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[H.N.S.C. No. 106–5]



FOR FISCAL YEAR 1999—H.R. 1401






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March 17, 1999


House of Representatives,
Committee on Armed Services,
Military Readiness Subcommittee,
Washington, DC, Wednesday, March 17, 1999

    The subcommittee met, pursuant to notice, at 1 p.m., in room 2212, Rayburn House Office Building, Hon. Herbert H. Bateman (chairman of the subcommittee) presiding.


    Mr. BATEMAN [presiding]. The subcommittee will come to order.

    This afternoon the Subcommittee on Military Readiness is meeting to get a better understanding of the issues surrounding the disposition of 49 acres of excess land located at the Soldiers' and Airmen's Retirement Home in Washington, D.C. For those of you here today who may be unfamiliar with this issue, I will briefly summarize the events that have led to this hearing.
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    In the National Defense Authorization Act for Fiscal Year 1995, Congress directed the Chairman of the Armed Forces Retirement Home Board to carry out a study to identify and evaluate alternatives for the modernization and long-term viability of the retirement homes. The Board contracted with Coopers and Lybrand to conduct the study and reported the results to Congress in April 1996. One of the recommendations of the Coopers & Lybrand study was to sell a 49 acre parcel of excess land located at the Soldiers' and Airmen's Home. The Board subsequently requested legislation that would authorize the sale of this excess property and, in the National Defense Authorization Act for Fiscal Year 1997, that authorization was provided.

    It came to my attention early last year, that the Board was proceeding with a commercial development plan for the 49 acres rather than proceeding with the sale. In the Board's view, the language authorizing the disposal of the land also authorized the development of the land. This was not the intention or contemplation of the Congress when it passed the disposal authorization. Because there was disagreement or a misunderstanding of the original Congressional intent of the disposal language, the committee and the House passed a provision last year that merely restated the requirement to sell the excess property.

    In the conference committee between the House and Senate on the authorization bill, a proposal was put forward that reaffirmed the sale of the property for the fair market value of the property based on its highest and best use as determined by the Retirement Home Board based on an independent appraisal. The provision also directed that the sale could only be made to a neighboring nonprofit organization from whose extensive educational and charitable services the public benefits and has benefited from for more than 100 years. The House accepted this proposal because it ensured the Home received the highest and best value for the land, and it addressed the concerns of neighboring property owners and entities.
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    Since enactment of this provision, what would seem to be a simple land sale effort has received extraordinary attention in the media, veteran's groups, and from various Members of Congress.

    I am aware of many of the issues concerning the operations and long-term viability of the Armed Forces Retirement Homes—they are important and they deserve our attention and our support.

    However, today's hearing is specifically focused on the limited subject of the disposal of 49 acres of excess land that the Retirement Home Board asked Congress for authority to sell. The primary purpose of the hearing today is to fully inform the members of the committee on this issue and to allow those most interested in the disposal of this property a chance to present their views.

    We have two panels today. For our first panel today, we will hear from Mr David F. Lacy, the Chairman of the Board and the Chief Executive Officer of the Armed Forces Retirement Home Board, who is accompanied by Dr. Laurence G. Branch, Vice Chair of the Armed Forces Retirement Home Board, and Major General Donald C. Hilbert, United States Army, retired, Director of the U.S. Soldiers' and Airmen's Home.

    For the second panel, we will hear from the very reverend David M. O'Connell, President of the Catholic University of America.

    Before we get into hearings from our panels, I would like to yield to the gentleman from Texas, the Honorable Solomon Ortiz, the ranking Democrat of the Readiness Subcommittee for any statement he would like to make.
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    Mr. ORTIZ. Thank you, Mr. Chairman. I join you in welcoming our witnesses to this hearing today. As I understand it, our objective today is to better understand the implications and consequences of plans to dispose the excess 49 acres of property located in the Washington, D.C. area.

    Mr. Chairman, the information that I have been exposed to regarding the financial status of the Home over the last 3 years clearly shows the need for additional resources to keep the retirement homes financially secure. Some form of relief must take place, and it must come sooner than later.

    My understanding of the short legislative history regarding disposition of the property is that the committee and the Congress are concerned with increasing the viability of the Home Trust Fund and sustaining the critical services the Homes provide to the veterans.

    The law still requires that the board of directors remain a major player in any disposal activity. This hearing on the matter today reflects what I believe to be our interest in ensuring that any disposition taken or action taken does not inadvertently threaten the long-term survivability of the retirement homes.

    I look forward to the testimony of our witnesses here today and their response to questions. I am especially interested in understanding the actions being taken by the board to retain a fair assessment of the property, as well as their plans to ensure that the Home Trust Fund is not shortchanged in any transaction. Thank you, Mr. Chairman.
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    Mr. BATEMAN. Thank you, Mr. Ortiz.

    Before recognizing our first witness, let me say that we have had statements submitted for the record, and their statements will be made a part of the record from the following: James D. Staton, Executive Director, Air Force Sergeants' Association; Mark H. Olenof and John J. Daly, the Retired Enlisted Association; Bob Manhan, Assistant Director, National Legislative Service, Veterans' of Foreign Wars; Steve Robertson, Director, National Legislative Commission, the American Legion; Charlene Drew Jarvis, Council Member, Ward 4, Council of the District of Columbia; Vincent B. Orange, Jr., Council Member, Ward 5, Council of the District of Columbia, and Senator Richard J. Santorum of Pennsylvania. All these statements will be made a part of the record and will be read and reviewed with interest.

    [The prepared statements of Mr. Staton, Mr. Olenof, Mr. Daly, Mr. Manhan, Mr. Robertson, Mrs. Jarvis, Mr. Orange, and Senator Santorum can be found in the appendix.]

    Mr. BATEMAN. Let me make one additional comment in view of the large expression of interest from veterans' organizations. There is nothing that this committee has done or is ever going to be willing to do that is going to put in jeopardy the operation and the viability of these homes. All our endeavors are calculated to assure, in the most effective way possible, that they will remain open and they will remain viable. That is the paramount, overriding objective, and nothing that I can foresee is going to deter that objective from becoming what dominates and controls whatever action is ultimately taken, if the view of this subcommittee is going to be determined to as I hope it will be.

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    With that, let me now recognize Mr. Lacy as chairman of the board and CEO of the Home and ask him to proceed as he sees fit.


    Mr. LACY. Thank you, Mr. Chairman, distinguished members of the committee.

    On behalf of the more 1,600 elderly veterans who are residents of the Armed Forces Retirement Home, I thank you for the opportunity to be heard by the committee today.

    I submitted a written statement, which I asked that you——

    Mr. BATEMAN. Mr. Lacy, if you would, pull that microphone a little more directly in front of you. Thank you.

    Mr. LACY. Is that better? OK. I have submitted a written statement which I would ask that you accept for the record?

    Mr. BATEMAN. Without objection.

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    Mr. LACY. And I would like to make a few brief opening remarks if I may.

    The Armed Forces Retirement Home was created in 1991 by legislation merging the United States Soldiers' and Airmen's Home, located here in Washington, D.C., with the U.S. Naval Home, in Gulfport, Mississippi. The Armed Forces Retirement Home is, therefore, the successor of two institutions dating back to 1851 and 1834, respectively.

    These are national treasures that have provided a home as well as a continuum of care and services for a century and a half to former enlisted soldiers, sailors, airmen and Marines, some of whom are here today, whose dedication and sacrifices in military service have helped to preserve our nation and way of life.

    The Armed Forces Retirement Home is an independent Federal agency with strong ties to the Department of Defense. Our budgets are approved by Congress, but the funding for the Homes comes exclusively from a separate Armed Forces Retirement Home Trust Fund.

    This Trust Fund receives no tax dollars. Its income sources are established by law. Today's income comes from a small payroll deduction, currently 50 cents per month from Active Duty enlisted personnel, fines and forfeitures adjudged from violations of military justice, fees charged to residents of the Homes, and the interest on the balance of the Trust Fund.

    As you know, the Armed Forces Retirement Home faces a continuing major fiscal problem. The downsizing of the Armed Forces in this decade has had the effect of significantly reducing the income to our Trust Fund. This was foreseen several years ago as the Armed Forces Retirement Home was created. Analysis in the early 1990's indicated that the Trust Fund would be insolvent by 1998.
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    The Armed Forces Retirement Home appeared before this committee during hearings on the Fiscal Year 1995 Defense Authorization Bill and discussed the pending insolvency; and we thank the committee for playing a major leadership role in legislating remedies to help delay any insolvency of the Homes.

