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PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at [http://www.house.gov/transportation]. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.







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OCTOBER 8, 1997

Printed for the use of the

Committee on Transportation and Infrastructure


BUD SHUSTER, Pennsylvania, Chairman

THOMAS E. PETRI, Wisconsin
HOWARD COBLE, North Carolina
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JOHN J. DUNCAN, Jr., Tennessee
JAY KIM, California
STEPHEN HORN, California
BOB FRANKS, New Jersey
JOHN L. MICA, Florida
SUE W. KELLY, New York
RAY LaHOOD, Illinois
FRANK RIGGS, California
CHARLES F. BASS, New Hampshire
JACK METCALF, Washington
ROY BLUNT, Missouri
JOSEPH R. PITTS, Pennsylvania
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JOHN R. THUNE, South Dakota
CHARLES W. ''CHIP'' PICKERING, Jr., Mississippi
JON D. FOX, Pennsylvania
J.C. WATTS, Jr., Oklahoma

NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
ROBERT E. WISE, Jr., West Virginia
BOB CLEMENT, Tennessee
ELEANOR HOLMES NORTON, District of Columbia
PAT DANNER, Missouri
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JAMES E. CLYBURN, South Carolina
BOB FILNER, California
FRANK MASCARA, Pennsylvania
GENE TAYLOR, Mississippi
BILL PASCRELL, Jr., New Jersey
JAY W. JOHNSON, Wisconsin
JAMES P. McGOVERN, Massachusetts
TIM HOLDEN, Pennsylvania

Subcommittee on Public Buildings and Economic Development

JAY KIM, California, Chairman
JOHN COOKSEY, Louisiana, Vice Chairman
JOHN J. DUNCAN, Jr., Tennessee
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BUD SHUSTER, Pennsylvania
(Ex Officio)

ELEANOR HOLMES NORTON, District of Columbia
TIM HOLDEN, Pennsylvania

(Ex Officio)


    Peck, Robert, Commissioner, Public Buildings Service, U.S. General Services Administration, accompanied by Paul Chistolini, Deputy Commissioner

    Peck, Robert


Kim, Hon. Jay, a Representative in Congress from California:
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Letter from Eleanor Hill, Inspector General, U.S. Department of Defense, September 3, 1997

Memorandum for the General Counsels of the Department of Defense and the General Services Administration from Dawn E. Johnson, Acting Assistant Attorney General, U.S. Department of Justice, August 1, 1997, concerning Leasing Authority of Military Exchanges

Letter to Hon. William S. Cohen, Secretary of Defense, U.S. Department of Defense, from Hon. James A. Traficant, Jr., of Ohio, and Hon. Jay Kim, of California, September 22, 1997, and response from Francis M. Rush, Jr., Acting Assistant Secretary of Defense, October 7, 1997

Peck, Robert, Commissioner, Public Buildings Service, U.S. General Services Administration:

Report, Office of Inspector General, Audit of PBS' Projection of the Additional Revenue Gap, August 1, 1997

Letter to Stephen B. Sheppard, Editor-in-Chief, Business Week, October 7, 1997

Buildings with Vacant Office Space, April 14, 1997

Responses to questions from Rep. Kim

Additional responses to questions from Rep. Kim

Responses to questions from Rep. Traficant
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House of Representatives,

Subcommittee on Public Buildings and Economic Development,

Committee on Transportation and Infrastructure,

Washington, DC.

    The subcommittee met, pursuant to notice, at 1:00 p.m., in Room 2253, Rayburn House Office Building, Hon. Jay Kim (chairman of the subcommittee) presiding.

    Mr. KIM [presiding]. Good afternoon. The subcommittee will come to order.

    I'd like to welcome all of you and Members of Congress this afternoon to this meeting of the Subcommittee on Public Buildings and Economic Development. The subcommittee is meeting today to receive testimony from the General Services Administration, its Fiscal Year 1998 leasing program, and to review general leasing policies of GSA.
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    Before I mention our agenda, I want to make clear that I was a little troubled by the news that GSA continues to be delinquent in delivering its testimony to the subcommittee. I'd like to—Mr. Peck, I think your staff maybe didn't understand there's a five days' prior—five working days before the date you're supposed to submit the written statement to us, so we have time to review. That has not been done. Please instruct your staff not to repeat the same mistake again. This may create an embarrassing situation in the future.

    As to the agenda for this afternoon, the leasing policies we intend to review include GSA's initiative to improve its leasing program known as ''Can't Beat GSA Leasing,'' as well as the use of commercial brokers.

    We hope to hear the status of the rent shortfall and its impact on the leasing program, as well as the new rent pricing measures.

    Before we consider the leasing program and policies, I wish to touch on another ongoing issue in which this subcommittee has played a significant role, and that is the leasing dispute concerning the Navy Exchange Command or NEXCOM. By way of review, in 1993, NEXCOM executed a lease in the Tidewater area of Virginia without GSA involvement. After years of pursuing this issue, the subcommittee received a letter from the Inspector General of the Department of Defense, based on an opinion from the Department of Justice, confirming the GSA position that NEXCOM did not have the authority to execute the lease and, more generally, that NAFIs are subject to the Public Buildings Act of 1949 for general purpose office lease.

    I'd like to submit for the record the letter from the Inspector General of DOD, along with a Department of Justice opinion, a letter from the subcommittee to Secretary Cohen and his response.
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    [The information follows:]

    [Insert here.]

    Mr. KIM. As a result of the violation by NEXCOM, the legality of other leases for office space in the NAFI inventory must be called into question. I have requested the Department of Defense to provide documentation on the leased office space in NAFI inventories; and to provide an explanation on how the DOD, in consultation with the GSA, will produce retroactive delegation of authority on a case-by-case basis.

    Before we begin, let me state for the record the subcommittee staff met the GSA staff last Friday to review the issues we have an interest in, and spelled out in detail what this subcommittee expects our witness to discuss today. It is my hope, Mr. Peck, that you will be able to respond today to the issues and not request to submit your responses at a later time.

    At this time I'd like to recognize our ranking member, Mr. Traficant from Ohio.

    Mr. TRAFICANT. Thank you, Mr. Chairman.

