barr, Assistant Secretary, Bureau of
Administration, U.S. Department of State; Mr. William Brazis,
Director, Washington Headquarters Services, U.S. Department of
Defense; Mr. Michael H. Allen, Deputy Assistant Attorney
General for Policy, Management and Planning, Justice Management
Division, U.S. Department of Justice; Mr. E.J. Holland, Jr.,
Assistant Secretary for Administration, U.S. Department of
Health and Human Services; Mr. Jeffery Orner, Chief Readiness
Support Officer, U.S. Department of Homeland Security; and Mr.
Peter Spencer, Deputy Commissioner, Office of Budget, Finance,
Quality, and Management, Social Security Administration.
I ask unanimous consent that our witnesses' full statements
be included in the record. Without objection, so ordered.
Since your written testimony has been made a part of the
record, the subcommittee would request that you limit your oral
testimony to 5 minutes.
Mr. Dong, you may proceed.
TESTIMONY OF NORMAN DONG, COMMISSIONER, PUBLIC BUILDINGS
SERVICE, U.S. GENERAL SERVICES ADMINISTRATION; HON. JOYCE A.
BARR, ASSISTANT SECRETARY, BUREAU OF ADMINISTRATION, U.S.
DEPARTMENT OF STATE; WILLIAM E. BRAZIS, DIRECTOR, WASHINGTON
HEADQUARTERS SERVICES, U.S. DEPARTMENT OF DEFENSE; MICHAEL H.
ALLEN, DEPUTY ASSISTANT ATTORNEY GENERAL FOR POLICY,
MANAGEMENT, AND PLANNING, JUSTICE MANAGEMENT DIVISION, U.S.
DEPARTMENT OF JUSTICE; E.J. HOLLAND, JR., ASSISTANT SECRETARY
FOR ADMINISTRATION, U.S. DEPARTMENT OF HEALTH AND HUMAN
SERVICES; JEFFERY ORNER, CHIEF READINESS SUPPORT OFFICER AND
AGENCY SENIOR REAL PROPERTY OFFICER, U.S. DEPARTMENT OF
HOMELAND SECURITY; AND PETER D. SPENCER, DEPUTY COMMISSIONER,
OFFICE OF BUDGET, FINANCE, QUALITY, AND MANAGEMENT, SOCIAL
SECURITY ADMINISTRATION
Mr. Dong. Good morning, Chairman Barletta, Chairman
Shuster, Ranking Member Carson and members of the subcommittee.
My name is Norman Dong, and I am the Commissioner of the Public
Buildings Service at GSA.
Our mission is to deliver the best value in real estate,
acquisition and technology services to Government and to the
American people. And when it comes to leasing, this means
reducing costs and improving space delivery, which allows our
partner agencies to focus their resources on core mission
needs.
I would like to make three points this morning. First, GSA
is focused on improving utilization throughout our portfolio,
including in our lease space. We hold more than 375 million
square feet of space, half of which is distributed among 9,000
leases across the country. And we are working with Federal
agencies to improve utilization throughout our owned and leased
portfolios. And, as a result, we have saved millions of dollars
for our Federal partners and for the American taxpayer.
For example, in our fiscal year 2014 prospectus level
leases, GSA and our partner agencies proposed a 13-percent
square footage reduction, going from 4.3 to 3.7 million square
feet. We are doing this by helping Federal agencies adopt new
workplace arrangements and develop mobile work strategies so
more people can work in less space.
Our client portfolio planning process helps agencies
identify opportunities to co-locate and consolidate their space
and right-size their inventories. And our Total Workplace
Program helps agencies address the cost of furniture, IT and
other upfront expenses that would otherwise prevent them from
consolidating their space.
Second, within our leasing program, our top priority is to
reduce cost by improving long-range planning and broadening
competition. As this committee has pointed out, GSA has an
unprecedented opportunity to reduce the cost of Federal real
estate needs over the long term. More than 59 percent of GSA's
leases will expire over the next 5 years. And this year we have
10.7 million square feet of lease space expiring in the
National Capital Region alone.
We still can capitalize on favorable market conditions
while average rates remain below their peak levels. As I
mentioned earlier, our strategy for leasing requires better
workload management and better improved long-range planning. We
need to start working with agencies to develop requirements at
least 36 months prior to lease expiration and to issue
advertisements at least 18 months prior to expiration. And we
will be managing to these benchmarks to allow more time for
competitive procurements that prevent costly holdovers and
extensions.
And at the same time, we must broaden delineated areas and
simplify specialized requirements to generate greater
competition and more favorable rates.
In addition, GSA is moving away from the days of replacing
expiring leases at a one for one ratio. Many of our fiscal year
2014 prospectuses address three or more lease expirations. For
example, we are seeking a lease for the Department of Justice
that will replace four different expirations across the
District of Columbia. And we are improving utilization from 184
square feet to just 130 square feet of office space per person
through this process.
By improving our upfront planning, taking a more flexible
approach to delineated areas and seeking longer term lease
arrangements, we are better positioning the Federal Government
to take advantage of existing market conditions.
My third point is this: While today's hearing is about our
shared efforts to reduce leasing costs, GSA's first priority is
to maximize the use of our federally owned inventory. Our
fiscal year 2015 capital plan continues our work to consolidate
agencies out of expensive leases and into federally owned
space.
In Detroit, for example, we are exercising an option to
purchase a lease property on Michigan Avenue. This will allow
GSA to renovate and backfill the building with agencies housed
in four other leases. And this project will save the Federal
Government about $11 million each year.
GSA will also continue DHS consolidation at St. Elizabeths.
Last year, we opened a new headquarters building for the Coast
Guard. And our fiscal year 2015 budget request allows us to
complete the infrastructure needed to fully occupy the Center
Building Complex and to move additional DHS components to St.
Elizabeths.
And we are also maintaining our emphasis on large-scale
consolidation projects. Our budget request this year reflects
another $100 million to support agency efforts to co-locate,
consolidate and reduce their footprint. As with current
projects, we are showing how these upfront investments and
agency consolidation will help reduce the real estate footprint
and save money on agency leasing costs.
These investments are absolutely central to GSA's and this
committee's work to reduce leasing costs and to shrink the
Government's real estate footprint. We appreciate the fact that
this committee approved 27 GSA prospectuses earlier this month.
Thank you for the opportunity to speak with you. Our work
at GSA continues to benefit from our strong partnership with
this committee. I look forward to continuing to work with you,
and I welcome your questions.
Mr. Barletta. Thank you for your testimony, Mr. Dong. Ms.
Barr, you may proceed.
Ms. Barr. Chairman Barletta, Ranking Member Carson and
members of this subcommittee, my name is Joyce Barr, and I am
the Assistant Secretary of the Bureau of Administration at the
State Department. Thank you for inviting me to testify today.
The State Department is a relatively small part of GSA's
overall real estate holdings, accounting for approximately 2
percent of its nationwide portfolio. Approximately half of the
domestic real estate that the Department occupies is
Government-owned space and half is leased, primarily in the
metropolitan areas. State Department personnel are housed in
about 150 facilities across the country. We are the sole tenant
in roughly half of these locations. In the remainder, we are
co-located with other Federal organizations and other entities,
mostly in Federal space. In addition, under special legislative
authority, we own nine properties.
We have a close relationship with the GSA to acquire space
to meet our operational needs, and we depend on their expertise
and experience in real property management to meet U.S. mission
requirements domestically.
The Bureau of Administration, which I head, is responsible
for defining and validating the Department's evolving real
estate requirements, coordinating with GSA in acquiring
facilities and in managing the costs of those assets
effectively. Our many missions shape and add complexity to our
overall domestic real estate strategy.
As a member of the national intelligence community, the
Department must meet certain operational security directives,
which can increase costs under certain circumstances, such as
when we move operations. Bureaus within the State Department
are heavily integrated and must continually collaborate to
effectively support the numerous policy and operational
requirements of 275 U.S. embassies and consulates abroad.
Therefore, we strive to co-locate bureaus together to foster
that collaboration. And depending upon the need, place them as
close as possible to headquarters in Foggy Bottom.
At the same time, back office functions, like passport
production and financial activities, are located in lower cost
areas, like Portsmouth, New Hampshire or Charleston, South
Carolina. Mail and shipping operations supporting overseas
posts, along with the Department's IT support, are also located
outside of the Washington, DC, metropolitan area.
These operational factors have guided State's overall
domestic real estate strategy for 25 years. We wholeheartedly
endorse the goal of reducing leasing costs to the greatest
extent possible. We recognize the need to minimize our real
estate footprint and have been reducing our space allocation
per person within our properties as opportunities arise. For
example, GSA recently leased the Old World Bank Building on our
behalf, enabling us to consolidate our Bureau of Consular
Affairs from five separate locations. By incorporating space
utilization benchmarks consistent with Federal and private
sector trends, we can now accommodate approximately 30 percent
or 600 more personnel in the same space.
The Department has also made it a priority to operate
facilities smartly by integrating energy conservation and
environmental sustainability principles into our day-to-day
activities.
We have a great partnership with the GSA. They have been
instrumental in helping us to identify the most suitable real
estate opportunities to meet our long-term office space needs.
On behalf of the American taxpayer, we practice good
stewardship of the Department's real estate assets, and we will
continue our efforts to increase efficiencies in order to
obtain the best value for each dollar spent.
Thank you for the opportunity to appear today. And I
welcome any questions you may have.
Mr. Barletta. Thank you for your testimony, Ms. Barr. Mr.
Brazis, you may proceed.
Mr. Brazis. Good morning, Chairman Barletta, Ranking Member
Carson and members of the subcommittee. Thank you for the
invitation to discuss the Department of Defense's lease space
portfolio, particularly in the National Capital Region, and
especially to express the Department of Defense's commitment to
continue to substantially reduce our lease footprint and lease
costs.
I am Bill Brazis, Director of the Department of Defense
Washington Headquarters Services--WHS--and responsible for
managing key Government-owned facilities, as well DOD's leased
facilities here in the National Capital Region--NCR. This
portfolio includes the Pentagon Reservation, the Mark Center,
and a number of other smaller Government-owned buildings. And
in addition, the Department of Defense has, at the end of
fiscal year 2013, nearly 6.5 million square feet of leased
space, secured by over 100 leases in 82 buildings here in the
National Capital Region. Together, these facilities house over
70,000 Defense personnel, supporting the military departments
and the Defense agency missions.
The current lease portfolio in the National Capital Region
reflects substantial recent reductions that have occurred in
our leased facilities since 2005. Under BRAC 2005, by the end
of 2012, the Department of Defense has shed over 3 million
square feet of our leased space inventory in the National
Capital Region, primarily by relocating to Government
facilities on military installations, both within the NCR and
outside of the NCR.