    The Fiscal Year 1995 National Defense Authorization Act conveyed authority to the Secretary of Defense to raise the active Duty monthly payroll deductions from 50 cents to one dollar, and mandated increases in fees charged to residents. Residents' fees have been increased.

    The Armed Forces Retirement Home Board has also implemented major initiatives to reduce costs. Resident numbers have been reduced by 800, through attrition. United States Soldiers' and Airmen's Home staff has been reduced by 24 percent. And the United States Soldiers' and Airmen's Home has closed two dormitories.

    To increase revenue, the Armed Forces Retirement Home has implemented programs for voluntary military contributions by payroll deduction, worked to help establish an independent foundation, and became involved with the local combined Federal campaign.

    However, the authority to increase the active Duty payroll deduction from 50 cents to one dollar, which would increase income by about $7.5 million per year, has not been exercised, resulting in a loss of over $30 million of potential income to date.

    We have asked that the office of the Secretary of Defense to exercise this authority as soon as possible, and we have searched for other initiatives to help eliminate the $8 million to $10 million annual deficit, which is eating away at our Trust Fund. Without such action and initiatives, our Trust Fund will face insolvency in late fiscal year 2004 or early fiscal year 2005.
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    Another initiative has been the development of a plan to use the land, the 49 acres that is the topic today, to generate income. This was recommended by a Coopers Lybrand study commissioned by the Armed Forces Retirement Home Board in 1995. The Coopers Lybrand staff noted the availability of land not in current use and set out to make a quick estimate of its worth, solving our financial challenge.

    They queried our Catholic neighbors to see if they had interest in purchasing a 49 acre parcel of the United States Soldiers' and Airmen's Home land, but the response was that the Catholic institutions had no interest. Thus, the Coopers and Lybrand study notionally placed a low-estimated valuation of $12.8 million on the land.

    The National Defense Authorization Act for Fiscal Year 1997 authorized the Armed Forces Retirement Homes Board to sell or otherwise dispose of this parcel of land and required us to report back to Congress prior to any proposed disposition.

    Since the sale of $12.8 million would only extend solvency by about 15 months, we turned to the business community to conduct an in-depth study and to recommend to us how we could maximize income from the land to help insure the long-term viability of the Home.

    This study, conducted by partnership of over 25 leading corporations with expertise in construction, architecture, real estate, financing, et cetera, has produced another plan for the 49 acre parcel. The plan provides sensitive buffering and preserves the vistas of the Shrine of the Immaculate Conception. The plan is supported by letters of commitment and calls for a university village, student housing, 300 units of senior housing, a 200-bed hotel conference center, 200,000 square feet of professional and institutional office space, and retail and service facilities to support the occupant. The plan incorporates stringent design guidelines and standards that would be conveyed as covenants to any grantee or leaseholder.
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    Under the plan, the Armed Forces Retirement Home would be neither a developer nor a speculator. The Armed Forces Retirement Home would offer ground leases, with improvements reverting to the Home at lease termination. The risks of the marketplace would be borne by the private sector leaseholders. Cash flow from the ground leases would provide income of $105 million to the Trust Fund over a 35-year period for a net present value of $49 million.

    At lease termination, the improvements would revert to the Armed Forces Retirement Home. In net present value of reverting improvements is $53 million.

    The Armed Forces Retirement Home would claim these reverting assets which are supportive of our mission, such as the senior housing. Other leases would be renewed in order to continue this stream of income and permit redevelopment in accordance with market demand. The valuation of the 49 acres under this income scenario approaches approximately $102 million.

    We are fully aware that the intent of Congress in the fiscal year 1997 legislative authority were focused on the sale of the land, and we acknowledge to this committee that we understood our duty under the law to report back our recommendations and request Congressional approval before proceeding with any disposal or disposition.

    We also understand too well that once land is sold, it is lost forever as an asset. We understand this because over the years the United States Soldiers' and Airmens' Home land, once over 550 acres, has been depleted to today's 325 acres. So we believe it is imperative that we look at the full range of options for disposition of the land, with the intent of recommending to Congress whatever option would produce the best value for the land.
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    The options for the best and highest use reached today will provide an annuity of income for our Trust Fund and replacement facilities at a later date without losing the land as an asset.

    In the midst of this study, there was an amendment to public law that imposed restrictions on how we might dispose of the 49 acres. Specifically, section 1043 of the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 directs that the land be sold and the provision of that act appears to restrict the buyer to the Catholic Archdiocese of Washington or entities related thereto.

    The provisions further stipulate that the purchaser pay ''an amount equal to the fair market value of the real property at its highest and best economic use as determined by the Armed Forces Retirement Home Board based on an independent appraisal.''

    In compliance with that Act, on the 17th of February, we issued a task order to the United States Army Corps of Engineers requesting that they solicit, award, and administer a contract for the independent appraisal of the 49 acre parcel at its highest and best economic use.

    The provision of section 1043 causes great concern, because it appears to us that it is probable and even highly likely that a non-competitive sale, with only a single bidder would not produce the highest value and best income for our Trust Fund. A provision added to the Omnibus Appropriation Act for Fiscal Year 1999 directed that no sale would take place prior to April 30, 1999. This has provided time for us to complete our study.
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    On completion of the appraisal, our desire is to put the land up for competitive bids, and then to compare the bids with the present value of the income stream and residual values associated with the extended lease option, assuming the financial parameters of that option are validated by the independent appraisal. The Board would then hope to be in a position to execute whatever option produces the most long-term value for our Trust Fund and, thus, for the current and future veterans who are its beneficiaries.

    We fully understand that to pursue this course requires some modification to current law, and the Congress would have to provide legislative authority to permit us to sell, lease, or otherwise dispose of the property, based on the outcome of this process. We are not opposed to a sale if that outcome will secure the best long-term viability for our Trust Fund. We believe it is our fiduciary duty to recommend the outcome which will secure the best value for our distinguished veteran residents.

    Whatever the outcome, we will continue to be good neighbors. In fact, whether the disposition is sale, lease, or something else, we would intend to impose restrictions and protective covenants that are binding forever to protect the value of our own assets on the main campus and the assets and interests of our neighbors.

    Finally, we thank the committee for providing us the opportunity to discuss these matters. The future viability of the Home is in jeopardy until such time as a solution to the solvency problem is put into place. Although the generation of income from assets cannot solve the whole problem, it is a very important piece of the comprehensive solution that we believe can and must be implemented so that these homes can continue to support our elderly veterans.
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    I am joined today by Dr. Laurence Branch, who is the Vice Chair of the Armed Forces Retirement Home Board and is also Chair of the Strategic Planning Committee. The Strategic Planning Committee has been the body that has been designated by our board of directors to lead the evaluation of the issue of the land, and Dr. Branch has been our spokesman on that issue to date.

    To my left is Major General Donald Hilbert, who is the Director of the United States Soldiers' and Airmen's Home. We would be happy to respond to any questions of the committee.

    [The prepared statement of Mr. Lacy and Dr. Branch can be found in the appendix.]

    Mr. BATEMAN. Thank you very much, Mr. Lacy. Your testimony is very helpful to us in trying to separate out the issues and to be able to deal with them in what will be our objective to assuring the best interests of the people that the Home exists to serve.

    Let me ask if you are in a position to actually file with the committee, either today or in the very near future, the development plan? I have not seen it, but I think the committee would have some interest in seeing it if the plan is, indeed, in hand.

    Mr. LACY. Yes, we do have a plan that is recommended to us as the highest and best use, and it would be also provided to the appraiser. And we would be happy to provide that to the committee.
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    Mr. BATEMAN. Yes—even more important than my seeing it or others on the committee seeing it, if the Corps of Engineers has been charged to do a fair market value appraisal based on highest and best use, they certainly need the document earlier, not later.

    Mr. LACY. We would be happy to provide that.

    [The information referred to can be found in the appendix.]

    Mr. BATEMAN. At the Home, there are a number of holdings which are on the National Historic Registry. My information lists them as quarters one, quarters two, Anderson Cottage, and the Sherman Building. My information is that the annual operating and maintenance costs of these historic buildings and the acreage attendant to them is $504,000 a year. Is that a cost borne by your Foundation?

    Mr. LACY. Yes, it is.

    Mr. BATEMAN. I am also advised that there is a backlog of maintenance, and I do not blame your Foundation or the Board for this, but a backlog of maintenance on these historic properties of $3.5 million. Is that correct?

    Mr. LACY. That is correct.

    Mr. BATEMAN. Well——
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    General HILBERT. Mr. Chairman?