    I'd like to welcome Mr. Peck here. I know that he's had a tough job; he's inherited some real tough problems, and he's energetically addressed them, and he's tried to work with all of us, and that is commendable.
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    I'd like to speak on some of the substantive issues, though, here today, and I want to thank you again for pressing forward with hearings in this regard. This doesn't get a whole lot of attention, but I think there's some fiscal elements here that are microcosms of what's going on in this entire Government and budgetary matter.

    From my viewpoint, it's impossible to examine the GSA leasing program without discussing the issue of scoring. Although the GSA leased space inventory is decreasing, the cost of leasing space is increasing. The average cost per square foot is increasing from $17.23 per square foot to $17.75. This increase can be attributed to market forces over which Mr. Peck and GSA and others have very little control.

    However, because of the position taken by OMB on their scoring requirements, not because of market forces, it will be necessary for GSA to enter into certain long-term leases which will cost more and cost the taxpayers dearly. For the Patent and Trademark Office, as well as for the Department of Transportation, GSA will be required to sign an operating lease, not a capital lease which would attain an equity interest to the taxpayers. And according to a review that I requested from GAO, the advantage of entering into a lease/purchase arrangement for the Patent and Trademark Office would save the taxpayers $38 million. Now that may not seem like a big chunk of money to these people in Washington. Thirty-eight million is a big chunk of money.

    But I think more glaring is the fact that the differences in structuring of the Department of Transportation matter will end up costing the taxpayers $650 million more—$650 million, one project. Beam me up. Honest to God.
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    I think GSA is trying to be innovative. I think they are doing more with less, and I think they have done a job of streamlining and tried to do it with fairness for their personnel, and they've got to be commended. But I believe the most cost-effective leasing practices are not being utilized, and we're a bunch of fools and we're wasting the taxpayers' dollars. If that's happening here, God forbid what's going on with some of these other gigantic expenditures in the Congress.

    So I want to thank the chairman specifically today for advancing his support of H.R. 623, my bill that would change the scoring and allow the best possible deal to be made by GSA. I want to thank you for that, Chairman. I'm a Democrat; you're a Republican. I think it was very fair for you to do that. I think it's important that we do that, and I'm looking forward to hearing all the excuses today.


    Mr. KIM. I wonder—sometimes I wonder if you're really a Democrat.

    I'd like to wish to welcome Mr. Peck, the Commissioner of the Public Buildings Service of GSA. We appreciate your attendance this morning. Thank you for coming. Go ahead and proceed.

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    Mr. PECK. Thank you, Mr. Chairman, and thank you, Mr. Traficant. I am accompanied today by Paul Chistolini, the Deputy Commissioner of the Public Buildings Services, and a very long—I shouldn't say that—a long-time career employee and a terrific career employee for us.

    Mr. Chairman, Mr. Traficant, I will try to summarize the statement that we did submit to the subcommittee. I hear you about the timeliness of the submission. We will try to do better, given the constraints of the clearance process, but, nonetheless, we still need to get our statements to you on time.

    The last time I talked to you about our leasing program, specifically it was in July of 1996. We had just come back from a meeting at which we announced our ''Can't Beat GSA Leasing Program.'' I said at that time that our goal was to have the customers, our customers, the Federal agencies, choose us to provide leasing services because we were responsive to their needs for timely and cost-effective delivery of space, and not because some government regulations said they had to.

    I am pleased to report that that reform effort is bearing fruit. Our leases are now more compatible with private sector practices. The numbers that we have that we have to date show that we are delivering our leases in less time; that we believe we are saving dollars for the taxpayers on the leasing program, and within the constraints that Mr. Traficant correctly alluded to, we are constrained by what market forces allow us to do. Nonetheless, we thought that we were not taking advantage of some market opportunities we had, and we think that the ''Can't Beat GSA Leasing Program'' is allowing us to do that.
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    We are finding in some instances we are moving so fast on our leasing program that we are ahead of the agencies. Sometimes we say we are prepared to go with the lease; we've got it all signed up, and they tell us, gee, that was a little bit too fast; we don't have our space plans ready for you. So that's a good sign. You want to be ahead of your customers, not behind them.

    I will also tell you, because we all had some concern that when you announce that you are no longer a mandatory source, that the business might walk away. Our numbers also show that in the vast majority of leasing actions that we've undertaken since the ''Can't Beat GSA Leasing Program'' started, our Federal agency customers have stayed with us. Net, in fact, we probably have a little bit more space, a little more business than we had before. We have had a small percentage of leasing actions in which agencies have chosen to go their own way, and even more actions in which agencies that don't have to use us have come to us and asked us to conduct their business. As I said, net, our business is a little up from what it was last year.

    And I should tell you, there were some rumors around that some major agencies were prepared to do their own leasing business. That has not turned out to be the case. We've talked to every one of them, and in fact we've not had any major defections from our business, as I say.

    I should also tell you about our national real estate services contract. We did do a solicitation and we selected eight—we divided the country into four zones, and have awarded two real estate broker services contracts in each of the four zones in the country, for a total of eight contracts, and they are for an initial term of 3 years with two 1-year renewal options. I can tell you that the firms that we selected just concluded training on government procurement practices and laws, and we have just now begun to issue task orders under the contract.
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    We will provide you today with some numbers that we have so far on what task orders we've issued and the dollar amounts to date under those orders. It is a—the task orders come to—thanks, Paul—a total of nine actions firmly committed so far, for a total dollar value of $118,000. There are five additional actions worth $41,000 under negotiation at the moment. So the program is rolling out. We are asking the real estate firms to help us on everything from market surveys to actually going through with lease negotiations, and in one case outleasing vacant space, which is very important to us at the moment because that's a way to get more revenue into our system.

    You also noted we have a new pricing policy. We have reached agreement with OMB on a new pricing policy for leases. A pilot program is going into effect for the Fiscal Year that has just started. All new leases will come under the new pricing policy. We will then, as we go ahead in future years, bring this policy, the pricing policy, into line on all Government-owned space as well. The new pricing will apply to Government-owned space when occupancy begins in Fiscal Year 1999 or later, and all existing assignments in our system will be on the new pricing system in Fiscal Year 2000.

    Basically, what we're doing in new pricing are two things. On Government-owned space, we are taking down the number of different categories on which we charge rent from 16 to 4. It makes it a whole lot simpler. With respect to leased space, instead of going out and doing separate appraisals on leased space, we will charge agencies what we are paying to the private sector lessor plus an administrative fee, which is equivalent to the brokerage fee which private sector folks pay on top of their lease rent.