Today, WHS is engaged heavily with the General Services
Administration and our plan is to continue to substantially
reduce DOD's overall NCR leased space portfolio and our cost
over the next 5 years.
In the current program budget review, the Secretary of
Defense has directed another 20-percent reduction from our 2013
NCR leased space levels, commensurate with reductions in DOD
headquarters.
DOD works in direct and strong partnership with the GSA to
strategically optimize our leased space to satisfy DOD's
mission requirements. To do so, the Department plans on
continuing to leverage GSA's expertise to achieve cost-
effective and quality leases while transitioning from expiring
leases.
In addition, we are leveraging GSA's leading edge space
management tools to optimize space usage and improve our
utilization of all our facility spaces, both Government-owned
and leased.
DOD is committed to effectively managing and drawing down
its lease space inventory while executing its national defense
mission. Our twin goals of improved utilization of existing
Government-owned space while minimizing our leased space
inventory permits shifting of taxpayer resources to support the
mission and reduce our overhead costs.
Thank you for the opportunity to appear hear today. I am
happy to answer any questions.
Mr. Barletta. Thank you for your testimony, Mr. Brazis. Mr.
Allen, you may proceed.
Mr. Allen. Good morning Chairman Barletta, Ranking Member
Carson, and distinguished members of the subcommittee. I
appreciate the opportunity to discuss with you today the
Department of Justice's challenges and opportunities in
reducing the cost of real property leased through GSA. We
certainly share your commitment to achieving taxpayer savings
in today's real estate market.
Given the Department's size, number of locations and unique
mission requirements, leasing through GSA is delegated to each
of the Department's major components and bureaus, including the
FBI, DEA, BOP, ATF, Executive Office for U.S. Attorneys, U.S.
Marshals Service, Executive Office of Immigration Review, and
Office of Justice Programs.
The Justice Management Division provides departmentwide
real property guidance, policy and oversight. We also manage
GSA leasing for the headquarter components in the National
Capital Region, amounting to approximately 15 percent of DOJ's
portfolio.
Under the leadership of Attorney General Eric Holder, DOJ
has been committed to cost savings by effectively managing our
real property and improving utilization efficiencies. For
instance, the Department successfully reduced our overall
square footage in fiscal year 2013 from the fiscal year 2012
benchmark level. In addition, we continue to work closely with
GSA to acquire leases that offer more efficient and cost-
effective space to meet DOJ's varied mission requirements.
As this subcommittee has emphasized, we too support
negotiating longer term leases wherever possible to maximize
savings. In fiscal year 2013, the Department developed a
revised real property cost savings and innovation plan to
support OMB's ``Freeze the Footprint'' initiative. The
Department's plan focuses on office and warehouse space, covers
new construction and renovation projects, lease consolidations,
replacement and succeeding leases, as well as disposal of owned
and leased assets.
The plan covers fiscal years 2013 through 2015 and
highlights the benefits of effective real property management
and initiatives and the substantial savings that can be
generated through space and operating cost reductions.
I would also like to take this opportunity to thank the
subcommittee for its support and approval earlier this year for
the first in a series of prospectus level projects here in
Washington, DC. These projects will dramatically reduce our
space usage by more than 25 percent for our headquarter
litigating divisions. We also have other projects now in the
pipeline that will continue our efforts to reduce our square
footage and provide substantial cost savings in the out years.
As to the number of GSA leases expiring in the near future,
we also recognize the challenges and opportunities identified
by this subcommittee. Between fiscal years 2015 and 2020, the
Department will have nearly 900 leases expiring nationwide. Our
components have been working diligently with GSA on renewal and
replacement strategies that identify opportunities for improved
efficiencies and take advantage of today's favorable real
estate market conditions.
We continue to work with our components as well to manage
both our owned and leased real property while also pursuing new
workplace strategies to better utilize our portfolio and save
money.
Thank you again for the opportunity to discuss the
Department of Justice's important work in this area, and I look
forward to answering any questions you might have.
Mr. Barletta. Thank you for your testimony, Mr. Allen. Mr.
Holland, you may proceed.
Mr. Holland. Good morning, Chairman Barletta, Ranking
Member Carson, and members of the subcommittee. My name is E.J.
Holland, Jr. I am the Assistant Secretary for Administration at
the U.S. Department of Health and Human Services.
Under the leadership of former Secretary Kathleen Sebelius
and our new Secretary Sylvia Burwell, the Department has
continued its commitment to save taxpayer dollars through
effective management of our real property assets, improve
utilization through reduced space requirements and pursue
alternative workplace strategies that increase utilization and
reduce costs.
At the end of fiscal year 2013, HHS had over 4,000 real
property assets. We recognize that moving from GSA-leased space
to GSA-owned space will save taxpayer dollars and have taken
steps to consolidate space from leased locations into GSA-owned
space where it is available.
A prime example is the ongoing consolidation of the Food
and Drug Administration on its White Oak Campus. Completion of
the current master plan and consideration of further
consolidation under that campus will further reduce our leased
footprint.
The Mary E. Switzer Building, a few blocks from here,
consolidation is another project and an example of moving
current leases into GSA-owned space. The Switzer Building was
identified to accommodate not only the headquarters of the
consolidated Administration for Children and Families but also
the Administration for Community Living, the Office of the
National Coordinator for Health Information Technology, the
Departmental Appeals Board, several components of the Office of
Assistant Secretary for Health and other components of the
Office of the Secretary.
They were scattered in seven leased locations and two
federally owned buildings across the Southwest Complex area
just a bit west and south of here. This project will reduce
HHS's footprint of leased space by over 349,000 rentable square
feet. And HHS is moving what would have been more than $17
million in private sector lease payments to the Federal
Building Fund payments.
We also have taken advantage of the GSA's fiscal year 2014
omnibus appropriations for consolidation activities, which
funds loans to agencies for consolidation projects. We
submitted funding to consolidate the Office of the Chief
Information Officer--OCIO--another group which reports to me,
into an alternative workplace pilot within the Humphrey
Building, again about two blocks from here, creating a more
effective and collaborative work environment for the OCIO team.
As a result, OCIO's usable square feet will be reduced by
approximately 34,000 square feet or 50 percent. After
consolidating into the Humphrey Building, the Office of the
Chief Information Officer's utilization rate will be reduced
from 207 square feet per person to 103 square feet per person.
As evidenced by that low rate, this is our first
opportunity to create a showcase space for employee mobility in
our headquarters building, a strategic goal for HHS in its
efforts to reduce its footprint. Additionally, this project
will save HHS approximately $750,000 in annual rent cost and
further reduce our footprint of leased space by over 35,000
square feet for the OCIO portion.
We submitted our initial ``Freeze the Footprint'' plan for
fiscal year 2013 through 2015 in September of 2013. An update
was submitted in May of 2014. As outlined in that plan, we face
several challenges in adhering to our plan. There were a number
of large lease acquisitions and construction projects that were
underway but not included in the baseline. Those projects will
add 1.8 million square feet of space to our footprint over the
next 2 years.
Other challenges for us are the recent legislative mandates
from this Congress that have asked us to do additional things
and require increases in staff. This means there will in fact
be some temporary additions to our real property footprint, but
we will achieve the reduced footprint effort by 2016.
We also find that a significant challenge is the upfront
costs needed to support consolidations and more efficient space
utilization. We simply do not have a realistic way to do
capital improvements. As a result, we have taken advantage of
GSA's Total Workplace Program for a number of our larger
projects. However, not funding upfront capital investments in
furniture, fixtures and equipment has a direct impact on the
immediate return on investment and short term, 3 to 5 years, it
actually increases our operating costs.
We are committed to generating savings for the taxpayers
through better utilization of our real property assets. The
President's management agenda benchmark recently demonstrated
we are making progress in improving utilization of our office
assets, but we also know opportunities remain for even better
utilization.
We recognize that our leased inventory is an opportunity to
reduce costs, and we continue to work closely with GSA to
identify opportunities for improved efficiencies in our lease
portfolio.
Thank you for the opportunity to appear today. And I do
welcome your questions.
Mr. Barletta. Mr. Holland, I am very impressed. Your agency
is a good example of what we are trying to achieve. You are not
only talking about it, but you are actually doing it.
Mr. Holland. Thank you, sir.
Mr. Barletta. Thank you for your testimony. Mr. Orner, you
may proceed.
Mr. Orner. Thank you, Chairman Barletta, Ranking Member
Carson, and members of the subcommittee for the opportunity to
testify today. I am DHS's Chief Readiness Support Officer and
Senior Real Property Officer. I am a career civil servant with
32 years' experience in the Federal Government, including
positions in the Department of the Navy, Coast Guard and now
DHS headquarters.
I manage DHS real estate, mobile assets, environmental
compliance and logistics with a goal of providing your
dedicated workforce with the operational tools and support they
need to keep our Nation safe at a reasonable cost to the
taxpayers.
Today, I will discuss how the Department, with General
Services Administration support, will consolidate our footprint
and save money while supporting the DHS mission.
DHS's real property portfolio consists of 38,000 properties
with 99 million square feet of space. Half of our real property
is DHS owned and the remainder is leased. Additionally, half of
our space is operational mission space and personnel housing.
And the other half is predominately office space. Lease
payments account for 82 percent of our annual real estate costs
at $1.7 billion annually.
In support of our frontline mission, we at DHS continue to
improve our management of real property with the support we
receive from GSA. In addition, the administration's ``Freeze
the Footprint'' initiative has proved to be of immense value to
the Department of Homeland Security.
In 2010, DHS and GSA began a partnership to improve our use
of space by conducting a space use analysis in the National
Capital Region. That partnership was delivering benefits and
specifically the workforce recommendations report, which
validated that an average office utilization rate of under 150
square feet per person is a reasonable and achievable target,
and more so when mobility and telework becomes part of the
equation.
It also reinforced that real estate decisions are long lead
time decisions. Additionally, this partnership and report is
assisting with educating, training and change management
throughout the Department in our space decisions.
The key is that our organization has internalized the
concept of efficient use of space, which is a critical step
required to understanding and delivering a new way of managing
space.
We in DHS view lease expirations as an ideal opportunity
for consolidation and economy. Over the next 5 years, 15
million office square feet nationally will be expiring. This is
27 percent of our total leased building portfolio and 48
percent of our office leased buildings. We have a 5-year plan,
and we are monitoring all expirations to ensure that the
Department's footprint and lease costs are optimally managed to
deliver footprint reductions.
