We commend you for your aggressiveness in seeking this authority as a method of obtaining these facilities more rapidly than otherwise would be possible, but the inherent uncertainty of relying on future Congressional action of this type must be taken into account.

There is one other factor that we felt compelled to take into consideration, and that is the requirement, implicit in the Postal Reorganization Act, that the Postal Service obtain its new facilities in the most economical manner possible. In many instances, as you know, leasing is not the most economical method of obtaining a new facility. This is particularly true with respect to larger facilities where residual value, real estate taxes, and the lessor's profits are all factors tending to make ownership more economical than leasing.

Since the Postal Service would, no doubt, be expected to pay its pro rata share of the leasing costs of the buildings constructed under your lease-construction program, this economic factor must be taken into consideration.

The consideration of all these factors has led us to the reluctant conclusion that the Postal Service cannot participate in your lease construction program insofar as space for main Post Offices is concerned.

Accordingly, we are withdrawing from the projects set forth on the attached list. We have previously advised you of our intention to withdraw from some of these projects, such as Griffin and Rome, Georgia; Moscow, Idaho; and Florence, South Carolina. With respect to other projects, such as Pearsall, Texas, and Essex Junction, Vermont, we had indicated a desire to continue with the project if we could be assured of firm funding plans and a firm construction schedule.

It appears that a firm commitment on these projects is not now possible. We are very appreciative of the fine cooperation that we received from you personally and from your Agency in the past. We look forward to a continuation of this cooperation, particularly in furnishing space for Postal Stations and branches.

In the case of these two types of facilities, we would not be the dominant occupant of the building, but would instead be in the same position as other Federal agencies-needing some space at the contemplated location, but not enough to warrant the construction of a Postal Service owned building.

Our plan is to develop current Postal needs in localities which would have been served by the lease-construction projects referred to in this letter, and to proceed to satisfy those needs by the most economical and expeditious method possible. In formulating our plans, we will be glad to consider (on a lease-back basis) any other agency needs you might care to submit, and which you believe can be met without prejudicing the interest of the Postal Service.

We appreciate the considerations mentioned in your letter of March 12 on this subject, but we do feel that under the circumstances now existing, you may wish to avail yourself of this offer.

More specifically, we plan to proceed with a project for Waterville, Maine. That project, as planned by GSA, called for Postal occupancy of 86 percent of the space with the remainder to be occupied by other agencies. Perhaps the relatively small amount of space required by other agencies at Waterville could be provided in a Postal Service owned building.

We stand ready to cooperate if you desire to proceed on this basis.

The decision reflected in this letter has not been made hastily. Rather, our careful examination of all of the factors bearing on the decision, particularly the matter of improved mail service on a timely basis, has led to our decision to meet our space needs for main Post Offices by utilizing the authority contained in the Postal Reorganization Act.

I solicit your understanding of our position.

Sincerely, Henry Lehne, Assistant Postmaster General.

There is then attached a list of the 18 projects which appear on this schedule that you have before you, is that right?

Mr. KREGER. Yes.

Mr. CONSTANDY. Now, Mr. Kunzig then wrote to Mr. Shultz, Director, Office of Management and Budget.

Mr. Kreger. Dear Mr. Shultz:

I am very concerned and completely surprised about the apparent unilateral decision by the Post Office contained in their May 5 letter (copy attached) from

Assistant Postmaster General Lehne to Commissioner Sampson of our Public Buildings Service. This decision to withdraw from 18 of the 45 proposed GSA lease-contract projects is in direct opposition to the decision of the President, as contained in his 1972 budget.

At the time of the preparation of the President's budget, the Postal Service agreed to support these 18 projects for 1972. This position was clearly known and acquiesced by your staff with the intention to maintain a unified position in support of the President's budget.

GSA has obligated more than $6 million of our site and design appropriations for these 18 projects, and a substantial amount of these costs may be lost if we are to redesign or cancel the projects.

In addition, the statement contained on page two of the May 5 letter, to the effect that "leasing is not the most economical method of obtaining a new facility" is extremely detrimental to the lease construction concept for public buildings approved by the President.

These facts, when they become known to the Appropriations and Public Works Committees of both the House and the Senate, as well as interested Congressional delegations from which we have already elicited support, will undoubtedly cause serious embarrassment to the present Administration.

This action, as well as the recent Post Office decision to use the Corps of Engineers on new construction, coupled with their failure to finalize their other future requirements for GSA services is having a serious affect on our current operations and future plans.

It is essential, therefore, that immediate decisions be made with respect to the Administration's position on the "lease-construction concept" and the coordination responsibility of the Postal Service as part of the Executive Branch. Sincerely, Robert L. Kunzig, Administrator.