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    Under our new pricing system also—and this is new and I think a very happy circumstance—our agreements with Federal agencies to pay rent, whether in Government-owned space or leased space, will be memorialized by an occupancy agreement, so they will know what they're paying for what term; they will know what services they can expect. On the other hand, it will also be in writing how much rent we expect to get paid in return for our services. It will allow us to track better and to have fewer disputes with agencies as managers move on or get rotated, what our agreement was, what they owe us, and what we are supposed to provide in return.

    I would note, because Mr. Traficant also raised this issue, that we have had continuing discussions with OMB about the magnitude of leasing; the capital requirements in our program, both for new construction projects, for things that may come up in the future, projects that would be similar to DOT or the Patent and Trademark Office; the requirements that we have to rehabilitate existing buildings; the need to get capital in our budget to do that.

    And without divulging totally where, we've gone to the highest level we can go to in the Office of Management and Budget to discuss it. I can tell you we at least got sympathy with respect to the need for capital, and the concern over continually leasing space over time. But as the committee heard in testimony from the Deputy Director of OMB earlier this year, it is very tough under the scoring rules, as Mr. Traficant notes, for us to use any of the alternative financing methods which the subcommittee talked about before.

    One final thing which is a little discouraging in our small context—and I, again, have to say that OMB takes a position and testified here that there are larger, mega-fiscal issues as stake—that the budget, the recent budget agreement, the Budget Act, seems to toughen the scoring rules rather than soften them. So that we may have a course for the budget for the next several years on which the Congress and the administration have both agreed may make it difficult for us to get capital through any of the conventional financing means that some of the private sector folks talked to you about earlier this year.
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    If I may, Mr. Chairman, I can stop now and run through the questions that were submitted you'd like me to concentrate on, or I can try to summarize some of the things you asked. I've organized it only in terms of responses to the questions which your staff presented to us, rather than as sort of a thematic presentation.

    Let me just——

    Mr. KIM. I'd like to ask you to go ahead and submit your summary in writing.

    Mr. PECK. Okay.

    Mr. KIM. And we'll just get a shot at it.

    Mr. PECK. Okay. All right. A couple of things that I know have been on your minds before and which we have discussed and our revenue gap and rent collections.

    You have rightly asked us to focus, when we reported on a revenue gap as large as we had, to talk about alternative means of getting in more revenue. I have to say that the fact that we have come up short on our revenue estimate has made us do a number of things, and I'd like to report to you that we think some of our actions are bearing fruit.

    No. 1, we have focused very hard on rent collection because, although, as I testified before, one reason we've had a—we've not collected as much revenue as we had hoped to collect, is simply that the Government has downsized, and is one reason; a previous Administrator cut the rents for our agencies. But the first thing you do is make sure that you're collecting all the rent that is due you, and I can tell you that we have had—I established a team in about March of this year of internal employees to take a look at our rent collection system. We have asked the Arthur Andersen consulting firm to take another look at it. The Inspector General at GSA has also taken a look at our rent collection system, and I have gotten clearance from the IG to submit to you today a report which they submitted to us about our rent collection system.
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    I'll just summarize by saying that, in talking about the recommendations that our internal rent revenue forecasting ''go-team'' made, that if these recommendations were acted upon, then our concerns over the lack of controls in PBS income projection efforts would be addressed. And I can tell you that we are, in fact, putting into place the recommendations which that team made. But, as I said, I will submit for the record this Inspector General report, which I think is a good one and reflects favorably on the actions we've taken.

    [The information follows:]

    [Insert here.]

    Mr. PECK. We have also taken a look at agencies that have—as you and our Appropriations Committees have told us over the past 2 years, we have looked very hard at agencies that are not paying us the full rent that's due. We have had a great deal of cooperation from the Office of Management and Budget this year in going to agencies that aren't paying the rent that's due us, in trying to collect that rent, and I have sent a fairly stern letter to the Food and Drug Administration notifying them that we will, in fact, stop leasing and other actions which they have asked us to take until such time as they submit a budget that requests the full rent that GSA is due.

    Because I know you had asked us the effect of our rent caps, and we are prepared to share with you some of the numbers on what rent caps cost us. I can just tell you, in the aggregate, rent caps from various agencies, including FDA, Agriculture, Health Care Financing Administration, Railroad Retirement Board, and Social Security amount to lost revenue totaling about $110 million in Fiscal Year 1997 and $121 million in Fiscal Year 1998. That's money we are going after as hard as we can.
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    Finally, a question which you have asked several times is: What are we doing to raise rents? Can we raise rents? And, again, let me note a couple of things we have done. One, we got permission from OMB, after many years in which our rents were held flat, that for Fiscal Year 1999 we will be able to charge agencies, and we have so notified them, a full passthrough of cost-of-living increases, Consumer Price Index increases. We were able to show the Office of Management and Budget that in many of the major markets in this country today the rents we charge Federal agencies are 10, 20, sometimes 30 percent below equivalent commercial rates.

    So that without even getting into the question of whether we can charge above market, which is a discussion you and I had, we are below what clearly the law says we can collect. But, because of the lag time in the Federal budget, we can't immediately institute a new rent rate. The soonest we can begin to get our rents close to market is Fiscal Year 1999.

    For Fiscal Year 2000, we will have completely new rent appraisals on Government-owned space, and those will be available in the spring of 1998. This means that when agencies prepare their Fiscal Year 2000 budgets, we will give them guidance on what will be, I think, significantly increased rental rates for Fiscal Year 2000.

    And, finally, as I mentioned to you before, we have also gotten permission—I think I've told this subcommittee before in Fiscal Year 1999 to pass through the security charges, which now amount to a significant amount of money in our various buildings. And I think you know, since the Oklahoma City bombing, we have spent something like $260 million on security upgrades, both capital and operating, and at least the annual operating costs associated with those increases, which comes to several tens of millions of dollars, will now be passed through to agencies beginning in Fiscal Year 1999.
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    Perhaps I should stop there, Mr. Chairman. These are some of our responses to what's happening, particularly with respect to our revenue.

    Mr. KIM. Thank you for your fine testimony.

    At this time, the Chair recognizes Mr. Duncan. Do you have any opening statement?

    Mr. DUNCAN. No, I'll have some questions.

    Mr. KIM. All right, then why don't I just start a couple of concerns, rather than question, and then we'll go around the chair and I'll ask some questions later.