We started with my own offices in DC whereas the successful
proof of concept, we reduced our footprint by 60 percent for
over $1 million in annual savings.
Another example of DHS and GSA as partners in delivering
real estate solutions is the significant efficiencies that we
will be achieving in the new space at One World Trade Center in
lower Manhattan. CBP will realize a 45-percent reduction in
occupied space by implementing more flexible space design and
incorporating mobile work for place concepts. This occupancy
will result in space that meets mission needs at a cost
avoidance of $5 million annually as a result of space
compression. Despite challenges related to distance, culture,
changed management and adopting new work practices, DHS
headquarters, Customs and Border Protection and GSA worked
together to achieve this.
A 10-year period of growth in the DHS lease portfolio has
leveled off. We expect modest declines in the footprint in the
short term, but the 10-year opportunity created by lease
expirations will build momentum towards significant future
reductions as a result of the Department's 150 square foot per
person requirement. Particularly over the next decade, 70
percent of our office space leases will expire, and we plan to
achieve a 20-percent reduction and meet our mission while
paying for 4.4 million square feet less than we occupy today.
Real estate reduction strategies for the Department's
office locations are the focus of our fiscal year 2015 work
plan. Ten major cities contain in excess of 7 million square
feet of DHS office space. For those top 10 field locations, we
have assessed the requirements cost and expiration dates of
existing leases to develop plans for lease compression,
consolidation and cost reduction.
The National Capital Region currently has 10 million square
feet of DHS office space. Here, DHS continues to work with GSA
on our headquarters consolidation project. Consolidation will
allow the strategic realignment of the real property portfolio
in the National Capital Region to more effectively support our
mission.
DHS continues currently to occupy over 50 separate
locations in the National Capital Region at an average space
utilization of 200 square feet per person. Consolidation will
contribute to reducing the number of locations and will bring
our utilization rate below the 150 square feet standard, lower
facility costs and provide quality work space for our
workforce.
Finally, I am happy to point out that DHS submitted our
revised real property cost savings and innovation plan to OMB
in September 2013 and established its 48 million square feet of
fiscal year 2012 office space as our baseline. And we provided
an update in May of 2014 that indicates we are meeting the
``Freeze the Footprint'' guidelines.
In closing, DHS will continue to aggressively pursue real
property strategies in partnership with GSA. We will lead
departmental efforts to exceed the ``Freeze the Footprint''
objectives and our ultimate goal remains to perform our mission
support with effectively designed space for the way we work
today without sacrificing mission effectiveness for our
employees on the front line of Homeland Security.
I very much appreciate the opportunity to testify before
you today, and I look forward to answering your questions.
Mr. Barletta. Thank you for your testimony, Mr. Orner. Mr.
Spencer, you may proceed.
Mr. Spencer. Chairman Barletta, Ranking Member Carson,
members of the subcommittee, thank you for inviting Social
Security to testify today. My name is Pete Spencer. I am the
Deputy Commissioner for Budget, Finance, Quality and
Management. I am also the agency's Chief Financial Officer. I
retired after 44 years of service in 2011 and came back last
March because I am concerned about the budgets that we face and
how we can restrict spending to make sure we meet both the
needs of the American public for Social Security services and
at the same time protect the investment of the American
taxpayer.
We are delighted to be part of this discussion this
morning. We are looking forward to learning about proven
practices that you all, as members of this subcommittee, can
share with us as we move forward here.
I have three main points that I want to discuss today.
First, we fully support and appreciate the work of this
subcommittee. There is no question about the number of issues
that you have identified for us, and we look forward to
learning the proven practices from others.
Number two, we have a strong relationship with GSA, and we
are working together to reduce our usable square footage and
our annual rent costs. Unlike other agencies, however, we do
not own property nor do we have direct leasing authority. GSA
handles all of that for us.
Third, I think you all know that we have a unique
community-based organization that requires a strong national
network of field facilities in order to serve our public,
whether that is in Hazleton or whether it is in Indianapolis or
whether it is in Orlando or whether it is in the District or
whether it is in Glen Burnie. Our local offices are there to
serve, and that is part of our real estate footprint.
Few programs touch as many lives as ours do. To help the
millions of people we serve, we must maintain this network of
offices across the country. It is not surprising then that we
are GSA's fourth largest customer in commercial leases and the
fifth largest customer in rent costs. We are fully committed to
maintaining our local field facilities across the country in
order to serve the public. Our ``Freeze the Footprint'' plan is
not based on consolidating local offices in our communities.
I want to underscore the fact that we continue to be an
efficient organization. Our administrative costs are only 1.4
percent of the benefit payments we pay each year. We are very
proud of our efficiency at Social Security.
Given the unique characteristics of our real estate
portfolio, we are pleased to report that we have decreased our
usable square footage by more than 330,000 square feet in
fiscal year 2013 compared to the 2012 baseline. We will reduce
our square footage by the end of 2014 by 1 million square feet
and by the end of 2015 by 2 million square feet.
GSA has worked with us to achieve our goal of freezing our
footprint, and they have also worked with us to lower our
current annual rental costs. For example, we collaborate with
GSA, as you have suggested Mr. Chairman, to identify
opportunities to reduce our rent in targeted markets by
extending the lease terms and negotiating a lower rental rate
in our existing leases. So, for example, in Salinas,
California, GSA extended the lease terms and was able to lower
the rent by $7.50 per square foot. Based on that reduced rent,
the projected rent savings over the subsequent 5-year period is
about $3 million. That is a good example of doing what you have
asked us to do.
That example, in addition to initiatives I have outlined in
my written testimony, will help us reduce total usable space. I
need to quickly add, however, that these savings may not be
good enough to offset projected increases in rent costs. In
many cases, cost increases are due to the cost of improvements
that must be made to many of our local offices in order to
provide security for the in-person service that we give. But
the savings mentioned above certainly will help us offset most
of those costs.
In conclusion, we are delighted to have the opportunity to
work with you, Mr. Chairman, and the subcommittee. We look
forward to your ideas on how we could better manage our lease
property in an efficient and cost-effective way.
Thank you, and I will be glad to answer any questions you
may have.
Mr. Barletta. Thank you for your testimony, Mr. Spencer. I
will now begin the first round of questions, limited to 5
minutes for each Member. If there are additional questions
following the first round, we will have additional rounds of
questions as needed.
To start, this question is for all panelists. Each of your
agencies have been directed by the President to cut your real
estate costs. You also have heard there is a limited window of
opportunity to replace your expiring leases with good long-term
deals that improve utilization rates and save significant
dollars. Will you commit to work with our committee to seize
this opportunity, replace these leases on time and achieve the
President's savings goal? And I would appreciate a response
from each agency.
Ms. Barr?
Ms. Barr. Of course. We have for the last 25 years been
guided by a strategy where we are trying to make sure that we
serve the taxpayer by offering the lowest cost for the longest
term lease. And we also, in order to facilitate the way we work
together, provide opportunities for our bureaus to collaborate
since much of our business is conducted overseas.
In that vein, we have consistently for a number of years
tried to get into owned space. And recently we were able to
acquire property across the street from the State Department,
Potomac Annex from the Navy. It took us quite a while to
finally finalize this transfer, but it is 7 acres. It will give
us an opportunity to look at all of our real estate in the DC
metro area and move them out of high-cost space into lower cost
space.
Mr. Barletta. Thank you. If I could have a brief answer as
we go through. Thank you for that information. Mr. Brazis?
Mr. Brazis. Mr. Chairman, yes, the Department of Defense is
committed. We, in fact, have been working with the GSA very
closely in looking at the 82 buildings that we are in today to
come up with a strategic plan with them, looking over the next
5 years to aggressively achieve that 20-percent drawdown. And
GSA has really helped lead us in this analysis, looking across
the portfolio, to commit longer term leases, and use anchor
buildings that we are trying to move folks into to help get out
of more leases.
Mr. Barletta. Thank you. Mr. Allen?
Mr. Allen. Mr. Chairman, yes, we commit and we believe we
have already begun that process with our latest prospectus here
in the Washington, DC, area.
Mr. Barletta. Thank you. Mr. Holland?
Mr. Holland. Yes, Mr. Chairman, we commit to that. We will
continue doing precisely what you have suggested we ought to be
doing.
Mr. Barletta. Mr. Orner?
Mr. Orner. Absolutely, we enthusiastically make that
commitment, and we appreciate the subcommittee's leadership on
this issue.
Mr. Barletta. Thank you. Mr. Spencer?
Mr. Spencer. Absolutely, Mr. Chairman. Fifty-two percent of
our leases expire in the next 5 years. I have a list of them
right here. We are working through the list as we speak.
Mr. Barletta. Very good, thank you. Short-term leases cost
your agencies and the taxpayer an extra 20 percent in lease
costs. Leases over 10 years can save an additional 10 percent
or more and cover much of your upfront relocation costs. Yet,
the number of short-term extensions is growing each year. Will
you commit to replacing your long-term lease requirements with
leases that are at least 10 years? And I would appreciate a
brief response from each agency. Ms. Barr?
Ms. Barr. Yes.
Mr. Brazis. Yes, to every extent possible.
Mr. Barletta. OK. Mr. Allen?
Mr. Allen. Yes.
Mr. Holland. Yes, sir, that is our objective.
Mr. Barletta. Mr. Orner?
Mr. Orner. Yes, we make that commitment.
Mr. Spencer. Yes, sir.
Mr. Barletta. Each of your agencies have 50 percent to 70
percent of your leases expiring in 5 years. Reducing these
costs by even 10 percent will result in a $300 million saving
annually. How far in advance does the work need to begin to
prepare for expiring leases, particularly larger prospectus
level leases? And are your agencies on track with your expiring
leases so that we do not see holdovers or costly short-term
extensions? Ms. Barr?
Ms. Barr. The first part of your question was how far are
we on track?
Mr. Barletta. Yes, how far in advance does the work need to
begin to prepare for these expiring leases, particularly the
larger prospectus level leases?
Ms. Barr. We usually start working with GSA like 3 years in
advance, like Mr. Dong mentioned before. And we are in constant
conversations with GSA about these leases and trying to put
them into more cost-effective----
Mr. Barletta. And are you on track with your expiring
leases so that we do not see holdovers?
Ms. Barr. We are now.
Mr. Barletta. OK, thank you. Mr. Brazis?
Mr. Brazis. We need 2 to 5 years in advance, and we are
working with GSA right now looking down range in the next 3 to
5 years. There are some leases that we may end up vacating
entirely that may require some short-term periods so that we
can get into the longer term strategy. Our goal is to get into
anchor buildings that have longer term leases. Our more recent
ones do. To the extent that we need some time to get out of
situations we are in now to get into longer term leases, they
require some shorter term leases.