Mr. CONSTANDY. All right.

Mr. GRAY. If I could interrupt there, counsel, we have a quorum call going on the floor, and I am sure all Members want to make this call. I would like to get a reading from you, Mr. Kreger, and also, Mr. Lehne, as to what your availability would be this afternoon if we were to recess for 35 or 45 minutes, and then come back.

Mr. KREGER. I am available at the committee's convenience.

Mr. GRAY. What is your time, Mr. Lehne?

Mr. LEHNE. Same thing.

Mr. GRAY. We will recess now and come back at 1:30. The committee will stand in recess until 1:30 this afternoon.

I thank you for your cooperation.

(Whereupon, at 12:30 p.m., the subcommittee recessed, to reconvene at 1:30 p.m., the same day.)

AFTERNOON SESSION

Mr. GRAY. The Subcommittee on Investigations and Oversight will please come to order.

Off the record.

[Discussion off the record.]

Mr. GRAY. On the record.

Counsel, you may proceed with the interrogation of the witnesses. Mr. CONSTANDY. All right.

Just to recap where we left off, in February, you submitted your project to Congress to advance lease construction, and in February, Mr. Lehne wrote to the GSA and suggested that certain of those projects could be undertaken by the Postal Service and, in that case, GSA would become a tenant of the Postal Service.

GSA wrote back on March 12, and said thanks, but no thanks, and then Mr. Lehne again wrote on May 5, 1971, wherein he withdrew from

the 18 projects we have been discussing. He withdrew the Post Office participation in them, which raises some question now about the feasibility of continuing in varying degrees all of them, and thereafter Mr. Kunzig wrote to Mr. Shultz, expressing his feelings about that. And we have finished reading that into the record.

We come back to a letter, June 17, from Mr. Isaacs to Mr. Sampson. I will read that.

As indicated in our earlier conversations, beginning May 27, the need of the Postal Service for new facilities in 18 cities have become critical. These are the 18 projects, you will recall, pictured as Joint Postal Service-General Services Administration (GSA) projects which were identified in GSA's fiscal year 1972 budget as those for which you are seeking leasing authority,

The cities are as set forth in the letter, and I will not read them. Although the Postal Service previously, in Mr. Lehne's letter of May 5, indicated the intention of the Postal Service to proceed on its own to provide postal space, rather than through joint occupancy, I hereby restate our verbal proposal for the Postal Service to build these facilities for joint tenancy and lease to GSA non-postal space for use of other Government tenants. Of course, this proposal assumes that GSA and the Postal Service will wish to review each of these projects on an individual basis.

The Postal Service is most anxious to pursue this matter as rapidly as possible. Toward this end, I respectfully request that we intensify our discussions on this proposal.

The Postal Service has an urgent need to reach a policy decision on this matter prior to June 28.

Since the affected members of Congress have repeatedly requested the Postal Service's position on these facilities, we feel obligated to advise them of our proposal in this regard.

Sincerely, Robert E. Isaacs.

Do you have any comment about that letter, Mr. Kreger?

Mr. KREGER. No, sir.

MR. KREGER-Resumed

Mr. CONSTANDY. It speaks for itself. The proposal has been revised in any case and, thereafter, there is a letter from Mr. Friedlander to the Executive Director of PBS.

Could you read that, please?

Mr. KREGER. This is a memorandum from Mr. Friedlander for the record.

On Thursday, June 24, 1971, I called Mr. Isaacs of the Post Office, regarding his letter of June 17 to Commissioner Sampson, a copy attached.

He did not return my call, and I called him again at 3 p.m., the same day, at which time I spoke to him.

I told him that his letter omitted any reference to what agency would do the constructing of these joint GSA-Postal Service Federal Office Buildings. He said he simply assumed it would be the Corps of Engineers. I told him that under no circumstances GSA could not consider the proposition.

We could discuss it further if the proposal was that GSA be responsible for the construction of these buildings. He replied that he thought their agreement with the Corps of Engineers included these buildings. I told him that we had not seen the agreement between the Postal Service and the Corps of Engineers, but it could not have contained these buildings in the absence of any agreement with GSA.

I told him further that our reply to his letter would have to indicate the GSA position as I stated it, unless he wished to have some further discussion within the Postal Service before I prepared a reply. He said he would talk to Postmaster General Blount about the subject and let me know.

As of noon, July 28, I have not heard from him.

Mr. CONSTANDY. Now, I notice you say that as long as the corps is going to put up the buildings, GSA could not go along with it. How about if they agreed that GSA erect the buildings, they would still be owned, would they not, by the Postal Service?

Mr. KREGER. I think, Mr. Constandy, implicit in this memorandum is that the GSA would have control of the buildings and would provide postal space.