    The couple of concerns I have, I'm not sure you fully addressed. Maybe you can address them later in writing perhaps. The shortfall, I'm hearing $600 million and then I'm hearing $841 million, and a couple of days ago, an actual shortfall had gone up to $1.1 billion. I don't know which is true. How much is it, the shortfall? Do you know an accurate figure?

    Maybe I can finish the questions.

    Mr. PECK. Sure.

    Mr. KIM. That's my first. What is it?
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    And then you mentioned that, as a result, we're going to suspend $600 million worth of construction next Fiscal Year, which I told you repeatedly we can't accept that. We have to have some kind of other innovative financing way to continue on these vitally-important projects which involve public safety. I'm not sure I understand clearly what's your idea.

    And, also, you mentioned that the ''You Can't Beat the GSA Program,'' you increased—actually, what you did was you decreased the vacancy by—actually increased revenue by three-tenths of 1 percent, which isn't—I mean, it's an increase, but I don't think it's a big improvement. It's certainly better than decreasing it. But, yet, I understand you lost revenue—I mean the vacancy, 5 percent, by downsizing. In other words, your vacancy has gone up by 5 percent, but you have an active program of gaining three-tenths of 1 percent additional revenue. Still, it's a huge loss.

    What I am trying to tell you is, in addition, you're hiring an outside consultant. So your revenues decrease; you hire more outside consultants. You are suspending $600 million worth of construction. Yet, your cost of running your office is about the same. Isn't it kind of ironic that it seems to me you have nothing much to do; all the construction is suspended; you hire an outside consultant; you downsize; you lost 5 percent of total revenue? Don't you think you should adjust your operating costs also accordingly? How can you maintain the same operating cost, yet the demand is much less? That kind of bothers me all the time.

    And then you also mentioned that—I think I mentioned 120 days' notice, which is probably unbelievable to me in the private sector; you can't just walk out of the building sending your 120 days' notice. We should have at least a 5-year lease agreement. Even if the agency vacates the building, they still have to pay a 5-year obligation. I don't think 120 days' notice is totally acceptable. That's what got all this $800 million rent shortfall coming from. I don't know that you mentioned that in your statement.
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    Those are the ones that I have concern. You can answer them later or in writing, if you wish.

    Mr. PECK. I can, if you don't mind, I can give you brief answers——

    Mr. KIM. All right, let's do that. Let's try that.

    Mr. PECK. ——several sentence answers on each one of these.

    The shortfall, we notified the Appropriations Committees and you in July that we believed, based on early returns on Fiscal Year 1997, that the shortfall coming out of Fiscal Year 1997 could be as much as an additional $100 million. We believe now it's going to be somewhat less than that. Our final numbers on the closeout of Fiscal Year 1997, I am told, will not be in and audited until the third week or so in November. And so we will be able to get you an accurate number.

    Mr. KIM. What's your estimated figure, roughly? Don't you have some idea what the shortfall would be even before being audited?

    Mr. PECK. It would be based—in other words, in Fiscal—when we submitted the 1998 budget, we told you we had an estimate of, round numbers, something like $340 million less revenue for Fiscal Year 1997 than the 1997 budget had estimated. We are saying that by the end of Fiscal Year 1997—we had said in July we thought we might—the revenue might be off by another $100 million. In other words, from $4.8 billion to $4.7 billion—so it would be an additional decrease in revenues, again, because we are finding that agencies are downsizing. As I said, we need to get you an accurate number, and that won't be in for another several weeks.
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    The construction program, as you know, for Fiscal Year 1998, the Treasury/Postal Service appropriations bill has now been cleared for the President and does allow no construction program for Fiscal Year 1998; in other words, no new spending on projects for Fiscal Year 1998. As we've noted, we do have a construction program going, $1.2 billion of construction that is currently underway. There's no new construction.

    And let me clarify that, too, Mr. Chairman. People will—we will see projects breaking ground in Fiscal Year 1998 because projects that had Fiscal Year 1997 construction dollars may not have gotten underway until Fiscal Year 1998, and the money carries over. But, again, there is no Fiscal Year 1998 construction money available.

    We have been told by OMB that, although we're in the middle of the Fiscal Year 1999 budget cycle, that we can expect a more normal program in Fiscal Year 1999. I cannot tell you what that means for new construction and can't make any commitments. I can tell you that in Fiscal Year 1998 we have also cut operating expenses significantly, so that our expenses match revenue.

    Vacancy rates are down minimally, not in a statistically-significant way, from Fiscal Year 1996 to 1997, but even that is good news because they were increasing from year to year up to Fiscal Year 1996. In other words, our vacancy rate is leveling off. It has hit a plateau that we don't like.

    Mr. KIM. To intercept this time, why don't we reconvene at—the subcommittee will be in recess and reconvene at 1:50.
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    Mr. KIM. I'm sorry, I didn't realize we'd have so many votes out there. I apologize; that was a long 15 minutes' recess. I'm sure our colleagues will join us soon.

    So would you go ahead, please?

    Mr. PECK. Okay, yes, sir. I was going through responses to—and I will continue to go through some brief responses to—some of the questions you've raised. I think I spoke to the fact that our vacancy, which had been increasing, has now leveled off. I should note, one of the reasons that we need to have sufficient money for capital expenditures is that, in order to backfill vacant Government space, we need some money to reorganize and refurbish space as agencies downsize.

    On another point, you asked if while we are—while some of our workload is going down, if we are in fact reducing our overhead. The answer—two parts to that answer. One, although in Fiscal Year 1998 we will not have new construction money, new Fiscal Year 1998 construction money, as I noted, we still have a very large ongoing construction program.

    Moreover, our construction program in most years is no more than about 10 percent of our budget. The rest of our program continues as it is. Notwithstanding all of that, and the fact that our workload is not down, since the beginning of this administration, the Public Buildings Service has downsized by about 25 percent in personnel terms, and we will continue in Fiscal Year 1998 to reduce both our employment by attrition and early retirement and also our expenses, which are also moving down.
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    Finally, you noted our 120-day notice policy. Under the Federal property management regulations, we do allow agencies to give us 120 days' notice that they no longer need space and turn it back to us. I should note that that policy, as you noted, that it's clearly different from the private sector. However, this is a case in which the policy overall probably makes sense. The GSA, as a central Government real estate agency, has a large enough inventory that we can probably accept the risk and are in a better position than any individual agency in moving people around from one place to another. So that as an agency downsizes and gives up space, we can reconfigure. Some agencies are expanding at the same time others are downsizing.