    Mr. BATEMAN. Yes, General.

    General HILBERT. May I add to that question that, as part of our downsizing, I have had to close two of those buildings that are in need of maintenance, and we left in operation the two dormitories that were best fitted to house the residents. But because of this and because of our requirement to downsize, we just closed those residences both up.

    Mr. BATEMAN. Well, we get beyond the focal point of today's discussion, but this Member of Congress thinks that it is very inappropriate for the soldiers, sailors, and airmen to be paying through a dues or through a payroll deduction assessment against them the cost of preserving these national historic properties. That is something that ought to be done, but it should not be done by that source of funding. And I will certainly be happy to cooperate in trying to get the Congress to get the appropriate agencies dealing with historic preservation to foot the cost of doing that. It should not be a part of your insolvency problem, and I would like to see that get eliminated from this whole discussion. And I hope my colleagues would support doing just that.

    Mr. LACY. We certainly appreciate that, and we would welcome your support on that.

    Mr. BATEMAN. Well, it would help if I could get specifics on the $3.5 million in deferred maintenance. What is it? What are the priorities, and in what order or sequence would it have to be done? And how much of it could be accomplished within fiscal year 2000, should it be authorized and funds appropriated?
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    But clearly, I think we need a transfer of the fiscal responsibility for that very necessary activity to someone other than the soldiers and sailors and airmen of the United States, and let it be a burden on all the taxpayers of the United States.

    Mr. LACY. We will certainly provide that information to you.

    Mr. BATEMAN. Thank you.

    [The information referred to can be found in the appendix.]

    Mr. BATEMAN. With that, Mr. Ortiz.

    Mr. ORTIZ. Thank you, Mr. Chairman. Mr. Lacy, I understand that the board of directors initially requested permission to sell the property, and the committee and the Congress responded favorably to the request. In the most recent legislative language, the Catholic church would be the only eligible entry—if I am correct now. While on the surface it might appear that it would be a pretty good deal for the church, the language of the bill also requires that the Board of Directors determine the fair market value of the property that would have to be paid. And I would like to ask the following questions.

    Now, are you concerned that the Board would not be able to arrive at a fair market value that will satisfy the spirit and intent of the law? And how do you assess the advantages and disadvantages of a sale of this property resulting in a one time infusion of cash into the Trust Fund in comparison with the—to the advantages and disadvantages of a development project that promises a steady funding stream for the Fund? Now, what risks are associated with the proposed development project? And if approved, when would the development project begin to contribute to the Fund? And my last question is, if the Department approves the 50 cents increase, what would be the impact of the viability of the Trust Fund? I know there is a lot of questions, but maybe you can touch on my concerns.
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    Mr. LACY. OK, if I may I will ask Dr. Branch to handle the first numbers of those of questions, and then I will ask General Hilbert to answer the final one.

    Mr. ORTIZ. Sure.

    Dr. BRANCH. Sir, the additional 50 cents would cover about two-thirds of the annual deficit that we have, and we are looking for other options for the other third.

    At the moment, our responsibility is to develop all options to maximize revenues to the Trust Fund. There has been—we are at a position that we cannot as yet judge which is the best option for maximizing the revenues to the Trust Fund because we have not had a fair—we have not had an MAI approved appraisal on the highest and best use.

    We do know that our—that the initial cash-flow analysis suggests that we can achieve $49 million in present value dollars for the extended lease option, and that seems to be the starting point for the value of the land. The most reasonable way to try and understand the value of the land is the competitive bid process, and that is the one that, at the moment, we are precluded from following; and so we cannot respond to you of what would be the highest and best appraisal of that land.

    Mr. ORTIZ. Anybody else would like to?

    General HILBERT. I would just remind the board and distinguished Members of Congress that thanks to you all, in 1995 a law was passed that raised the donations of our Active Duty force from 50 cents to a dollar. For, I do not know what reason, the intent of Congress has not been carried out by the Department of Defense to date.
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    Already that one item has cost the Home $34 million because of the problem of not enacting that legislation. As you can see, sir, an income stream of $7.4 million to $7.5 million a year would certainly assist us a long way in continuing to serve our distinguished veterans.

    Mr. ORTIZ. See, and that was going to be my next question, because Congress a year ago increased this fee to a dollar. Has anybody from DOD or those responsible contacted you as to when we can utilize these funds?

    Mr. LACY. We have made formal requests to the Department of Defense on a number of occasions asking that the 50 cents be provided for and it be implemented.

    Mr. ORTIZ. Four years and nothing has been done yet?

    General HILBERT. That is correct—four years—there—the Department of Defense has had it for 4 years. There have been some problems in getting it approved through all of the services, and, at the present time, we are aware that the Assistant Secretary—Under Secretary of Defense for Personnel and Policy is working on that particular matter right now. But as of this minute, we do not have the increase.

    Mr. ORTIZ. Just one last question, Mr. Chairman?

    Mr. BATEMAN. Yes.

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    Mr. ORTIZ. Do we know or do we have any idea how much money has accumulated? Or how much money is sitting there?

    Dr. BRANCH. No money is sitting there, sir, because the second 50 cents has not been requested. I—We did speak with the officials in the Department of Defense Monday of this week, and they expressed the desire to work with us. They had hoped that there would be a total solution to this solvency issue. The second 50 cents, as I mentioned, will solve the insolvency, about two-thirds of the insolvency problem, and we need the conversion of the asset for the other third of the problem. With both of these opportunities, the Defense Department is very encouraging of moving forward with the second 50 cents.

    Mr. ORTIZ. Thank you, Mr. Chairman.

    Mr. BATEMAN. Thank you, Mr. Ortiz. Mr. Sisisky.

    Mr. SISISKY. Thank you, Mr. Chairman. Most of my questions really were for the church. But let me understand something. You did a plan, the Home did a plan, from a commercial standpoint, am I correct? Or did somebody come to you to do a plan?

    Mr. LACY. No, we sought assistance in a business plan for us to be able to evaluate it as an option for the use of that——

    Mr. SISISKY. On the 49 acres of land?

    Mr. LACY. Yes.
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    Mr. SISISKY. Did I read somewhere in there that the income would be about $2.5 million a year, is that—or $2 million a year?

    Dr. BRANCH. It is two—between $1.2 million and $3.5 million, most of the time averaging in the $3 million range, sir.

    Mr. SISISKY. And who did this study for you?

    Dr. BRANCH. A corporation by the name of LCOR in Pennsylvania.

    Mr. SISISKY. Because using a 5-percent interest rate, it would put the value of the property somewhere between $40 million and $50 million, I assume.

    Dr. BRANCH. Yes, sir.

    Mr. SISISKY. In that regard.

    Dr. BRANCH. Sixty million dollars at 5 percent would be the $3 million, sir?

    Mr. SISISKY. What is the city's position on this? They do have some play in here, because it is obvious that the property is tax exempt now, I assume?

    Dr. BRANCH. Yes, sir. We had extensive discussions with the NCPC, the National Capital Planning Commission. They have a strategic plan. Our proposals are consistent with their strategic plans. They were very encouraging of the use. If we are able to recommend that the maximum benefit to the Trust Fund for the disposition of this land is, indeed, to develop by extended ground lease, the NCPC would be pleased because many of the activities would then go on to the tax base because they would be lease activities of for-profit corporations.
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    Mr. SISISKY. But you would have no trouble zoning—that is the other thing I was—you would have no trouble zoning with the Home across the street and a university next door? You would not have any problems zoning?

    Dr. BRANCH. Sir, my understanding is that there are always challenges to zoning, and but we have been assured that the proposal is within the framework of zoning.

    Mr. SISISKY. Thank you.

    General HILBERT. But it is Federal property, sir.

    Mr. SISISKY. I understand.

    General HILBERT. And through the NCPC, they said that we would not go—have to go through the zoning process.

    Mr. SISISKY. You would have to go through the zoning process if you built commercial.

    General HILBERT. If we built commercial——

    Mr. SISISKY. Oh, absolutely, I would think, whether it is Federal property or not.
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    Mr. BATEMAN. Before calling on Mr. Hunter, let me ask unanimous consent to have entered in the record a communication from Senator John H. Chafee.

    [The information referred to can be found in the appendix. ]

    Mr. BATEMAN. And on clarification, am I correct in the belief that there is no issue here as to whether or not the 49 acres is surplus to your needs. The only question is, how to dispose of it?

    Mr. LACY. That is right. I mean, that land is currently vacant. It is surplus to our current needs. Of course, we do not know what our long-term needs will be 25, or 35 or 50 years from now. That is one of the reasons we wanted to at least evaluate an option that would allow the land to remain in our hands ultimately.