Mr. Barletta. Mr. Allen?
Mr. Allen. We agree with the 36 months. And I would say
that where we are trying to consolidate leases, there may be
some short-term extensions to marry up the expirations.
Mr. Barletta. Mr. Holland?
Mr. Holland. Mr. Chairman, I am not sure there is a date
that I could say 36 or 48. When I arrived here 5 years ago
after having been safely ensconced in Kansas for a long time, I
found that we had a major project that we are still working on
that started in 2006. So my view is that we should be doing
what GSA asked us to do 4 years ago, and that is to participate
in an ongoing portfolio review.
I received a call out of the blue one morning from somebody
I did not know, and he said, ``Mr. Holland, will you do this?''
I did the wrong thing as a manager. I did not go down the hall
and talk to my folks. I said, ``Yes.'' And we have been doing
that ever since.
And so I view it as an ongoing project. There will be some
holdovers because as we try to consolidate two, three, four,
six different divisions into a single space, the lease
expirations will not be at the same time. So in some cases, we
will have to have short-term extensions. We have no choice. But
if the ultimate objective is to get a bunch of different
functions into a single building, I think it will be worth that
effort.
Mr. Barletta. Mr. Orner?
Mr. Orner. We begin working with GSA on lease expirations
at least 3 years in advance of the lease expiring. That can be
up to 5 years if it is a particularly complex project. And we
are interested in long-term leases to save money for the
taxpayers. And we would only allow a short-term extension in
order to synchronize projects so that we can consolidate our
operations.
Mr. Barletta. Mr. Spencer?
Mr. Spencer. Yes, sir, Mr. Chairman. We certainly want to
start well in advance, and we do that. We have very few short-
term leases. I will just say in defense of GSA that in some
situations--and this is a place where I think the subcommittee
can help us--we find that not always are we able to find
someone who is willing to give us space on the commercial
market. Believe it or not, some of the areas in which we have
to locate our offices are lower economic areas--not necessarily
areas in which somebody wants to build a building or give us
space that we might be able to use.
But the bottom line is each situation requires us to look
well in advance to make sure we do not have short-term leases.
It is our goal not to have any.
Mr. Barletta. Thank you. I would like to recognize Ranking
Member Mr. Carson for questioning.
Mr. Carson. Thank you, Chairman Barletta. Mr. Dong, can you
please discuss the selection of the three sites for the new FBI
headquarters and how that fits into the ``Freeze the
Footprint'' initiative? And are you building a building or are
you building a campus? And if you are unable to receive the
full cost of a replacement facility with the value of the
current headquarters, how will GSA and the FBI effectively make
up the difference?
You might need to use Madam Barr's microphone, sir. Thank
you.
Mr. Dong. One more time, OK.
Mr. Carson. There we are.
Mr. Dong. There we go.
Mr. Carson. Alright.
Mr. Dong. As you mentioned, GSA announced the short list of
potential sites for the FBI headquarters yesterday. That
process was the product of a thorough review and evaluation of
sites submitted by private bidders as well as federally owned
sites against criteria that were clearly stated in our initial
advertisement thing such as delineated area and access to
transportation and minimum acreage. And through that process
the evaluation committee and the source selection official
identified what they thought were the three most viable sites
that would meet the FBI requirements.
You talked about the swap construction process where we
would be taking the value of the Hoover Building and trading
that for construction services towards the development of the
new FBI headquarters facility. What we want to be able to do is
to let the market tell us what the value is for that building.
If there is a potential valuation gap, we want to be able to
come back to this committee to talk about options for bridging
that gap.
Mr. Carson. Thank you. Madam Barr, given the increase in
cost to real estate in the Foggy Bottom area of DC and Rosslyn,
Virginia, do you believe it is in the taxpayers' interest to
reevaluate the State Department policy of consolidating in
these particular markets?
Ms. Barr. Well, I would like to take 1 minute to just
explain how we accomplish our mission. Since we are primarily
focused on supporting operations overseas, unlike bureaus and
other agencies, we have to collaborate closely in order to
fulfill that mission. For example, when we have to reduce
staffing because of security or a natural disaster, it takes
more than just the Diplomatic Security Bureau. It also involves
the regional bureau because sometimes when we pull people out,
that has an impact on our bilateral relationship with those
countries. It involves Consular Affairs because we have to make
sure that we treat private American citizens the same as we
treat ourselves when it comes to assessing whether there are
problems there.
We often have other types of programs, like democracy
building, that involve other functional bureaus. So when we
need to make a complicated decision in a short period of time,
it often is better if we can do it together.
In addition to that, because we often have security
requirements and these conversations are easier in those cases
if they take place in a classified environment, being able to
bring people quickly together helps us to do that. We recognize
that it is expensive to have things located in the Foggy Bottom
or Rosslyn area. So for those routine things, we make a
concerted effort to push them elsewhere.
For example, we own a facility in Charleston. We have HR
and financial services there. We pushed some of our Consular
Affairs production facilities down there because we do
recognize that money is important, so we only put our high-
value things close to the Foggy Bottom area.
Mr. Carson. Thank you, ma'am. Mr. Spencer, with the over 43
million Americans visiting your offices annually, the SSA is
somewhat different from other agencies before us today because
of the level of interaction that the SSA has with the public.
How does that guide your decision as you look to reduce your
Federal footprint?
Mr. Spencer. It is a challenge for us because we do have to
account for the fact that we do have visitors coming into our
offices. They bring family members with them. So we need space
for them. As we set our space standards in a local field
office, we have a standard for the individual employee but also
for the individuals who are going to be visiting our offices.
We have to put both of those factors into place when we decide
how much space we need in a particular office.
I will also say that we are looking for alternative means
of exchanging information with the public, using the Internet
more and so on. That certainly does guide us as well.
Mr. Carson. That is great. Thank you all.
Mr. Barletta. The Chair would like to recognize former
chairman of the full committee, Mr. Mica.
Mr. Mica. Thank you, Mr. Barletta and thank you for
carrying on an important subcommittee role and conducting this
important hearing today about trying to get the best deal for
the taxpayers, particularly on leased property.
Mr. Dong, how long have you been now in your position?
Mr. Dong. At GSA? I have been at GSA just 4 months.
Mr. Mica. Four months, OK. Well, you are not aware of some
of the history of what has taken place with some of the leases
and all. But actually back with Mr. Oberstar, I was reminding
staff, the staff came on some years ago, at the bottom of the
recession, I had been in real estate. So Mr. Oberstar and I got
in a van, maybe Dan Mathews was with us. And we looked at
vacant properties around Washington, DC, because there was a
fire sale going on, prices were down. And we looked at
different places, leases expiring. Not too much was done,
unfortunately. There were some new leases cast but now you are
back up again in price.
This is a list that I was given of vacant properties in
just the District. And they start from 374,000 contiguous
square feet, prices from here is $28.78 a square foot. The
highest I see up is about $61, but most of them in the $40s.
What are you paying now on average in the District, do you
know? Guess?
Mr. Dong. Do not have the exact figure, but I am happy to
follow up.
Mr. Mica. But there is lots of property available. There
are still some good deals, not like there used to be. We will
submit that for the record and also if staff will provide Mr.
Dong with a copy, it would be appreciated.
Mr. Barletta. Without objection.
[The provided material follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Mica. Thank you. Yesterday, I conducted a hearing, and
I have been trying to get information that our committee has I
think back to this subcommittee from OMB on the amount of
vacant space. Finally, after issuing a subpoena and some
threats, we did get--I did get a response and got a report just
recently on the amount of vacant space.
Now, there are some big offenders here with vacant space.
DOD is one of the worst. They have a huge inventory of vacant
space. In fact, this report from OMB identified 7,500
properties or buildings, 3,292 excess buildings or properties
and 4,208 underutilized. One of things we found from that
report is it was incomplete. So it is actually much worst than
that.
What are you doing, Mr. Dong, to make certain that we have
excess Federal properties--here in the District we have excess
Federal properties vacant that we fill them with some of the
activities. Is that an agenda item that you are looking at--and
across the country of course?
Mr. Dong. Absolutely. We want to be able to look at our
Federal buildings to identify those assets that are
underutilized or underperforming and to make sure that at the
end of the day, we are seeing highest and best use of all of
our Federal assets.
Mr. Mica. OK.
Mr. Dong. So some examples, we talked about the Old Post
Office Building. That is a situation where we saw that that
building----
Mr. Mica. Well, we have held hearings, this subcommittee,
my first hearing as chairman, we dragged the staff down there
in the vacant portion of the building, the Old Annex had been
vacant for 15 years. And nearly half of the 370,000 square feet
were vacant and losing around $6 million to $8 million a year.
Very familiar with that one. That is a turnaround.
But in politics and in GSA, you cannot sit on your laurels
or your assets, so I am more interested in what we are going to
do to move forward to fill some of these.
One of the problems too, you have very limited area. I mean
you have thousands of buildings and properties but the Federal
Government, a lot of them outside your jurisdiction, for
example, DOD, DOD has huge assets. We do not have a good
inventory.
Now, I just got an inventory of eight vacant or
underutilized but a good current inventory too of the leased
properties, and that is something we need to haul OMB in here,
Mr. Barletta, and see that each agency reports specifically on
leased and where they are with their leases, et cetera. So what
you are doing, we would have some handle on how we can get them
to move forward.
And then there are impediments the agencies face. And that
is something else we need to deal with so they can get rid of
those things.
I will give GSA, there is a new--some new kids on the block
including Mr. Dong. And some of your folks, the last few
months, are now looking at more creative ways of leasing and
actually of not circumventing but dealing with the impediments
that Congress or law has in place by creatively singling out.
We are very supportive of that because if it makes sense for
the taxpayers, it is very important.
DHS, I have done everything. I can close down any further
new buildings for you. We have done--we made a huge mistake, it
was a committee across the hall, in creating DHS in its current
form. It is too big. Anyone who ever thought that combining 22
agencies and over 200,000 people would be more efficient is not
dealing with common sense or ability to manage agencies.
Very concerned. I want to do everything I can to make
certain you do not build another--a monument to bureaucracy at
the St. Elizabeths site. We needed to do something with the
Coast Guard and that has been done and adequate. And we might
even look at putting some of that property up for sale or
leased to the private sector.
Consolidation of some of your leases is a goal, is that
right?
Mr. Orner. That is correct.
Mr. Mica. OK.
Mr. Orner. We are looking at consolidating our leases
nationwide.