That is the way I read this.

Mr. CONSTANDY. It was not just the construction authority. You people wanted to continue with your projects and provide them with space as they needed it?

Mr. KREGER. Right. Or we might possibly build it for the Post Office Department, as we build buildings for another agency of special purpose space.

Mr. CONSTANDY. You would be taking the place of the Corps of Engineers, in that case.

Mr. KREGER. Right. In this instance, yes.

Mr. CONSTANDY. It gets into a strange relationship, does it not? They seem to be going into the GSA business.

Mr. KREGER. Well, it appears that they are trying to construct as many buildings as possible as fast as possible under the postal revision. Mr. CONSTANDY. Where does the offer stand now, Mr. Kreger? Mr. KREGER. We have not accepted the offer of the Post Office Department. It is still the subject of negotiations.

Mr. CONSTANDY. At the moment, there is an impasse, is there not? Mr. KREGER. Well, since the problem has not been resolved, I guess it is an impasse

Mr. CONSTANDY. Well, I say it this way for this reason, the only issue is who will own the buildings. They have said they will, and you have said you will.

Unless the situation gives, I think it is an impasse.

Mr. KREGER, We are continuing our negotiations in hopes of coming to some agreement.

Mr. CONSTANDY. OK.

I think this is significant for another reason other than just whether the 18 buildings get put up or not.

This is one item which has come up in your relationship with the Postal Service, and it does not have an easy resolution, we can see. We look ahead to some of the other matters that will discuss later, and we may find ourselves looking at the same kinds of situations, and we will find there that those things can be resolved between the Postal Service and GSA, but, as we find that as each agency tends to its own business, it is very difficult to get that resolution.

Mr. KREGER. I do not believe it is beyond hope. It is difficult. I do not believe it is beyond hope of resolution.

From my discussions with people in the buildings service, they do hope to resolve these options.

Mr. CONSTANDY. Would you tell us what options you have to consider?

?|

Mr. KREGER. I think we have the option of stopping the building entirely and going out and leasing space. We have the option of taking over the construction of the building.

Mr. CONSTANDY. If they agree to it.

Mr. KREGER. Right.

Mr. CONSTANDY. Could it be said simply that either you come to terms under your proposal, or theirs, or you each go your separate way?

Mr. KREGER. That is right. If we do not come to terms, we will have to proceed with the construction of the buildings.

Mr. CONSTANDY. Then that raises the prospect, does it not, of buildings being erected by each entity for its own purpose?

Mr. KREGER. It raise the prospect, but, on the other hand, it raises the possibility of these being resolved in each case in a different manner. Mr. CONSTANDY. Well, for variations.

Mr. KREGER. And perhaps, in a case where the Post Office has a large amount of space in the building, we would deem it unwise to go ahead with a building, and we would solve the needs of any other Government agencies with leased space.,

Mr. CONSTANDY. In their building? Possibly?

Mr. KREGER. Possibly in their building, but possibly from a private party.

Mr. CONSTANDY. We have the balance of that sheet, and I wonder, rather than going into each of them, can we not state that of the 18, 15 of them, minus the two which have been provided for by congressional action this year, Oxford, Miss., and Elkins, W. Va., leaving 12, more or less, fall in that same category as being under study?

Mr. KREGER. Right.

Mr. CONSTANDY. On three of them, Houston and Pearsall, Tex., and Essex Junction, Vt., we have to consider further that in those instances, if the Post Office withdraws from the projects, those projects will be abandoned, will they not?

Mr. KREGER. They could very well be abandoned. The decision has not been made to definitely abandon them.

Mr. CONSTANDY. That is a likelihood if the Post Office and you are

not able to come to terms on a joint tenancy?

Mr. KREGER. That is a likelihood, yes, but not a firm decision.

Mr. CONSTANDY. We have covered some of the other material that we planned to cover this afternoon earlier this morning.

Mr. GRAY. Do you want to defer some of those until Commissioner Sampson comes?

Mr. CONSTANDY. Yes, we should do that.

Mr. GRAY. We will hold some of these until Commissioner Sampson comes on the 20th.

I would like to ask a few questions before you leave, Mr. Kreger.

As you know, I have great respect for you and Administrator Kunzig, and your associates, and I think you are all very dedicated public servants, but, as Chairman of the Subcommittee on Public Buildings and Grounds, most directly affected, I would be derelict if I did not ask some questions.

First of all, how many buildings do you have under your jurisdiction now?

Mr. KREGER. I would think somewhere around 6,500, or 7,000. That includes buildings that are federally owned

Mr. GRAY. Before the Post Office Department removed some 2,100 of them.

Mr. KREGER. We have about 7,000 of the 10,000, including leases.