    Mr. BATEMAN. But in terms of what is foreseeable and based upon the recommendations of the consultants that were engaged after 1995, the land is surplus?

    Dr. BRANCH. It is surplus in the immediate time span. The original evaluation did not consider the need for residences once the Vietnam era veterans are also eligible for residence in our facilities.

    General HILBERT. The reason, Mr. Chairman, that the 49 acres became available is that we were trying to seek solution, putting 24 percent of my workforce, drawing down about 800 folks, increasing the user fee, actually closing two dormitories plus our laundry. This was not enough. We just—so we were looking for other means in order for us to develop moneys so that we could continue in operation. That is the reason why it became surplus.
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    Mr. BATEMAN. Thank you. Now, Mr. Hunter of California.

    Mr. HUNTER. Thank you, Mr. Chairman.

    Gentlemen, thank you for being with us today. And I think of the Home as being not only a great place in terms of serving our veterans, but also really kind of a national treasure. It has got all the history. I think Lincoln signed the Emancipation at that site. It has got beautiful historic buildings, big trees, lots of wildlife, and it is really a wonderful, wonderful place. And I think Mr. Chairman stated it pretty clearly, that our goal here is to do the best we can—as I think is your goal—to do the best we can for the veterans, and to see to it that they have as much in terms of resources as possible and as much of a guaranteed income, if you will, from this land as possible.

    Let me ask a little bit just about the Home first. Generally, you are talking about the deficit that you operate under. What is your annual cost that you have to try to meet, just in general terms?

    General HILBERT. For both Homes, it is $53 million operational, and, of course, most of that cost is in nursing care and——

    Mr. HUNTER. Yes, but $53 million. What are your annual revenues?

    General HILBERT. About $45 million.
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    Mr. HUNTER. Where does that come from?

    General HILBERT. That is from the combination of fines and forfeitures from Active Duty forces, 50 cents from all Active Duty forces. Right now, it was 25 percent of the retired pay from the residents themselves, and unfortunately we had to raise that, that is, at this moment. It is going up to 40 percent, but it is now 35 percent of taxable income. And then those small donations that we receive—bequeaths, et cetera.

    Mr. HUNTER. OK, so you have got——

    General HILBERT. Excuse me, I am sorry. Our money is in the Treasury of the United States, so we——

    Mr. HUNTER. How are you earning interest on your Trust Fund money?

    General HILBERT. About 5 percent—five and a half percent, I believe.

    Mr. HUNTER. And what does that amount to—in that part of the $45 million in income that you have to match against expenditures of $53 million?

    General HILBERT. That is correct, sir.

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    Mr. HUNTER. You have got $53 million in costs; you got $45 million in income. You got a deficit there of $8 million you are trying to make up?

    General HILBERT. Eight, yes, sir. Unless, you know, we do have some capital improvements as you have seen when you visited. We do have some capital, though the operating expense about $8 million, so it runs between about $8 million and $12 million per year with the capital improvements. This is for both Homes, not just the Soldiers' and Airmen's.

    Mr. HUNTER. OK. How are you getting by?

    General HILBERT. Thank God, over the years the Trust Fund has built up—when I arrived there, about 9 years ago, the Trust Fund was about $180 million. Great and so we have been able to sustain ourselves because of that wonderful Trust Fund built up over the years.

    Mr. HUNTER. So you are taking—you are basically eating into the capital of your Trust Fund?

    General HILBERT. Correct, sir.

    Mr. HUNTER. So you are taking—how—where is the Trust Fund now. It was a $180 million a couple of years ago. Where is it now?

    Dr. BRANCH. About $110 million, sir.

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    Mr. HUNTER. A $110 million. So you are still getting pretty sizable income of it—at the rate of what is your interest rate?

    General HILBERT. About five and a half percent, sir.

    Dr. BRANCH. Less than five, sir. Slightly less than five.

    Mr. HUNTER. If you are getting five and half, let me know where you are getting it?

    OK, let go now to the property——

    General HILBERT. I am a soldier, not a——

    Mr. HUNTER. If your property—you have talked about the plan you have developed. Now, is that—I thought there was developer who was interested in doing this, is that right? I mean, there is not just a plan out there, but there is also a developer who has stepped forward and said, I would be willing to step up to the plate and enter a contract with you, is that right?

    Dr. BRANCH. Yes, sir, and, in addition, there have been all kinds of expressions of interest from the business world to be participants in whatever development occurs.

    Mr. HUNTER. OK, but let me just ask you. There is lots of participants, and most participants that I see in contracting are folks that want to participate with your money. In terms of a real buyer or a real developer who wants to work out a long-term lease with you, you have got one who is willing to sign up to a long-term leases.
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    Dr. BRANCH. Yes, sir.

    Mr. HUNTER. That are kind of as you described. $49 billion (sic), taking $49 billion (sic) in current value. Building how much in terms of real improvements?

    Dr. BRANCH. Over $100 million at present value—$53 million.

    Mr. HUNTER. OK, putting $100 million in improvements on it; paying you a substantial amount of lease each year for how many years?

    Dr. BRANCH. Thirty-five years, sir.

    Mr. HUNTER. OK, and you do not have to take any exposure. They are not going to ask you to subordinate your land to development costs?

    Dr. BRANCH. Correct. They are not.

    Mr. HUNTER. So the land remains totally free, clear, and under your ownership?

    Dr. BRANCH. Yes, sir.

    Mr. HUNTER. You are simply loaning your—you would be leasing land, and the buildings would accrue to your ownership as they come on?
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    Dr. BRANCH. Yes, sir.

    Mr. HUNTER. And they would do that for a—have you looked at the pockets of this developer? Have they got some deep pockets, because I made contracts with folks that, in the end, did not have the horsepower to do it. And, you know, you spend a lot of time signing documents, and you end up with some lonely walks.

    Dr. BRANCH. Sir, we have looked and——

    Mr. HUNTER. I talked to Sisisky, and he taught me how to make good deals after that.

    Dr. BRANCH. That is exactly what we are trying to do is make the best deal possible for the benefit of the Trust Fund so that we can, in turn, return services to the veterans.

    Mr. HUNTER. OK, but have you looked pretty thoroughly at the capability of this prospect developer?

    Dr. BRANCH. Yes, we have, sir.

    Mr. HUNTER. They have the horsepower to do this, you think?

    Dr. BRANCH. Yes, yes, we do. But I want to hasten to add that this is not the final proposal that we want to present. We want to consider all options to maximize the revenue. This is just one option. What we are after is making sure that we do not have sole source bid for a sale which might not be, might not——
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    Mr. HUNTER. OK.

    Dr. BRANCH [continuing]. Might not maximize revenues to a function.

    Mr. HUNTER. OK. Now the church, and they are going to have a shot here in just a minute. They have placed—Coopers and Lybrand placed a value at about $12 million when they were solicited—when they were trying to come up with the fair market value.

    Dr. BRANCH. For undeveloped land, yes, sir.

    Mr. HUNTER. Obviously, I mean, property is worth what you can get for it. If this is a bona fide offer that you have got with the guy—with a company with lots of horsepower and assets willing to sign on the bottom line, that probably affects the fair market value. I mean, value is what you get for it.

    Dr. BRANCH. Yes, it does.

    Mr. HUNTER. Did you have any things like—any offers like that when Coopers and Lybrand made their initial assessment?

    Dr. BRANCH. Sir, it is my understanding that there was expressions of interest for several times the Coopers and Lybrand amount when we first solicited for a partner to develop options for us, to propose options for us, but we were not prepared to entertain them, and so nothing happened to them.
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    Mr. HUNTER. OK, but so, you do not think that those—this kind of offer was not on the table for Coopers and Lybrand to look at at that time?

    Dr. BRANCH. Correct. Yes, sir.

    Mr. HUNTER. OK, and as I understand what—you know, you are—this developer's offer has been characterized, you know, just by rumor, as being one in which they want you to become their partner. And I know there is a lot of hesitancy on the Hill to become—to have a government agency become a business partner or co-developer. But what you are saying is that this is not a partnership, just straight out long-term lease, and one in which you receive the ownership of any improvements that come on the property?

    Dr. BRANCH. Yes, sir.

    Mr. HUNTER. Over a long period of time. So you are not risking a dime of your own capital? You are sure of that?

    Dr. BRANCH. Yes, sir.

    Mr. HUNTER. I take it, then, that your position is that you want this to be a competitive deal?

    Dr. BRANCH. Yes, sir.