Mr. Mica. Some of that may look--makes sense. And maybe we
will also have the committee provide you with a copy of some of
the properties that are available at still some pretty
reasonable rates. But, again, big bureaucracies require big
spaces. My goal is to get the size of the bureaucracy down,
consolidate the space and save taxpayers money.
I yield back.
Mr. Barletta. Thank you, Mr. Chairman. The Chair recognizes
Ms. Holmes Norton for 5 minutes.
Ms. Norton. Thank you, Mr. Chairman, and I appreciate this
hearing. I would like to find out from Mr. Orner, I suspect
that is who I should be asking, the Coast Guard building was
planned before the requirement for space utilization reduction.
How are you reducing space in the Coast Guard building? And
will that mean you are able to consolidate more of the Coast
Guard--into the Coast Guard headquarters?
Mr. Orner. Congresswoman, you are exactly correct. We did
plan that before we had our new space standards. It is my
estimate that we can put up to an additional 1,000 people into
the Coast Guard headquarters building. Our plan is the Coast
Guard has various offices and lease space in Arlington. Our
plan is to move all of those people as those leases expire into
the new Coast Guard headquarters building.
Ms. Norton. So you think you could get the entire Coast
Guard into that one building?
Mr. Orner. The entire National Capital Region Coast Guard.
Ms. Norton. Yes, of course.
Mr. Orner. Yes, and that will save the Coast Guard roughly
$7 million a year in rent. And we may be able to put a couple
of other offices on top of that. So we will achieve over the
next 1\1/2\ to 2 years significantly greater density in that
building.
Ms. Norton. Excellent. Mr. Dong, what is the effect of
reducing the footprint or reducing the utilization for
employees for these agencies that remain in place or are
reluctant to move? There is this outstanding requirement, their
space remains as it is, holdover or whatever, especially if
they do not move, say they cannot move, do not have the money
to move? Is there any way to enforce this standard or is the
only way to enforce it is to have the agency move?
Mr. Dong. We have seen examples of how agencies are able to
improve their utilization as they stay in their existing space.
So if we look, for example, at FEMA where their headquarters is
at 500 C Street, they have been able--that is their
headquarters building. They have been able to dramatically
improve the utilization of that building.
Ms. Norton. That leased space, that was not lease--that was
leased space?
Mr. Dong. That is a leased space, but that is an example
where they had a number of different facilities across the
National Capital Region. They were able to reduce the number of
facilities by putting more of their staff within that
headquarters building. So I think we are seeing examples across
the Government of how agencies recognize that excess spending
on real property comes at the expense of mission-critical
activities.
Ms. Norton. So you are requiring the reduction in space
even for agencies that are remaining in the space and have no
intention of moving?
Mr. Dong. We are working with agencies to help them reduce
their footprint, whether they are in leased space, whether they
are owned space, we are looking for any and all opportunities
to help them reduce their spending on real property.
Ms. Norton. Mr. Dong, as you know, you own buildings--
sorry, you lease buildings where the agency has no intention of
ever moving. We are virtually buying these buildings. Is there
a purchase option in every lease or new lease today?
Mr. Dong. We do not have purchase options in every lease,
and I would say that the days of bargain purchase options are
behind us. And we recognize that purchase options are not free.
But again----
Ms. Norton. Nor is leasing the space over and over again
free to the taxpayers.
Mr. Dong. You are absolutely right.
Ms. Norton. So I want to know what you are doing with
purchase options? What are you doing to acquire space so you
have to lease less space? You say in your testimony that GSA
hopes to demonstrate the value of investments that reduce the
real estate of the footprint. Ms. Barr talked about apparently
owning or buying space across from the State Department. Are
you looking at public-private partnerships, for example, to
complete the Department of Homeland Security?
That first building, the Coast Guard, was finished on time
and on budget because of annual appropriations. It has been
slowed, especially with the reduction in appropriations. But
even if there had been appropriations as planned on an annual
basis, it is very hard to build a complex asking the Government
to put the money down each year. Now, you know, that is not the
cheapest way to build a building but is there a way to
complete, at least some of the buildings, using a public-
private partnership? And are you investigating that alternative
as a way to complete some of the Department of Homeland
Security?
Mr. Dong. Congresswoman Norton, let me come back to the
first part of your question. As my colleagues have testified,
we are seeing some great examples of how agencies are moving
from leased space into owned space. Assistant Secretary Holland
talked about the consolidation at the Switzer Building. I
mentioned earlier about what we are trying to do in Detroit by
moving four different lease locations into what would be a
federally owned building. We are seeing some good examples
across the Federal----
Ms. Norton. You bought a building in Detroit?
Mr. Dong. Correct. In terms of St. Elizabeths----
Ms. Norton. That was a purchase option, wasn't it?
Mr. Dong. That was a purchase option. In terms of St.
Elizabeths, we recognize the current constraints that we are
operating under. We are open to exploring any and all
innovative approaches that would allow us to support----
Ms. Norton. Are you exploring a public-private partnership
to complete the St. Elizabeths complex?
Mr. Dong. We are open to any and all options for----
Ms. Norton. You are not exploring, you are just open?
Mr. Dong. We want to make sure that we are looking at all
viable options for completing this project. And I know that
this is an important issue to members of this committee, and we
look forward to working with you on this.
Ms. Norton. I think it was Mr. Holland that mentioned the
upfront capital as an impediment to reducing the space. Are you
amortizing the cost for any agency that wants to do so and can
do so in order to take advantage of the need, in order to
enforce your mandate to reduce the space of each agency?
Mr. Dong. We want to be able to help----
Ms. Norton. Because this will be the first excuse given,
that we cannot pay for the upfront costs.
Mr. Dong. The upfront costs in the past have been a
significant obstacle that have prevented agencies from doing
the right thing in terms of co-locating and consolidating and
reducing their footprint. We see two things that change that
dynamic. One is the Total Workplace Program that I mentioned
before that allows us to amortize the cost of furniture and IT
and other upfront expenses that had previously been an obstacle
to be able to make that move.
Two, is in our fiscal year 2015 budget, we request $100
million to support agency consolidation efforts. The amount
that we received in fiscal year 2014, the $70 million, has been
a force multiplier for us in terms of being able to work with
agencies to reduce their footprint.
Ms. Norton. Mr. Chairman, I know my time is out. Mr.
Holland indicated that he was having difficulties with the
program and yet the answer here has been that they are able to
move ahead. So I am not sure that I understand that Mr.
Holland's needs are being met by what Mr. Dong has just said.
Mr. Holland. Congresswoman Norton, we in fact are taking
very aggressive advantage of what Mr. Dong just described, both
at the Parklawn project in Rockville and at the Switzer project
here. We could not have done those projects without that help.
My observation was to the point that this is a problem all the
time. We have ways to solve the shortfall here, and we have.
But I will have other opportunities, and even $100 million is
not unlimited and Mr. Dong will not always be able to meet our
needs. A more thoughtful private sector type way of handling
capital investments would be helpful.
Mr. Barletta. Thank you. Mr. Webster?
Mr. Webster. Thank you, Mr. Chairman. Thank you for
allowing me to attend this meeting, and thank you panelists for
your presentation.
When we had our last prospectus level project approval, I
was the only voice vote no because I was somewhat shocked at a
couple of the examples I saw there of the new leases. One in
particular was in a metropolitan area. It was in the same
building as an expiring long-term lease. They were just going
to re-up the lease. And the cost over the lease period was
around $1,100 to $1,200 per square foot for the entire lease.
So I figured, I was just sitting there at my desk, this
distance here to here would be around $5,000 to $6,000.
And I was really concerned about that because the lease
that was being completed, the only option was to either leave
or re-up. There was no lease purchase or anything. And then the
new lease, there was also no agreement. So by the end of the
full term from the start to the finish, there would have been
paid out about $2,200 per square foot. The building would
probably be, if it is a normal building, would be about half
its life cycle had been expired. And yet you could have built,
you know, five times, four times, three times the building if
it had been built and owned by the Federal Government. And you
still at the end of that timeframe would have had only used
half the life of the building.
So, Mr. Dong, my question would be what criteria do you use
to determine whether or not there will be a lease purchase
agreement? When you start 3 years ahead and you begin planning
out, are there things that you--is there a checklist that you
go down to determine what is the best buy life-cycle cost,
energy cost, lease to own, all of those or just buying it
outright? Is there a checklist that is a standardized
checklist?
Mr. Dong. Our preference is to have federally owned
buildings as opposed to leased buildings. There are situations,
as you know, where we have to be in lease arrangements.
You mentioned earlier purchase options, and we want to be
able to see those in more of our lease arrangements, but we
recognize that again those come at a cost. So it really is
dependent of the specifics of the transaction in terms of when
a purchase option would be appropriate.
Mr. Webster. But wouldn't a lease that expires and you re-
up it and it expires again, there is a cost to that too because
at the end of that timeframe, you have nothing to show for it
except you have to go out and lease again. Wouldn't there be
some consideration with that? I assume that is in your
calculation, is that true?
Mr. Dong. Absolutely. And, again, we want to be able to
kind of look more strategically at these transactions, not just
to get caught up in the cycle of leasing but to really think
through what is the longer term strategy for this asset and for
the tenants in this asset.
Mr. Webster. The last list of projects that we approved,
most of them were in--those leases were in urban areas. Given
technology and other advances, can't you be just about anywhere
you want to be including some less urban area that would be a
lot less expensive to operate? And is that considered?
Mr. Dong. Absolutely. There are two things that we
emphasize. First and foremost, it is about meeting agency
mission requirements, but we want to make sure that we are
doing so in a fiscally responsible way. So it really comes back
to a collaborative dialogue with the agency in terms of what
their specific requirements are, whether they need to be
downtown in the central business district or they could be out
in the suburbs and really understand what the trade-offs are
given the requirements and look to balance both objectives in
terms of meeting agency mission requirements but doing so in a
fiscally responsible way.
Mr. Webster. OK, Mr. Orner--Orner, sorry, could you--I have
one question. You said you were about 50 percent owned, 50
percent leased. And you are the only one that mentioned that,
so I would ask you is that a static number or is moving? Are
you moving towards more owned or are you moving towards more
leases?
Mr. Orner. It is a relatively static number. The large
majority of our owned spaces are Coast Guard and CBP. And the
Coast Guard, we are talking about stations, Coast Guard
stations, depos. We do not buy and sell a lot of those. So it
is relatively static.
Mr. Webster. Thank you, Mr. Chairman.
Mr. Barletta. Thank you, Mr. Webster. The Chair recognizes
Ms. Edwards.
