To determine the value of properties to be acquired, GSA primarily used estimates prepared by contract fee appraisers; the Corps used estimates prepared by its staff or contract fee appraisers in the ratio of 60 to 40 percent, respectively; and the Department primarily used estimates prepared by its real estate officers. GSA and the Corps required appraisers to use the following three generally accepted methods to estimate fair market value: (1) the comparative method--comparing the land to be acquired to the price of land of a comparable nature which was recently sold, (2) the cost method--determining the price that a parcel of land will command on the open market, assuming it to be vacant, plus the present depreciated cost to reproduce the improvements on the land, and (3) the income method--determining the market value of incomeproducing property by determining the net income which the property will produce for the owner.

The Department required that its real estate officers use the comparative method and give consideration to such factors as the date of sale, location, size, shape, topography, and subsoil conditions. When land values were estimated by contract fee appraisers, the Department required that all three methods be used.

GSA's regulations provide that the negotiated site cost (purchase price) cannot exceed 110 percent of the appraised fair market value, subject to considerations such as the costs and risk of litigation, the value of improvements to be removed by the owner, and the value of any rent-free occupancy. The Corps' regulations provide that the total cost cannot exceed 115 percent of the appraised value. The Department's

instructions provided only the limits within which a price is acceptable. For purchase options, the Department regulations provided that the price negotiated for the land, plus the option fee, should approximate fair market value as determined by contract appraisers or a property estimate prepared by the Department's real estate officers. The regulations also provided that the site cost generally should be in the range of from 10 to 20 percent of the total estimated project cost (land and building) and should rarely exceed 25 percent. the direct purchase of land, the price was negotiated within the limitations of funds appropriated for that purpose.

For

Both GSA and Corps regulations provide for outleasing (interim occupancy) to the owner or tenant. In some instances, both agencies allow rent-free occupancy by the owner or tenant as (1) a means of inducing the owner to sell and (2) from a public relations standpoint. GSA considered the value of any rent-free occupancy in determining whether and by how much the purchase price will exceed the appraised fair market value. The Corps considered the value of rent-free occupancy to be offset by the tenant's protection and maintenance of the land and improvements. The Department's regulations, primarily oriented to the purchase option method of acquiring land, did not contain any outleasing instructions.

COMPARISON OF LEASE CONSTRUCTION PROCEDURES

At June 30, 1970, the Department, one of the Government's largest users of space, occupied about 146 million square feet of space in 30,773 buildings of which about 83 million square feet, or 57 percent, was leased in 27,722 buildings. The Department used lease construction to acquire most of its new facilities.

At June 30, 1970, GSA managed about 217 million square feet of space (exclusive of Department space) in about 9,550 buildings of which about 54 million square feet, or 25 percent, was leased in about 6,950 buildings. In contrast to the Department's lease construction program, GSA leased almost all its space in existing buildings or in buildings that it classified as being under construction when leases are awarded. The major differences between the GSA and Department lease construction procedures were:

1. GSA had authority under the law to lease facilities
up to 20 years whereas the Department under certain
conditions could lease facilities up to 30 years.
2. GSA was required by law to submit a prospectus for
lease construction involving an expenditure in excess
of $200,000, to the Public Works Committees for ap-
proval prior to entering into lease agreements.
Department did not have to obtain prospectus approval,
but had to submit a report, 30 days prior to entering
into a lease for space, having an area in excess of
20,000 square feet, to the Senate Committee on Public
Works and the House Committee on Post Office and Civil
Service.

3. The Department had the authority to obtain control of
a building site prior to advertising for lease con-
struction bids. GSA did not have such authority.
4. GSA leased buildings designed and constructed by

private developers. The Department designed its own
facilities or used the services of a private architect-
engineer and included building plans and specifications
in bid packages furnished to potential bidders.

5. Under the Economy Act annual rentals paid by GSA were
limited to not more than 15 percent of the appraised
fair market value of leased property. The limitation
did not apply to Department leases. In addition, GSA
procedures generally limited the overall net return
on investment to 9 percent. Department procedures
did not limit the lessor's return on investment to a
fixed amount.

6. To comply with the 15 percent rental limitation, GSA
appraised the fair market value and rental for build-
ings to be constructed and leased to the Government.
All GSA appraisals were reviewed independently by
personnel not concerned with leasing transactions.
Most Department appraisals were made by staff real
estate officers, who, in some instances, also negoti-
ated purchase options and/or made lease arrangements.
Appraisals made for the Department by contract ap-
praisers were reviewed and recommendations were made
by the Department real estate officers who also may
have been responsible for the leasing action.

We have not reviewed the application of the foregoing procedures to evaluate their effectiveness.

Mr. WRIGHT. Mr. Staats, the committee would be derelict if it didn't express its very deep and abiding gratitude to you and your able associates for a truly monumental job performed in a very short period of time.

Mr. STAATS. Thank you very much.

Mr. WRIGHT. In addition to this very concise, though at the same time comprehenisve summary that you have just given to the committee this morning, the thorough documentation which you have provided as a concomitant has been extremely useful to the committee and will be useful to the committee in any decisions that it may reach. I am advised that representatives of the General Accounting Office, in preparation of this data at the request of the committee, worked nights over the July 4 weekend in order to have it available to us, and we certainly want you to have our expression of appreciation and gratitude for a thoroughly professional, workmanlike job on a highly complicated subject. And we appreciate your being here with us this morning.

Mr. STAATS. Thank you very much.

Mr. WRIGHT. The committee stands in recess until 2 p.m.

(Whereupon, at 12:20 p.m., the hearing was recessed, to reconvene at 2 p.m., this same day.)

AFTERNOON SESSION

Mr. WRIGHT. The subcommittee will be in order.

We resume hearings on the impact of the postal building programs on Federal agencies.

This morning we had very detailed testimony from Elmer B. Staats, Comptroller General of the United States, and from Mr. Milton Socolar, the Deputy General Counsel for the General Accounting Office.

At our request, Mr. Gregory Ahart and Mr. Michael Zimmerman have remained over for the afternoon in order that we might direct additional questions to them.

Gentlemen, you both have been already sworn and a preliminary statement has been made. I think we will just proceed with any questions the committee might desire to propose to the two of you.

Mr. Constandy, I believe you had some questions.

Mr. CONSTANDY. Yes, Mr. Chairman. What we propose to do now is refer to the detailed statement, which will be included in the record, that has been referred to and take the section that pertains to the Department-Corps of Engineers agreements for acquisition of postal facilities and develop section by section additional detail that was the basis for Mr. Staats' summary testimony and perhaps amplify some of the problems, some of the material that was developed by GAO, and provide for the record the complete documentation of the material.

Mr. Ahart, there is reference made to the March 1969 letter from the corps accompanying a brochure, and the letter suggests this is in response to a query put to them by the Post Office Department as to whether they would be able to provide capability to the Post Office