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    Mr. HUNTER. With you folks making the final cut on who gets the deal?

    Dr. BRANCH. Well, we would come before Congress, sir.

    Mr. HUNTER. I understand.

    Dr. BRANCH. With the proposal.

    Mr. LACY. But, it would give—we are looking for the board to be able to have the opportunity to evaluate all options.

    Mr. HUNTER. OK.

    Mr. LACY. And to bring a recommendation.

    Mr. HUNTER. OK, so if you are $8 million to $12 million short each year, and you could make this deal, and you would get, say, $3.5 million or so a year, you would be coming pretty close to taking care of half the deficit?

    Dr. BRANCH. We would be pretty close to solving our problems, sir, with the second 50 cents being able to generate the other $7.5 million per year—the $7.5 million and the $3.5 million would, indeed, make us solvent.

    Mr. HUNTER. OK. OK, I think I understand it a lot better than I did before. Thank you very much, Mr. Chairman.
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    Mr. BATEMAN. Thank you, Mr. Hunter. Mr. Gibbons.

    Mr. GIBBONS. Thank you very much, Mr. Chairman.

    Gentlemen, welcome here today. Thanks for your testimony, and the let the record reflect I would like to associate myself with the comments of the chairman and my colleague here to my left, Mr. Hunter, on the pride we have in the service you are contributing to retired veterans of this country.

    My question is very simple, and I will not take too much of your time. I want to know has the Home or the Board been involved in prior real estate activities that would give it experience in this regard to being in the commercial real estate market?

    Dr. BRANCH. Sir, there have been several instances in the past in which land that was declared excess from the original 500 plus acres was made available to other institutions. The city of Washington received some land for the clover leaf near us. The land for the Veterans' Administration Hospital bordering us was originally part of our land—also, another hospital. We have previously land—sold land to our neighbors. Some of that land was, in turn, resold for private development, and at a profit from what we had sold. So we have never had prior experience in the development of the land—it is—of our land. We have always previously made it available to other people for their use. The most recent experience showed that the people who obtained that land, in turn, resold it for a considerable profit.

    Mr. GIBBONS. Once you get into this process, once you get into this commercialization of the land, so to speak, with you as the landholder, the management costs obviously are going to be a consideration of the expenses of operation. Are you going to cost out that management for this property? Is that part of the plan?
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    Dr. BRANCH. Yes, sir, that is part of the due diligence to make sure that everything is correct.

    Mr. GIBBONS. Once you get to the 35-year point, of course, the property reverts back to the Retirement Home Board. At that point in time, you become solely responsible at that point, both for the management and the cost and maintenance. It looks to me like at the 35-year point, you are going to incur a rather large obligation for the maintenance of this Home or this property, whichever it turns out to be, and as well for the management at that point in time. Is that part of the plan. How you would deal with it?

    Dr. BRANCH. Yes, sir. And, in fact, in that time interval, we would expect that those assets could be refurbished and become residences of tenants of the Soldiers' and Airmen's Home. We are in the process of completing renovations of existing facilities. There is a cycle with which that needs to occur, and the 35-year timetable is a very desirable timetable for us to have extra facilities available for residents.

    Mr. GIBBONS. And those costs and that expectation, of course, would still be considered in your assumed viability of the Trust Fund once you have reached the 35-year period maintaining the maintenance, maintaining the costs on your own of the operation?

    Dr. BRANCH. Yes, sir, as is the rehabilitation of existing structures that is ongoing at present.

    Mr. GIBBONS. Thank you very much, Mr. Chairman.
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    Mr. BATEMAN. Thank you, Mr. Gibbons. Mr. Maloney.

    Mr. MALONEY. No questions, Mr. Chairman. Thank you.

    Mr. BATEMAN. Mr. Ortiz, Mr. Sisisky, do you have further questions of this panel?

    Mr. ORTIZ. No, I do not have any further questions, Mr. Chairman.

    Mr. BATEMAN. Well, if not, gentlemen——

    General HILBERT. Mr. Chairman, may I just make one comment here? My responsibility—I am a soldier. I have been a commander 35 years, and I now have the privilege of commanding the U.S. Soldiers' and Airmen's Home. We must, and as you have all said, we thank you so much for your support. We have 1,600 living at the Home right now.

    And, if I may put a face on some of these—the type of people that we have. We have gentlemen like Chief Engineman Allan Gordon, 82. He enlisted in the Navy in 1934. He served aboard a total of 21 submarines, battleships, and destroyers during his 22-year career. A native of New York, he was stationed on the submarine Growler in the Pacific in 1942, when the submarine sunk two Japanese destroyers and left one laying on its side. Chief Gordon has lived with us for over 7 years now.

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    We have Army Sergeant Bill Woods—Boston, Massachusetts—served four tours in Korea; two in Vietnam. His second tour in Vietnam landed him right in the middle of the Tet Offensive. By the time the war was over, Sergeant Woods had more than 10 battle stars and numerous awards for bravery from Vietnam alone.

    It is a special honor for me to introduce Sergeant Mary Tropeano, 88 years young, who served with the Ninth Air Force in England during the Normandy invasion. She was a communications specialist and was sent to Europe and worked right near the front lines throughout the war. Sergeant Tropeano has five battle stars from World War II. She has retired after 23 years and has lived in the Home for over 10 years.

    And, finally, may I ask, Tennessee veteran Sergeant John Wright, 83, this gentleman is one of four of our Buffalo Soldiers at the Home. A combat vet World War II and Korea, Sergeant Wright served with the Ninth and Tenth Cav. During World War II, he found throughout north Africa and Italy. He came to the Soldiers' and Airmen's Home 30 years ago, and wants to make sure that his home remains the same until he departs.

    Thank you, sir.

    Mr. BATEMAN. The Chair is going to exercise the prerogative of first responding, and then I can call on my colleagues.

    General, thank you for introducing these splendid veterans. I think it should go without our needing to apply a lot of rhetoric or oratory to this that this committee is not going to see that Home, their home, endangered or unsupported. The only issue before us is the question of what is the fairest and best, most equitable way to see that it is supported. It will be their home as long as they want it to be their home and need it to be their home. And we are very, very impressed with the fact that we have those splendid veterans that you introduced with us. And I want them to know, as I would want every veteran and every American to know that there is complete and total solidarity that their home is going to be protected.
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    Congressman Hunter.

    Mr. HUNTER. Thank you, Mr. Chairman. I want to associate myself with your words, and thank everyone who is at the Home who really was responsible, and all these folks with their wonderful experience in Vietnam and Korea and in other conflicts around the globe, and World War II, are really the folks that won the cold war for us. And I just want to say, Mr. Chairman, you are one of the hosts, along with myself and several other Members, of a fundraiser being put on by Jerry Woods, a former Navy pilot who now works for Northrup, for the Trust. And we are going to be doing that in the next couple of weeks. And we would like to invite anybody who wants to participate in that fundraiser to be with us.

    And I just want to echo your comments that we want to do what is right here. In my own mind, the idea that we have got other people coming forth beyond the church to express interest and push that price up is not a bad thing. And I think, hopefully, at the end, we are going to have a price that is a lot higher, and income that is a lot higher than that projected to be driven by that first number, that $12 million that was put out there.

    So, let me pledge myself to work with you too on this issue.

    Mr. BATEMAN. Thank you, Mr. Hunter, and I think that, unless there is something new that the panel of witnesses has to offer, we should let them retire with our great appreciation and our very definite request that you respond to any written questions that members of the subcommittee may see fit to present in—for your response for the record; also, that you keep me and the staff involved as to further developments as this matter goes forward.
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    And we thank you for being here today.

    Mr. LACY. Thank you, Mr. Chairman, and the Members.

    Mr. BATEMAN. I cannot swear that I can read all that is on it, but it is about as visible as you are going to be able to make it.

    The subcommittee will come to order, and it is now my pleasure to introduce the second panel, and the witness on that panel is the Very Reverend David M. O'Connell, who is President of the Catholic University of America. And I see him joined at the table by Bishop Lori. We welcome you both, and I will let you introduce your other associates, Father O'Connell.


    Father O'CONNELL. Mr. Chairman and members of the subcommittee, I am Father David O'Connell, the President of the Catholic University of America, an educational institution of both local significance and also national stature.