Ms. Edwards. Thank you, Mr. Chairman. And I want to say a
special thanks to the ranking member because I had
intentionally not planned to ask a question about the FBI and
the land slot, but I appreciate the response.
It does raise a question that I had though and it is about
process. And so I appreciate that, Mr. Dong, you have explained
the process because sometimes I know we get confused and
annoyed by process but in the case of GSA leasing, and I know
this is true in the Metropolitan Washington area, process is in
fact very important because it can lead to a better deal for
the taxpayer if things are fair, if they are transparent and if
there is a competitive process for leasing. And I think when
that happens, it can also create an environment in which you do
not invite protest, appeal and litigation.
And so I have been really interested in the process. I
represent a district, as you know, right outside of the
District of Columbia in Prince George's and Anne Arundel
County, but I want to focus on Prince George's County because
that has been a subject of some process.
The Office of Management and Budget through its approval of
GSA rent requests is largely responsible for setting the
prospectus rent caps nationwide. But nowhere is the scrutiny
more draconian than I think it is here in the National Capital
Region where OMB sets a one-size-fits-all cap for leasing in
northern Virginia, the District of Columbia and suburban
Maryland. And quite ironically, these caps are often well below
those approved in other parts of the country, whatever the
economy, despite the Washington region's higher prevailing
market rents. In the District of Columbia, that cap is at about
$50, in Maryland $35 and in Virginia $39. I am really hard-
pressed to understand, and I have asked numerous times when GSA
and our agencies have been in front of us, what explains the
disparity in one metropolitan region and why is that disparity
only present in the Washington metropolitan region.
One of your predecessors, 2 years ago, in 2011 when I
asked, could not explain that at all when he was in front of
this committee. And I will tell you what he said to me in 2011.
And this is a quote from Mr. Robert Peck, who was the GSA's
Public Building--in charge of the Public Building Service. And
he said, ``I think that there is the opportunity to make some
adjustments here or overhaul that system, and I am looking
forward to doing it.''
So I want to fast forward from 2011 to 2014, and the cap
disparity that I described still exists without any other
explanation. And I know we have talked about this before, but I
have to get your commitment on the record that GSA will provide
an answer and a response and something that is acceptable that
gives relative competitive weight in the region for each of the
jurisdictions that compete in this region. While one can
understand the District of Columbia, it is a city, I do not
understand the disparity among all of the suburbs. And that has
not been explained sufficiently, and it has to be resolved
because it creates such a disadvantage to those who want to
develop and provide a taxpayer-based resource for the Federal
Government.
So, Mr. Dong, I will ask you on the record, do I have your
commitment within a time certain to get back to this committee
on that question?
Mr. Dong. Yes, you have my commitment. I want to come back
to the whole notion of competition and getting the best deal
for Federal agencies and for the American taxpayer. I am still
looking into this issue of rent caps. As I mentioned earlier, I
have only been on this job for about 4 months. There is a lot
more that I need to learn about rent caps. I know that this is
a critically important issue to you and to other members of the
subcommittee. I am looking into it, and I commit to get back to
you on this.
Ms. Edwards. I appreciate that because if we look at the
millions of lease space that is going to be available, this
element of this rent cap could end up costing the taxpayer
millions of dollars if we do not resolve the issue. And so I
would appreciate that.
And I want to just say lastly if you would indulge, Mr.
Chairman, to Mr. Holland, you raised an interesting question.
And I believe that when you referred to the success in
Rockville, you were referring to Parklawn. And I just have to
ask whether you think the appropriate role of the agencies, and
this can be open to other members on the panel, whether the
appropriate role for the agency is to dictate the details to
such minutia in the requirements that it could in fact
constrain decisionmaking? And I would point specifically to the
Parklawn lease in which HHS was insisting that we identify
requirements such as location near dry cleaners. Do you think
that is an appropriate conversation for a Federal Government
agency to be engaged in to get a good deal for the taxpayers
when it comes to lease requirements?
Mr. Holland. First of all, Congresswoman Edwards, that was
before my time, so I do not know----
Ms. Edwards. I know, the problem is you work at the agency.
Mr. Holland. Yes, I inherited it. I inherited that project.
That is the one I alluded to that had been going on since 2006.
I will say that the Department, as you know, will have four
operating divisions going into that facility. The Department
does need to provide oversight, otherwise we have so many
different desires and views that we cannot ever achieve
consensus. And with GSA's help, we have been doing that. I
would not think that I need to dictate where dry cleaners are,
and I am pretty confident I would not be able to make that
stick. But I do think we have to provide standards, and that is
what I have tried to ensure.
Ms. Edwards. Thank you. And with that, I am going to yield
just by saying to the chairman, we have had the experience on
this committee of looking at potential leases and seeing those
kinds of things being dictated wherever it is coming from
within agencies. And it really hampers the ability of the
taxpayer to get the best deal for the dollar. And I think that
there should be some way that GSA, whether it is using--needs
additional oversight authority so that GSA is in the driver's
seat for the taxpayer. And not that we should not consider the
concerns of the agencies, but the driver has to be the GSA in
making determinations about baselines for requirements and
about standardizing a process so that the taxpayer can have the
confidence when that lease is let, that we have gotten a good
deal. And I do not know that that is always the case.
And I think those are the kind of things that we, this
subcommittee, should be looking at for the future given the
amount, the number of leases and the value of the dollar that
is coming up in this committee.
Thank you.
Mr. Barletta. I agree with you. They do it with ceiling
heights in the District, which also limits competition and a
good rate. So it is a good point.
Before we begin our second round, the Chair is going to
recognize Mr. Mica for an additional 30 seconds. He has another
hearing to attend to. Mr. Mica?
Mr. Mica. Well, thank you. And, Mr. Dong, yesterday we did
a hearing. You sent Mr. Gelber, the Deputy Commissioner of the
Public Buildings Service, I mentioned to him that this actually
starting back with the work on this committee, we got Dorothy
Robyn, she was the former Public Buildings Service
Commissioner, to consider putting together a panel of experts
for GSA who have great skills in disposing or best practices
for utilizing property, vacant and otherwise. You actually have
that panel in place. They have been selected in May 2013, this
came out. Mr. Gelber said he not met with this panel. I said,
``Would you meet?'' He said he would. I said, ``Could you get
Mr. Dong to also meet?'' Will you meet with the panel because
they have some great ideas, great experience.
They have only dealt with a dozen properties or so and a
couple hundred thousand dollars. But these people have the
expertise and knowledge that I think would be helpful. Will you
meet with them?
Mr. Dong. I will meet with the panel. I want us to be
aggressive on this question of property disposition.
Mr. Mica. Great, and I will get you a copy of this and that
will avoid another subpoena. Thank you.
Mr. Barletta. We will now begin our second round of
questioning. Mr. Dong, the upfront cost of an agency move an
lead an agency to stay in place without any reductions in
space, improvements to the utilization rates or a competitive
procurement, re-location and replication costs regularly run
between $100 and $200 per square foot, yet GSA's internal
policy only allows $40 per square foot to be amortized into the
lease. Since these costs are stopping agencies from getting
good long-term leases that save millions of dollars, will GSA
consider changing this policy?
Mr. Dong. I think it comes back to the larger commitment
that we have to breaking down the barriers that prevent
agencies from co-locating and consolidating and reducing their
footprint. And we want to find any and all opportunities to do
that.
Mr. Barletta. Again, Mr. Dong, you have a--there is 100
million square feet of expiring leases in the next 5 years, and
that is obviously a tremendous amount of work. To take
advantage of this opportunity, it must be an ``all hands on
deck'' effort at GSA and at the tenant agencies. You have a no-
cost contract that gives you access to the best commercial real
estate talent in the country. Your own data shows that they
negotiate better deals for the taxpayer on leases over 50,000
square feet. Yet, GSA's use of the brokers has declined every
year to where they are not being used anywhere close to their
potential.
Given your responsibility to replace 100 million square
feet of leases in the next 5 years, please tell me and the
committee how you are going to maximize the use of the brokers
to seize this opportunity and benefit the taxpayers?
Mr. Dong. If we look at the bow wave of expiring leases, I
need to utilize every resource at my disposal to make sure that
we are getting on top of that workload and that we are getting
out of the cycle of holdovers and extensions. You talked about
the national broker contracts, I think that is an important
resource that we need to bring to bear on this problem,
particularly as we look at the larger markets with more complex
procurements.
Mr. Barletta. Anyone can answer this questions, any of the
panelists. What are some of the other major challenges
preventing your agency from getting your leases replaced on
time with good deals? And what can GSA or this committee do to
overcome those challenges? Anyone who wants to jump in.
Mr. Holland. Mr. Chairman, I have already suggested to you
what I think is the biggest problem. As we solve the problem
with GSA's help, it creates another problem and that is the
operating expenses of our divisions have to be inflated for 3
to 5 years, depending upon whether it is technology or
furniture and equipment. So that is the biggest gap.
The other is something that again I would give GSA credit
for helping us is helping employees understand that the changes
we are going to make are in fact appropriate changes and in the
end they will think they are good changes. I assume the
committee members have visited 18th and F and seen where Mr.
Dong and Mr. Tangherlini have their offices. I have taken
multiple people from my Department over there.
We have to educate people. I come from the private sector.
I spent 41 years in the private sector before I came here 5
years ago, and what we are doing here is SOP, standard
operating procedures, in the private sector. We need to educate
more and more of our employees that that is the right way to do
things. And in the end, frankly, they like it. And if we do
more of that, we will have fewer problems doing the
consolidations.
I think Congresswoman Norton asked about doing things while
we are in place. We are doing several things while we are in
place. It is not ideal, frankly, because we actually disrupt
operations during the time we are doing reconstruction while
people are still there. But it can be done, if and only if, the
employees, their managers and their leaders accept that risk
and understand what we can do for them.
Mr. Barletta. Mr. Dong, in recent years, GSA has pulled
back delegated leasing authorities from tenant agencies. If
GSA's delegated leasing authority was managed to ensure proper
oversight, including application of prospectus process, that
may address problems that have occurred in the past. Has GSA
examined whether lease delegations could help with the
workload?
Mr. Dong. Our view is that we have developed a center of
excellence and a core competence in the issue of leasing. That
is GSA's core competence. We want agencies to be able to focus
on their core mission functions. We believe that leasing is our
core mission function, and we believe that we do that well. And
we want to be able to support agencies, whether we do it or
that they have delegated leasing authority. We still feel that
we can provide strong support in the process.
Mr. Barletta. Has any of your agencies used the delegation
authority in the past? And do you think such authority could
help get these leases replaced on time?