    However—and this is a big ''however''—that is contingent on our having the funds available to be able to make those kinds of moves. As I noted, with the budgets we've had the past few years, we've not had sufficient money to do the kind of backfilling that would be necessary.

    I can report that you also had another good idea which we are working on, and that is this: that in our new occupancy agreements under the pricing policy, we will, for example, say to an agency: ''Here is your 5-year term in a building.'' And while they will still be able to move out with 120 days' notice, if we have spent money above the standard amount to fit out the space for them, as often happens, and the agency doesn't stay for the entire 5-year term, if that's the term, we will require them to pay us back that money. So at least we won't lose that on the 120-day notice policy.

    I should tell you that we've had a team look at that policy again and think about it from a policy perspective. They asked whether it makes sense to continue it, and our conclusion at the moment is that it does because of our role as a central real estate agency. But we will continue to review this policy see if at some point the costs far outweigh the benefits.
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    Mr. Chairman, one other note, since we're having a leasing hearing—and perhaps I should wait for Mr. Duncan. There is one other leasing issue that's clearly in the public eye these days, and that is the lease for the Federal Communications Commission at the Portals, the subject of an article this week. If you wish, I will hold off.

    But one thing I will note, which is directly related to what I started out with today, and what I started out with today was a discussion of our ''Can't Beat GSA Leasing Program.'' Among the other inaccuracies in the article and misleading impressions which it gives, the article notes that in one case we changed the clause in our standard lease having to do with what's called partial casualty in the business. And it implies that that was somehow some very unusual occurrence. In fact, that is exactly—that is the sort of flexibility in negotiation which we encouraged in our ''Can't Beat GSA Leasing Program.'' As long as I've been working with or around the GSA Public Buildings Program, which goes back now more than 20 years, I can tell you that private sector landlords have told me and others in GSA that some of the clauses in our leases cost the Government a lot of money, are inflexible, do not reflect private sector practice, and ought to be changed. This is one of those clauses which costs the Government money. We've had a very inflexible clause which says, if there's any sort of partial destruction of the building, we have the right to terminate the lease. In the private sector, you usually have a clause which says that you're going to negotiate that out. If it's a partial casualty which the guy can fix, you let them fix it; they give you a rent credit, and that's the sort of thing we negotiated here, and we've negotiated it in other leases as well.

    As I said, if there are other questions about that particular lease, I'll be happy to talk about them. We and the FCC have both responded in writing to the Business Week article, and I'd be happy to share that with the subcommittee as well.
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    [The information follows:]

    [Insert here.]

    Mr. KIM. The Chair recognizes Dr. Cooksey. Would you like to make a statement or have questions?

    Mr. COOKSEY. I haven't finished reading the article yet. I remembered this being discussed earlier in the year. I am here from the private sector, the former private sector, to make sure this sort of thing does not happen. But I have learned since I've been here that a lot of these things happens, in spite of what a freshman Congressman can do.


    Again, I have not read this, and I usually read Business Week. But if there's some truth in it, I had expressed concern about this earlier, in an earlier meeting, about this type of thing. And this is not what the taxpayers want.

    You know, there's really a perception out in the public that there's a lot of skullduggery going on in this city. And the bad thing is that they label both parties and all political people as being guilty. I have never held office before. I beat my opponent by a pretty good margin. But I do resent being labeled that way after eight or nine months up here, but this makes us all look bad, if it's true. And, again, I don't believe everything I read.

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    When I went through my MBA program, I was told that one of my favorite business magazines was The National Inquirer of the business magazines, but I won't tell you which one.


    It was not this one. But, still, I have some concerns about this sort of thing. And there are more buildings to be built. I know there's one—there's another one that I know about right now that someone wants to build.

    Mr. PECK. Mr. Cooksey, the point I think it's important to make here is none of us like being painted with a broad brush, and, you know, obviously, there have been documented instances of corruption in states and cities all over the country. I can just tell you that we in GSA also resent being painted with a broad brush. Our people spend an inordinate amount of time, and, you know, we are often criticized for being sort of slow and cautious, precisely to avoid impropriety or any appearance that we're not giving full competition.

    And this is a case in which—and that's why I want to share my letter with the subcommittee—in which we can document quite easily that nothing happened—this issue here is that a political contributor became either a lender or an owner to the project at a certain point. And we can document that absolutely nothing changed from the point of view of our negotiation with the entity, which he became a part of, or with respect to the agency that was supposed to go into the building, after he became a part of it.

    In fact—and here's the thing I would just note—the Business Week article and the reporter clearly had her conclusion in mind when she first spoke to me, I can tell you—noted that after he became a member of the partnership, our lease stated that it was the Government's intention to make the Federal Communications Commission a tenant under this particular lease. She describes that as being unusual. However, on August 12, 1994, 12 days after a court decision ordered the Government to go ahead with this procurement—and I don't know exactly when this man, the man in question, became a member of the team, but approximately a year before he bought into the partnership we had signed the original lease with language that our attorneys considered stronger, saying that the FCC would be the tenant in that lease.
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    We don't usually put the name of the tenant agency in a lease. And, in fact, in our 1996 supplemental lease agreement, we noted that although it was our intention to put the FCC in, we reserved the right to put any other Federal agency in, because that's our policy. Normally, we don't even mention the agency for several reasons. This committee and the Senate committee approve a prospectus which notes what agencies are going in there, so everybody knows in the first place. But, more to the point in this case, it was clear that for some years previous to 1994 the FCC had not wanted to go into the building, and so in this case, in 1994, after the court decision, we specifically said we're going to—the word was we were going to make vigorous efforts to put the FCC in.

    The developer at that time was no political—well, at least not this man's political connections; I don't know who—they may have had political conditions of whatever sort.

    Mr. COOKSEY. What year was that?

    Mr. PECK. 1994. 1994, August of 1994.

    Again, the developer was pushing us very hard because he couldn't get financing without some indication that this deal was absolutely going to happen, pushed very hard for us to make clear that we intended to put the FCC in this space.