    With me today, on my immediate right, is Bishop William Lori, the Auxiliary Bishop of the Archdiocese of Washington; on my left, Mr. Robert Comstock, the Vice Chairman and Chair of the Finance Committee of our University Board of Trustees; and on the far right of the table, Mr. Richard Bednar, an attorney for the university. I have asked these individuals to be present since I have only been president at the Catholic University of America since September 1 of this past year, and they are much more conversant in some of the issues that preceded my tenure.
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    Catholic University, as you know, has been in Northeast Washington since 1887. It is a center of learning for about 5,500 students, an employer of nearly 1,500 persons, about 40 percent of the administrative staff of whom are minorities and residents of the District. And the university if also the economic engine for about $300 million per year going into the local economy. Catholic University is supported in large part by nearly 20,000 parishes, located in every state of our nation.

    We very much appreciate the opportunity to appear before this subcommittee regarding its consideration of the Congressionally authorized sale of 49 acres of excess Federal land, presently held by the U.S. Soldiers' and Airmen's Home, adjacent to the Catholic University. I cannot point to the map, but you can see that area is present in the middle section of the map. We come to this hearing today, we come before you, as a neighbor to the Soldiers' Home, a neighbor that seeks to purchase the 49 acres, at fair market values. Today, I will speak to only to three main points: first, why we have an interest in the 49 acres. Second, why the university is the logical and worthy buyer of the 49 acres, and third and finally, why the Soldiers' Home and the university have harmonious objectives, both of which can be realized.

    First, why we have an interest in the 49 acres. The university itself occupies approximately 150 acres of the campus in northeast Washington, where it has been for more than a century. It has a realistic expectation of growth, which will require additional grounds. One day in July 1997, Cardinal Hickey, the Archbishop of the Archdiocese of Washington, read an announcement in The Washington Post to the effect that the Soldiers' Home's 49-acre parcel contiguous with the University might be available for purchase. The Cardinal immediately saw this news as an opportunity to meet the university's future needs, and asked the university administration to look into the possibility of a purchase.
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    In looking into the matter, we learned that, in April 1996, the Armed Forces Retirement Home Board, based in part on what the record shows to be a study by Coopers and Lybrand, had recommended to the Senate Committee on Armed Services the sale of the 49 acres to help meet the revenue needs of the Soldiers' Home.

    Additionally, we learned that, in September 1996, by Section 1053 of the Defense Authorization Act for 1997, Congress did authorize the Armed Forces Retirement Home Board to convey, by sale or otherwise, all right, title, and interest of the United States in those 49 acres. We were excited by the opportunity presented by this Congressional authorization for sale. The Archdiocese of Washington, for itself and on behalf of the Catholic University and other contiguous Catholic entities, submitted a proposal, in October 1997, to purchase the 49 acres at fair market value, not at any discount. While the Archdiocese initially spearheaded the offer to purchase, Catholic University has emerged as the entity which would acquire the 49 acres of land for its use.

    Since the October 1997 proposal to buy the property, the picture has become clouded. We have been told that the Soldiers' Home has received, and is considering, proposals from land developers speculating about the commercial development of both the Soldiers' Home's main campus and the 49 acres that is our interest. Because the Soldiers' Home is on property of the United States of America, the Congress has the sole authority to decide its disposition. In fact, Congress already has made its intent clear by giving express statutory authorization to sell the excess 49 acres to the university at the fair market value for its highest and best economic use.

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    Since Congress already has enacted authority to sell the 49 acres to Catholic University, the proposed speculative development of the 49 acres would require a change in the law.

    Our second point: Why the university is the logical and worthy buyer of the 49 acres.

    Catholic University has been the Soldiers' Home's closest neighbor for over 100 years. The university and related Catholic entities have embraced the residents of the Soldiers' Home in its social services, nursing, and pastoral care programs. For example, the religious community of the Daughters of Charity, who operate the nearby Providence Hospital, provided nursing care at the Home for a century. These sisters, including Sister Carol Keehan, current President of Providence Hospital, nursed the veterans and lived at the Home until the 1980's. We deeply care about and support the Home's mission and its importance to our country, and we join you in saluting the veterans who are present and the veterans throughout this nation. And I assure you that we stand firmly opposed to anyone taking advantage of our veterans.

    We are most willing to pay fair market value for the 49 acres, thereby providing the Home with guaranteed, immediate income. In addition, we shall preserve a dignified and responsible use of that property, consistent with the purposes of the Home and with the character of the neighborhood in which it is found.

    While many other institutions fled the city during tough times, the university has remained steadfast in its presence in northeast Washington and as vibrant contributor of culture, services, and economic enrichment of the neighborhood. Catholic University's missions are wide-ranging to the residents of the Soldiers' Home, to the neighborhood, and to the city of Washington. The University and its affiliated church organizations have a solid record of providing vital services to and enhancing the economy of the local community.
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    Acquisition of the 49 acres would further anchor the university in the community, and it would allow the university to better serve the many who participate in and benefit from its many missions.

    Third. Realization of the Soldiers' Home and university objectives. Congress, as reflected in the law, has directed the sale of the 49 acres to Catholic University. Such sale is entirely consistent with the Soldiers' Home Board's own objective to sell the 49 acres, as the Board told the Congress in 1996. As is evident from the sketch map of the area that you can see on the map, North Capitol Street is a major, six-lane, limited access, divided expressway, providing a natural and logical boundary between the Soldiers' Home main campus and the 49 acres that are of interest to us. The 49 acres is a natural entryway into the grounds which already constitute the university and related archdiocesan activities. There is the John Paul the Second Cultural Center to the north, the university and the Basilica of the National Shrine of the Immaculate Conception to the east and south, and other Catholic institutions further to the south and to the east of the 49 acres. North Capitol Street suggests a logical separation between the Soldiers' Home activities to the south and west and the university's activities to the north and east.

    The University's preliminary development concept for the 49 acres includes the establishment of a biomedical research facility, expanded educational and research activities, student housing facilities, and administrative support for the adjacent $50 million John Paul II, the Second Cultural Center, which already is under construction. If we are to commit resources to fulfill this concept, we need to own the 49 acres. We cannot risk an uncertain partnership with a commercial developer.
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    We bring the market with us in real terms of spending within the city by university employees, its students, its scholars, its researchers, and its visitors. As I testified earlier, the university estimates that these activities contribute about $300 million every year to the economy of the District of Columbia. In addition, 40,000 hours of voluntary community service each to the local community are done by our students. We offer a legal clinic, nursing care, care for the homeless, a tutoring program—the D.C. Read Program. And a sorority on the campus for the last 10 years has had a program of visiting the soldiers in the Soldiers' Home and providing companionship to them. These are concrete numbers, not speculation of what future commercial development might bring.

    Our proposal is on the table to buy the 49 acres at fair market value. The Soldiers' Home needs money; Catholic University offers the proverbial bird in the hand. We are not interested in buying any part of the Soldiers' Home's main campus west of North Capitol Street. We understand that the Soldiers' Home has under consideration a separate commercial development proposal for its main campus on the west side of North Capitol Street. Assuming that commercial development of the main campus of the Soldiers' Home is harmonious with existing land use in the area, we foresee no objection by neighbors to such development of the Home's main campus. For our part, we certainly will not develop the 49 acres in a way that is inconsistent with the development of the Soldiers' Home's remaining acreage. Assuming the commercial development of the Home's main campus is compatible with the neighborhood, we would specifically yield to the Home any otherwise justifiable position we might assert as to the use of the property west of North Capitol Street. We envision this as a solution that meets the objectives of both the Home and the university.

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    Upon sale of the 49 acres to the University, the Soldiers' Home will gain an immediate infusion of a substantial amount of cash, while it seeks Congressional approval to pursue commercial development of the Home's main campus west of North Capitol Street.

    And I thank you for this opportunity to address your subcommittee, and I would be pleased to respond, or my associates to respond, to your questions.

    [The prepared statement of Father O'Connell can be found in the appendix.]

    Mr. BATEMAN. Thank you very much, Father O'Connell. Bishop Lori, would you care to add anything for the record?

    Bishop LORI. I would just like to reiterate our gratitude for the opportunity to appear here today, and I would just like to say that there has been a lot of misunderstanding about our intentions. Our intentions are, indeed, as Father O'Connell has stated so well, to offer immediate support and help to the Home, and, at the same time, to continue our educational and charitable activities in the neighborhood.