Mr. Holland. Well, Mr. Chairman, the Department of Health
and Human Services does in fact use the delegated authority for
a variety of things, although 70 percent of our space, 70
percent of our overall 55 million square feet of real estate is
owned by the Federal Government. We do it both ways. I am
frankly not sure there is magic either way. And even in that
case, we look to GSA to use its expertise to help us.
Mr. Barletta. Anyone else want to----
Mr. Orner. Well, speaking for DHS, I agree with Mr. Dong
that they do have a center of excellence for leases,
particularly for generic office space. I am perfectly happy
with the existing arrangement. They are able to meet our needs.
Mr. Barletta. The Chair will recognize Ranking Member
Carson.
Mr. Carson. Thank you, Mr. Chair. Mr. Allen, the DOJ has
significantly reduced its space standards by 25 percent. What
was your most effective argument to your employees in getting
them to accept a new normal with respect to space allocations?
Mr. Allen. I do not think there is a single argument. I
think that we all want to work together to accomplish our
mission in the most effective and efficient means possible. And
we have had that conversation about how can we do things
differently today than we have done in the past to make us more
effective and efficient and use taxpayer resources wisely. So
those conversations have occurred, and they need to continue to
occur to make this happen.
Mr. Carson. Mr. Holland, if HHS were to receive capital
funding for renovations, furniture and fixtures, do you believe
you would be able to gain even more savings in your real estate
program?
Mr. Holland. Yes, sir, I do.
Mr. Carson. Yes. Madam Barr, can you please commit to the
committee, ma'am, to reevaluate the State Department's strategy
to locate the majority of its leased space in the Foggy Bottom
and Rosslyn area--I am going back to that again--and report
back to us respectfully on the cost and benefits of such a
strategy?
Ms. Barr. Yes.
[The Department of State responded to Hon. Carson's
question with the following information:]
In response to Representative Carson's request, the Department
continues to evaluate its strategy of locating most of its
leased space in the Foggy Bottom and Rosslyn area. We
appreciate this opportunity to explain the fashion in which our
personnel collaborate to perform our country's many foreign
policy missions, and how those personnel interactions impact
our real estate decisions.
Virtually all of the activities in the decision-making process
of the Department's offices and bureaus require
interdependency; as a result, Department of State offices in
Foggy Bottom and Rosslyn operate as a centralized hub that
supports staff all over the world, at over 275 embassies and
consulates, on a 365/7/24 basis. The proximity of the
Department's bureaus to leadership in the Harry S. Truman (HST)
Building, and to one another, results from the interrelated
nature of diplomatic missions and the requirement to
effectively represent U.S. government interests overseas.
However, we realize that some bureaus and offices can perform
effectively outside the Foggy Bottom-Rosslyn hub, and when
possible, the Department locates functions in more cost-
effective locations. In fact, almost half (45 percent) of the
Department's commercially leased space is located outside of
Foggy Bottom and Rosslyn. For instance, the vast majority of
our passport services, financial services, information
technology services, and warehousing are located in less
expensive space outside of major metropolitan areas.
Whether it is managing responses to crises such as Ebola,
threats to our nation's security, longer term engagements such
as coalition building in the fight against the Islamic State of
Iraq and the Levant (ISIL), or overseeing grants and
policymaking, different bureaus with equities in a particular
issue are engaged in developing appropriate solutions; thus the
requirement for constant contact and inter-bureau
communications, some of which must be carried out expeditiously
and in strict confidence as the outcomes of these decisions
often have national security implications. Many of our day-to-
day discussions involve information that cannot be discussed
over the phone or other unsecure means.
Given the breadth of the Department's portfolio and the
corresponding structure of its bureaus and offices to support
those missions, a longstanding management goal continues to be
the alignment of the real estate portfolio with the space and
proximities Department staff need to perform their functions
effectively. The Department prioritizes the proximity of its
various bureaus to HST based on their involvement in diplomatic
matters. Regional bureaus (e.g., Western Hemisphere Affairs,
African Affairs, Near Eastern Affairs, etc.) are directly and
intricately involved in policymaking, coordination with
overseas posts, and negotiations with foreign governments.
Certain functional bureaus (e.g., Population, Refugees and
Migration; Economic and Business Affairs; Democracy, Human
Rights and Labor; Counterterrorism; International Narcotics and
Law Enforcement) perform their missions in conjunction with the
regional bureaus necessitating that their offices be located in
the HST Building or within a short walk of HST to allow for
direct personal engagement in policymaking. Additionally, the
management bureaus (e.g., Diplomatic Security, Consular
Affairs, Overseas Buildings Operations, Human Resources
Management, Information Resource Management, Medical Affairs,
Administration, etc.) support a very wide range of activities,
including those of Foreign Service Officers overseas, the
security of our overseas facilities, all civil service
employees, other agency personnel, foreign nationals, and
family members.
Most of the personnel in the management bureaus are also
required to be close to HST and the regional and functional
bureaus, but may locate in Foggy Bottom or Rosslyn depending
upon their primary collaborators. For example, Overseas
Buildings Operations, Diplomatic Security, and key elements of
the Bureau of Administration collaborate intensively to provide
safe, secure, and functional facilities that represent the U.S.
government to the host nation and support our staff overseas as
they work to achieve U.S. foreign policy objectives. In these
times of increasing security threats overseas, the levels of
coordination among these bureaus are constant and significant,
and much of the work involves the Department's largest
contracts, and/or is of a classified nature. Over time, these
bureaus have collocated in several buildings proximate to one
another in Rosslyn.
Likewise, the payroll and financial functions of the Department
operate from Charleston, South Carolina, where they work in
close proximity with several human resources activities that
relocated to that area in recent years. This is a great example
of the Department's efforts to relocate complementary personnel
and functions, to the extent possible, to more cost-effective
areas away from the Foggy Bottom-Rosslyn hub.
The Department's real estate asset management program is geared
towards solutions that best reflect and support the realities
of the way in which the Department manages the nation's foreign
policy objectives. In making real estate decisions the
Department assesses the total cost to government approach,
seeking results that yield the lowest long term cost to the
taxpayers, while still fulfilling the needs of the mission.
Whether expansion, new construction, or a lease replacement;
the costs, options, mission needs, the current and proposed
tenant mix, location, and housing plans are all taken into
consideration, reviewed, and evaluated before final decisions
are made.
For leased spaces, direct costs such as Move and Replication,
Information Technology, and Security are accounted for, as are
indirect costs such as additional administrative support
necessary in ancillary locations, and the productivity and
financial costs of commuting between locations. The Department
continually seeks to reduce costs by improving utilization
rates in existing space, as leases expire, and through other
consolidation activities. Thus, in recent years the Department
has been meeting and in many cases exceeding evolving
government space utilization standards. For example, following
the Bureau of Consular Affairs (CA) Foggy Bottom consolidation
in 2013 (with an `all in' total square feet/person of less than
200 USF/person), its former space in Columbia Plaza is being
backfilled by various bureaus consolidating out of expiring
leases, and out of HST due to the modernization of this 50+
year old building. Each of these backfill projects are being
built to an `all in' total square feet/person of less than 170
USF/person, well below the government median of 265 square
feet/person, as reported in the President's Management Agenda
``Benchmarks for Mission-Support Functions in September 2014.''
The Department's current portfolio also scores below the median
in all three utilization rate metrics in this report.
As noted, security costs are a strong consideration when
evaluating a new facility lease or purchase. The Department's
facilities are protected through strong physical security
measures as well as a robust security team of the Diplomatic
Security Service. The Department has evaluated the possibility
of leasing vacant space in Crystal City, but, in addition to
increased travel time and lost productivity, any such location
would need to have physical security measures installed. We
also note that the prime reason for the Department of Defense's
move away from Crystal City was the inherent lack of security
of their buildings there.
The Department of State remains committed to taking a careful
approach to its real estate activities, and managing its
portfolio to best support the many missions entrusted to it by
the American public in the most efficient, effective, and
economical ways possible. We appreciate the opportunity to
provide the committee with this additional information in order
to clearly demonstrate the real estate acquisition process used
by the Department of State.
Department of State occupied, prospectus-level leases expiring
between 2014 and 2019:
(1) 1701 North Fort Myer St., Rosslyn, VA, expires
December 2014 (Prospectus has been submitted to House
Transportation and Infrastructure Committee);
(2) 2121 Virginia Avenue, NW., Washington, DC, expires
October 2017;
(3) 400 C Street, SW., Washington, DC, expires January
2018;
(4) 2200 C St., NW., Washington, DC, expires June 2019;
(5) 515 22nd St., NW., Washington, DC, expires
September 2019.
This report was prepared by the U.S. Department of State's
Bureau of Administration, Office of Operations, September 2014.
Mr. Carson. OK. Thank you, Mr. Chairman.
Mr. Barletta. The Chair recognizes Ms. Norton.
Ms. Norton. Thank you, Mr. Chairman. Mr. Dong, under
Administrator Tangherlini, we have seen the agency operate more
like a real estate agency. That has not much been the history
of GSA. It has been more innovative, for example. I mean the
FBI trade is an example of that.
I was troubled therefore that this week I had to introduce
a bill to ask the GSA to do what it already has the authority
to do. You will recall that the Old Post Office came out of a
bill I had to introduce because GSA just would not develop the
property. I have not had to introduce a bill to develop
property that the Government owned since the Old Post Office
Building, but this week I introduced a bill to redevelop the
entire Department of Energy Forrestal Complex. And I felt I had
to do that for the very same reason--well, not the very same
reason, because GSA was not doing its complete job. It has
indicated that it wants to develop part of, indeed the greater
part of the nearby property, the Cotton Annex, the GSA regional
office. But GSA left out some parcels.
There is not any professional party in real estate who
would have a great big parcel and say, ``We are going to
develop this entire parcel.'' Understand, this part of GSA's
own eco-district plan, which has been approved by the National
Capital Planning Commission--the NCPC. Why would you leave out
some parcels? Are we back into GSA doing what the agency wants
to do instead of doing what your statute says to do and what
the Congress says do? And you are not developing some small
parcels. Some of it may be parcels that the Department of
Energy wants to deal with on its own terms.
But why in the world would GSA leave out small parcels in a
total section of land that can bring return to the Federal
Government? Why are you not developing the entire Department of
Energy Forrestal Complex? And what is the reason for the
parcels that have been left out?
Mr. Dong. Congresswoman Norton, when we look at the parcel
of property on Federal Triangle South, we want to make sure
that we are getting the highest and best use for all of the
parcels, not just the Cotton Annex and the regional office
building.