    So all I'm trying to tell you is that we think that's very clear evidence that nothing changed from the point of view of our procurement, and that's—you know what we can't stop—I mean, the unfortunate thing here is that, once people give political contributions, people can draw whatever conclusions they want. We can't, from the GSA point of view, stop someone who makes political contributions from getting involved in our projects. The real estate community makes a lot of contributions on both sides.
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    But we want to be clear. I don't think there is any word on the street with respect to our leasing program in general, nor is there any documented evidence that this leasing program operates in a political way whatsoever. I want to be clear about what I mean by that.

    Once the Congress has decided—for example, on large leases, I mean, there's clearly some politics involved, and this is a political body, in approving leases, large leases. I'm just saying, once those are approved by Congress and we are ordered to do it, there is no political influence that I am aware of in our leasing program.

    This particular lease, I happen to know a great deal about because I worked on it at the FCC from September 1994 to November 1995, and then I took this position in December 1995, and have worked on it from the GSA side, sir.

    Mr. COOKSEY. Well, let me just respond. You've been in front of this committee, and I have gained some confidence in you, and in general, after having been here since January, I have more confidence in some of the members of the Government, the bureaucracy, you bureaucrats, if you don't mind that term, than I had before. But I will tell you this: I have less confidence in the politicians than I had before, and I was cynical about the politicians, but as of July, there's some politicians in this city that I think are dishonest, and I think they put the members of the bureaucracy in a bad position, and I think sometimes too many people cave in. And I have reached the point where I have no qualms about calling an ace an ace and a spade a space. And if this needs to be done in this case, I'll do it.

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    And there's another one that I know about that's coming up soon, and I will do it there, too, because I don't really have to have this job, but I think that the public wants someone that will be candid and will point out those people are using improper and undue political influence, and they're pressuring good, honest people in the GSA or other parts of the bureaucracy. It's got to come to an end. We're beginning to put some of them in jail in Louisiana, and we've had a lot of skullduggery in Louisiana, but——

    Mr. PECK. Yes, sir, I know.

    Mr. COOKSEY. That's where I like to see them go.

    Mr. PECK. I will say, too, on this particular case, I was clearly in a position in both agencies, and in the position, in fact, possibly in both agencies, if there were to have been political pressure applied in any way on this case, there are plenty of people who can apply political pressure who knew my phone number, and I am just telling you that my number was never called. Nobody ever put any pressure on me. The only contacts I ever had from representatives of Mr. Hainey were precisely the same kinds of contacts I had had from representatives of the development entity before that, which were basically to the point of saying, this procurement began in 1988 with the FCC in mind as the tenant for this project; when the heck is it going to get done? And that's certainly the sort of pressure that I'm telling you we hope not to get because we'd like to move fast enough that people aren't waiting 9, 10 years to get a project done.

    Mr. COOKSEY. Well, I will tell you that some years ago, when I was probably even more cynical about this city, I had proposed that the Government be moved to a corn field in the middle of Iowa, and I still think that is a viable option. I think it's a disgrace, some of the things that have gone on in this city, in the District of Columbia, things that really would not have been tolerated in any other circumstances, but it just so happens the seat of Government is here, and I think that we do need to work to make it a better place to live in. I have confidence in some of the people that are beginning to run Government.
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    You'll be interested to know that Andrew Bremer, who is a Harvard graduate, grew up in my district. He's a man of impeccable integrity, and he's not a politician, and that's the kind of people that we need running government.

    But I promise you, you can send the message that I am after the politicians, the crooked ones, and I know about them because I'm from Louisiana.


    Mr. KIM. Well, thank you. Maybe they should move to Death Valley in California.


    I'd like also at this time to recognize Mrs. Norton. Do you have any opening statement?

    Ms. NORTON. Mr. Chairman, I have just a few comments to make to this witness, if I might, based on what I've heard since I've been here.

    First, I want to say to my good colleague about moving the capital of the United States, and about the dangers of trying to mess with what Hamilton and Washington did, we do that with the Constitution sometimes. I don't think they made a mistake in where they located the capital of the United States. And as I heard, we were discussing the sins of the Federal Government. We have enough sins in the D.C. Government without taking on those of the Federal Government.
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    Secondly, may I just for the record indicate the origin of the FCC problem. When I came to Congress, I found it was a lawful procurement to build a building for an agency that had begged for space for years, and the prior administration, the Bush administration, I believe, had in fact come forward with a place for the FCC to go. At that point is where politics became involved in the matter, because a lawful procurement, fully competed, was overturned when it became known that the FCC, after all, didn't want to move. So the FCC, which may be located all of five minutes from the Capitol, wanted to remain on K Street, where the lawyers were, and so the FCC went to the GSA and got the Administrator of the GSA to overturn a lawful procurement. I cannot say enough about how unusual that is. People do not mess with lawful procurements because of how strict the Federal Government is about competition—overturned a lawful procurement.

    At that point——

    Mr. PECK. Mrs. Norton, that was in 1992.

    Ms. NORTON. Yes, 1992, before this administration. At that point, the people who had won the lawful procurement did what you might expect; they went to court. And then the courts did something that courts almost never do occurred. The courts, once you get into procurement, may say something is wrong, but they don't order. They don't order that the GSA put a specific tenant in the building. There was a court order that the FCC go into this building. That is how egregious the agency's conduct was in undermining, overthrowing a lawful procurement. So the FCC is there because, under court order, it has no other alternative.

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    And I hope that the GSA and everybody else has learned from what happened. It was, I'm pleased to say, unusual, and I think after what did, indeed, happen, everybody has learned a lesson. I'm sorry that whoever—I don't even know—whoever was the party who won the procurement had to spend, I'm sure, what amounted to a lot of dollars to get what he had won or she had won, whoever, lawfully.

    Finally, Mr. Peck, may I ask something of you? I have it on good authority that you went to the meeting of the National Capital Planning Commission after having not been in on the very complicated proceedings surrounding the D.C. Convention Authority, and opined as how this matter ought to be delayed for 60 days, and it is said you did that at the aegis of a group in D.C. It may have been at your own aegis. In any case, had that succeeded, you would have been single-handedly responsible for perhaps aborting, but at least setting back very seriously, the coming to the District of Columbia of the one economic development project that can help pull this city out of its financial crisis.

    For years now, the District has been unable to get any but medium and small conventions because its convention center is too small. This convention center, the one coming up, is very far from perfect, in my judgment. I would have preferred to see the convention center at any of a couple of spots I could name. If it had gone to any of those spots, the District would have been pushed back so far in its ability to build a center that we would have lost it to northern Virginia.