    And I would just like to sort to stress, to emphasize for the record the massive commitment that the church has in the area. The National Shrine, which is the largest Catholic church in the western hemisphere, the university, the Little Sisters of the Poor, right up the street—many of the sisters are here today, together with the residents. We have Archbishop Carroll High School right up the street. Our two Catholic newspapers are in the neighborhood. Capushon College, a retreat house; a theological college; and the bishop's conference. The list is quite long, and we intend that northeast Washington will always be our home, and as a church, not in terms of 5 years or 10 years or thirty-five years, we do, indeed, think in terms of centuries. So thanks again.
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    Mr. BATEMAN. Thank you, Bishop. Let me make a couple of comments before I turn to my colleagues. I hope we do not have nearly as much of a problem here as some would perceive it to be because I have listened to two panels of witnesses. I have talked to the people who are part of the panel, both panels, and I see nothing but common objectives in terms of what wise public policy ought to be able to promote and to facilitate. We have got to find a way, and I hope we will find it, whereby the objectives of the Home and its board, on behalf of its residents, is met in maximizing the economic capability of the property which has been, at least as far as one can foresee, a rule to be surplus.

    That having been said, who would be better serving the public interest than the neighboring property owner, whose activities certainly are eleemosynary at the very, very least, and which are a benefit to the community that they have lived in and served for more than 100 years. Somehow, we have got to find the wisdom of seeing that these very compatible objectives can coalesce and that will be my very definite charge to try and facilitate that happening, not to the detriment of the Home, not to the economic benefit of the church, because it is not my prerogative to make largesse for the church. Certainly, those two objectives should not be looked upon as incompatible. Mr. Hunter?

    Mr. HUNTER. Thank you, Mr. Chairman, and gentlemen thank you for your statement.

    Let me ask you a question. The panel that preceded us, the folks that are having to try to make these decisions, would like to have two things, I think. No. 1, a fair market valuation of the property that they feel now because of an offer that they have on the table, which, in their estimation is real offer, a significant increase in the appraised value of the property. I mean, your Coopers and Lybrand for your initial study put it at $12 million. They have apparently not just a plan that calls for a $49 million valuation, but apparently a real developer that would pay that much. So that is roughly four times as much.
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    Second, they want to have a guaranteed income flow that—and, of course, deals can be structured in terms of land transactions that will do that. My question to you is having learned about and sat and listened to their description of a long-term lease arrangement, where in the end of that arrangement, 35 or 40 years, they accrue to the ownership of the buildings, whatever buildings they put on their accrues to them, but presumably the value of that is going to be that they enter into a new lease and continue the income flow; or they are able to use part of that—those buildings to house a new generation of constituents, of veterans. Are you folks adverse to doing a long-term lease? No. 1, are you adverse to a new appraisal of the property? And No. 2, are you adverse to a long-term lease? And last what are your thoughts with respect to an open bidding process, where you have—where other folks that want to bid on this thing can at least come forth and drive the price up nicely?

    What are your thoughts on those three things?

    Father O'CONNELL. Well, as far as the competitive bidding process, there are factors at work here that are obviously other than the price alone, and there are factors that are of concern to us as a church-related institution with the entities that we have described.

    But I am going to defer this to—defer your question to Mr. Comstock.

    Mr. HUNTER. OK.

    Mr. COMSTOCK. Thank you. Congressman, I would like to clear the record on one thing first, and that is that NCPC is not a city agency. It—and this property would be subject to the city zoning.
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    No. 2, in answer to your question, Congressman, open bidding does not always realize the best price on a property. And I think what Congress did here in saying an independent appraiser, using the highest and best economic use of the property as a guideline, comes up with a fair market value that nobody can quibble with, if they do it in accordance with GSA regulations. And I think, therefore, the highest bid is a possibility that may bring a lower amount of money. Do not forget this property is totally surrounded by Catholic church property—different entities.

    Mr. HUNTER. Well, I am aware of that, but I guess what I am saying is that I am putting a lot of credence on the fact that they say that they have a developer who, right now, will sign—who has lots of horsepower and financial resources—will sign on the bottom line to pay what amounts to $49 million today—that is that value—and that is arrived at by paying rent over a certain period of time, plus accruing the benefit of some $100 million worth of construction.

    Now, you know there are several ways to determine what a value of any object is, whether it is land or personal property. But, by far, the best determinant of what something is worth is what you can get for it. And so I think you have to understand the problems the veterans have now is they have a piece of paper which is an appraisal is one that says, this is what we think you could get from somebody for a certain piece of property. But on the other hand, they have an offer that says, we will give you four times that much and we will sign tomorrow.

    Now, if you were going to sell your house, and I was your real estate, and you say, well, what do you got in terms of price for my house, and I say, well, I got the appraisal they did 2 years and it says your house if worth 50 grand; on the other hand, I have a buyer who will sign tomorrow who can give you $200,000 cash for your house, which would you take? It would be pretty tough for you to argue that the $50,000 was done in more a tried and true manner; and, therefore, you do not want to take the buyer.
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    So I think we have to see the world as it really is, and if they have a genuine buyer, it is going to be pretty tough I think for this, and I am not speaking for my chairman of the committee. It is going to be pretty tough for Congress to say, we are going to turn down this offer to pay the veterans four times as much when they desperately need money, because we got an appraisal.

    I mean, appraisals, you know, in court cases, appraisals can be—can differ as much as 500 percent with no problem whatsoever.

    Mr. COMSTOCK. But Congressman, if they have in that plan the assurances that you questioned them about, that will show up in this appraisal that GSA is authorizing; and that will be the number that will come out as the appraised at the highest and best use. That property presently sets unzoned, untested for environmental purposes or any other purpose that we know of. But my conclusion to you would be that if those documents are accurate and show that that offer is there, and the appraiser is certainly going to take it into consideration in coming up with his value.

    Mr. HUNTER. OK, but you—so my question is that you folks are willing to go if the Home wanted to do a long-term lease, assuming you come up with a price that they want, can you folks live with that?

    Mr. COMSTOCK. We would entertain——

    Mr. HUNTER. They like the idea of a long-term lease is what I gather from——
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    Mr. COMSTOCK. We would entertain a long-term lease. Obviously, we want an option to buy; we wanted to be shut out at some point. We could not afford to put up buildings and, at some point in time, put the property then up for sale?

    Mr. HUNTER. How about an option to renew?

    Mr. COMSTOCK. Renew or purchase.

    Mr. HUNTER. But you could live with that, with that type of a structure?

    Mr. COMSTOCK. We would not prefer it, but obviously it is one we would consider. Of course, you also have to consider yourself with the terms and conditions and the payments.

    Mr. HUNTER. Well, I think the chairman has put it well, and that this is not—this should not be a fight between who gets it with respect to the folks who are entrusted with the economic viability of the Home. It should be a question of how do you derive the best value. And they are interested in getting the highest value. And I am sure that if the church is willing to match what is a bona fide and real price that would be paid by others that I am sure that they would look favorably on having their neighbor have the property.

    But it appears to me, and maybe you can answer this question. It appears to me that the Coopers and Lybrand—I mean, when you do appraisals, you try to figure out what people, No. 1, have paid for property before. And then you try to figure out what they are willing to pay for property now; and generally past sales are things that you look, at least with respect to houses and buildings, and you say, OK, people down the street paid this much for property in the past, and you also look at the—you look at the zoning and the right to do certain activities on that property.
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    All that dynamic changes when you get a new offer for the property, and it looks like to me like the one good thing that has happened here is that the publicity has apprised a lot of folks about the property, and if you did this appraisal now, I think you would have a lot more information going into the appraisal than you had in the past. And so I think we have to take that into consideration.

    Mr. BATEMAN. Let me interject there that a part of the logic, if there be any, in what the committee and the conference approved last year was the development plan was ongoing and would be a product that would be delivered and which an appraiser would have access to in making the determination of fair market value at highest and best use. Now that is a pretty theoretical measure, but none of us can precisely determine anything of this kind. But obviously, our struggle is to see that the Foundation and the Board responsible for the Home do not get economically penalized. While at the same time, I would see no reason not to give the first opportunity, that condition being met, to the church becoming the entity that acquired the property. And that is our challenge—to make those—one objective compatible with the other objective, and I want them truly, genuinely compatible.

    Mr. HUNTER. So, Mr. Chairman, you would be inclined to give the church the right of first refusal, so to speak, but it would, I would presume, that would require—the main question there is at what price, and that would be based on whatever this fair market value is found to be. The only thing—I think—problem that we are going to have, Mr. Chairman, is this: it always becomes very difficult when you are trying to set a price with an appraiser as to, because all an appraisal is what you think somebody might pay for a piece of property. Once you get a player who comes in, a developer who comes and says, here is a contract, and I will pay right now $49 million for this set of—for this property, it then becomes very difficult to say that the fair market value is $25 million or $30 million, because the best appraisal of what something is worth is what people are willing to pay for it. That is precisely the end product that you are looking for when you do an appraisal.
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    So what we have now is something that we cannot escape. Apparently, and I have not seen this hard offer that we—the first panel talked about, but if you have a hard offer now on the table, it is going to be pretty difficult, I think, for us to entertain something less and say we are going to ignore the fact that there is somebody out there with real money that is willing to lay it down on the table and pay for it.