Ms. Norton. Well, you have got the GSA regional office. You
have got the Cotton Annex. You have got some small parcels that
are left out. My question is very particular, Mr. Dong. Why are
those small parcels, which apparently--I cannot say are owned
by the Department of Energy but in the possession perhaps of
the Department of Energy, at least one of them, why are they
left out as a kind of pock mark in the total land that you wish
to redevelop?
Mr. Dong. We want to make sure that we have got viable
housing strategies for the agencies that are on those other
parcels. When you mentioned the regional office----
Ms. Norton. We will get housing strategies if you put it in
there because then everybody will begin to look for the
appropriate housing. You leave them out, then of course there
is no incentive for them to find--especially when the parcels
are so small. And of course we know, and if you want to
complicate things for the Federal Government, we know as well
that the railroad is coming in these adjacent parcels, that
there is value for the Federal Government in those parcels
because the railroad would obviously be one of those who wish
to use those parcels. You have even negotiated with interests
who are involved and yet you have left them out. It just makes
no economic sense from the Government's point of view.
And if you want to find housing for the Government, do not
tell me that again. Because that was the excuse of GSA for not
developing the Old Post Office. They had agencies in there. So
you have got an agency. That agency, the Department of Energy
will get space. It will be able to reduce its footprint. You
will get land and a return on that land for the Federal
Government that you do not get now. What possible reason could
there be for not putting the whole parcel out if you put most
of it out?
Mr. Dong. I agree with you. We need to get highest and best
use for all of the parcels in Federal Triangle South. Based on
the RFI and the responses to the RFI that we issued last year,
what the market was telling us is that we needed to move out on
these two parcels first. But our plan and our commitment is not
to ignore these other parcels in Federal Triangle South.
Ms. Norton. You see what you force me to do? And the last
time you forced me to put in a bill, the Congress passed this
bill. So I want to just tell you right now I am going to press
very hard for Congress to pass the bill to develop the entire
parcel that I introduced this week.
Thank you, Mr. Chairman.
Mr. Barletta. Thank you. An important factor the committee
considers before approving a lease prospectus is the all-in
utilization rate. That means the total usable square footage of
a building divided by the number of people working there. While
we do not have a one-size-fits-all standard, we are looking for
significant improvements and good utilization rates for how the
building is used. Barring a few unique exceptions, the
committee has not approved prospectuses with all-in utilization
rates of over 200 usable square feet per person.
Mr. Holland, can you talk about how HHS has instituted the
170 usable square feet per person standard and is that
departmentwide and does it include common areas in the
calculation?
Mr. Holland. Yes, sir, we adopted that 3 years ago. The
Office of the Secretary issued instructions to that effect. We
have had cooperation from several agencies. We operate through
a federated system of many independent operating divisions. And
they have been following it.
Now, I do not want to sit here and tell the committee that
we always get to 170. Sometimes we will be below it. Sometimes
we are not quite there. It depends on the shape and the scope
of the building, for example, or if we are having a little
trouble--Switzer is an example. It is not a modern contemporary
building that is easy to lay out. So what we do is use that as
a target. My project with my OCIO will get well under it. I
have some others where we are a little over it. But we will
generally speaking use that as a target. I am reminded of the
old saying, ``If you do not care where you are going, any road
will get you there.'' That is why we use that as the target.
Mr. Barletta. To the other agencies, what are your all-in
utilization rate targets and how are you applying them as the
leases expire, Ms. Barr?
Ms. Barr. 200 usable square feet or less. We are renovating
our building right now, our headquarters, and in the new space
we expect to be able to put in 1,500 more employees. And I am
actually doing this in my own section, which is not always
easy, as referred to earlier, getting employees to understand.
But we are full on board with this.
Mr. Barletta. Mr. Brazis?
Mr. Brazis. The Department of Defense, 200 also. Our most
recent prospectus for Suffolk and other buildings, our longer
term leases we have entered into, have consistently been at 200
and below. And below is really our target.
Mr. Barletta. OK, Mr. Allen?
Mr. Allen. We took a different approach in 2012 and
mandated per person office size standards of 130 square feet
for most people. Less than 100 for law enforcement agencies.
Our latest prospectus that this subcommittee approved was at
240, reflecting special use needs for attorneys and litigating
divisions. So we will vary, but we will meet our per person
office standards across the Department.
Mr. Barletta. Mr. Orner?
Mr. Orner. Our number is 150. Every time we--a lease
expires, our commitment is to get under 150. Now, that is an
average. In some cases, we have needs for highly specialized
spaces, skiffs and whatnot, that will skew the numbers for a
particular organization. But we are committing to an average of
150.
Mr. Barletta. Mr. Spencer?
Mr. Spencer. Mr. Chairman, as was pointed out earlier, we
have a range of kinds of opportunities in our organization.
Certainly in our community-based field offices, we have a
different arrangement there with the public needing to be
considered. But when it comes to prospectus level leases, which
we are going to be sending to you in the next 5 years, we have
a number of those, and we are certainly going to be looking to
make sure we are within the 200 square feet.
Mr. Barletta. Thank you. So far this year the committee has
received three lease prospectuses for the fiscal year 2015
leasing program, including one for the State Department, one
for the FBI. Given the amount of potential prospectus level
leases expiring in the next 5 years, this seems a little low.
Mr. Dong, will we be receiving more? And, if so, when can we
expect them?
Mr. Dong. Mr. Chairman, you have my commitment that you
will be receiving the balance of the lease prospectuses in the
coming weeks.
Mr. Barletta. Great, thank you. The other panelists, each
of your agencies should have prospective level leases before us
soon. Where are those prospectuses in the process and which
ones should we see this year?
Ms. Barr. Excuse me. We definitely have one with you now. I
will have to get back to you on how many more we will send to
you this year.
Mr. Barletta. Mr. Brazis?
Mr. Brazis. Mr. Chairman, I will have to get back to you on
the record on the precise number pending.
[The information follows:]
The Department of Defense currently has one prospectus level
lease package for this year being processed at the General
Services Administration. Within the National Capital Region
(NCR), GSA submits prospectus level lease packages on behalf of
DOD.
Mr. Barletta. Mr. Allen?
Mr. Allen. I will get back to you on the precise number,
but I know we have two for litigating divisions here in
Washington coming soon.
Mr. Holland. Mr. Chairman, the Department of Health and
Human Services has none coming this year. And, in fact, we
pulled one recently as part of our consolidation into the
Switzer Building. There was a prospectus lease pending. And we
were able to avoid that and not go back out to the lease market
and instead move into a GSA-owned building. I will have to get
back to you on whether we have any in the coming year. But,
frankly, as I look at our lease expirations, a substantial
number of them have happened or are in the process of
happening. And I am not sure we have a significant number of
prospectus leases. And, frankly, I will try to avoid those
because I will try to work with Mr. Dong and Mr. Tangherlini to
move into federally owned space wherever we can.
Mr. Barletta. Mr. Orner?
Mr. Orner. Mr. Chairman, I will get back to you with a list
of this year's lease prospectus.
[The information follows:]
In the FY14 cycle, DHS had four (4) prospectuses
totaling just under 1 million square feet in four (4)
locations.
For the FY15 cycle, DHS has one (1) prospectus in
process.
This prospectus is for USCG within the National
Capital Region; and it is currently under review in GSA's
Central Office.
The prospectus is seeking authority for up to 15
years and up to 95,000 RSF; however, the Department is also
working on options to eliminate this lease and move the
personnel into the USCG Building on the St. Elizabeths
campus.
For FY16, only one (1) prospectus level project is
planned:
The space requirement is for ICE Headquarters
lease (located at 500 12th St., in Washington, DC), and is
expiring in January 2018.
This occupancy currently contains 500,000 RSF,
and going forward will be subject to the Department's new
size standard (average 150 sqft per person).
In FY17 DHS will have a major lease prospectus year
due to twelve (12) locations; DC (3), VA (3), MD (2), NJ (2)
and NY (2) will be coming due with more than 1.9 million square
feet.
The Department, its components, and in
partnership with GSA is examining all office space
requirements with the objective of achieving DHS's size
standard average of 150 usable square feet or less per
person.
The Department's effort to compress office space
requirements is anticipated to result in fewer prospectus level
projects.
Mr. Barletta. Mr. Spencer?
Mr. Spencer. Mr. Chairman, Social Security does not have
any this year.
Mr. Barletta. This is my final question. I think we have a
tremendous opportunity to save taxpayers a lot of money and
help your agencies get quality space that meets your needs and
helps you protect your personnel. However, I am very concerned
that we are going to miss this opportunity if we continue with
business as usual. So I am open to considering a pilot program
for a limited amount of time, which would simplify the leasing
process and give you greater flexibility to cover your upfront
costs. The leases would need to have good utilization rates, be
long term and competitive. But in exchange, you get a fast
track process. Do you think this could help us get the job
done?
Mr. Dong. Mr. Chairman, I think it is important that
collectively we look at the current process, and we identify
any and all opportunities to streamline the process. And, as
you said, take advantage of the current market opportunity.
Ms. Barr. I agree with Mr. Dong.
Mr. Brazis. As do I, Mr. Chairman.
Mr. Allen. And as I do.
Mr. Holland. The same response, sir. I would say that we
have two ongoing examples. The Parklawn project is now pushing
10 years old. And the Switzer project on the other hand is
about 18 months old and will finish before Parklawn. So where
we can get help, and GSA has been very helpful on Switzer, we
can move more quickly. And any pilot project that the committee
comes up with would be welcome.
Mr. Orner. DHS would also welcome such a pilot. The
opportunity to streamline the timeline and find a way of
covering the upfront costs would be welcomed.
Mr. Spencer. We absolutely would agree that we would be
interested in pursuing this. One of the problems we have had,
Mr. Chairman, is adequate, sustained funding where we know
where we are going to be able to go in the long run. We had a
prospectus level project that was approved as a prospectus
level project, but then funding was not available. And we
actually had started moving people out of the building. We were
left with lower utilization and no place to go. So absolutely
we would be interested in pursuing this.
Mr. Barletta. Ranking Member Carson, do you have any more
questions?
I want to thank you all for your testimony. Your comments
have been helpful in today's discussion. If there are no
further questions, I would ask unanimous consent that the
record of today's hearing remain open until such time as our
witnesses have provided answers to any questions that may be
submitted to them in writing. And unanimous consent that the
record remain open for 15 days for any additional comments and
information submitted by Members or witnesses to be included in
the record of today's hearing. Without objection, so ordered.
I would like to thank again our witnesses again for your
testimony today. If no other Members have anything to add, this
subcommittee stands adjourned.
[Whereupon, at 12 p.m., the subcommittee was adjourned.]
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