    Now I do not know if you knew that. But may I ask you, sir, before you go messing around in my District, that you at least pass through this Member, and not throw the proceedings into disarray, as you did? If you had not paid the kind of attention that so serious a matter deserves, when it affects what amounts to close to life-and-death economic development in this city; it's the major economic development in the town—if you've not been there so that you can make what at best is going to be a cost-benefit judgment, because God knows it's not what I prefer, but if you're going to trounce in, come down on the side of don't do it or delay it for 60 days, without knowing whether that means you are killing the project or what it means, then you are not acting responsibly.
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    And I am, therefore, requesting that before you act similarly on any matter affecting the District of Columbia, where you live and where you fully know I represent, that you do me the courtesy of at least coming to this Member to find out where she stands. I can't keep you as a private citizen from going where you're going, but I think it is extremely unfair for the Member and for the NCPC to all of a sudden have somebody plop up before it, under his official—using his official mantle from the GSA—to say, hey, we are against this.

    Now, fortunately, people who had been there all along, understanding how imperfect but necessary the decision was, ignored you, went ahead and voted for the Convention Authority. But I could not help bringing this to your attention, given the fact that we simply cannot afford in this city, which has not done what it's supposed to do in so many respects, we cannot afford, particularly to have members of our own administration, people who, indeed, have been helpful to us in the past, inexplicably putting themselves on the other side. I ask for your due deliberation before you consider ever doing anything as radical as you attempted to do at that time.

    I thank you, Mr. Chairman.

    Mr. KIM. You don't have to—if you want to respond right now, just maybe not more than just one minute.

    Mr. PECK. I'd like to respond. I'd like to respond briefly.

    Mrs. Norton, as you know, I do support, by my experience and by my interest, economic development in the city. I had read numerous studies on the convention center prior to going in there on that vote, and in fact we had undertaken some detailed analysis of the construction numbers. I'm aware of how far down the line this was, and I talked about that when I went to NCPC. My suggestion—and I made quite clear—I wanted nothing to do with killing the project. I don't think a 60-day delay would have, but reasonable people can differ on that.
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    What I——

    Ms. NORTON. And the very fact that you can differ on what might have been a life-and-death matter involving the project should have led you to inquire further as to what the ramifications of your—particularly given the fact that you were coming from GSA, which has a voice on the NCPC, what the ramifications would have been. You just come in and say, ''Well, maybe it would have killed it and maybe it wouldn't.''

    Mr. PECK. No, I'm telling you I'm quite certain it would not; other people clearly thought it would. And I'd be happy to discuss with you why I think it would not.

    However, my major concern, as I expressed at the time, is I do think we need a new convention center. I think we need a large one, a competitive one. My concern was that we were, because of the problems that were only becoming clear on this site the farther we got into design, we were finding ourselves faced potentially with a situation in which the site would not be able to do what we need to do to have a good convention center; the costs were rising considerably. I was aware of where we were on both the construction budget and the bids, and I was quite concerned about that, and that's what I laid on the table.

    I did say—my suggestion we defer for 60 days was voted down, and I said that, even before the vote, that if this was turned down, we would—I would certainly support, GSA would support, and the administration certainly supported, the convention center site above the Mt. Vernon Library.
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    Finally, let me just say I would like to talk to you about that, No. 1. And, No. 2, I will give you my commitment that I was aware that that was a serious step to take, and I will consult—and if I do that in the future, I will consult with you beforehand.

    Ms. NORTON. I appreciate that. That's really, Mr. Chairman, what I desired.

    I want to say that—I want you to understand that I'm not taking issue with you on the underlying facts. On costs and on site, these are really very close issues, and if I had my druthers, I want to tell you on both of those I would probably be where you are. That is why it is important to be involved in a collegial discussion, so that one can really make a decision whether one has to go that way.

    Thank you, Mr. Chairman.

    Mr. KIM. Thank you.

    I have a bunch of questions, but instead of going through them one by one, can I just submit it to you, so you can answer back to us?

    Mr. PECK. Yes, sir. Please give us a deadline, so we can well respond in a timely way.

    Mr. KIM. One week. Those are very simple questions. Is a couple weeks all right?
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    Mr. PECK. Oh, yes, sir.

    Mr. KIM. Okay.

    I have actually an end question that I wish we could work together because I'm not here trying to politicize anything or trying to embarrass or attack you. I'm looking for a solution. I'm having trouble to find that solution, how we solve this mess right now. There's a lot of perception problems, too.

    One is we have huge vacancies now. Someone told me some buildings have been vacated 5 years. I'd like to get a list from you of all the vacancies, where are they, and how long it's been vacated, and how much money has been lost or kind of a dollar value, and what the problem is. So we can work this together. If it's a problem, then tell us how we can solve this problem.

    [The information follows:]

    [Insert here.]

    Mr. KIM. You also mention you've got a problem collecting rent. That's kind of hard for me to understand that, because we're talking about collecting rent from other agencies. What could be a problem? It's the same pocket from left pocket to the right pocket.

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    That's another problem. Is there anything we can do, congressional action perhaps or whatever necessary? Tell us. We didn't know that.

    [The information follows:]

    [Insert here.]

    Mr. KIM.And, also, there's a lot of horror stories about the vacancy is one of them, but all these mistakes, $800 million, $1 billion. I never got a clear answer how that happened. It's the first time in history we've had that kind of rent shortfall. How can you prevent it?

    You talked the other day about the scoring system; that could be a problem. This 120 days, you said that doesn't bother you. So I'm surprised to hear that, and it looks to me that 120 days' notice is not the issue. Well, then what are they? Why clearly this huge embarrassment and how can you correct this, make sure it doesn't happen again, and what do we do next Fiscal Year? You say there's a lot of backlog; we can still keep busy. But, eventually, it's going to be caught up later. That's not an answer. The answer is, how can you—instead of freeze any new construction, even though they've been going, it made an impact; it will be an impact later. How can you avoid this freezing by some other innovative financing? Those kinds of things I'm looking for; I'm not sure I got that today. If you need some more time, you can go back and have a staff meeting and come back to us, but I need some—let me go back.

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    I need a list of all the vacancies, how long is it vacant. Where are these huge mistakes coming from? How are you going to avoid this?