    Do you understand, Mr. Chairman, what I—how this has been complicated by this activity.

    Mr. BATEMAN. I understand fully the point that you are making, and I am sympathetic to the point that is being made. I would ask the Foundation to provide the committee with an in-depth treatment of whatever offer is on the table, including the covenants and conditions associated with such a proposal, because those terms and conditions and covenants restricting certain types of use will become a matter of how much someone is willing to pay for it. But you cannot conceive that this property would be disposed of for any kind of commercial venture that any zoning commission in the District of Columbia at any given point in time might see fit to authorize. And so we need to know—the Board spoke of covenants and conditions. Let us know the covenants and conditions you have in mind because the devil is in the details. And we need to know that.

    Mr. HUNTER. Good choice of words there, Mr. Chairman.


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    Mr. BATEMAN. Well, the Bishop and I had a discussion in my office in which we discussed things being above our pay grade, and he reminded me that he had taken a vow of poverty. I said, well, I did not, but it just turned out that way.


    But I hope you understand what we are grappling with and the result we are trying to reach. And it is one which we do not want to be the detriment of the very people that the Home exists to serve. Yet, at the same time, we do not want the church in a position where it has to pay some artificially inflated price in order to achieve its objectives. So I think there is a way we ought to be able to find these objectives blend. That is what this member of the committee is looking for.

    Father O'CONNELL. Mr. Chairman, may Mr. Bednar make a comment?

    Mr. BATEMAN. Yes, certainly.

    Mr. BEDNAR. Mr. Chairman, the observation that I would like to make for the record is that I think the legislation is in place to do exactly what the chair and the committee has in mind. The ultimate decision now lies with the consent of the Congress, of course, in the hands of the Board. And that decision will be made only after an appraisal, at fair market value, is at its highest and best economic use. And if we understand the plan now for the Soldiers' Home, it is to make available to that appraiser the study and the recommendation and the offer LCOR, its commercial developer, which will be factored into that appraisal process. So at the end of the day, it seems to us, that the job of the Soldiers' Home Board is to weigh the work of the independent appraisal versus the offer of the church, and to decide which is the best economic deal.
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    In summary, we think the legislation is in place to do exactly what the committee would have done here.

    Mr. BATEMAN. Mr. Talent?

    Mr. TALENT. No questions, Mr. Chairman. I just want to say that I have confidence in your ability to work this out and would intend to be supportive. I think you have outlined the considerations and just maybe one or two points for the record.

    I—we have an obligation to the Home, and I do not know that even the Home would tell us that they think their financial problems can be made up entirely by this land deal, so we are going to have to do something on this end, and perhaps, you know, perhaps we can vary that a little bit to make this more palatable. I think we would all like the church to have the opportunity to use this property if it is at all possible, and you just have to judge the competing considerations with that in mind. And I am prepared to be supportive. I am glad it is you doing it, so—and not me.


    Mr. BATEMAN. Thank you, Mr. Talent. Let me make one other observation. We have focused in some of our discussion about the Department of Defense not having gone forward with the additional 50 cents payroll deduction that we have authorized. I would not join my colleagues in criticizing them for doing that. I do not think this institution ought to be financed the way we have forced it to be financed. And I am aware that they have a Trust Fund accumulated from when we had maybe a half a million more people in the service who were paying that payroll deduction that are no longer there—when you go from 18 divisions to 10, and 30 wings and what have you to 12 or 13. Obviously, there are not as many people paying.
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    But that is a lousy source of revenue for this institution. And I think Congress, among other things, needs to face up to its responsibility for a fair, equitable, and continuing way to support this Home.

    Mr. TALENT. Will the chairman yield?

    Mr. BATEMAN. Yes.

    Mr. TALENT. It is our responsibility to care for him who has borne the battle, and we have not been doing a good job of it along a lot of fronts. And I think—if—I know the three of us here and other members of the subcommittee are doing the best we can to make sure enough money is available for these and other needs. And if we can do that this year, then these kinds of problems will be a lot easier to solve. I thank the chairman for yielding.

    Mr. BATEMAN. Thank you. Well, Father O'Connell?

    Father O'CONNELL. Mr. Chairman, if I could just make a comment. I think there is at times a temptation, and we all succumb to it, including those sitting here in black suits at this table, to think of the church as—only as an institution, a faceless institution. And I would just like to say for the record that this institution is also a community. It is a community of people, people of faith, a particular faith, but it is a community of people who have faces just like the faces that were introduced today—people who are veterans, people whose children benefit from the services of the Catholic University of America, people who themselves have benefited through the GI bill after the war, people who are in the Little Sisters of the Poor Nursing Home who are served by Providence Hospital, or ministered to or worship at the National Shrine of the Immaculate Conception.
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    So I just want to say that because I think at times the temptation is to look at the church as this big institution gobbling up land, and I just want to say for the record that it is a community of people as well as an institution. Thank you, Mr. Chairman.

    Mr. BATEMAN. Father, I understand very clearly what you said and the reasons you said it. In my personal view, you did not need to say it; nor did we need to have representations made. We understand. We fully appreciate the critical importance of looking at the needs of the Home. I certainly see no reason to do it to the disadvantage of the church, and certainly both carry with it not only faces, but remarkable contributing individuals to the betterment of our society.

    If you have any further information——

    Mr. HUNTER. Mr. Chairman, could I have a——

    Mr. BATEMAN. Yes.

    Mr. HUNTER. Let me make—let me just—Father O'Connell just respond for a second. I think we should not have—this should not be a battle between the veterans and the Catholic church, nor should it be perceived as that. We should all be working toward a common goal, which is to find the highest value, fair market value of this property, and to pay it in a way that is consistent with the needs of the veterans. I think our duty here, if there is any comparison, if you will, of the goals of the Catholic church in this situation, which is to acquire the land, and the goals of our Trust to the veterans, which is to try to get them a cash-flow, our duty is to try to maximize the cash-flow for the veterans. That is and must be our priority.
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    Hopefully, we can work toward both ends. But the one, I think you must leave with a clear understanding at least from my perspective that I see our responsibility here as getting the top dollar for this property—the top dollar, not 70 percent or 80 percent, but the top dollar. And I think as we go through this process, if we are able to get more details on what has been laid on the table by the offeror in this particular case, we will be able to do that.

    I think we can all work toward that goal of getting the top dollar for the property. But I think that is what everybody's goal should be here.

    Mr. BATEMAN. Bishop Lori?

    Bishop LORI. I think that as you speak you speak about the need for more detail, we would share that feeling. We know only conceptually at this point what is envisioned for the 49 acres. It is obvious that determining the value of the land is not entirely subjective. There are assumptions that need to be tested and looked at. A number of us the other night actually went to the Soldiers' Home, and we did have a preliminary presentation of what is envisioned, and, indeed, the offer was made really today at the conclusion of this hearing to share with us the business plan that has been developed. And we are very grateful for that. And I think it is something we all need the opportunity to scrutinize in a way that is fair minded and in a way that is just.

    And so, we welcome the opportunity to look at the details, whether they be inhabited by angels or devils.
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    Mr. BATEMAN. OK. Yes, Mr. Comstock?

    Mr. COMSTOCK. Congressman, just so the record is clear. I would like to submit for the record a study we have done of directed sales by the U.S. Government to institutions and others. The only big difference is we have agreed to pay the fair market value in this one as opposed to most of these which were free.

    I would also like to submit a document here which shows the service done to, for the community by the university.

    Mr. BATEMAN. I would be happy to receive both for the record.

    All right, if there is anything further, we are certainly here to listen. If not, we thank you for appearing and please stay in communication as this drama unfolds.

    Let me say that there were those who thought that we should not have this hearing. When it was called, there were those who said you ought to cancel the hearing. I am glad we decided to have it. I am glad we did not cancel it. And I hope, as a result, we can continue or hopefully continue to play a constructive role in getting this resolved to the best interests to the Home and to the church.

    Mr. HUNTER. And, Mr. Chairman, could we ask that both the gentlemen on both panels that you folks do some talking and get together and to go over your relative facts on both sides, and do some sharing of information here. Thank you.
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    Mr. BATEMAN. We thank you.

    [Whereupon, at 2:35 p.m., the subcommittee was adjourned.]


March 17, 1999
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