    We've got a scoring bill coming up—what is it?—October 23 we're going to have a hearing and markup perhaps. Have you had a chance to review that? Do you have any comments? Give us some comments. If there is certain language you cannot live with, let us know, so we can work this together. How would you like to do that?

    Mr. PECK. Mr. Chairman, let me make just two brief comments in closing. One comment, to put vacancy in perspective, the national vacancy rate on office space is going down because the economy is getting better, but it still hovers at around 10 percent, and in some markets much higher. So no one likes to have vacancy, but even when I was doing mortgage banking and doing what I think were rosy scenarios, you assumed at the end of the day that you would have 5 percent vacancy in a given building at any given time. So some vacancy happens, and we are at about a 9.-something percent vacancy rate overall in our inventory, which we would like to get down.

    One of the things that—second, I appreciate your comments. This subcommittee has, in a very difficult fiscal time for us, not taken the low road which you—I wouldn't say you would, but which could easily have happened. You have been very constructive in your questions and constructive in your criticisms, and it has made us focus on something which, quite frankly, we had not focused on before. Our revenue estimates had never been very far off in the past, not too far off. In 1994, it turned out they were off by 200 million. One time in the late eighties they were off by about 100 million—never quite what we've seen, $350 million for each of 2 years.
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    We have now focused on revenue quite a bit. In fact, we have stopped just measuring vacant space as an arid exercise and our new performance measure talks about foregone revenue, so that we tell each of our regions: If you had your space fully occupied, say to a 95 percent rate, here's how much money you would have made. You didn't make that much money. So it has focused us a lot on collecting revenues.

    One answer to solving the revenue problem we've had is getting people more focused on that. Another way to solve it, quite honestly, is better forecasting in advance, and I can tell you that in preparing our Fiscal Year 1999 budget we have taken very conservative estimates of what our revenues will be, so that we are not going to predict that we can spend money that we won't in fact have in. That's another way to prevent the sort of—what this was was a surprise to all of us that our revenues went down. That's another way to deal with the problem in advance.

    I would also like to have the opportunity to speak to you and some of the other Members. I should probably come visit and show you some of the actions we've taken to try to do better on rent collection.

    Quite honestly, some of the rent collection problems we've had, where agencies don't pay their full rent, have to do with congressional committees other than this one giving the agencies a rent break, and then we have this fight between different parts of the Congress. But there are also instances, I have to say, in which agencies that once got that dispensation somehow think it ought to continue forever, and we are fighting that quite hard, and as I said, with the support of OMB; and, also, I should note, with the support of our appropriations subcommittees in both the House and the Senate. But sometimes in the Appropriations Committee you get different subcommittees at odds with each other over that kind of an issue.
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    Mr. KIM. I understand you hired several consultants, outside private firms, based upon region bases. I notice total cost was under $10,000 each—I didn't catch that. What's the total cost or amount?

    Mr. PECK. The total cost of what?

    Mr. KIM. The cost or amount, how much was it for providing consulting services?

    Mr. PECK. Oh, I'm sorry. It was about—oh, for the real estate broker contract——

    Mr. KIM. Yes.

    Mr. PECK. It's 118——

    Mr. KIM. A hundred and eighteen thousand per company or just total?

    Mr. PECK. No, sir, total so far.

    Mr. KIM. That's not very much.

    Mr. PECK. These are not consulting services, I should note. This is real work, if I can make that distinction.
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    Mr. KIM. Consulting—this is real work? Okay, well——


    Mr. PECK. This is—these are services where we have a real need to lease space or to renegotiate a lease. We are having private sector brokers in some cases help us do that work. It is precisely because our workforce has decreased in recent years. In order to keep our workload going at the same pace as before, we have had to go outside to do it.

    I should also note to you that this is an experiment undertaken by us, largely at the behest of the House Appropriations subcommittee that oversees us, which has been very big on trying this out.

    Mr. KIM. Well, I'm not going to continue on. I think you have a clear message from me of what I'm looking for.

    So at this time I'd like to ask if my counsel has any questions. You have the privilege to ask a couple of questions.

    Mr. BARNETT. I'll try one. I've got a chart—you haven't seen this yet. It's employment trends from 1974 to 1997, and for civilian employment, nondefense and defense. In 1993, on the employment, nondefense, it showing a decline. In 1994, it's 1,184,000; in 1995, 1,448,000—a drop of about 35. In 1996, 1,440,000, and then an increase in 1997.
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    Would you be able to track your space inventory and assignment by this chart to see how well you're matching up? Because in looking through this document, you show an actual increase in space in the same years that there is a decrease in employment.

    Mr. PECK. Right. There are—one of the things, I actually have looked at some of those numbers, but I'll provide it for the record.

    [The information follows:]

    [Insert here.]

    Mr. PECK. The short answer, which is interesting, is that a lot of—in the government overall, a lot of the decline in employment since 1993, and I think before that by a year or 2, has been in the Defense Department, and while we house some of the Defense Department and civilian employees, a lot of them are also housed on military bases. So what we're seeing, interestingly, is while agencies like HUD are still decreasing, if I remember this correctly, EPA is about holding; Justice is increasing, and the courts are increasing. So we have—we're not seeing the decreases in numbers among the people who we house to the same extent that you see overall in the government. Nonetheless, we are, in fact, one of the two—in percentage terms—the Office of Personnel Management and GSA are two of the bigger, by percentage terms, civilian agencies contributing to downsizing. We're down 25 percent, I think OPM 34 percent. But, as I said, we're not seeing a huge drop.

    The other thing I'd note, I'd have to look at the numbers again, to respond to Mr. Barnett, is that the leased inventory—we are leasing space in some cases—I'll be perfectly blunt, it's not good policy—we're leasing space for agencies in some cases where we ought to be putting them in Federal space, but we can't get the Federal space fixed up. And we can always, it seems like we can always, get the leasing money because the revenue comes in, and we can get—you know, somebody's out there who's just built a building and will lease it to us, while we have sometimes life and safety factors in Federal buildings that don't even allow us to put people in it. So it's another reason why we have to fix this capital spending problem, so that we have the money to put people in Government buildings and not lease space.
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    Mr. KIM. If there's no questions from the members, I'd like to thank all of you for coming today and giving us excellent testimony. And thank you again.

    And the meeting is adjourned.

    [Whereupon, at 3:20 p.m., the subcommittee adjourned subject to the call of the Chair.]

    [Insert here.]